FedUpUSA

Archive for July 13th, 2010

Today, more Americans than ever are absolutely convinced that we are headed for an economic collapse.  After all, it doesn’t take an advanced degree in economics to understand that American consumers, American businesses, local governments, state governments and the U.S. federal government are all drowning in debt.  It would be hard enough to deal with all of this debt during good economic times, but these are not good economic times.  In fact, right now the U.S. economy is being pounded by an unprecedented number of economic problems.  Tens of millions of Americans are unemployed or underemployed, 40 million Americans are on food stamps, the U.S. real estate crash continues to get worse, and the ongoing oil spill in the Gulf of Mexico threatens to drag that entire region, and perhaps all of the United States, into a devastating economic depression.  So these days it is fairly easy to convince Americans that really hard economic times are coming.  But now an increasingly large number of people have a new question.  They want to know what to do about all of this.  In fact, probably the biggest group of questions I receive from readers is regarding what to do in order to prepare for the economic collapse that is coming.   People are tired of just talking about all of these problems and they want an action plan. 

So what is the answer?

What should people do about this coming economic collapse?

Well, when I attended law school I was taught that there is a two word answer to almost any question that someone can ask about the law….

It depends.

And while there are some fundamental principles which we should all follow in getting prepared for the coming economic crisis (which I will share below), the truth is that each and every person has very different circumstances that they are facing, so when someone asks what they should do I give them that same answer….

It depends.

If you have a family you are going to prepare much differently than if you are single.

If you live along the coast you are going to prepare much differently than if you live in the mountains or in the city.

If you are wealthy you are going to prepare much differently from someone who only possesses limited resources.

If you are dependent on a job you are going to prepare much differently from someone who is self-employed.

If you live on a farm you are going to prepare much differently from someone who lives in an apartment building and has never even grown a garden.

The truth is that there are a ton of variables and there just is not a “one size fits all” answer.

However, there are some fundamental principles that we should all be following as we prepare for the coming economic collapse….

Get Out Of Debt

It is always, always, always a good idea to get out of debt, but this is particularly true during a time of economic crisis.  During an economic collapse, it will be very difficult to get work, money will be tight, and the last thing you will want to be doing is to be making monthly payments on some debt that you accumulated five years ago.  The reality is that when we borrow money we become a servant, and debt is a very cruel master. 

You especially want to get rid of debt that is at high interest rates (such as credit card debt).  There are very few things that are as good at bleeding your finances as credit card debt is.  For example, according to the credit card repayment calculator, if you have a $6000 balance on a credit card with a 20 percent interest rate and only pay the minimum payment each time, it will take you 54 years to pay off that credit card.

During those 54 years you will pay $26,168 in interest rate charges on that credit card balance in addition to the $6000 in principal that you are required to pay back.  That is before any fees or penalties are even calculated.

Can you see how financially debilitating that can be?

The truth is that if you haven’t already started, now is the time to develop a plan for how to get out of debt.  Paying off debt can be very painful, but it will put you in a much, much better position to weather the financial storms that are ahead.

Reduce Your Expenses

Along the same lines, it is a very good idea to start reducing your expenses right now.  The truth is that you cannot be sure that you will always have the same job or the same level of income.  Times are going to be very tight in the future.  Now is the time to start the belt tightening.

Yes, the truth is that the cost of everything seems to be going up these days, and most American families are already finding it increasingly difficult to get by each month.

But if your household is spending $5000 a month right now, are there ways that you could get that down to $4000 or maybe even $3000? 

If we all start learning to live with less right now, it will be much easier to do when times really get hard.

Increase Your Income

Yes, this is much easier said than done.  Especially considering the fact that it seems like there are hardly any jobs out there right now.

But the truth is that we are all going to have to work a lot harder and become a lot less dependent on employers.

It is going to become increasingly difficult to get good jobs in the months and years ahead.  The big global corporations are figuring out that they really don’t need us after all.  In many ways, it is much easier for them to hire a workforce from the other side of the world.

So where does that leave us?

