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Signs of Economic Depression

Economics / Great Depression II Jan 04, 2010 - 11:34 AM GMT

By: Mike_Stathis


Diamond Rated - Best Financial Markets Analysis ArticleI wanted to remind you not to lose sight of the big picture. It’s advisable to try to make money during an illusion only if you know the reality.

Remember, consumer confidence and investor sentiment can and often creates illusions that can lead to big gains in stock market. But at some point, reality sets in.

So if you understand fact and fiction, you can make money during illusive periods while being prepared to exit when reality sets in, as opposed to riding the wave and getting blasted or being so scared you do nothing and miss out on big gains.  

The U.S. Supplemental Nutritional Assistance Program (SNAP), otherwise known as the food stamps program, was created in 1964. It has expanded during the past eight years and is likely to expand even more over the next decade.

The program is currently restricted to households with incomes below 130% of the federal poverty level, or $27,560 for a family of four. They cannot have more than $2,000 or, in some cases, $3,000 in assets, not including homes and, in most states, cars. The average benefit is about $3 a day per person. Cost to the government: $38 billion, rising to $40 billion in 2009.

As you can imagine, there are millions in need of assistance but just don’t qualify according to Washington and state criteria. 

As of the official data up to April 2009, 1 in 9 Americans were enrolled in the program. U.S. enrollment in recent months has shown a steady increase:

April 2009 - 33.8
March 2009 - 33.157 million
February 2009 - 32.556 million
January 2009 - 32.205 million
December 2008 - 31.784 million
November 2008 - 31.097 million
October 2008 - 31.050 million
Sept 2008 - 31.587 million

Washington estimates the number of enrollees will climb to 35 million by October 2009. I’m willing to bet when the data comes in for July, it will be over 35 million.

Don’t assume these struggling Americans are all homeless, because they aren’t. And you should not assume they are all poorly educated. In fact, many of them have college degrees; some have graduate degrees. Regardless of their background, they all have one thing in common. They aren’t making enough money.

You also shouldn’t assume those who go to food banks are unemployed. Food banks across America report serving morning meals to many people on their way to work. In 2008, about 41% of those receiving food stamps were from working families.

Now that the commodities bubble has burst, food prices really have not come down by much. In fact, there has been a strong trend of food inflation for several months now. Of course, now the unemployment rate is much higher which compounds things. 

Over the past year, food banks have reported shortages. Some have shut down temporarily. And Washington has responded. But still, this has not been enough. Food banks continue to run low on supplies.

Under the economic stimulus package, recipients of food stamps got a temporary 13% increase, beginning in April. The increase equals $80 a month for a household of four. But this is simply not enough because food prices are on the rise again.

President Obama has stopped short when it comes to helping starving Americans. But when it comes time to help Wall Street criminals, he has handed over trillions of dollars.

With millions of foreclosures and lay-offs since 2007, America’s homeless population has soared.
Certainly, the homeless situation in the U.S. has been bad for well over two decades. But today we are seeing a different homeless crowd. Many of these misfortunate Americans are not drug or alcohol abusers. They simply lost their job and their home.

Fortunately, many of the nation’s homeless have been able to move in with friends and family. Some are living in their cars. More fortunate ones are living in RVs.

Others are living on the streets and in tents. There are so many tent areas across America that they have been called tent cities. 

Some have called them modern-day Hoovervilles. They’re all over America—hundreds—with very high numbers in those states hit hardest with the real estate scam: California, Florida, and Nevada.

But they can also be found in states like Tennessee, Ohio, Georgia, and many others.

Many city governments across America have ordered these tent cities to be shut down.  This is something Americans are not seeing on the evening news hour.  

In some cities, like St. Petersburg, Florida, police have raided tent camps and have used knives to slice up the only shelter these people have.

When these desperate people scream “why!” the police respond they are keeping them safe.  Sound familiar?  Patriot Act? Homegrown Terrorist Act? I prefer to keep my freedom and take my chances.

City officials of Woodinville, WA (a suburb of Seattle) sued a local church for allowing a tent city on its own private grounds. The case went to Supreme Court. Luckily, the church won. You can bet this is a prelude of more to come. 

