why our economy is heading into a depression

"If it looks like a duck, swims like a duck and quacks like a duck, then it probably is a duck." Such can also be said of our current economy, where many indicators suggest that the current recession is unprecedented and is no where near an end. In fact, it looks more like a depression is around the corner. We are just on the tip of an iceberg...

• General Predictions
• Impending State Bankruptcies
  
• Increasing Unemployment
• Declining Consumer Spending, Confidence, and Income
  
• Declining Real Estate Sales and Home Prices
  
• Increasing National Debt, Devaluation of U.S. Dollar, and Inflation
• Increasing Societal Unrest

GENERAL PREDICTIONS

Peter Schiff's 2009 Predictions

A Cal alumni, Class of 1987, became a star by predicting last year's market meltdown. And now his 2009 forecast is even scarier. Go Bears for seeing through all the smoke and mirrors!

"We have an economy that's based on the same principles as Bernie Madoff's investments," he says. "It's a Ponzi economy. It's not real. We don't save and we don't produce anything anymore. We simply borrow from the rest of the world, and then we spend it. We've had a giant party. We bought all these plasma TVs and iPods. We remodeled our houses and took vacations. But you know what? The bills are coming in."

Schiff is predicting a wicked post-party hangover. He sees a multiyear recession ahead marked by rampant inflation, a steadily weakening dollar, soaring commodities prices, slumping U.S. stock indexes, and falling wages.

Bank of England warns of massive dollar collapse

Professor Williem Buiter, a former Monetary Policy Committee member of England who is now at the London School of Economics

"The past eight years of imperial overstretch, hubris and domestic and international abuse of power on the part of the Bush administration has left the US materially weakened financially, economically, politically and morally," he said. "Even the most hard-nosed, Guantanamo Bay-indifferent potential foreign investor in the US must recognise that its financial system has collapsed."

He said investors would, rightly, suspect that the US would have to generate major inflation to whittle away its debt and this dollar collapse means that the US has less leeway for major spending plans than politicians realise.

STATE BUDGET DEFICITS

46 of 56 States Could File Bankruptcy by 2010

California = 1/3 of U.S. GDP and we're broke

California to have $6 billion in budget cuts
Current state unemployment at 9.3% and both parties appear to be willing to reduce funding for public schools, colleges, transit programs and programs that help a wide range of people with special needs. I predict the Federal Government will announce the bail-out or partial bail-out California within the next few months.

What are some things to be cut or eliminated?

• Schools
• Textbooks (schools won't update textbooks or afford to buy books for students)
• Cal Grants and other scholarships
• Income tax refunds
• Bank and corporate tax refunds
• Courts
• Aide to needy families
• Mental health services
• Social service administration
• Aid to needy families

UCs to cut Fall 2009 freshman enrollment by 6% or 2,300 students

INCREASING UNEMPLOYMENT

Yearly job lost worst since 1945

Americans receiving jobless benefits hits record

The Labor Department reported that the number of Americans continuing to claim unemployment insurance for the week ending Jan. 17 was a seasonally adjusted 4.78 million, the highest on records dating back to 1967.

A department analyst said that as a proportion of the work force, the tally of unemployment recipients is the highest since August 1983.

The total released by the department doesn't include about 1.7 million people receiving benefits under an extended unemployment compensation program authorized by Congress last summer. That means the total number of recipients is actually closer to 6.5 million people.

Total: 6.5 million people unemployed. This is more than HALF the amount of people unemployed during the Great Depression!

Unemployment Claims Crash Multiple Websites

DECLINING CONSUMER SPENDING, CONFIDENCE, AND INCOME

U.S. Consumer Spending Falls for Sixth Straight Month;
Income Falls for Third Straight Month

Consumer spending in the U.S. fell in December for a record sixth consecutive month, capping the worst year since 1961, a slump that is likely to persist as companies slash payrolls.

Today’s report also showed incomes fell 0.2 percent in December, the third straight decline, after a 0.4 percent decrease the prior month. It was the longest stretch of decreases since the three months ended in January 1954.

America's GDP is composed of more than 70% consumer spending. For many years, much of that spending has been a function of voracious consumer borrowing through home equity extractions (averaging more than $850 billion annually in 2005 and 2006, according to the Federal Reserve) and rapid expansion of credit card and other consumer debt. Now that credit is scarce and consumer confidence is down, it is inevitable that GDP will fall.

DECLINING REAL ESTATE SALES AND PRICES

Home prices continue to slide

California's median home price falls 38%
Real estimate prices predict to fall to 1998 levels.

U.S. Home Sales Hit Record Low and Continues to Slide

While sales of existing homes rose in December, new home sales moved in the opposite direction. The U.S. Commerce Department reports new homes sold in December at an annual rate of 331,000 – the lowest level on record.
That's down 45 percent from December 2007 sales. Economists, who generally predicted a higher sales total for last month, said the December results make a 2009 housing recovery much less likely.

INCREASING NATIONAL DEBT, DEVALUATION, AND INFLATION

US Treasuries on Brink of Collapse; Get Out Now!

The Dollar is toast

The dollar is likely to decline “longer term,” analysts including New York-based Ashraf Laidi at CMC Markets wrote in a report. “Prospects ahead appear particularly ominous for the world’s reserve currency once global economic stability starts to build up.”

The World Won't Buy Unlimited U.S. Debt

Nobel Prize-winning economist Paul Krugman estimated that a 6.8% contraction in GDP will result in $2.1 trillion in "lost output," which the government should redeem through fiscal stimulation. In his view, the $775 billion announced in Mr. Obama's plan is two-thirds too small.

Obama and Congress's 800 billion stimulus package is too small and will inevitably fail.

The nations funding the majority of America's public debt -- most notably the Chinese, Japanese and the Saudis -- need to be prepared to sacrifice. They have to fund America's annual trillion-dollar deficits for the foreseeable future.

These nations, in other words, must never use the money to buy other assets or fund domestic spending initiatives for their own people. When the old Treasury bills mature, they can do nothing with the money except buy new ones. To do otherwise would implode the market for U.S. Treasurys (sending U.S. interest rates much higher) and start a run on the dollar. (If foreign central banks become net sellers of Treasurys, the demand for dollars needed to buy them would plummet.)

In sum, our creditors must give up all hope of accessing the principal, and may be compensated only by the paltry 2%-3% yield our bonds currently deliver.

[...]

If any other country were to face these conditions, unpalatable measures such as severe government austerity or currency devaluation would be the only options.

The necesity for creditors to sacrifice so Americans can continue its dysfunctional and downard-spiraling economic system is absurd and will not happen. On the other hand, government austerity, or the reduction of spending to pay back creditors, doesn't seem likely either as Obama and Congress are pushing forward a 1 trillion "stimulus" package and are in consideration of more "bail-out" packages.S o devaluation seems to be the ONLY option. What's at stake here is that the U.S. may have no one to bail out any more new debt, higher interest rates, and consequently, have to print out more "funny" money to pay for the debt which triggers hyperinflation.

Russian prime minister Vladimir Putin calls for end of dollar stranglehold
Russian prime minister Vladimir Putin has called for concerted action to break the stranglehold of the US dollar and create a new global structure of regional powers.

INCREASING SOCIETAL UNREST

Murder and suicides on the rise

Petty theft on the rise

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