Our 2010 predictions, or trends, as we like to call them, are offered in the spirit of trying to ferret out the most important changes we can expect in 2010, be they the collapse of fiat currencies, disruptions in fuel supplies, or far more horrifying visions like a new line of Teletubbies. For honesty's sake, as we're outlining the 2010 trends we'll also review how we did on our 2009 predictions.
At the beginning of 2009, we said the financial storm that started in Fall 2008 would likely be the big story for the year—and that the news would not be good. That's a pretty good characterization of what actually happened:
- While the federal government applied massive stimulus in a wasteful attempt to paper over the gaping structural hole in our economy, the Federal Reserve was quietly transferring far more massive amounts of US citizens' current and future wealth to the coffers of the big banks and the pockets of their owners—with zero benefit to Main Street.
- CNBC pundits and other shills grabbed at phony government statistics for GDP, productivity, quarterly sales, and unemployment to repeatedly proclaim that the worst was over. But more truthful tellers (see sidebar) painted a much more dreary—and fact-based—picture of 2009's economic trends.
- Meanwhile, a year's worth of full-tilt money-supply expansion by the Fed got the whole world wondering how long it could go on, and by Fall, speculation about an eventual dollar collapse was on the tongues of even mainstream financial wags. Some of the bolder analysts (e.g. Marc Faber, John Williams) proclaimed that the US had put itself on an unavoidable path to either default or hyperinflation.
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The US Dollar in 2010
we put the odds of a serious dollar decline at about 50-50. The buck declined quite a bit, but the tricksters at the US Treasury and big-bank-owned Federal Reserve pulled out all the stops to keep the game going a while longer; thus the dollar stayed alive and kicking (with its missile-tipped boots). Will that game roll on through all of 2010? Probably not.
For our 2010 prediction on the dollar, we put the odds of default, devaluation, or massive inflation (in the US) at 2-1. The first possibility—that of an outright default (i.e. the president announces to the world, "Sorry, we can't pay you on all those treasury notes you hold")—is very unlikely. The second possibility—some sort of preemptive revaluation/devaluation of the dollar—is possible, but as with outright default, history suggests that the US will shun any such direct approach.
So it's on to door #3. Massive, intentional inflation is the most likely form of dollar decline, with the US trying to "print its way out" of its debt hole. In this scenario, as foreign buyers start taking fewer treasury-note offerings, the Federal Reserve would become the buyer-of-last-resort for the ever-increasing issuances of new US dollars. This is already happening to some extent.
This process of inflating/debasing the dollar has worked for now and will continue to work for a while, but at some point, foreign suppliers are likely to stop accepting dollars as payment for actual goods and instead would require payment in tangibles like gold, silver, commodities, or hard goods. Such a shift would greatly reduce the overseas buying power of the US. Given the high reliance on imports in the US—for everything from oil to shoes to winter fruits and vegetables—that would be a big problem.
A dollar failure wouldn't happen instantaneously, of course, but 2009 presented many of the precursors to a 2010 dollar problem. For instance:
- Almost $24 trillion in new "money" (actual money plus loan guarantees) was created over the 12-month period following October 2008—a tsunami of inflation waiting to hit the shore.
- The Fed has signaled willingness to keep interest rates near 0% for at least two more years. The stated reason is to keep credit flowing to help the economy. The real reason is to ensure continued demand for US Treasuries so the US does not face default. The unavoidable side effect will be massive inflationary pressure.
- In 2009, countries like China and Russia openly talked about diversifying currency holdings (translation: moving away from the shrinking dollar). Some countries also started exchanging goods for other countries' currencies, rather than executing the trades in dollars.
- There was talk of pricing oil in currencies besides the US dollar (which currently holds a monopoly on petro-transactions, which creates an undeserved demand for new dollars).
