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Tag(s): Banking; Bankruptcy; Consumerism; Credit; Depression; Economy Recession; Economy-Economics- World; Gold; Markets; Money; (more...) Money; Money (less...)
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February 8, 2008 at 08:19:53

Headlined on 2/8/08:
Depression Enters Phase Two

by Michael Fox Page 1 of 1 page(s)

www.opednews.com

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Egg, a British online bank, said it would cancel the credit cards of 161,000 customers it deemed too risky. The cards will stop working in March. The news provoked angry reactions from some credit-card holders who claimed their credit records were spotless. Egg was acquired by Citigroup last year, before the deterioration in money markets. [From The Economist, Feb. 7, 2008]

Citigroup recently found itself short of cash-on-hand, so they sold another 5% of the company to the UAE. That wasn’t enough, evidently, so now they’re tightening up on lending. First was the mortgage sector, now the consumer credit. Dropping 161,000 credit cards in Britain would work out to dropping over 800,000 were they to do likewise in the United States. Only, this is one small subsidiary bank in Great Britain, and this is only the beginning.

Those credit cards they’ve been “pre-approving” and issuing to anyone who’d sign up will soon be gone. Without the credit card - mad consumerism of the last ten years, store closures will be drastic, and accompanying unemployment will go without saying. Meanwhile, the government is printing more money to keep the spending spree going, even if the banks can no longer underwrite the party. Still, the Fed keeps lowering the interest rates to encourage borrowing – if only anyone were lending! Yet as the cost of money drops for the banks, credit card interest rates and fees are skyrocketing.

And underwriting the chaos, the four insurance companies that guarantee all those plummeting credit-based assets of the world’s financial institutions are now having their own credit ratings lowered. Just yesterday, the president of Deutsche Bank expressed doubt about their strength.

Deutsche Bank AG Chief Executive Officer Josef Ackermann said rating downgrades for bond insurers pose risks that could match the U.S. subprime market collapse. ''It could be a tsunami-like event comparable to subprime,'' Ackermann said in a Bloomberg Television interview in Frankfurt today.[From Bloomberg, Feb. 7, 2008]

There’s been much talk about fear of Recession, but I wrote in November that we were in the beginning of a new Depression. And this Depression will be so chaotic that it won’t conform to any previous definitions. High unemployment, inflation due to printed money, simultaneously drastic deflation in the housing sector. Unemployment is rising beyond the wildest estimates of economists. Banks and Financial Institutions are so close to insolvency that they are selling off chunks of stock just to maintain their credit worthiness, and it isn’t working. And the FDIC?

Just a thought about the FDIC and your bank account: There used to be something called the FSLIC, which got depleted when the Savings and Loans were deregulated and went belly-up on risky investments in the 1980s. The one still-seated member of The Keating Five (five Senators who used influence to avert oversight in return for campaign contributions): Senator John McCain, probably the last guy you’d want in charge at a time like this, and he just nabbed the Republican nomination. Buy precious metals.

Michael Fox is a writer and economist based in Los Angeles. He has been a corporate controller, professor, and small business entrepreneur. After a life-altering accident, he spent five years learning more about medicine and the healthcare industry than he ever intended. In addition to writing about economics and related geopolitical issues, he is passionate about the performing arts and writes theatre, film, and opera criticism.

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6 comments

I am a 65 year old widowed grandmother who just got health insurance after more than two decades without it which is difficult with Diabetes, asthma and hypertension. One of my sons is severely developmentally disabled by autism due to lead paint poisoning. I have spent much of my life caring for ill and disabled family members and advocating on their behalf.
Pat WilliamsI am a 65 year old widowed grandmother who just got health insurance after more than two decades without it which is difficult with Diabetes, asthma and hypertension. One of my sons is severely developmentally disabled by autism due to lead paint poisoning. I have spent much of my life caring for ill and disabled family members and advocating on their behalf.

Recalling the Great Depression

It was worldwide. The British, including part of their government, had pulled the financial rug out from under the overextended Stock Market trying to corner the world's gold. Most Americans don't realize that it wasn't only some hardship. Americans starved, suffered cold winters, millions went homeless and died of opportunistic diseases such as TB and pneumonia. The elderly and young children were most susceptible. So when you talk about a Depression, you better understand that the corporate interests that put us here will not bail us out. We've got to stop buying into the nonsense that everybody is on his own, rebuild our government and halt privatization of our government that is leaching us dry. While we definitely do not need full-blown socialism, we do need our basic support systems to not be for profit such as universal health insurance. We need a commitment to rebuilding our infrastructure to support new industries. We do need to boost our small businesses, the base of the majority of new jobs and the creative base for innovation and growth. We need to fund scientific research and higher education to grow productivity and prosperity. We need to do all this while cleaning up the environment and taking a leap of faith that we can increasingly eliminate environmental pollution, building whole new fields of employment in the process. One thing we do not need is how Hitler did it. He put people to work by building a war machine. We need to build a peace machine.

by Pat Williams (0 articles, 0 quicklinks, 0 diaries, 82 comments) on Friday, February 8, 2008 at 1:04:22 PM

August Adams is a CPA and holds a Masters Degree in Psychology. He is an activist striving to create a fair and just world for all.
August AdamsAugust Adams is a CPA and holds a Masters Degree in Psychology. He is an activist striving to create a fair and just world for all.