Is this the beginning of the depression-era shantytowns known as Hoovervilles?  Keep in mind it doesn't have to get that bad to signal a depression.

Remember, pre-depression-era living standards were much lower than modern day living standards. The only thing that matters is how much of a decline from previous levels we see. 

I’ve heard much rhetoric of Obama’s New Deal.  But I think he needs to study history because FDR’s New Deal included special assistance (the federal Transient Service) for the homeless. 

It would appear that Obama’s New Deal is smoke screen being used to grant even more powers to the Federal Reserve, while making sure America comes out of this with a two-class system. 

Regardless what happens, I can assure you there will be many more Bushvilles and Obamavilles to come.

America has faced troublesome homeless problem for many years, due to the effects of free trade and the suppression of the minimum wages.

Despite the recent increase in minimum wages, it’s still not enough.  As discussed in America’s Financial Apocalypse, if properly adjusted for even the government’s understated inflation data, the minimum wage should be over $12 per hour. Meanwhile, Washington keeps the criteria for poverty suppressed so fewer impoverished Americans qualify for welfare programs.

People asking for money at street lights has become routine in many areas of America’s largest cities. Some of them are simply lazy and want the easy way out. But others are destitute. 

But their problems extend well beyond homelessness and chronic unemployment. Most of these victims of America’s “New Economy” are alcohol and drug abusers. This has been their only escape from a nation that has allowed corporate interests to supersede those of the people who built it.

Just twenty years ago, unless you lived deep in the ghettos of America’s inner cities, you rarely saw “cart people” roaming the streets. Even prior to this collapse, you could find them in every city and town, large and small.  

The problem was so bad that for many years now, grocery stores went to extremes to make sure shopping carts weren’t stolen, using security barriers and even underground magnetic devices. 
As you might imagine, things are much worse today.

Let me tell you how this is going to play out and why most people will never realize this period will be known as America’s Second Great Depression.  You see, back in the 1930s, the Federal Reserve and U.S. Treasury didn’t have the level of money-printing and borrowing power as today. The dollar was not the universal currency and the Fed had just taken citizens off of the gold standard.

However, foreign nations still retained the right to redeem dollars for gold.  So as you can imagine, Washington’s ability to borrow money was limited, as was the Fed’s ability to pump money into the economy. 

Today however, the dollar is the universal currency, although this could change down the road (but not without a global war).  We have seen how the Fed and Treasury have printed endless dollars to pump into the economy and financial system. And yes, eventually it will have an effect.  But it will be an illusion of improved conditions. 

As a consequence of the actions taken by Washington and the Fed, the full effects of the depression will be spread over several decades so that the severity will be contained.  What this means is that economic growth and living standards in America will be faced with a very long period of decline. It is possible this decline will be permanent, depending on other variables.

If you find this difficult to accept, I ask you to consider this. Do you really think all can be made fine and well by printing money that is backed by no tangible assets? Do you really think it’s that easy? 

The universe obeys the laws of thermodynamics, specifically the first law, otherwise known as the law of conservation of mass and energy.  I’ll tell you a secret no one else I am aware of has ever mentioned. These laws also apply to economics.  Why? Because supply and demand are related to mass and energy. Think about it.

I don't have the time to elaborate on this. But just think about the conservation of mass and energy. Then think about the destruction (transfer) of wealth that has occurred.  Does anyone really think you can print dollars and you will fix this global mess? 

Thank you Alan. 

Social Unrest
Those of you who read America’s Financial Apocalypse know that I addressed numerous issues besides the real estate bubble. I also addressed the destruction of American jobs by free trade, pension problem, debt, boomer demographics, the healthcare crisis, the entitlements crisis, social decline and many other issues.

My coverage of these problems was the main reason I was black-balled by the media. I painted a very dark picture for America; one that was irrefutable. And they didn’t want people to know the truth; that free trade and massive corruption have destroyed America. My conclusion was that America would enter a very dark period; a depression.

Meanwhile, the media hand-picked an army of hacks and agenda-filled snake oil salesmen; naïve kids and marketers wanting a platform to pitch their trash to the sheep who have been brainwashed by America’s Nazi-style media machine.  