We're approaching a time of brinksmanship, when the rest of the world decides whether it's acceptable for the United States to renege on a large part of its debt through inflation of its money supply. Grinning Planet predicts that by the end of 2010, the US dollar will still be alive, but the process of dethroning the dollar will have begun in earnest, resulting in very troublesome price inflation in the US, especially for energy and food. Message: Spend 'em while ya got 'em—on stuff that will mean something in the future.
Despite all the bailouts, buyouts, takeovers, mergers, and loan guarantees since 2008, huge piles of toxic derivatives are still on the books of most of our biggest casino-capitalist firms. The fierce injections of liquidity (new money) and the look-the-other-way accounting practices of the last year allowed the Big Boys to escape the day of reckoning in 2009.
But as with the dollar game, the derivatives roulette wheel can only spin faster and faster for so long before it comes off its centerpost. Threats of large debt defaults, such as the one by Dubai World in late 2009, will get more common in 2010. As multiple fuses become lit at the same time, the central banks will have only so many wet fingers they can use to put them out. A domino-style debt implosion could take the whole corrupt system down—and our hard-earned savings along with it.
A 2010 debt implosion due to a derivatives chain reaction would make irrelevant our prediction of massive inflation in 2010. Remember, though, this is the insane level the financial game has reached: The Powers That Be are trying to balance the twin threats of hyperinflation and runaway deflation. Whichever way it goes, the acrobats can only stay balanced on the high wire for so long, and the end is not likely to be pretty.
As predicted, 2009 housing prices continued their slide, and mortgage default rates hit a 37-year high in November 2009. In 2010, this trend will worsen due to continuing economic turmoil and job loss and the coming wave of Alt-A and Option-ARM resets. And let's not forget about the "shadow housing inventory," which contains countless houses that in are limbo, where the mortgages are in default but the banks don't want to sell the houses at a loss and add the write-downs to their already weak balance sheets. Housing has many years to go before it's healthy again.
Rental income will also suffer as many extended families re-consolidate (because that's the only way they can all afford to have shelter), with the "renters' market" putting downward pressure on monthly rental rates and upward pressure on vacancy rates.
There are lots of vacancies on the commercial real estate (CRE) side, too. As total CRE income falls, many building owners will have trouble making their payments, which will put still more pressure on banks' balance sheets.
The government continually released figures in 2009 that implied things weren't so bad—that is, "sales are down just a bit, a percent or two." But the truth about the depth of the retail slump is told by shipping activity and sales-tax receipts, which are reportedly down 15-20%.
In 2010, as the house-as-ATM era becomes just a bad memory, as banks further tighten or eliminate credit lines, and as fearful, income-limited consumers try to pay off debt rather than buy new stuff, the retail sector will find the new year to be its worst in decades. Overextended retail chains will continue the pattern of closing stores. The 2009 failure of CIT, a main source of credit for small and mid-sized businesses, will put further pressure on retailers in 2010.
The really big retail shoe waiting to drop in 2010 is trouble with the dollar, which will make imported retail items more expensive, thus sending us into a vicious down cycle of depressed sales, net losses, and more layoffs.
A huge lurking bogeyman for 2010 is the threat to pension funds. Many public and private pension funds gambled and lost on the crap investments offered by Wall Street, leaving them significantly undercapitalized. Making matters worse, many corporations have borrowed from their workers' pension funds to provide capital for business expansions that are now struggling. Precarious debt-to-asset ratios have many of these firms on the brink of insolvency, with retirees' pensions hanging in the balance. The federal backstop for private pension funds, the Pension Benefit Guaranty Corporation (PBGC), is itself greatly undercapitalized relative to the number of pensions currently at risk.
The 800-pound gorilla of pensions is, of course, Social Security. Over the years, the government has intentionally under-calculated inflation, allowing the big spenders in Washington to chisel old folks out of their proper COLAs. Even as the purchasing power of monthly checks was dropping, the end-game of this poorly constructed Ponzi scheme was drawing in view. In September 2009, AP reported that in the 2010-2011 timeframe, Social Security will have to pay out more in benefits than it collects in taxes.