The war machine is built

Unfortunately, the war machine is built. We spend more on our military than the rest of the world combined. Many Americans still do not understand that fact. The Military Industrialized Complex exists in every single state of the union - that's so they can have political clout in each state and work 24/7/365 to influence our government - at the local, state and federal levels.

How do mere humans take on that kind of money, power and influence? Not to mention - brute force?

The real cost of maintaining this "super military", paid for on the backs of middle class Americans - is lack of health care, worker insecurity, failing infrastructure and the highest personal debt in the free world.

Corporate America's leaders, their greed, has positioned this country for a great fall - and they'll just move operations overseas. Just ask Halliburton and the rest of the global headquarters moving to Dubai.

by August Adams (10 articles, 0 quicklinks, 1 diaries, 442 comments) on Friday, February 8, 2008 at 1:32:44 PM

Skin diver, spear fisher, trash collector, roughneck, scuba diver, football player, tennis player, mechanical engineer, aerospace engineer, husband, father, math teacher, fisherman.
Paul RyeSkin diver, spear fisher, trash collector, roughneck, scuba diver, football player, tennis player, mechanical engineer, aerospace engineer, husband, father, math teacher, fisherman.

How to survive and how to fix the system.

Although nothing in life is certain, not even the "coming Depression", I am acting on the assumption that it is a high probability event. In other words, I'm putting my money where my mouth is and positioning myself in defensive investments such as: gold, silver, inverse ETFs, and paying down all possible debt. Also, I'm looking into ways to make my social network into more of a community mutual support network.

My worry is that even if this Depression turns out to be as bad as or worse than the first one, just like the first one, there won't be enough people who understand what caused it to make the changes needed to be sure it doesn't happen again. Although more and more people every day are coming to understand that it is the monetary/banking system that sets Government and the public up to fail, the numerical base of this group is so small that even as it grows quickly, the total number of people is still small. It takes a critical mass of some 10-20% of the people understanding or believing in the true problem to convince the rest. Not only that, but the people who are advantaged because of the existing system have positioned themselves to take advantage of Government, media, and education and actively suppress the truth.

After the first Depression, not even experts could agree on the cause. But now, with the national debt as great as it is, the problem is more obvious than it was the first time. The genesis and etiology of our current economic problems are firmly linked with the monetary/banking system. If enough people do not "get this", then no constructive change will result, even if we go through a second Great Depression worse than the first one.

by Paul Rye (7 articles, 2 quicklinks, 15 diaries, 283 comments) on Friday, February 8, 2008 at 2:43:13 PM

42 - Fiscal Conservative, Socially Liberal, Profoundly Disappointed in the Current President/Congress.
e m42 - Fiscal Conservative, Socially Liberal, Profoundly Disappointed in the Current President/Congress.

Precious Metals...

Unless the gold is sitting in your house, the paper investments you made in gold may or may not even be tangible. And in a breakdown of society where the majority of Americans become bankrupt, you wil have a hard time finding a lawyer that will take a case to sue some entity you bought that gold from . . .just a thought for the precious metal crowd.

by e m (0 articles, 0 quicklinks, 1 diaries, 19 comments) on Saturday, February 9, 2008 at 3:58:21 AM

Very True

As I've pointed out in previous posts, if things get bad enough, if banks and brokerages fail, any paper investment, even one in gold might simply vanish. So, it is a good idea to keep some physical silver and cash in a safe place just in case.

One of my financial problems is money that I have tied up in IRAs and tax sheltered annunities that cannot be withdrawn without penalties. A suggestion I've heard that is sounding less ridiculous by the day is to simply withdraw that money and take the penalty hit. It seems a mite premature yet, but if bank runs start, I would not want to be among the people who consider that option last.

by Paul Rye (7 articles, 2 quicklinks, 15 diaries, 283 comments) on Monday, February 11, 2008 at 1:57:49 AM

I'm just another prisoner on this prison planet who's trying to keep abreast of things so I'll know when to plan my escape.I'm an ex-aerospace/defense industry participant turned behavioral health therapist interested in helping secure my fellow man's sound state of mind, and my environments sound state of well being.
Rick MasonI'm just another prisoner on this prison planet who's trying to keep abreast of things so I'll know when to plan my escape.I'm an ex-aerospace/defense industry participant turned behavioral health therapist interested in helping secure my fellow man's sound state of mind, and my environments sound state of well being.

Military Spending

One thing that August Adams fails to mention, or perhaps does not know, is that as well as being the U.S.'s biggest spending sector, weapons are also this nation's #1 export. War, and the ability to wage war has been the driving force behind America's economy for decades. Just recall the Regan years for an indication of how much economic stimulation a good war or defense program can generate. Can you say "Star Wars"?

by Rick Mason (0 articles, 0 quicklinks, 0 diaries, 26 comments) on Saturday, February 9, 2008 at 10:24:27 AM