thepacesetter

Happy New Year!!! Hip Hip Hurray!!!

2009 is finally here, but I’m not feeling my usual excitement of moving into a new year. Maybe because going into 2009 reminds me of an auto accident I was involved in as a teen. The car slid on ice and we were headed for a telephone pole, my best friend had absconded his dad’s car and none of us had a license. Oh it was wrong on so many levels, but as time seemed to slow down after we hit a curb and launch head on in the air towards the pole, how we got there didn’t really matter we were going to hit that pole. Whether you’re the driver or the passenger in the back seat everybody is going to hit the pole.

Well, America we’re about to collide witht the pole, so whether you’ve gotten ahead financially during the 2000s, remained the same, or feel it slipping away, our common bond is that we all need to brace ourselves for the impact. The current economic crisis that we have all heard so much about in the past few months is very real, and if we are not properly prepared we will suffer dire consequences. The mortgage bubble that we heard pop is just the tip of the iceberg, the contraction that is about to occur in our economy is going to affect all of us.

How it will affect you and your family will depend on how well you prepare for the crash. In order to get ready it is imperative that we examine how deep the rabbit hole is. The truth of the matter is that those who actually know the real state of the economy can’t tell us; if they did we would stop our reckless spending, and the house of cards would fall. The one thing that they are willing to share with us is that it will get much worse before it gets better.

If you’re like most people you really have no idea how we got here in the first place or who the real players are. Quite frankly we are all to blame from out of control government spending, corporate greed, and the auspicious consumption by the American public we’ve all got our signature on the bad check. You might say we’ve been on an insanity pill for quite a while, and if we don’t make some good decisions the American dream will become your nightmare.

Here’s the condensed version; we are in what economist call a “liquidity trap", meaning that the Fed rate is too close to zero so the central bank cannot stimulate the economy with lower interest rates. Even with the bailout, AIG is still in trouble and so are thousands of US banks. We are in two wars that will probably end up costing us over 3 trillion dollars (Most of which we are borrowing from the Chinese). We consume 15 million barrels of foreign oil per day, a majority of it coming from countries not to happy with us. We will have almost 10.3 million unemployed citizens by the end of 2008, mostly due to a shrinking manufacturing base. From, textiles, electronics, toys, and automobiles not only are the rest of the world making them cheaper, but in many cases making them better. And lest we forget we’ve added over 15 million undocumented people to our population.

Reading the tea leaves on where the economy is heading for 2009 is a little tricky, but let us consider five distinct possibilities:

• By all indications we are in for a second larger wave of residential mortgage failures
• There could be massive auto loan failures and repossessions by the end of the summer maybe sooner
• We may face over $40 billion in credit card defaults in 09
• By August we could see major commercial mortgage failures and foreclosures on shopping malls, office buildings and other commercials
• The real kick in the groin will be something you’ve probably never heard of (but if you work on Wall Street you know what I’m talking about and it’s not good) CDS Credit Default Swaps originated with No margin money or down payments! According to some analyst the losses could be in the 100s of trillions that’s right I said trillions

If only three of these events occur cancel Christmas 09.

When you’re headed towards the pole the driver is doing one of three things:

1. Has lost control and prepares for impact
2. Tries to get control of the car, but knows he’s going to hit the pole
3. Tries to get control of the car, miss the tree and avoid the ravine and sure death that’s 30 yards beyond the pole.

The good news is that it appears that President Elect Barack Obama and his administration have a formula that could very well avoid the cliff; the bad news is that we’re in mid air and we’re going to hit the pole.

I discovered first hand from the back seat that as a passenger your only option is to brace for the impact. This blog is dedicated to seeing the collision coming, bracing for the crash, and walking away unscratched while those around us are bloodied.

That night it was snowing like crazy and I was the last man, so I was stuck sitting alone in the back holding the driver’s Chihuahua while my three buddies were in the front where the heat was. Extreme weather and young boys out joy riding is not a good combination, give that some thought when Junior wants the keys during a storm. Of course we were going too fast for the conditions, and I remember weakly saying “Maybe we need to slow down” and got a reply something like “I know what I’m doing.”

"What gets us into trouble is not what we don’t know; it’s what we know for sure that ain’t so" – Mark Twain

If you know that we can keep living the way we’ve been living, it ain’t so. The crash is coming and those of us who are well positioned can be sitting pretty when the recovery starts to take place sometime around the end of 2010. We all need to make some drastic changes and we don’t have much time. By August a great unsettling should begin to take place in the financial markets that could usher in another “Great Depression”. The incoming administration will go down as one of the greatest ever if they can get us back on the road to recovery within four years. By some of the policy statements and appointments coming out of that camp they may just pull off an even stronger economy, but we’re still going to hit the pole.

Over the coming months we will discuss drastically reducing our expenses, building a war chest of at least 25% of our annual income, and also discovering opportunities that can fatten our pockets. We’ve only got seven or eight months before it really gets silly out there, so wasting time or resources is not an option. Don’t expect to see this type of information coming from the main stream media.

“It is difficult to get a man to understand something when his salary depends upon his not understanding it.” Upton Sinclair

No matter what the "talking heads" say about this crisis, just multiply their statements by ten. If they say economic down turn it’s a recession, if they say recession think depression, if they say depression brace yourself it’s going to get ugly.

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