That happened before (in the recession of the 1980s), but the financial crisis this time is much more serious, and the huge wave of retiring Baby Boomers is now hitting just as incoming payments from workers are falling off. More importantly, the much ballyhooed "social security trust fund"—the amount of surplus built up over the Baby Boomers' working years—is theoretical. The surplus has already been spent by the federal government. But don't worry, they were honest about it—they left IOUs in the drawer.
Egad. So what, exactly, is our 2010 prediction for pensions and Social Security? Some pensions will fail and will be rescued by the PBGC. Social Security will keep on humming, with more chiseling on COLAs and more talk of reform (new schemes). Things will be relatively OK—AS LONG AS THE DOLLAR STAYS AFLOAT. The dollar and Wall Street are the backstops for almost all pensions at this point. But we know the Wall Streeters are just on a break until they devise their Next Scheme to Steal Us Blind, so it's really down to the dollar. If the buck goes bust, all hell will break loose in Retirement World.
In 2009 we predicted that talk about climate change would heat up significantly, and it has. We also predicted that any proposed solution would be a cap-and-trade scheme whose focus would be making multinational corporations buckets of money rather than truly solving the problem. And that is exactly what happened.
We also predicted that the anti-climate noise machine would still be around, and indeed, just when the fossil fuel industry's "climate science is still undecided" ruse had finally started to lose effectiveness, the leak/hack of the "Climategate" emails gave skeptics enough fuel to reignite the controversy over the science of climate change.
In case you only heard the surface noise regarding Climategate, here's the short scoop: Someone hacked (or leaked) a batch of emails that included a few messages between several prominent climate researchers strongly suggesting they were phonying some of their data. Skeptics said this was the smoking gun, proving that climate change is all a hoax, a giant conspiracy.
We at GP are always willing to consider conspiracies. We also agree that scientists (in all fields) sometimes do or say stupid things and, on occasion, fudge their data. But the idea that that there is some broad conspiracy among tens of thousands of scientists to fake all of the peer-reviewed global warming data seems pretty impossible given the sheer volume of data and number of scientists involved in climate research. (Not to mention scientists' general tendency to avoid presenting bogus findings for peer review. Once discovered, intentional falsification of data ends careers.) The Associated Press did a good job of reviewing the situation in their aptly named piece,
Science Not Faked, But Not Pretty.
So, Climategate turned out not to be the big story the skeptics wanted it to be—at least not in substance—however, there was something rotten in Denmark, and that was the cap and trade proposal considered in Copenhagen in December 2009. See the short video The Story of Cap and Trade (via the sidebar in black space), which does an excellent job of explaining why the current cap-and-trade proposal is really just a giveaway to corporations. The only thing the video missed was
tax shifting as a solution to global warming.
So what is our 2010 prediction for action on climate change? More of the same, unfortunately. More noise from skeptics; more proposals from Western governments that are long on corporate profits and short on actual solutions; more disagreements about how to apportion the cost of the last five decades of emissions; and, perhaps, more embarrassing information about some areas of climate research. Nonetheless, the large body of evidence, including the acceleration of
will keep climate change a real issue.
Until the nimrods who run things start talking about real solutions like tax shifting, we say that no solution is better than a bad solution. Given the difficulty of getting countries to agree to reduce greenhouse gases—and not cheat on their pledges—we think that "no solution" is just what 2010 will bring.
Clean air to breathe. Unpolluted water to drink. No toxic sludge on the lands where we work, play, and grow food. No genetically freaky, pesticide-tainted foods in our grocery stores.
Those things seem like a pretty easy call. Indeed, opinion polls generally show that the public strongly supports clean air, clean water, etc. But that's as far as their interest level takes them—most don't get active on the topics.
