Thinking about the new year and the shape of things to come. One of the things I plan to take up again is complexity theory, especially the ways that unintelligent operators can behave in ways which create overall patterns.
Ants are one example of this, but so are consumers. None of us has any idea what the state of the economy will be in a year. As often as not, patterns fail to cohere. In fall of 2005, the spike in gas prices was supposed to mash the american economy, but it didn't. Likewise, the Bushies gigantic deficit, hurricane Katrina damage, instability in the Middle East-- none of the bad news impacted the 2006 American economy in a truly significant way. We dodged several bullets and felt invulnerable.
My brilliant daughter's working life is only two years along, and she probably doesn't understand the relationship between economic trends and how many cars Dodge is able to move a month, how an overall pattern will express itself in millions of individual decisions that seemed to have nothing to do with one another. Here's how.
This fall came the first sign of trouble. I've always believed that there's some profound relationship between the value of the British pound against the dollar and the American economy. In 2005, after 7/7, the pound was trading at 1.70. Today it's 1.958 and it has been hovering near the two dollar range for a few months.
What this means, apart from the fact that X has less purchasing power as she larks about in Europe on other people's money, is that international financiers have begun to notice that america is borrowing about three billion dollars a day, mostly from China. The genius behind the fraud "war" against terror and "rebuilding" New Orleans is that the Bushies are borrowing money from China to give to the whores and pimps who have so far sustained the conservative "revolution." President Retard will leave it to the next person to figure out how to pay for all this.
The biggest hit the economy took happened early in the first Bush term. The mega tax cut for the top percentile of Americans started the deficit that Gore warned you about and Kerry warned you about. Most of the red staters rolled their eyes and went to sleep both times. In response to a tax cut which had no positive impact on business, the Fed lowered interest rates which created easy money and fueled the real estate bubble. Dumb people, like my lovely ex-wife, immediately refinanced their houses and condos, creating the illusion of prosperity. It is estimated that 80% of job growth in the Bush years and two thirds of the american GDP are directly connected to the real estate market. But over-borrowing against housing equity has now created a situation where, for the first time since the Great Depression, americans have negative amounts of savings. In other words, america as a society now owes more than it has, largely because we've borrowed money against real estate and used it to buy shit that cannot be put back into the money stream except on e-bay at a fraction of its original value.
The engine behind the american economy is thus not our amber waves of grain, nor our former industrial might, not even our inventive fecundity. It's the real estate market, all the multi-million dollar homes whose value is predicated on the value the market says it has. The air is beginning to leak out of the bubble and maybe next year it will reach a tipping point.
As the Republicans went home for Christmas, they voted the make the tax cuts permanent. If you're Randy Johnson, soon to be an ex-Yankee, and you make 15 million dollars a year, this is very good news. If you are Chas, soon to be living on a fixed income, this is an invitation to dumpster diving.
There have been record numbers of foreclosures in the last year. While you were asleep the Bushies changed the bankruptcy laws so that it doesn't matter whether you have no food to eat and no place to sleep, if you have an income, you're on the hook for debt.
The only way out of this, apart from begging Bubba to become Secretary of the Treasury, is for the next president to raise taxes, cut spending, disentangle america from ruinous overseas adventures and try to hang on until the next big tide raises our boats. so far, something's always come along. In the 90's it was internet wealth.
We haven't had an honest to God depression in 77 years. We've not had a president this dumb in 87 years, so it'll be interesting to see how this plays out. Mostly likely things will not be as bad as I hope, so I can go back to worrying about the collapsing ecosystem.
I think in the event of a serious recesion Dodge is a good place to be. Since Californian's will always need cars no matter what. Chrysler is lowering the prices on all its vehicles, it always has incredible rebates. And hopefully, a depression will wake up america to the fact that we out source everything. Ford outsources to mexico, and GM outsources to China and Mexico. Dodges and Chryslers are the only "Domestic" vehicles that are acctually made in America. Besides, I do not own a house, and I plan to buy one from some sad desperate person within the next year, for a fraction of what it will be worth 5 years from now, at which point I will sell said house, and make lots of money.
Besides, poor people always spend more money on cars then rich people. More poor people = more money.
Gm is lowering prices because they have people smarter than I am making these decisions. They know that a year from now consumers will be asking "Repair or replace? Lease or buy? New or used?" in a way that will vector in the direction of cheaper, hence car sales will not yield the same commissions. Something to think about.
Out-sourcing is inevitably what must happen when CEO's and COO's are making 300 times the salary of the average office worker, even though they only do three times the work. You have to cut costs somewhere, so why not screw the working class?
My lovely ex is now sad and desperate. She's cut the price of her house in half and there's still no market. She can't break even if she cuts the price further and she can't afford the mortgage on her current income. Maybe there is a God. If you can afford to buy in a year, you'll get a great deal. Just bear in mind that cars are discretionary purchases, even in Cali.