“The outlook for global consumption remains bleak. Exports are likely to remain lackluster until global consumers regain their appetite for consumption,” wrote Jing Ulrich, managing director at JPMorgan in Hong Kong, in response to the dire data.

To track and make practical use of trends requires critical analysis of not only the data but also of the interpretations arising from the data. This becomes particularly essential when interpretations express a virtual media consensus. “Whenever you find that you are on the side of the majority, it is time to pause and reflect,” advised Mark Twain.

A case in point: On the surface, Ms. Ulrich’s assessment above does not seem unreasonable. It is a theme expressed, with minor variations, by a majority of economic analysts reported by the media. But that assessment rests upon a set of false or questionable assumptions.

The first assumption was that all consumers need to do is “regain their appetites” for exports. But it has nothing to do with “appetites.” Consumers were broke. They were no less hungry for products – they just didn’t have the money to buy them.

The second assumption was that once consumers started consuming again exports would regain luster. Implicit in this statement was that as exports grew, economies would rebound and everything would go back to normal. This “normal” refrain was endlessly repeated, not only by economic analysts, but by politicians and business leaders.

Unquestioned was not only the inevitability, but also the virtue and desirability of a return to “normal.” What was normal?

Normal, prior to “The Greatest Depression,” meant unchecked over consumption and over development made possible by the availability of cheap money and easy credit.

On the consumer end, “normal” was a death wish, “shop ‘til you drop” – an obsessive compulsion by the profligate many to spend money they didn’t have but had to borrow. The spending spree extended to buying expensive new cars rather than affordable used ones. It had people building extensions and making home improvements when neither were necessary. It meant buying a McMansion when a Cape Cod would do. Splurging on expensive vacations, elaborate weddings and extravagant bar-mitzvahs to impress family and friends.

Borrowed money financed a major lifestyle upgrade that otherwise could not have ever been imagined, but that corresponded to what most people considered the “American Dream.” Borrow to the limit now, and pay sooner or later was “normal.”

On the commercial/financial end, “normal” was also the obsessive compulsion to endlessly acquire, not merely upgrade. Borrowed billions, lots of leverage and little collateral provided financiers and developers with the power to acquire ever more money, assets and prestige – through mergers and acquisitions, building developments, equity market speculation and predatory business practices that gobbled up or drove out the competition.

Give or take a bit of regulation and self-restraint, this was the “normal” the popular new President promised to return to.

Which brings us to the third assumption, and arguably the most important which was that the crisis – inability of banks to lend and businesses to borrow – was mainly responsible for the economic disaster. As President Obama put it, “Our goal is to quicken the day when we restart lending to the American people and American business, and end this crisis once and for all.”

He said, “You see, the flow of credit is the lifeblood of our economy. The ability to get a loan is how you finance the purchase of everything from a home to a car to a college education; how stores stock their shelves, farms buy equipment, and businesses make payroll.”

Sounds positive, doesn’t it? Ease the “flow of credit.” Make it easier “to get a loan.”

But what the President meant and did not say was … take on more debt, borrow more money.

Sound familiar? Turn back the clock. Remember the advertisements at the start of the decade encouraging Americans to take out home equity loans, to buy new cars, to move up from a starter home into the dream house? With interest rates at 46 year lows and credit flowing, the public were suckered into betting on their futures with borrowed money they could only pay back as long as they had jobs, could make payments and the economy didn’t collapse.

But when they lost their jobs, they couldn’t make payments and the economy began to collapse. Total unemployment (including discouraged workers and those with part time jobs looking for full time) was nearing 15 percent. In the fourth quarter of 2008, the net worth of American households fell by the largest amount in more than a half-century of record keeping. By February 2009, the foreclosure rate was up 30 percent from February 2008.

What Mr. Obama promised as the solution was, and had been, the problem. The country was already overwhelmed with debt … debt that it couldn’t pay back. In what way could incurring more debt “end this crisis once and for all”?

It was a plain fact; the flow of easy credit produced a torrent of debt. In 2009, private sector credit market debt was 174 percent of GDP. Household debt-service ratio was at an all-time high. US households had 39 percent more debt than income. (In 1962, consumers had 37 percent less debt than income. To promote policies encouraging people to take out more loans and sink still deeper into debt was abnormal, not “normal.” The abnormal had been renamed the normal.

Instead of encouraging people to live within their means, cut back, save money, and distinguish between “wants” and real needs, the official policy was to turn on the credit tap and flood the world with more debt.

The sanity of the policy was never in question. Arguments raged only over the quickest and most effective way to turn on the money spigot.

