While this comment by “Bailey Savings and Loan” (over at the Daily Kos) might seem a bit outlandish, the repercussions described are not.
I’ve heard at least one very intelligent person discuss the possibility of a depression fueled by overzealous indebtedness, something the US and its citizens assuredly have.
How about adding a few points to it…
The largest employers in the US are very large corporations and federal and state governments. Those employers have defined benefit pension plans which are not only underfunded, but are some of the biggest purchasers of collateralized mortgage obligations – in other words, home mortgages on price inflated properties. Roughly one in ten US pension funds has already been frozen – meaning employees in those plans can no longer accrue benefits. The City of New York was frozen itself, if just for a few days, over pension issues. If the property market hits the skids, those pension plans will suffer, and the Pension Benefit Guarantee Corporation will be hard pressed to bail them all out.
Rising health care costs are effecting those most in need (i.e. the aging population). That same aging population holds the inheritance that the next generation would otherwise see. If costs continue their almost vertical momentum, there won’t be much left to those estates once the medical bills are paid (dying is one of the most expensive things you can do in America).
Of course, these are long-term issues, and America’s thinking (whether it be economic or political) is all about the short term. So lets dish out a little short term…
– Housing sales dropped 11% in November;
– Retailers are hoping the week AFTER Christmas shores them up for the year; and
– The treasury yield curve has tilted in the wrong direction.
To sum it up, the housing drop was the worst month-on-month decline in a decade. Retailers who count on the last quarter will likely turn in some lackluster results in the next. Sadly, the recovery of the last few years has been fueled by them both. In fact, the two sectors “have together accounted for 90% of the total growth in GDP” during this last recovery, according to the Economist. An inverted yield curve has traditionally been a decent predictor of a slowdown, despite what Alan “Lame Duck” Greenspan is saying. The fact that it happened for the first time in 5 years just subtracts from the credibility of the naysayers this time around – they think short term too. “This time, this place” things are always different.
Who will paint the rosy picture, in the face of the need to clean up balance sheets – to start saving?
The “paid for” media, of course.