The Great Depression II

So let us review the basic facts that we are aware of at the end of January
1.We just finished the worst January in the 81 year history of the S&P 500. Down 8.5%
2.The Dow seems locked in a range between 8,000 and 9,000
3.Nourial Rabini, the only man who correctly called this crisis ahead of time, claims the stock market will finish 2009 down 20% lower than it is right now. That means that the DJIA will be at 6,400. Rabini says that we are headed for a sharp U shape recession.
4.Nourial says that the top 3 or 4 banks in the U.S. Meet the technical definitions of insolvency. This includes my beloved Wells Fargo. Rabini says that the only way to fix them is to nationalize these banks for 2 to 3 years, reorganize them, separate good and bad assets, then sell the stock back to the private market after the heavy lifting has been done. The only alternative is to permit zombie banks to wander around for 10 years, as they did in Japan during their crisis of the 1990s.
5.Banks are still massively optimistic that they will only have to write down $1.1 trillion in loans. Nourial says the figure is more like $3.6 trillion. U.S. Banks are in a massive state of denial right now, just as Japanese banks were during the 1990s. Left to their own devices, these banks will remain in a state of denial about their bad loans, just as the Japanese banks did. This is why nationalization is necessary.
6.Total consumer spending fell 3.5% just during the th Quarter. This includes a 22.4% drop in demand for durable goods, and a 7.1% drop in demand for durable goods. Inventories of unsold goods are piling up in every store.
7.We are in a world synchronized recession. All world economies are going into recession. Even countries in major denial, such as France and China are now admitting that they are going into recession.
8.Mother England is one quarter into a recession, and the Pound Sterling is taking the most devastating hits of any major currency on the free market. Even as the Euro slides down against the dollar, the Pound is falling faster. Many believe that the Pound will soon trade at 1-to-1 parity with the Euro, and both will be worth approximately $1.25-1.30 USD. Why? The Pound is basically an oil currency, and oil is in bad shape right now. This is a far cry from the days when the British Pound was worth $2.00-2.50 USD.
9.Japanese industrial output dropped 40% just in the 4th quarter of 2008. That is a larger contraction in just one quarter than Japan saw during the entire recession of the 1990s. I should mention that the Japanese recession of the 1990s was an utterly devastating recession.
10.U.S. GDP dropped 3.8% just during the 4th Quarter of 2008. The most conservative estimates say that U.S. GDP will shrink another 1.5% during fiscal 2009, regardless of the stimulus package.
11.This contraction is worse than it sounds. Population in the United States continues to expand through in-migration, low death rates, and moderate birth-rates. The economy needs to expand just to maintain consistent per-capita GDP. If GDP contracts, while population expands, per capta GDP decreases at a faster rate than simple contraction would suggest.
12.The problem of population GDP is much worse in China. China cannot abide even 5% growth without loss in Per Captia GDP. They need sustained 10% growth just to maintain a constant GDP. In China, 5% growth constitutes a hard landing.
13.Unemployment filings reached near records levels in the United States. In Michigan, unemployment is over 10% and rising.
14.New housing starts reached record lows. This portends, augers and bodes extremely bad things in the future. Give such low housing starts now, we will see more GDP shrinkage in the near future. The next quarter for sure.
15.House purchases reached record lows. Banks are not writing new mortgages. Because most people cannot buy a home without a new mortgage, existing home sales are going nowhere fast. The consequence is that prices continue to grind down in every major market.
16.HSBC, seemingly the one unshakable bank, is now entering into crisis.
17.This is now officially the worst economic decline since 1982. That was the worst decline since the Great Depression itself.
18.More and more experts believe that all institutions and families are in the process of de-leveraging. They are throwing all their resources into the process of paying down debt. They are not spending on any new consumption or production. They are paying off old consumption and production. Banks are also de-leveraging themselves.
19.More and more experts believe that this de-leveraging process is going to take several years to finish. Most do not believe a large stimulus package can convince individuals and institutions to terminate this process of de-leveraging and engage in new production and consumption.
20.The government is going to run about 3 trillion of new debt up this year. That is more than $50,000 per man woman and child in the United States.
21.The stim package the congress just past is nothing more than a wish list of Democratic Party pork. The smart grid is pretty much the only element of the package which can have a dazzling stimulus effect on the economy.
22.We have gone from an Internet bubble to a Real Estate bubble and now there is a third bubble: The Government debt bubble. There is an emerging theory which says that we are in for a grinding deflation. In this scenario, the U.S. Dollar is going to continue to gain value, commodities are going to continue to cheapen up, stock values are going to continue to drop. In this scenario, government bonds are going to continue to be in demand. Government bonds are not going to clear through cash-outs. Investors are going to continue to slam money into the bond market. This means a continuing shrinkage in GDP and reductions in government revenues. With greater and greater debt to pay, and less and less revenue, the Government debt bubble is going to burst... sooner or later. Something like this is on the verge of happening in California.
If our Government busts the Dollar Bill, it will be a defeat the dimensions of which we have never experienced. It will be a route from which no honor can be salvaged. I don't even want to imagine which hell and chaos this will unleash in the world markets.