Kohtz.org

Ok, enough bad news. Even if the economy collapses, we all won't lose our jobs and homes and starve to death. :) That's statistically impossible!

Gerber plans to invest in Michigan, expanding it's facilities and employing up to 200 additional people for product research and testing. That's on top of 180 people it is hiring to staff a calling center. While I would have like to seen an expansion in manufacturing, good news is good news. BTW, this was made possible through tax incentives. By taxing less, we give companies incentive to grow. - Gerber investment to create 200 jobs

The Gerber story is kind of interesting. It was founded in 1901, ran into some lean times, but made it through the Great Depression by producing a product that people needed.

If anyone else runs across some good news, let me know. :)

I just wanted to add that the things I'm saying are pretty doom and gloom. I hope they don't come true. I've been trying to figure out a way to come out on top if things do happen the way I suspect, but I've determined I'm not really in a position to do so.

Maybe what I'm saying here won't come true. Maybe we'll turn our economy around, pay off our debt, and be able to fund all our social programs while still sending manufacturing jobs, equipment and capital overseas; all while reaping the rewards of other people's hard work. I'm being a little facetious.

In the end though, no matter what happens, life goes on. We just have to do the best we can with what we have.

I heard mention of this news story on NPR this morning on my drive to work. It was about 10 seconds long, but probably one of the most important stories of the day.

As Rates Race to Zero, Printing Presses Gear Up. The last sentence says it all. "If it were another country, the U.S. should probably declare bankruptcy." We will soon have no other way to raise money for bailouts except to print it.

But we are the United States, and for some reason, nobody is willing to believe that our economy can ever fail. So people keep wanting the U.S. Dollar, and keep the value of the dollar propped up, no matter how much we borrow or spend. But this is only temporary. The United States economy is "service based" as I've said before. This means we don't produce things, we consume them. Producing things makes money, consuming them takes money. We are 30% production, 70% consumption. This is unsustainable.

Our government's solution is printing more IOUs. Our Social Security is one giant IOU, all of our debt is in IOUs, and someday people will want what we have borrowed back. We don't have any way of giving it to them except by printing more money.

Money is truly worthless. It's not backed by gold or anything physical. You can't eat it, you can't drive it, it can't cook your food or keep you warm, it's simply paper and ink (if that, most likely it's numbers in a computer). The day when people realize the dollar is worthless, everyone will start sending their dollars back in favor of more stable currencies (probably currencies backed by gold), and inflation will be off the charts. It's going to cost $1000 to go to the grocery store, and every time the government prints more money, the situation will be worse.

This whole scenario is somewhat hidden from us right now because we also see stories that inflation is dropping. Also, everyone keeps talking about the "fear of deflation". I don't know why anyone would fear this, lower prices for consumers is a good thing. When flat screen TV's go from $10,000 to $2,000, more people are able to buy them. The margin on the TV likely stays the same for the manufacturer, and the result is more profit for the company and a TV for the consumer. Any talk of "fears of deflation" should be laughed at and drops in inflation viewed as temporary.

This country is in a world of hurt like it has never seen before. You can see it in the news every day, but you have to listen for it and read between the lines. If things don't soon fall apart completely, watch for oil prices and other comedies (things of actual use and value) to skyrocket once again. If I could stockpile gas right now, I would.

For a while now, I've had this feeling that the economy is in trouble. I started by sharing my thoughts on the economic stimulus package and then the bank bailouts. But I didn't fully understand why things were bad until recently. Here is a brief synopsis of why I think things are going to be bad for the next 10 plus years.

Over the past 200 years, we went from an agrarian economy, to an industrial economy, to what people now call a "service based" economy. When we made the move from agriculture to industrial, we went from a lot of jobs producing food, to a lot more jobs producing goods. But we were always producing. Today, in our "service based" economy, we have moved away from producing to consuming. People (wall street, the government and thus the media) say the fact that we consume so much is a sign of a strong economy. This simply is not true.

We have a lot of money, but not much wealth. Think of wealth as savings and the ability to produce things to sell. It's a lot of work to create wealth, but oh so easy to create money. To have lots of money, all you need to do is open a credit card or borrow against the equity in your house. Unfortunately, home equity is now gone, and credit cards are next.

Here is a very short list of very serious warning signs that our economy is in for it, two of which were in the news today:

1. People Don't Save
   Saving is the true measure of wealth, far different from how much money people spend. People point to all the things we consume as an indication our economy is doing well. Where does that money come from? We borrow it.
   
   Just look at this graph. People in the U.S. literally do not save money anymore. Savings rates are less then zero percent. We are broke.
   
   


2. Housing Bubble
   The housing bubble burst earlier this year. It is another major sign of economic problems. This is how people could spend money and keep the "service economy" going. Need money? Just borrowing against the "equity" in your home.
   
   This is also how many people (including Wall Street and the government) could justify the lack of savings. Home prices will keep going up, so we can count that as savings.

   Oh, and it also caused the collapse of the global financial world. Good thing the governments of the world can print money. I take that back, it's not even funny to joke about. Printing money to save banks is only making things worse. MUCH worse. The sooner we let things fall apart, the sooner (and easier in the long run) we'll be able to rebuild our economy.



3. Credit Card Bubble
   The Credit Card industry is next. Now that the housing bubble burst, which sent the financial world into a downward spiral, nobody will be able to pay off their credit cards. Credit card companies will have to stop issuing new lines of credit. This article just came out today.

   Credit card industry may cut $2 trillion of lines: analyst
   "The U.S. credit card industry may pull back well over $2 trillion of lines over the next 18 months due to risk aversion and regulatory changes, leading to sharp declines in consumer spending, prominent banking analyst Meredith Whitney said."

   The Credit Card companies will be next to ask for government money to cover their losses. They are as essential to the "service based economy" as banks, if not more so. With no equity left in houses and no more credit available to consumers from credit cards, how will we keep the spending going?



4. We Don't Manufacture Anything
   The other article from today, Manufacturing Index is at a 26 year low. Like I said above, wealth is measured by savings and by our ability to produce goods. We don't have either anymore. What will we do when people can't borrow money? How will people pay the money they owe back without being able to produce things to sell?

To me, this feels like the impending doom of global warming. People early on talked about it but nobody listened. Then signs started to show up, but still nobody really listened. Until it has a direct impact on our lives, it won't really exist. The difference between this and global warming is that this happened a lot quicker, a lot fewer people saw it, and the direct effects are here right now. It's becoming very real.

I'm not sure what to do about all this yet, so don't ask me for advice. But I am researching it. Maybe I'll let you know what I find. Oh, and if you don't agree with me, please email me and tell me why. I'd love to be convinced I'm wrong.