Everyone was looking for someone, somewhere, for rescue, and most eyes were turned to the United States. Even though the US was blamed for the flagrant economic abuses that brought on the crisis, given its economic clout and Superpower status, America was still looked to for the leadership needed to pave the way to recovery.

With its globally popular new president, hopes ran high that American know-how would know how to fix the problem … as though it were an intellectual exercise that could be solved by applying the correct economic formula.

No such formula existed. Yet so desperate was the world that it placed its hopes on the very people responsible for the deregulation of the financial industry largely blamed for the crisis. The deregulators now occupied key positions within the cabinet of that globally popular new President.

Billionaire investor Warren Buffett added a military dimension, dubbing the meltdown an “economic Pearl Harbor.” Buffett called on Congress to unite behind President Barack Obama, comparing the economic crisis to a military conflict that needed a commander-in-chief. “Patriotic Americans will realize this is a war,” he said.

If it was an economic Pearl Harbor, the enemies were Fannie Mae, Freddie Mac, A.I.G., Countrywide, Bank of America, Merrill Lynch, Citigroup, Bear Stearns, and all the other banks, brokerages, speculators, insurance companies, hedge funds and leverage buyout specialists that had launched the sneak attack on the American economy.

It had nothing to do with patriotism, unless being a “Patriotic American” meant appeasing and rewarding the enemy with trillions of dollars of taxpayer money and not being allowed to know where the money went.

Fed Refuses to Release Bank Data,
Insists on Secrecy

March 5, 2009 (Bloomberg) – The Federal Reserve Board of Governors receives daily reports on bailout loans to financial institutions and won’t make the information public, the central bank said in a reply in a Bloomberg News lawsuit.

The Fed refused yesterday to disclose the names of the borrowers and the loans, alleging that it would cast “a stigma on recipients of more than $1.9 trillion of emergency credit from US taxpayers and the assets the central bank is accepting as collateral.

The public had been cozened into believing:

• That disclosing the identities of the recipients would poorly reflect upon their public image and therefore their ability to function. Secrecy, on the other hand, allowed them to continue making disastrous decisions, while bamboozling clients who would not know they were dealing with incompetents – who stayed in business only because of huge taxpayer-financed infusions of corporate welfare.
• The “too big to fail” had to be bailed out by taxpayers in order to keep “the credit markets from seizing up.” But the consequences of seized up credit were rarely if ever spelled out.

Many financial analysts no less “expert” than those pushing through the bailouts were convinced that allowing the credit markets to seize up would, in the long run, prove far less costly than endlessly printing money and pouring it down a plush-lined sink hole. Buffett was wrong. It wasn’t a “war” at all. It was a criminal case, or should have been, but the accused took a financial Fifth Amendment – the right to remain silent, since any statement made could be used as evidence against them – and got away with it.

When, at a hearing before the Senate Budget Committee, Fed Chairman Ben Bernanke was asked, “Will you tell the American people to whom you lent $2.2 trillion of their dollars?” He answered, “No.”

Regards,

Gerald Celente
for The Daily Reckoning

Looking Back on the Greatest Depression originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

In 2009, the focus will broaden to include a range of calamities that will leave no sector unscathed. Next in line is retail, which accounts for some 70 percent of consumer spending, 26 percent of which is holiday sales.

After the numbers are tallied to reveal a dismal retail Christmas, more big chain bankruptcies will follow. Besides leaving masses unemployed, defunct retailers will leave behind thousands of empty stores. Who will rent them? Nobody!

Add to these empties commercial space vacated by defunct financial firms and an array of troubled businesses, from restaurants to architectural firms, to high tech operations, to offset printers, etc., etc. The inescapable result (that we predicted over a year ago and is only now being discussed in the business media) is a commercial real estate bust that will be costlier, wreak greater havoc and prove more intractable than the residential market decline.

Because most people don’t live and shop on Wall Street, the "Panic of ‘08" was viewed by Main Street as if from afar – even though many were losing money. But when commercial real estate crashes it will hit much closer to home. The depressive atmosphere of thinly shopped, half-vacant malls will strike emotional chords and all the senses.

In office buildings, vacant floors and empty cubicles will dampen the workday spirit of the still-employed; ever present reminders of laid-off friends and colleagues and of the fragility of employment.

Abandoned, untended business and industrial parks will highlight the already mournful scene. In cities studded with soaring towers and new construction predicated on eternal economic growth, streets lined with "For Rent/For Sale" signs will complement stilled cranes and uncompleted buildings.

As retail and commercial real estate collapse, the credit card sector and all its interrelated processing and back office support businesses will suffer and be forced to scale back. Hordes of consumers who have been living off credit cards and racking up debt to the limit will lack the funds to service their debt… much less pay it off, and they will be forced to default. Given the nearly $3 trillion in consumer debt at risk (excluding auto and mortgage) an inevitable default snowball will add momentum to the in-progress Collapse of ‘09.