Well, fortunately there are still a lot of ways to make money in America.  How long that will last is uncertain, but for now we should work while the working is good.  We are all going to have to start becoming a lot more entrepreneurial.

Nobody is going to hand you anything in this life.  If you just settle for your job (“just over broke”) you aren’t going to get too far in today’s world.

Many people start developing an extra income during their spare time in the evenings after work.  Yes, that would mean that you would have less time to sit on the couch and watch people talk about who LeBron James is going to play basketball for, but did you think that we were going to be able to get through this without making sacrifices?

Now is the time to rise up off the sofa and figure out how to make some more money.  There is still a little more time to get prepared.  If you keep putting off what you know needs to be done, eventually it will be too late.

In addition, learning to do things like growing a garden is another way of “increasing” your income.  All of the fruit and vegetables that you grow will mean that you won’t have to spend as much at the grocery store.

Stock Up On Essentials

There are tons of supplies still in the stores, and prices are still relatively low right now (especially compared to what they will be in the future).  So it is time to stock up on essentials while the getting is good.

In a previous article entitled “20 Things You Will Need To Survive When The Economy Collapses And The Next Great Depression Begins”, we listed 20 of the things that you will need in the event of a major disaster, an emergency or an economic collapse.  These are the things that you are going to want to make sure that you have ready right now, because after the crisis begins it may be too late to prepare….

#1) Storable Food

#2) Clean Water

#3) Shelter

#4) Warm Clothing

#5) An Axe

#6) Lighters Or Matches

#7) Hiking Boots Or Comfortable Shoes

#8) A Flashlight And/Or Lantern

#9) A Radio

#10) Communication Equipment

#11) A Swiss Army Knife

#12) Personal Hygiene Items

#13) A First Aid Kit And Other Medical Supplies

#14) Extra Gasoline (But Be Very Careful How You Store It)

#15) A Sewing Kit

#16) Self-Defense Equipment

#17) A Compass

#18) A Hiking Backpack

#19) A Community

#20) A Backup Plan

In the comments to that article, our readers suggested the following additional items….

A K-Bar Fighting Knife

Salt

Extra Batteries

Medicine

A Camp Stove

Propane

Pet Food

Heirloom Seeds

Tools

An LED Headlamp

Candles

Clorox

Calcium Hypochlorite

Ziplock Bags

Maps Of Your Area

Binoculars

Sleeping Bags

Rifle For Hunting

Extra Socks

Gloves

Gold And Silver Coins For Bartering

Of course there are probably many more items you could put on the list.

The point is to get educated, get informed and start getting prepared.

When things get really hard, that brand new pool table isn’t going to do you much good, but having a good supply of food and clean water will make all the difference.

Not that things are going to totally fall apart overnight.  It is going to be a process.

But you don’t start preparing when the storm is already on top of you. 

Most of us know what is coming.

Now we need to start taking action. 

This is how Americans got through the Great Depression of the 1930s – they tightened their belts, they were resourceful, and they did whatever they needed to do to provide for their families.

Now it is our turn.  Sure some people will laugh as many of us adjust our lifestyles in preparation for hard economic times, but it is those same people who will come knocking on your door when the rain does start pouring.

The Economic Collapse

The Herald-News reports Talks fail – Illinois construction strike drags on

Monday’s negotiations failed to produce a settlement between striking union laborers and operating engineers and their employers.

Jim Sweeney, president and business manager of International Union of Operating Engineers Local 150, said he was ” … tremendously disappointed at the employers’ lack of urgency.”

Mish Translation: Local 150 wants employers to quickly cave into obscene union demands

“We are asking the employers to share the burden with us,” Sweeney said.

Mish Translation:

This is what sharing the burden really looks like.

A press release issued Monday night by MARBA said the unions “… have been unwilling to come to the table with a proposal that is in line with the state of the industry and the economy.”

The strike has stopped a wide variety of projects in nine Chicagoland area counties. Will County projects affected by the strike include the new Silver Cross Hospital in New Lenox, 159th Street work in Lockport and the Route 59 widening through Shorewood, Joliet and Plainfield.

