Aware Brain

The US economy is not in a recession or depression, it is permanently contracting. The scale and volume of economic activity and commerce during the past 15 years was grossly distorted. Most of the apparent transactions existed only because of artificial wealth created out of thin air. Because the sales and profits were backed only by thin air, the illusion of wealth created by them are turning back into thin air. This is not “recession”, this is simply a return to the norm, a contraction.

It is unlikely that a single catastrophic event will mark the final collapse of the inflated economy. The end result however will be no less severe. The erosion of wealth and reduction of relative income will occur as a rolling infection, weaving in and out of different areas until all of the artificial capital is purged. Individual areas of geography, culture, economic classes, and industry types will be hit by subsequent waves of the infection, until all of the illusion is unmasked.

As the driving force behind the income or success of an industry, person, or community disappears, it will revert to the lowest point of sustainability. For example, the demand for mortgages was propped up by an unsustainable market for mortgage backed securities. When the buyers of these securities discovered that the underlying assets had little value, they stopped buying them. This resulted in less money available to fund new mortgages, and the mortgage “industry” collapsed. Firms went out of business, employees were laid off, and communities which were dependent upon the industry, such as California’s Inland Empire suffered.

In the Lake Okeechobee area of Florida, several isolated towns exist along the lake. These towns were largely self sufficient during the early part of the 20th century. The number of residents, and merchants to support them were in equilibrium. In the late 1990′s, residents began finding work in eastern Palm Beach and Martin Counties, working in the booming construction trades. They drove an hour or more each way to high paying construction jobs, and the populations of towns like Pahokee, Bell Glade, and Clewiston grew rapidly. When construction in Palm Beach stopped in 2006 – 2007 due to the economic recession, these remote residents no longer had an income source, and by extension neither did the community. The unemployment rate in these towns is now at depression-era levels. The Palm Beach County Economic Development Office reported serious issues in their latest study of the area.

“Poverty is the norm, it found, with nearly 40 percent of residents receiving food stamps and 85 percent of students getting free or reduced-price school lunches. “There are so many people that come into the church looking for help,” said Rosa Ramirez, who volunteers at a church and works at a day-care center for children of migrant workers. “They don’t have work, their unemployment has run out and they have exhausted their food stamps. They don’t have any health insurance.” Residents say desperation has worsened crime in the Glades cities, where the Palm Beach County Sheriff’s Office took over patrols in 2005 and 2006. “It’s the forcing of people’s hands,” Harvey said. “I need to feed my family, and what are you leaving me to do? I can go out on the corner and make $20 or $30.”

This is a metaphor for what to watch for in other areas, geographic and otherwise. The difficulties facing this area were simply caused by the same chain of events which occurred everywhere else, but just not have run their course elsewhere yet. The inflated illusion of economic activity over the past decade plus resulted in the expansion of communities, governments, companies, and consumer lifestyles, beyond the levels which could be sustained through genuine commerce. As the commercial levels recede to their normal levels the expanded entities are left high and dry, with no means to support themselves.

“The Glades is a community with no visible means of support, a situation that is creating angry and disenfranchised adults with few options to a stable and productive life,” the agency reported.

What means of support does the United States as a whole have? The productive, exportable industries which pulled the US out of Great Depression #1 are long since gone. Industrial production, mining, engineering, and even technology has largely moved offshore. The reality check which the county must face is to consider what job we want to have as a nation, and what we wish to offer the global community.

The international business community is still voting against the US through its increasingly lower appetite for dollars, which is readily apparent in the rise in commodities, such as oil. This continued rise could be one of the waves of creeping infection which devours another segment of the US economy. “Many factors are the same as the summer of 2008,” said Ethan Harris, head of global economics at Bank of America Merrill Lynch in New York. “What are the things that would derail the recovery? I think that an oil price bubble is near the top of the list.”

10 states are already facing looming budget crises, according to the Pew Center research. “Drastic financial remedies are no longer limited to California, where a historic budget crisis earlier this year grew so bad that state agencies issued IOUs to pay bills. A study released Wednesday warned that at least nine other big states are also barreling toward economic disaster, raising the likelihood of higher taxes, more government layoffs and deep cuts in services.” Pew found that the 10 states tend to rely heavily on one type of industry.

The nation as a whole may not have a solid industry to rely on either.

~ by Dave on November 12, 2009.

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