While we alone predicted the "Panic of ‘08" (and even took out the domain name "Panicof08.com" on 7 November 2007), we are not alone in predicting a Depression.

The "D" word is being uttered – in some cases by those who have the most to lose and whose best interests are not served by spreading gloom and doom. "The world and country are in a depression," said celebrity tycoon Donald Trump. He then later softened the blow, downgrading it to a "virtual depression."

"Virtual" to the few who will never have to worry where the next dollar will come from, it will be painfully real and hardly virtual to the multitudes who are and will be worrying. The virally proliferating Greatest Depression is the Trend of Trends for 2009.

Even so, beware! Over the course of free-falling 2009, the word from most official sources will be "recession," and from the few mainstream trophy pessimists,
"deep recession."

For example, the oft-quoted naysayer, Nouriel Roubini, New York University professor of economics, forecasts a two year recession … not Depression. On the sunnier side of Wall Street, the Federal Reserve predicts the US economy will contract only through the middle of 2009 and pledged, "In any event, the Committee agreed to take whatever steps were necessary to support the recovery.”

What "steps?" The Bernanke Two-Step? Adjust interest rates or print more money? Neither stopped the credit crisis from worsening, the real estate market from tanking or the stock markets from crashing.

It was Fed finagling, Washington deregulation and Wall Street’s compulsive gambling that created the crisis. To trust or to seriously consider pronouncements, analyses and predictions made by any of these sources is an exercise in willful self-deception. Yet, with pensions, IRAs, 401ks, stocks and mutual funds evaporating, many of those most affected deny reality and take hope that forecasts made by proven incompetents will miraculously restore their losses.

Throughout the many years leading up to what we term the "Greatest Depression," The Trends Research Institute provided copious data and Globalnomic analysis to support our forecasts of economic upheaval. In the past year alone, we have provided so much hard evidence (housings starts, home sales, foreclosures, bankruptcies, bank failures, unemployment figures, stock indices, leading economic indicators, retail sales, etc.) that further elaboration should be superfluous.

Those waiting to hear the "D" word from economic experts, talking heads and TV anchors before taking action will most certainly regret their indecisiveness.

Absent from the economic scenarios ranging from second quarter recovery, deep recession and "virtual" depression are the multiplicity of social, environmental, health, political, emotional/psychological and geopolitical factors that point beyond just Depression. They point to The Decline and Fall of Empire America.

Well before Inauguration Day, Barack Obama was cast as the next Franklin Delano Roosevelt. If he follows in FDR’s footsteps he could freeze deposits by declaring a "holiday" to stop a run on the banks. While FDIC insurance may cover deposits, even after banks reopen, withdrawal amounts may be restricted. (As the Argentine government did in 2001-2002.)

Author’s Note: Suspicious of the soundness of the banking system, I requested to withdraw a substantial sum from our Key Bank account, leaving funds sufficient to cover ongoing business operations. First they tried to dissuade me, then they stonewalled me, and finally they turned openly hostile.

I was forced to sign a series of documents, including one acknowledging that since I was carrying a large sum I could be the target of a robbery. To enhance that possibility, the teller slammed down the bag of cash on the counter and publicly announced the sum.

Despite repeated requests in the days preceding my withdrawal to get the cash in hundreds, they gave it to me in twenties, making for a bag five times the size and more robber-friendly. When I complained to the bank manager who had processed the request, the response amounted to "take it or leave it."

This will not be an isolated event. If you attempt to withdraw a large chunk of money from your account, negotiate the details in advance and anticipate possible hassle and obstruction.

We’ve heard similar accounts from clients and Trends Journal subscribers who, over the past several months, tried to close out mutual funds, 401ks and assorted sinking equities. They were dissuaded, cajoled, belittled and arm-twisted by brokers desperate to keep their accounts. Many caved in under the pressure, didn’t close them and lost most of what they had.

So, we leave you with a Greatest Depression consideration: How safe is your money? How sound is your bank? At the end of November, Citigroup, once America’s largest bank, was on the rocks. Fifty-two thousand employees were laid off. In just three days its stock lost more than half its value. Rumors swirled that Citi was so desperate they were looking to sell or split up the company.

Is your money deposited in a local bank whose reputation you can bank on? Are you with a teetering giant or a poorly-managed regional? If either of the latter, it would be in your best interest to assess the risks.

Take some out if you think there is risk; take it all out if you think there’s high risk. You may consider spreading it around and even banking abroad … after all, this is the Global Age.

The Collapse of ‘09 originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.