Where Has Recovery From The Financial Crisis Of 2008 Brought Us?

While it may have been a mistake to fix or try to fix the banking system in 2007-8 with federal government (AKA public) funds, that’s what we did and now we must live with the consequences. Housing markets also failed as millions of homes were purchased earlier at prices that were no longer anywhere near what they could sell for in 2008-9 or even later. Indeed, the whole market effectively tanked as most houses could not be sold at any price. So much was owed to banks or other mortgage holders that sales could not occur unless banks were willing to write off what was still owed once a price was agreed upon — and banks or holders of bundled derivative mortgages at that point were not willing to write off those kinds of losses. The losses would have been in the multi-trillion dollar range. The prospect that grim was frankly to complex and scary to face. Further, it’s fair to say, no one in the financial community could figure out how to do it without possibly creating a full scale panic. Housing markets were effectively not open for business. Few loans were granted and few houses were sold.

The Federal Reserve Bank effectively went about the business of getting the banks up and running again. However, the banks were not totally up for the process. Even as the TARP program got underway, many failed so-called “stress tests” that may have been watered down a bit at the beginning. There was talk of nationalizing the banks, but nothing even came to it as most of the banks with the additional help of overnight loans from the Federal Reserve slowly began making a profit again and helping to reestablish business as usual (or close to business as usual).

In the early days of the crisis equities to a serious dive, dropping to perhaps half their original value. This deep loss in equity value was further driven by stockholders who took trillions out of markets and by rapidly failing businesses that could not sustain themselves with out cash loans. Many small banks failed, but the FDIC was able make good on all deposits. Thus, while there was a lot of fear that focused on the long run future of the financial system, the Federal Reserve Bank and Treasury managed to hold things together, while and insufficient federal government financial stimulus promised to restore order in the financial system and get people back to work. Unemployment quickly grew and before long exceeded 10 percent. In some regions of the country unemployment was much greater while much less in others.

Equity losses assured a large drop in IRAs and other retirement funds and those close to retirement simply put everything on hold while stock prices have slowly recovered (and thus IRAs have recovered as well). Unemployment has again diminished to near pre-financial crisis numbers. So, where are we?

Debt is still everywhere and the banks are still hiding their real losses, but there are signs that they may be divesting many of the bad investments made prior to 2008, and that will result in some recovery with much of it still written off. The financial system is more stable and safer than it was in the immediate aftermath of the 2008 crisis, but it is hard to argue that the nation is not broke. We have nearly a $20 trillion national debt, which may be about to be paid off in the short term with hyper-inflated dollars. The Federal Reserve Bank has effectively allowed Treasury to print 5-6 trillion or more to fund it’s Quantitative Easing (QE) policy (buying government treasuries and thus effectively pushing down the interest the government has to pay to borrow money to finance the debt).

QE also drove up the cost of commodities and the apparent value of equities, which now appear artificially overvalued. As QE fades the overvalued equities market is likely to drop as well. Yet at the same time with trillions more in the system and large national debt looming many argue that hyperinflation is a threat. Indeed, we may be able to pay of many debts with this increased money supply, but our creditors are no idiots and when the real value of their payments are understood, we run the risk of future sales of goods, both food and oil for example, being elevated to the real value of the dollar, or of sales being cut off completely unless we pay in some currency other than dollars. Dollars may be just fine within the country, but not outside the country.

Too Much Money At The Top

Salaries and benefits for those members of the workforce who are presumably at the top of their game have become increasingly excessive. Some of these individuals are to be sure very good at what they do and and thus paid accordingly. CEOs and others in the business world or in other professional pursuits such as professional athletics, high levels of government, or banking and finance have been able to market their skills effectively and, in fact, have become overpaid.

Those who are paid in the millions or in stock options or using other financial strategies sometimes think they are doing what they love to do, but watch them move around from company to company or team to team if the financial package is not right. It seems that some work early in life to develop that 100 million dollar IRA and don’t stop there. Indeed, well before the money is lodged away, those who come up to even a far more modest level have, as the saying goes, more money than they know what to do with — especially if their real day to day needs are modest.

