My Dear Friends,
How the World Will Look in 2012
In the effort to protect you from all contingencies, it appears the writer of this article has come to a perfect summation of the ‘What if it all hits the fan.”
You have the key to everything written by Armstrong. You have Alf’s important pronouncements. Now print out and put on your bulletin board how the world will look in 2012. PLEASE STUDY THIS IMPORTANT ARTICLE.
The Worst Case Scenario (Someone Has to Say It)
May 03, 2009
Since the economy began sliding downhill in late 2007, mainstream economic and market experts have consistently erred on the sunny side.
As late as June 2008, mainstream consensus held that the U.S. was heading for a “soft landing” and would avoid recession. Several months later, the slump was acknowledged to have started in January 2008, but we were supposed to see renewed growth by mid-2009, with unemployment peaking in the eight-to-nine percent range. A quick “shovel-ready” stimulus bag was supposed to set us back on the road to prosperity.
In January, recovery projections were pushed forward to late 2009. Today, the consensus is for a mid-2010 recovery, with unemployment peaking at just over 10 percent. Clearly, the mainstream has struggled to catch up to reality for well over one year. What are the chances that they finally have it right this time?
Moreover, the mainstream continues to see what is going on as a plain-vanilla recession that will be quelled with some on-the-fly monetary and fiscal tinkering. Washington, we are told, will pull us out of this slump—as soon as the masses can be enticed back to the shopping malls. Then things will return to how they were before. But what if the experts and politicians are wrong not only on their ever-changing recovery timeline, but also on the nature—nay, the very existence—of a recovery?
America’s reigning political-economic ideology has demonstrably failed. Given that its government is obviously fumbling along without a clue, its foreign and domestic credit is tapped out, and its 300 million people are discovering that their hopes for continuous material improvement will never be met, could the U.S. be headed the way of the USSR?
Instead of a recovery as the mainstream envisions it, what if America permanently bankrupts, impoverishes, and marginalizes itself? What if its cherished institutions fail across the board? For example, what happens when the police realize that their under-funded pension plans cannot support a decent retirement? Will they stay honest, or will they opt to survive by any means necessary? These are questions that the mainstream does not even begin to contemplate.
In the interests of providing you with an alternate vision—something outside the mainstream—below are ten predictions for America through the year 2012. This is not boilerplate doom-saying. Rather, I am laying out in highly specific terms what will happen over the next three-odd years. Others have thrown around the term “Depression”, but I am going to tell you precisely what it means for you, your investments, and your community.
When these predictions come true, I expect to be rewarded with a seven-figure consulting gig, a book contract, or a high-level position in whatever administration succeeds the doomed Obama team—that is, if anyone succeeds it at all.
Prediction one. The twenty-five-year equities bubble pops in 2009. U.S. and foreign equities markets will stop treading water and realign with economic reality. Stock prices will cease to reflect the “greater fool” mentality and will return to being a function of dividend yields, which have long been miserable. The S&P 500 will sink below 500. In a bid to stem the panic, the government will enforce periodic “stock market holidays”, and will vastly expand the scope of its short-selling prohibitions—eventually banning short-selling altogether.
Prediction two. With public pension systems and tens of millions of 401k holders virtually wiped out—and with the Baby Boomers retiring en masse—there will be tremendous pressure on the government to get into the stock market in order to bid up prices.
Therefore, sometime in 2010, the Federal Reserve will create and loan out hundreds of billions of fresh dollars to the usual well-connected suspects, instructing them to buy up stocks on the public’s behalf. This scheme will have a fancy but meaningless name—something like the “Taxpayer Assurance Equities Facility”. It will have no effect other than to serve as buyer of last resort for capitulating smart-money types who want to get out of stocks entirely.
Prediction three. Millions of new retirees—including white-collar people with high expectations for a Golden Retirement—will be left virtually penniless. Thousands will starve or freeze to death in their own homes. Hundreds of thousands will find themselves evicted and homeless, or will have to move in with their less-than-enthusiastic children. Already strained by the rising tide of the working-age unemployed, state and local welfare services will be overwhelmed, and by 2012 will have largely collapsed and ceased to function in many parts of the country.
Prediction four. “Quantitative easing” will fail to restart previous patterns of lending and consumption. As the government sends out additional “rebate” checks and takes ever-more drastic measures to force banks to lend, hyperinflation could take hold. However, comprehensive debt relief via a devaluation of the dollar is even more likely. This would entail the government issuing one “new” dollar for some greater number of “old” dollars—thus reducing both debts and savings simultaneously. This would make for a clean slate a la Fight Club.