Without true public pressure, politicians have little incentive to knuckle down on the environmental issues that their corporate funders oppose (which is pretty much all of them). The politicians know that the even though the public favors a clean environment, in opinion polls where people
rank their concerns,
other major issues always rank above the health of the things that sustain us (air, water, food, land—i.e. "environment"!). The public is pro-environment, but puts no muscle behind it. So politicians keep the laws written to let polluters, chemical manufacturers, genetic modifiers, forest clear-cutters, strip-miners, and all the rest keep doing what they're doing.
At the beginning of 2009, we predicted that sound environmental policy as a general (non-climate-change) issue would sink even lower on the public's Big List of Priorities. We're not pleased that we were right. In 2010, problems in the economy and on the accelerating war fronts will mean that Team Green has no hope of any significant progress, once again.
We thought that widespread fuel shortages were likely for 2009, largely based on potential problems with the dollar. Well, the wizards kept the dollar levitated, and any shortages in US fuel supplies in 2009 were regional and short-term.
So, GP can't score any hits on that one. But we did correctly predict that in spite of a continuing weak economy, the price of a barrel of oil would head back up from its beginning-of-year lows. Petroleum prices did gain about 50% in 2009, despite the fact that energy demand fell in 2009.
There was one major "peak oil" event in 2009. Someone at the International Energy Agency leaked a tidbit that the agency knows full well that future oil supplies will be tight but they have been lying in their reports to avoid irritating the US and triggering market panic.
In 2010, even though petroleum demand will remain weak and surplus capacity (relative to demand) will be adequate, the worsening problem of production depletion outpacing new oil-field discoveries—plus the new de facto IEA support for the assertions of peak oilers—will put upward speculative pressure on the price of oil in 2010.
In general, though, we find a 2010 prediction about oil prices to be nearly impossible. If the dollar seriously tanks, price spikes and fuel shortages will occur in the US. Prices for oil would also likely go up in other currencies as Big Money moves out of now-suspect fiat currencies and into hard assets like oil. Conversely, the rising prices would hammer economies and reduce demand, possibly enough to defeat the price speculation.
On the alternative energy front, large amounts of 2010 federal dollars will be shoved at green energy and conservation programs. That's fine, but we should have ramped up such efforts starting 15 years ago. The coming 10-year gap between "energy available" and "energy required" is huge, much more than the current tepid pace of green power can solve. The political power of Big Oil, Coal, and Nuclear means the dinosaur energy technologies will continue to capture the majority of incentives and retain their market share for as long as their supplies hold out. Follow the money. Unfortunately, the money trail leads us to an energy dead end.
The potential for trouble in 2010 is higher than in 2009, in large part because government and central-bank policies in 2009 were all about pushing problems off into the future rather than resolving them quickly, taking the pain, and beginning the radical structural changes required to be financially sustainable. That can only go on for so long.
Whether it's in 2010 or 2011, The Big Crunch is coming. When the financial tsunami hits, those of us in the US can look forward to:
- disruptions in personal and small-business banking;
- de-facto repudiation by the federal government of US foreign debt, resulting in a cutoff or drastic reduction of credit to the US;
- major impacts on our ability to import goods (i.e. huge increases in exchange rates and prices for imported items, and a possible total suspension of some imports, including oil);
- disruptions of liquid fuel supplies bad enough that severe rationing might be required to keep essential goods and services operating;
- interruption in or elimination of social services and entitlement programs funded at various levels of government;
- disruptions of food supplies due to farm-fuel and transportation issues, as well as credit and cash-flow issues for farmers, processors, and stores;
- societal unrest due to the above factors and as "the blame game" kicks into high gear;
- further restrictions on civil liberties under the guise of protecting us from ourselves;
- war over the financial end game and over access to increasingly scarce resources, especially oil (or, false-flag terrorism events and conflicts to distract the public from the real issues and channel their anger at external enemies rather than internal villains).
People in other countries can expect similar problems if the US dollar fails and launches a global unraveling of all governments' fiat currencies and debt loads.
Turmoil is coming. It is prudent to be prepared. And you can't wait until a crash is happening—you need to prepare now. For specific ideas, see our