Even at the relatively low end of those whose compensation is in the multimillion dollar range the money one is paid is almost self propagating. Even if you have the paltry sum of a million in “extra money” that you don’t need for day to day expenses, wise investment is likely to get you something on the order of 10 percent, even half that is a decent sum when accumulated with compound interest over 30 years. And so, many invest the money partly in very safe, low return investments and partly in higher return investments that may have some additional risk.

Thus, at a rather modest level of accumulation salaries that are increasingly well in excess of minimal can effectively be self-propagating. Indeed, after accumulating a few million, there is no reason to work. One can get by just managing investments. Yet, that seems not to be the game. The game may be either to accumulate money and manage it for some interesting purposes, alternatively one may enormously enjoy the work that just happens to be doing something that is highly valued. Perhaps some of these people don’t pay any attention to their salaries unless they are too low relative to what they perceive to be their self worth. So, things can get complicated, but what is certain is that compensation levels for perhaps 10 percent of the population of this country is at such a level that they do not worry much about survival in the sense that someone might if they were making at or near minimum wage.

In the present strategy for bringing the economy back to life after the near death experience of 2008, the regeneration of the financial capacity of large banks and the Federal Reserve Bank’s quantitative easing program favor those with most of the country’s money. That to be sure also has a trickle down effect, but what it means is that fairly modest IRAs are partially rebuilt while the big investors cash in, and so the rich get richer, salaries and wages for those at the bottom to middle ranges stay more or less the same as prices for essential commodities climb, causing the numbers of poor and disenfranchised to expand.

Economy With Weakened Consumption Still Threatens Collapse

Since the development of the financial collapse of 2008, the government has concentrated on rebuilding the financial system, and with good reason. Businesses rapidly failed because they could not borrow funds to finance the costs of doing business. Many banks and especially small businesses failed, others hunkered down, let people go and were this able to divert thinly spread operating capital from multiple products to those that were most profitable. This game many the edge they needed to build capital reserves and stay I’m business. It had suddenly become hard, if not impossible, to borrow large sums of money for operating capital from either small or large banks. Federal government programs and parallel actions by the Federal Reserve Bank were able to improve the money supply. The actions of the Congress were however so tepid and austere in nature as to substantially weaken the recovery. Nevertheless, the combined actions of the Congress and the Federal Reserve Bank led to a slow, partial recovery of the economy which did not really begin to take hold until 2010-11.

Subsequently, the Federal Reserve Bank expanded efforts through the quantitative easing program in which it would buy very month billions of dollars in government bonds. This led to a reduction of interest offered on bonds and as a result, which lowered also the cost for the government to borrow money to finance the debt and also the an increase in the value of securities and stocks as well as commodities. It also led to small but steady increases in employment and thus to reduction in unemployment. Overall though, the recovery continued at only a modest level as new jobs were often at modest to low salary levels. In addition, many people were forced to take several part time jobs to make ends meet, earning enough to be no longer considered unemployed but still not making enough to buy many of the necessities and certainly only few if any luxury items. Indeed, many common items had increased in price as a result of quantitative easing — producing a modest inflation on basic necessities.

Modest inflation was part of the plan since government unwillingness to create a stimulus sufficient to begin to push the economy back from the brink and well as the perhaps excessive caution from the banks in making capital loans, pushed the economy toward deflation. The cost of goods began to decline as people had less money for purchases. Merchants made efforts to increase sales. They reduced prices on selected items, created attractive terms such as one year, twelve easy payments, same as cash. Many of these deals still linger and did have a useful effect in increasing consumption. Overall, quantitative easing countered the deflation we saw early on, but overall unemployment has declined considerably and the economy remains quite fragile as the Federal Reserve now begins to decline the levels of the quantitative easing program. The problem is that while many are back to work, their purchasing power has declined significantly and as a result the recovery remains tepid and the recovery could still decline and the economy yet collapse from a threat that could yet arise.

What To Do Until The Collapse Comes

I’m imagining that we can move slowly toward a collapse the details of which may be impossible to define, but we can certainly foresee it in broad terms as I have tried to show in recent blog posts. We can see it coming to individuals and even to groups. They gradually lose jobs or are always moved down the scale to lower and lower paying jobs, but none of those jobs provide a way to stay out of poverty. Of course, we can think ourselves too smart and wake up one morning in the midst of the collapse we knew was coming, but failed to see it until it was upon us.