As there are many more debtors than savers in the U.S., the vast majority would support devaluation. The Chinese and other foreign holders of our bonds would be screaming mad, but unable to do anything. Every country that has not found a way out of dollar-denominated reserve assets by 2012 will see its reserves eliminated.
Prediction five. The government will stop pretending that it can finance continuous multi-trillion-dollar deficits on the private market. By late 2010, the sole buyers of new U.S. Treasury and agency bonds will be the Federal Reserve and a few derelict financial institutions under government control. This may or may not lead to hyperinflation. (See prediction four).
Prediction six. As the need for financial industry paper-pushers declines and people have less money to spend on lawyers and Starbucks (SBUX), unemployment will rise until the private sector has eliminated all of its excess capacity and superfluous or socially needless jobs. The government’s narrow unemployment figure (U3) will rise into the high teens by late 2010. The government’s broader unemployment figure (U6) will cease to be reported when it reaches 25 percent—it will simply be too embarrassing. Ultimately, one in three work-eligible Americans will be unemployed, underemployed, or never-employed (e.g. college grads permanently unable to find suitable work).
Prediction seven. With their pension dreams squashed, and their salaries frozen or cut, police and other local government workers will turn to wholesale corruption in order to survive. America’s ideal of honest, courteous, and impartial cops, teachers, and small-time local functionaries will have come to an end.
Prediction eight. Commercial overcapacity will strike with a vengeance. By 2012, thousands of enclosed malls, strip malls, unfinished residential developments, motels, truck stops, distribution centers, middle-of-nowhere resorts and casinos, and small-city airports across America will turn into dilapidated, unwanted, and dangerous ghost towns. With no economic incentive for their maintenance or repair, they will crumble into overgrown, plywood-and-sheet-rock ruins.
Prediction nine. By the end of 2010, tens of millions of households will have fallen behind on their mortgages or stopped paying altogether. Many banks will be unable to process the massive volume of foreclosure paperwork, much less actually seize and resell the homes.
Devaluation (as mentioned in prediction four) could ease the situation for those mortgage holders still afloat, but it would also eliminate any incentive for most banks to stay in the mortgage business. In any case, the housing market in many parts of the country will lock up completely—nothing bought or sold.
With virtually no loans being made, even the government will finally acknowledge that most banks are fundamentally insolvent. A general bank run will only be averted through a roughly one trillion-dollar recapitalization of the FDIC, courtesy of new money from the Federal Reserve.
Prediction ten. As an economy is never independent of the society within which it functions, the next few paragraphs will focus on social and political factors. These factors will have as much of an impact on market and consumer confidence as any developments in the financial sector.
Whether rightly or not, President Obama, having come to power at the dawn of this crisis, will be blamed for it by over 50 percent of the population. He will be a one-term president. In response to his perceived socialization of America, there will be a swarm of secessionist and extremist activity, much of it violent. Militias and armed sects will be more prominent than in the early 1990s. Stand-off dramas, violent score-settlings, and going-out-with-a-bang attacks by laid-off workers and bankrupted investors—already a national plague—will become an everyday occurrence.
For both economic and social reasons, millions of immigrants and guest workers will return to their home countries, taking their assets and skills with them. The flow of skilled immigrants will slow to a trickle. Birth rates will plummet as families struggle with uncertainty and reduced (or no) income.
Property crime will explode as citizens bitter over their own shattered dreams attempt to comfort themselves by taking what is not theirs. Mutinies and desertions will proliferate in an increasingly demoralized, over-stretched military, especially when states can no longer provide the educational and other benefits promised to their National Guard troops.
There will be widespread tax collection issues, and a huge backlash against Federal and state bureaucrats who demand three-percent annual pay raises while private sector wages remain frozen or worse. In short, the “Tea Parties” of tomorrow will likely not be so restrained.
Finally, between now and 2012, we are likely to see another earth-shaking national embarrassment on the scale of the 9/11 attacks or Hurricane Katrina and its aftermath. This will demonstrate conclusively to all Americans that their government, even under a savior-figure like Obama, cannot, in fact, save them.
