The Sum Total Of All That Is Wrong With The Economy & The Financial System

Although there are many reasons why I believe the economic outlook remains bleak despite all the bailouts, wishful thinking, and spin, my normal routine at Financial Armageddon on any given day is to focus on one or two areas of concern. But to really get a grip on where things are at, it makes sense to occasionally step back and summarize all that is wrong. While the summary that SurvivalBlog.com recently put together, entitled “Twenty-Two Reasons Why this Recession is Different and Why it Will Endure,” has a few overlapping elements and some that are missing (e.g., the terrible state of our nation’s infrastructure), publisher Jim Rawles does a decent job of getting the point across:

I find it surprising that I’m now getting inquiries from readers, asking if “we’ve reached bottom” in the current economic recession, and asking if the time has come to start buying stocks or residential real estate. It seems that the talking heads of mainstream media are using some sort of voodoo. How can anyone think that we’ve hit bottom, and an economic recovery is in progress? To dispel the myths from the CNBC Cheering Section, please consider the following. (And note that I’ve provided references for each assertion, just so you know that I’m not talking out of my camouflage hat.):

1. A broken global credit market that has not fully recovered. See: After Lehman, U.S. firms adjust to new face of credit
2. Lack of transparency in Mortgage-Backed Securities and other re-packaged debt instruments. See: Geithner Blames Lack of Transparency for OTC Derivatives Hit on Market.
3. The increasing Federal debt, which is growing at an unprecedented rate. See: The National Debt Clock.
4. Mountains of consumer and corporate debt. See: Observations on the US Debt.
5. The Federal budget deficit. See: Federal Deficit Hits All-Time High of $1.42 Trillion.
6. Ever-expanding bailouts. (I call this The MOAB.) See: As More Companies Seek Aid, ‘Where Do You Stop?’
7. Monetization of the National Debt. See: Fed Could Expand MBS Purchases. (Can you spell Oroborus?):
8. The destruction of the American consumer economy. (It had been artificially credit-driven). See: A Year After The Crisis, The Consumer Economy Is Dead.
9. Chronic unemployment, possibly much higher than officially reported. See: Alternate Data at ShadowStats.
10. More than $500 Billion USD in hedge funds that have borrowed short and lent long. See: Assets invested in hedge funds increase by $100bn
11. A double wave of residential mortgage rate resets. See: this chart of scheduled mortgage interest rate resets.
12. Continued down-ratcheting of house prices. See: Housing Prices Will Continue to Fall, Especially in California
13. The under-reported “shadow inventory” of foreclosed houses. See: The “Shadow” Foreclosure Inventory
14. The very likely collapse of commercial real estate (”the other shoe to drop”.) See: Is a commercial real estate bust inevitable?
15. A huge crisis lurking in over-the-counter derivatives. See my analysis published in 2006 and the dozens of articles on the Derivative Dribble Blog.
16. Under-funded pensions. See: Almost half of top unions have under funded pension plans.
17. A coming wave of municipal bond and municipal bond hedge fund failures. See: The Failure of Leveraged Municipal Bond Hedge Funds.
18. Increasing numbers of bank failures. See: FDIC: Bank Failures to Cost Around $100 Billion.
19. Insurance company collapses–some, like AIG, were foolish enough to insure more than a trillion dollars in derivative contracts. See: AIG: Is the Risk Systemic?
20. Worsening state, county, and city budget crises. See: State prepares for shutdown as budget deadline looms, and this article from a liberal site: Predicting Worse Ahead from America’s Economic Crisis.
21. Loss of faith in the US Dollar, on the FOREX. See: Dollar’s reserve currency status in focus as G-7 finance ministers meet.
22. The coming mass currency inflation, following some asset deflation. See: Which is more likely in 2010: Deflation or inflation?

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