What’s MARBA?

Inquiring minds are reading About MARBA.

Formed in 1971, the Mid-America Regional Bargaining Association (MARBA) is a multi-employer association focused on collective bargaining in the construction industry. It brings together various contractor associations in the Metropolitan Chicago region for the purpose of unified labor relations.

MARBA recruits industry experts to serve in the leadership roles during negotiations. These individuals are usually one of the leading employers in the particular craft for which MARBA is negotiating. MARBA stabilizes the construction industry by unifying contractors and providing them with a strong, single voice to handle union relations.

Negotiating twenty-one separate collective bargaining agreements with ten unions is just one aspect of MARBA’s services to its members.

MARBA Press Release

I happen to have a copy of a document from MARBA that shows who is really holding up contract negotiations. Here goes.

A Sense of Urgency

The union accuses employers of having “no sense of urgency”. The Collective Bargaining Association points out why.

• Unions are asking for a 4.55% raise per year for 3 years
• The Operating Engineers’ medical plan covers 100% of most medical expenses with no deductible or co-payment and the maximum deductible for anything is $300.
• The Laborers’ plan covers 100% of the first $10,000. After that, members are responsible for a mere $200 per calendar year deductible per person ($400 per family).

Tom Nordeen, Chairman of MARBA says “These are the kind of benefits many would envy”

I think that is quite an understatement, don’t you? Yet greedy unions are holding out for obscene pay hikes on top of those benefits.

Gall of Jim Sweeney, President of Local 150

Jim Sweeney, president and business manager of International Union of Operating Engineers Local 150 has the gall to talk about “Shared Sacrifice”.

What You Can Do About It

If you are in Chicago, stuck in construction-zone traffic, looking for where to place the blame, please blame the unions.

Better yet, if you want to do something about this, do not vote for any candidate who wins a union endorsement. In general that means boot Governor Quinn out of office and his Democrat cronies right along with him.

Not in Illinois?

No problem, just do the same thing in your state: Do not vote for any candidate beholden to public unions and do not vote for any candidate who thinks raising taxes is the solution to the problem of union arrogance and greed.

By the way ….
Want to know one reason medical costs are soaring?

Look how union employees have absolutely no incentive to hold down costs. They do not care what medication costs or how many tests are done. Those with high deductibles are less prone to do needless tests and more prone to use generics. Taxpayers foot the bill for this extravagance twice, once in insane salaries and pensions, the second in rising health care costs.

Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com

I give the NFIB credit for their analysis, but not for their “education”  during the last bubble – and this collapse.

Indeed, their newest report is rather interesting:

• The prime problem with small business is slow or declining sales, and is worse today (by six points) than last year, which was the so-called “formal” bottom of the recession.  Access to credit is the prime problem in only 8% of small businesses.
• 38% of small businesses are using credit cards as a funding mechanism (!!!)  At today’s pricing this is suicidal.  If this number indicates those small business who have effectively been forced into this use of credit (and I suspect it is) we’re in deep kimchee – nearly 4 in 10 small businesses are likely to fail in the next two to three years as a consequence of this.
• Far too many (11%) small business owners are collateralizing real estate as a means of funding operations.  If I’m reading this report right, these are businesses where the owner has pledged his or her personal residence as security.

If you remember yesterday’s Ticker on this subject (which included a nice jab at Krugman), along with the “meat” of yesterday’s Blogtalk Radio Show (available always on the right sidebar of The Ticker) you’ll find most of the problems are one of a small business person’s own making, and NFIB is not helping matters one iota with their bleating about “more credit availability”, nor is Bernanke and his evil minions issuing various comments about the same issue.

Let’s face it folks: Interest charged on borrowed money has to come from gross margins, and in the marketplace the person who has the fewest and smallest parasitic factors increasing their costs wins.

Some parasitic factors are not under your direct control (think taxes) but others are.  Taking credit and thus embedding interest costs into your operations is one of them.