By 2012, there will be a general feeling that the nation is in immediate danger of blowing up or coming apart at the seams. This fear will be justified, given that the U.S. has always been held together by the promise of a continuously rising material standard of living—the famous “pursuit of happiness”—rather than any ethnic or religious ties. If that goes, so could everything else. We were lucky in the 1930s—we may not be so lucky again.
Jim Sinclair’s Commentary
Alleged pay to play will prove itself to be prolific in the retirement fund industry. Not only is this arena plagued with cartoon values on OTC derivatives, but illegalities put an icing on this rotten cake.
Connecticut Dismisses Pension Adviser Accused of Fraud
By LESLIE WAYNE
Published: May 4, 2009
Connecticut added its name on Monday to the list of public entities that have fired Aldus Equity Partners, the pension advisory firm whose founder was accused of securities fraud by federal and state authorities last week.
The Connecticut treasurer, Denise L. Nappier, announced the termination of Aldus’s contract with the Connecticut Retirement Plans and Trust Funds, which invests the pension money for 160,000 teachers and municipal employees.
Ms. Nappier said she ended the state’s relationship with Aldus “in order to protect Connecticut’s interest out of an abundance of caution.”
Aldus is one of the several public pension consulting firms caught up in a criminal and civil investigation into what the Securities and Exchange Commission has called a “multimillion-dollar kickback scheme” involving the New York State Common Retirement Fund.
Last week, Saul Meyer, the 38-year-old founder of Aldus, was charged with a fraud-related felony by the office of the New York attorney general, Andrew M. Cuomo. Mr. Meyer was accused at the same time by the S.E.C. of securities laws violations, as was Aldus Equity. Mr. Meyer has pleaded not guilty.
Jim Sinclair’s Commentary
Today a NYC Judge ruled that the objecting bond holding entities must make their identity known to the public.
This is high stakes poker being played in court in order to get the bankruptcy done fast and clean. A failure to make history in bankruptcy court in terms of time to completion endangers an enormous amounts of jobs, and a domino effect on suppliers as well as scaring the dickens out of GM suppliers and employees.
Word is that the bond holders are primarily hedge funds.
Basically the bond holders are correct in their assertion but these are times when the Constitution seems to not have much influence over legislative or legal actions.
This is a financial soap opera that better play out on budget and on time, or else.
Creditors object to Chrysler deal, setting up fight
NEW YORK (AFP) – – A group of Chrysler creditors objected Monday to the struggling automaker’s bid for a quick restructuring, calling it an illegal bid by the government that violates constitutional property rights.
The objections set up a showdown that challenges the effort led by the US government to save Chrysler through a "surgical" bankruptcy reorganization that clears away key debts and creates a new firm in partnership with Italy’s Fiat.
A court filing by a committee of lenders urged US Bankruptcy Court Judge Arthur Gonzalez to reject the Chrysler effort to sell the key assets of the automaker to a group including Fiat.
Under the plan proposed by Chrysler with the support of th e US Treasury, the lenders would get 2.0 billion dollars in place of the 6.9 billion in outstanding loans.
The creditors said these claims should get priority under law, but that the reorganization plan entails paying off billions of dollars in other debts in full, contrary to the bankruptcy code.
Jim Sinclair’s Commentary
Of course inflation is over the horizon on the near side.
It is an inflation not often understood. It is a currency event, not an economic event.
Warren Buffett: Inflation on the horizon
The Berkshire Hathaway chief says policymakers will have to raise money to pay off costly rescue plans – one way or another.
Colin Barr, senior writer
Last Updated: May 2, 2009: 1:32 PM ET
OMAHA, Neb. (Fortune) — Berkshire Hathaway chief Warren Buffett defended the government’s handling of the economic crisis, but warned that the purchasing power of the dollar may fall as policymakers stretch to finance expensive rescue plans.
Reflecting on the near implosion of the financial system last fall, Buffett said officials should be judged more leniently when facing "as close to a total meltdown as you can imagine."
But he warned that efforts such as the Treasury’s $700 billion Troubled Asset Relief Program and the $787 billion fiscal stimulus plan passed this year by Congress will have to be paid for, one way or another.
And with political leaders showing little inclination to raise taxes, one sure way to pay for excess spending is to inflate the value of the currency, Buffett said. The biggest losers in a surge of inflation, he added, would include holders of bonds and other fixed-income assets.
"I haven’t had my taxes raised," said Buffett, who has run Berkshire for more than four decades. "My guess is the ultimate price will be paid by a shrinkage of the value of the dollar."