In view of the possibility that the forthcoming collapse may not be wide spread enough to include me for years yet, I decided to get ready for it — especially because I might be wrong and the collapse might be closer than I think. Also, I thinking it may start and then things will become more difficult gradually. I won’t wake up some morning having gone from comfortable to destitute overnight. It may be upon me over a period of months or more.

I’m assuming it will be hard to move around unless one has a bicycle or something that moves on battery power that I can charge using my own solar system. I don’t know much about solar, but it appears to can build your own systems for about 10 percent the cost of a commercial system. I’ve built my own solar oven, but I need to improve on the design, or learn to eat food that doesn’t need to be cooked. I’ll also need some good water filtration systems for water to drink or cook with. Of course, I’ll use natural gas until it becomes too expensive. I expect the price to go up 10-100 fold so I’ll have to use far less of it that I do currently.

In general, it doesn’t cost too much to either cool or warm the house. I’ve been insulating and buying a little extra warm clothing. I need enough solar to run things minimally. The house is well designed with the bedrooms on the far ends. They can be closed off on cold days, but it’s not as cold even in winter as it used to be.

Initially, the living quarters should be adequate. I’ll have to adjust if natural gas costs increase as much as I think they will. Also, hang drying washed clothes may become important.

In general, the living space will be adequate with diminished heating and cooling and electricity needs diminished appropriately.

To get around, I have a bike which I keep in good working order. It will be useful for going off to get provisions as needed — Ana as long as they are available.

I’ve been doing a lot of gardening in past years and I’ll need to increase that and get used to both freezing crops, storing in some in root cellar of canning. I suspect it will be mostly freezing and root cellar storage of crops from the expanded garden.

I’m increasing my tool supply, especially old time and some nice modern tools for building and repairing items with non-power tools. As some stage electricity needs won’t be able to handle critical needs if I have too many power tools.

Avoiding The Peak Oil Problem And The Absence of Oil From International Trade

While the domestic oil supply peaked in America in the 1970s, America has always been able to import oil from other countries subsequent to the OPEC embargo for the right price. Some nevertheless argue that given the considerable increase in debt America has experienced since the beginning of the financial crisis in 2007-8, that the value of the dollar will be threatened, perhaps to the point where it may no longer be accepted as the valuable international currency that it has been, thus making it difficult, if not impossible, for America to import oil from foreign sources. Our one and only response may be to change immediately our strategy on the development and use of our current and developing national energy sources.

In general, we had planned on a decline in coal plants, as they could be extremely difficult to retrofit to clean burning. Indeed, even new coal plants are not clean and no useful, universal strategy has evolved to deal with coal ash, which has been slowly destroying a sizable fraction of America’s environment. Some of the more modern coal plants could be made clean will all of the flu gases trapped and the coal ash processed into useful products, but in the long run this could prove more expensive than it is worth. Certainly many of the older plants will be converted over the next several years to burning natural gas primarily. In the long run much of the nation’s coal will increasingly be left in the ground.

If we are unable to continue to import a net seven billion gallons of foreign oil each day, we can’t make it up in the long run by shifting that burden to the domestic supply. Thus, we will have to make up the shortfall in other ways. Increasingly, autos and trucks will need to shift to natural gas as well as battery rechargeable electric power, but to this point neither infrastructure is in place. If we start having to use domestic supplies of oil only to generate gasoline, costs will be driven up considerably. Many autos and trucks will be parked as they will become too expensive to drive. The cost of natural gas, currently very cheap will also go up considerably as demand will also increase. Hydrogen, which is not currently economical as a fuel may become so, and some vehicles may be converted to burning either hydrogen or natural gas.

At the present time the generation of electricity from solar power is still in it’s infancy, but still most promising for the long term. Wind and geothermal are still very promising and useful, but not generated easily everywhere — certainly not as universal as solar, which some observers anticipate to double within the next 15 years. Such a rate of development of renewables is not currently on the horizon, although it could be done.

The Congress is meeting these energy independence challenges it thinks, but if supplies of international oil suddenly become unavailable at the level that could occur, the nation will have a sudden shock that could make the OPEC embargo of the mid-1970s look like a picnic in retrospect.

