In our current world of finance and economics specialization is rampant to the point of being emblematic of our age. There are specialists in credit derivatives, traders of all stripes, equities, bonds, distressed debt, emerging markets, private equities, municipal bonds, high yield bonds, repos and a host of other financial vehicles. Since each of these specialists operate in their own “silo” there are few big picture specialists who can look at the entire macroeconomic environment and connect the dots. Listening to Bloomberg Radio yesterday morning, noted bank analyst Meredith Whitney returned to her bearish stance on both bank stocks and the stock market in general. Ms.Whitney said she examines all economic data. Unfortunately, Ms Whitney is a rarity on Wall Street and in Washington. The mantra has been “green shoots and recovery” but coverage has ignored reality. Examine recent financial headlines which rarely make the mainstream media:
- State Tax Collections Across US Take Second Consecutive Record Plunge
- Worst is Yet to Come for Insurance Companies
- US States Face Ongoing Budget Deficits, Rockefeller Institute Says
- Rosenberg: US Employment Rate Headed for 12-13%
- US Consumer Credit Debt Falls for 8th Straight Month in September
- Contraction in Bank Credit Worse This Time Around
- Edmunds.Com Forecasts November Auto Sales: Seasonal Slowdown Set In
- $78.8 Trillion; United states Debt Obligations Exceed World GDP
- Commercial Real Estate Will Collapse
- Is the FDIC Broke and Covering It Up?
- Obama Acknowledges Danger of Double- Dip Recession If Deficits Grow
- Trade Deficit Threatens Double-Dip Recession
- 35 Million Americans on Food Stamps: 12 Percent of US Population
- One in Nine Homes Are Vacant in the United States
- Post-Lehman Déjà Vu as Treasury Bills Turn Negative
Connecting the Dots
To stem a financial collapse after the bursting of the internet bubble, the Federal Reserve dropped interest rates to near zero. This sparked the boom in real estate and the “FIRE” economy: finance, insurance and real estate. As a nation we exported our productive capacity off shore and we embraced a real estate, retail and service economy. This bubble burst in 2008. The cycle of ever rising asset prices and credit prices ended.
The above headlines suggest an economy seriously unbalanced with collapsing commercial and residential real estate prices, already high and increasing unemployment, contracting bank and consumer credit, trade imbalances, deficits at the federal and state level, collapsing personal finances and falling tax collections.
Too Much Debt and Too Little Income
The hangover from a decade of financial excess is too much debt and too little income to support that debt. The rest is mere commentary. Trying to re-inflate the FIRE economy bubble will ultimately prove to be costly and futile. The country needs more people like Meredith Whitney who recognize that the emperor has no clothes and realize that there will be continuing tough times ahead.
As they used to say on Hill Street Blues: “Hey let’s be careful out there.”
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