2010 - The Year of The Wake Up Call
theautomaticearth.blogspot.com
largi: As the US dollar soars and gold plummets, fear is the master in the dark days before the Scrooge fest. Many are taking their profits and counting their losses before the end of the year. Here are 10 trends for 2010 and beyond. Some have started already, others won’t be big till after the next year, but all will be prominently in the news in the 12 months to come.
1) Sovereign Debt
One of the main themes lately, certainly in reports looking forward to 2010, is sovereign debt. That is not all that surprising, of course, given that if we take the US as an example, we see that in 2009 trillions of dollars of debt from the banking and housing industries have been transferred to the public sector, i.e. the taxpayer, the very party ultimately responsible for paying back that sovereign debt.
One may wonder what the taxpayer would do if only (s)he knew. Until then, though, that's simply economics 101 for you.
The American administration (and the House that -on paper- controls it), like many other governments around the world, sees the fact that it’s received 51% of the votes as a blanket permission to do with any amount of its voters’ money as it sees fit. And this includes spending during a single 4 year term in between elections what will take the voters 10 or 20 years to pay off, unless things go better than they ever have before in history.
This last example may be an exception, though still a truthful description of economic policies in the first year of the Obama administration, but it is undoubtedly true that in most if not all 4-year terms enough is spent for 5 or 6 years at the very least, with economic growth as the great provider and apologist. That’s why the debt has become so high.
We are on the doorstep of an era where is fast becoming more expensive for governments of all levels and well as businesses across the globe to borrow money, a development that will greatly exacerbate the problems. Printing presses are powerless to turn this around.
Sovereign debt is an issue in many countries today and going forward. Dubai, Greece, Ireland, Spain, Italy, Ukraine, Baltics, Argentina, Britain and Portugal are just a few of the most urgent cases.
2) Local Government Debt
States, towns, provinces, municipalities, no matter how specific nations have organized themselves, an unprecedented number among these entities are sailing into stormy weather. We can all see what happens in California and New York, but they're just the tip of the iceberg. The initial responses across the board will be to raise taxes wherever possible, which will lead to a lot of angry faces, and to cut services to the least vocal -who invariably are also mostly the most needy-.
Decent schools and health care facilities will begin to erode out of existence, while the longer term will bring deteriorating functionality in water and sewage systems as well as a diminishing state of repair of roads and other transport facilities. After that, likely after 2010, fire departments and police services will come under the knife. Some of these thing swill happen much sooner in some locales than in others, obviously.
3) Bank Debt
Today, Citi can only repay TARP (and is being allowed to do so) by selling debt and shares so cheaply that even the Treasury wants no part of the deal. Expect them to come knocking again, let’s say in Q2 2010 at the latest. The 5 largest US banks count on their Too Big To Fail status, and feel sure the government will bail them out again next time they’re in trouble. That is what we call moral hazard. Come to think of it, nobody uses that term anymore today, when it has become more appropriate than ever.
The 8000 or so remaining US banks will start falling like dominoes, as they should have done over the past year if only the FDIC had done its job in a proper fashion. Already, the state of the banks that were closed recently has been much worse than those closed a year ago, and therefore much more costly to the public. If nothing else, this will turn into an increasingly embarrassing situation for Washington.
In many other countries, banks received support of one kind or the other. If and when the economy gets worse, their losses will mount and their positions will become untenable. Some closures will be exceedingly painful. Bank holidays in certain countries look inevitable.
4) Business Debt
Huge numbers of businesses around the world will find that when they have to roll over their debt or extend their credit lines, the cost of servicing it will rise dramatically, which by itself will for many be the sign to throw the towel, while for many others the lines will simply be cut off. No matter what stories you may hear or read, and no matter how much money is dumped into the banking system, we are in a credit crunch.
5) Consumer Debt
Credit will keep contracting (re: credit cards), home prices will keep falling and unemployment numbers will continue to rise. That should be all you need to know. It’s called a credit crunch.
6) Tax Increases
Government tax revenues, federal and below, have been dropping throughout 2009 and will continue on their downward path. There is one initial reaction: raise taxes. We will see a lot of anger and a lot of misery on account of this. We’ll also see for instance people losing their homes because they can't afford the property taxes. Wait for stories about incidents of crazy tax raises somewhere. Good hearted fun if you're not a victim.
7) Foreclosures
Some 4 million in 2009. And more in 2010, but for a miracle. Resets of Alt-A and OptionARM’s are getting ready for their lift-off. Which means falling prices. Which means more foreclosures. Which means falling prices. Wich means more foreclosures. Ironically, as long as the government props up home prices, these prices will keep falling. Albeit more slowly. Prices that would constitute a market equilibrium in today's conditions are a long way down from here.
8) Unemployment
Against the backdrop of a 50+% stock market rally, job numbers have continued to plummet, and there's no indication (no, Larry Summers doesn’t count) that things will turn around. The downfall has slowed, just like the one in housing prices, but it hasn't stopped or reversed. The numbers of unemployed youth and long-term (i.e. more than a year) jobless are both staggering and worrisome.
9) Stock Markets
A 50% rally [? I think the writer got confused and mis-wrote]. Who in his right mind would expect that to keep rising when the main indicators are all worsening? Eventually, we’ll move back to a situation where only a few people will be invested in stocks, like in the days of old. To get there, it should be obvious that the masses invested now will have to absorb losses substantial enough to make the markets look highly unappetizing. And so it will come to pass.
10) Unrest
The main newbie and the rising star in 2010. We've seen instances the past year, which the media have hilariously all attempted to label "terrorism", but watch for a million different forms of unrest in a million different places, and all over the planet, some of it decidedly ugly. A lot of people stand to lose a lot of what they have long been led to believe is rightfully theirs, and they're not all going to take it lying down. Not anymore.
2009 was the year of the gullible victim.
2010 will be the year of the wake-up call. |