Most of the people in America would suddenly be frozen in place as supplies of gasoline would suddenly dry up. Commerce would effectively come to a halt unless most of the commercial trucks are retrofitted to burning natural gas and the option of burning a refill every few hundred miles becomes widely available. Just a few percent of the cars are electrics, and a hybrid may keep you on the road just a little longer than a gas guzzler without a battery.

While over the last 30-40 years we have made considerable progress in improving the use of energy sources through conservation, by expanding and improving the acquisition of solar energy and other renewable strategies, our goal should be to improve these strategies so that we can eventually replace fossil fuels as well as nuclear strategies. We are on our way but hardly on the pace necessary if sudden shocks occur in the international markets for fossil fuels, and in particular, for oil.

Strategies For Surviving Should We Move Further Toward Collapse

In due course, as many people in American society are underutilized, they will develop mutually supportive strategies quite naturally. Many may be homeless or on the edge of homelessness. They may be desperate or close to it, but they will not be in a vacuum. They will know or meet and collaborate others who are perhaps only doing somewhat better, and with whom they may be able to band together to find new ways way to survive.

In the extreme case, they may takeover unused or abandoned houses, garages, old barns or sheds or even hand-crafted shelters at the edges of sparsely wooded areas where they may fashion an acceptable shelter while gathering foods, discarded tools, implements or other items that may help them support their existence. From close-by areas they may gather wood, fashion gardens to grow edible crops, from seed or from wild edible plants they may be able to transplant or obtain seeds from. Useful tools of all sorts may be obtained from garbage dumps if the latter are nearby. Wood, metal, glass of any size or shape may be useful as may be tools, especially those which operate mechanically and do not require electricity to run. The individual members of these groups may have a little money and may thus be able to buy useful items at garage sales assuming they are near enough to the suburban outskirts of cities. Of course, their situation may not be entirely desperate, but they may still require a means to create or acquire a suitable shelter, find food and water and gradually improve conditions to the benefit of all.

There were many such experimental communes created in the 1960s but by comparison with what some may need to do now, it won’t be a game many are playing for philosophical reasons. At the end of the 1960s most or those who had established experimental communes gave them up, put on old suits and rejoined the establishment. That won’t be so easy to do if it happens now.

In a society that is on the edge of collapse for whatever the reasons, the very young and the very old are at greatest risk. Also, add those young who are a little older, but not yet well-educated or trained to do something of value to the society, as well as the not quite so old with marginal skills or with soft job skills in industries that are declining or changing. Many in this latter group, if they have jobs, they are either marginal ones or part-time and not well-paying. Others may be mostly out of work, or depending on occasional or temporary work. Thus, many may have funds but still they may not be able to afford food, shelter and transportation on their own. They will be living on the edge. Many may want to consider collectives or communes — indeed, many may be doing so now.

Such communes may be a natural collaboration between between young and old with some means, but who, in neither case can make it comfortably on their own. The young may be better at foraging for wood, metal and other supplies on expeditions to junk yards, garbage dumps, garage sales or other places where needed materials can be collected. The elderly can take care of children, tend gardens, repair housing, add insulation, fashion improvements in living space and take care of really young children who cannot care for themselves. When people come together and they have mutually supportive skills one plus one almost always becomes more than two.

Growth Of Poverty — The Economically Dispossessed

Gradually, over the last 20 years or more, America has experienced a wide separation of wealth. Many at the top get more wealthy but many many more reach further toward a bottom that seems to have no limit. At one point the view was that a “rising tide floats all boats,” suggesting that when one or a few do well that we all do well. But no one believes that anymore. Increasingly, those at the bottom multiply in number earning less and living at or close to the edge of poverty. This may not be deliberate policy, but it is the direction of things presently. Indeed, it now appears that on the order of two-thirds of America’s children are born into poverty. Slowly but steadily the safety net is disappearing.

Increasingly, people are forced to survive on less and less. More walk and bike, while some still have cars for transportation to jobs that inevitably pay less. Some share rides, or other assets, live together in sometimes larger but older apartments to avoid homelessness. But that’s increasingly unavoidable for many. Gradually many people are coming together with mutually supportive skills, where the combination of one with another becomes better than two. American society is gradually splitting into two separate fragments or perhaps more than two: those with adequate net worth to survive and thrive and those without an adequate support structure to survive on their own.