And look at their track records.

They have all been wrong.

Most of them have been 100% wrong.

Others have been only 50% right, but without offering any specific investment options other than to buy gold because they are gold dealers.

Anyway you look at it, you aren’t going to ever find anyone with credibility through the media because the media has loyalty to its financial sponsors – those who buy commercial air time and pay for ads.

Most recently, Washington has been trying to figure out solutions for healthcare, which partly address the entitlement crisis.

So what will be the next problem Washington will try to tackle? It’s likely to be the pension underfundedness because this too impacts the long-term sustenance of the economy. 

Social unrest is the final although not mandatory stage of a depression.  We have yet to see significant signs of this, but you should expect numerous crime waves down the road.

Many of these crimes will be atypical and will reflect the growing desperation and loss of hope for the future.  When people lose all hope, while subjected to disparaging conditions, they often resort to desperate measures. 

However, there is a very good possibility these episodes will be isolated events, not covered much by the national media. The media is working with Washington to downplay every bit of crime and misery of this period. 

Thus far, the media has created numerous distractions from the real criminals while focusing on Bernie Madoff, Alan Stanford and others who had absolutely nothing to do with this collapse.

If Americans truly understood what has happened and who has been responsible there would be riots. But the media has been successful in distracting and lying to a largely unintelligent U.S. population.

When you see riots in Iran due to suspicions of election fraud, you see people who understand they rule their nation. When you see riots in Greece after a teen was shot by police, you see people refusing to be enslaved by the new order set forth by the European Union. 

When you see apathy in America after election fraud (2004) you see a defeated population.

Those who read my landmark books America’s Financial Apocalypse (2006) and Cashing in on the Real Estate Bubble (2007) were not only alerted to the catastrophe we see today, but were provided with SPECIFIC ways to profit that have yielded over 100% gains since then.  See here for some examples

If you want access to institutional-level research, analysis and investment guidance, subscribe to the AVA Investment Analytics newsletter today.

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By Mike Stathis

Copyright © 2009. All Rights Reserved. Mike Stathis.

Mike Stathis is the Managing Principal of Apex Venture Advisors , a business and investment intelligence firm serving the needs of venture firms, corporations and hedge funds on a variety of projects. Mike's work in the private markets includes valuation analysis, deal structuring, and business strategy. In the public markets he has assisted hedge funds with investment strategy, valuation analysis, market forecasting, risk management, and distressed securities analysis. Prior to Apex Advisors, Mike worked at UBS and Bear Stearns, focusing on asset management and merchant banking.

The accuracy of his predictions and insights detailed in the 2006 release of America's Financial Apocalypse and Cashing in on the Real Estate Bubble have positioned him as one of America's most insightful and creative financial minds. These books serve as proof that he remains well ahead of the curve, as he continues to position his clients with a unique competitive advantage. His first book, The Startup Company Bible for Entrepreneurs has become required reading for high-tech entrepreneurs, and is used in several business schools as a required text for completion of the MBA program.

Restrictions Against Reproduction: No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section 107 or 108 of the 1976 United States Copyright Act, without the prior written permission of the copyright owner and the Publisher. These articles and commentaries cannot be reposted or used in any publications for which there is any revenue generated directly or indirectly. These articles cannot be used to enhance the viewer appeal of any website, including any ad revenue on the website, other than those sites for which specific written permission has been granted. Any such violations are unlawful and violators will be prosecuted in accordance with these laws.

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Books Published
"America's Financial Apocalypse" (Condensed Version)

"Cashing in on the Real Estate Bubble"

"The Startup Company Bible for Entrepreneurs"

Disclaimer: All investment commentaries and recommendations herein have been presented for educational purposes, are generic and not meant to serve as individual investment advice, and should not be taken as such. Readers should consult their registered financial representative to determine the suitability of all investment strategies discussed. Without a consideration of each investor's financial profile. The investment strategies herein do not apply to 401(k), IRA or any other tax-deferred retirement accounts due to the limitations of these investment vehicles.

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