Self-liquidating trade credit (e.g. Net 30 terms on purchases) is one thing – you generally don’t pay materially for that, although for those suppliers where you can negotiate a 2% 10 discount you should take it.  Even a 1% 10 discount adds up to 12% over a year’s time, compared to paying Net 30.  If you want to know where your margin is going, look at the poison you willingly and knowingly ingested in the form of financing costs.

Ditto if you’re a small business and are not being paid on time.  This is just plain suicidal – and for those small businesses in places like Illinois, if you have business dealings with the state you must get this problem under control or it will BURY YOU.

I know all the common excuses – “I need that contract”, or “we won’t survive without them.”  Well folks, how will you survive when you have a 10% operating margin on some product you’re selling and the state doesn’t pay you for six months, forcing you to finance the operation on your credit card at 29.9% interest?  You’re thus taking a forced loss on every unit you sell!

Forget it folks.

If you’re a small businessman or woman you need to take a hard-nosed no-credit approach to operations.  That which you can’t pay for you can’t afford.  That which your customers can’t pay for on normal commercial terms consistently you must refuse to ship.  Those suppliers who won’t provide you with the ability to squeeze outward your margins by paying them promptly you must replace with suppliers who are hungry enough to give you that 1% or 2% 10 day discount.

I’ve been there and done this folks.  Before MCSNet was an Internet company we did cabling and PC work for various businesses.  It was a fairly decent-volume but tight-margin business, and we would have been cooked to a crisp instantly without hard-nosed cash management.  But never – ever – did we go hit the founders and owners equity in their homes.  Yeah, it was thought about – for about 30 seconds.

It was thought about again when I became the only “principal” owner of MCSNet and was running it as an Internet concern – for about another 30 seconds.

NFIB needs to pull its head out of its ass, to be blunt, and start talking about sustainable business practices.  This means dropping the reliance on credit that sucks precious margin points out of your operation and gives them to the $%%$#ing banks!  Who are these clowns over at NFIB trying to fool – and exactly who are they serving?

“Will that be your left arm, right leg, left testes or your house you’d like to pledge today Mr. Jones?” 

My answer to all of them?

Figure out how to run your operation without these sharks folks, because while such nonsense may work for a while it is a road that leaves you with less and less margin between solvency and bankruptcy over time – and thus is and should be utterly unacceptable.

The Market-Ticker

With each passing news cycle, it seems like the economic headlines just keep getting worse.  And unfortunately, the highly integrated global economy that we have constructed means that what happens on one side of the world is going to very likely have a big impact on the other side of the world.  A meltdown in New York or Los Angeles is going to affect London, Paris, Rome, Berlin, Moscow, Beijing and Tokyo.  That is just the way the world works now.  Back in 2007 and 2008, the financial crisis that began in the United States devastated economies across the globe.  So are there any economic problems brewing out there right now that could send another wave of panic across the globe?

Well, yes, actually there are a whole bunch of them.  In fact, if certain things break the wrong way it could create a gigantic mess in the financial world.  Let’s take a few moments to examine a few of the questions that economists are asking right now….

Will The Eurozone Break Up And Devastate The Global Economy?

One of the most respected financial journalists in the world, Ambrose Evans-Pritchard, is warning that cases currently making their way through the German court system could actually result in the breakup of Europe’s monetary union.  The cases involve the massive EU bailouts that have been agreed to recently.  It is being argued that these bailouts actually violate EU treaty law, and therefore they also violate Germany’s supreme and sovereign Basic Law.

So what would happen if the German courts rule against these bailouts?

Well, it could be catastrophic.  Ambrose Evans-Pritchard put it this way in his recent column…. 

“Should they succeed, of course, the eurozone risks disintegration within days, and perhaps hours.”

And he is not the only one sounding the alarm.  In fact, one major Dutch bank is warning that a full-fledged disintegration of the eurozone would trigger the worst economic crisis in modern history and would unleash a deflationary shockwave that would envelop the entire globe including the United States.

That doesn’t sound promising, does it?

So is it going to happen?

No, probably not.

It would be a great, great victory for national sovereignty if it did happen, but there are just way too many powerful interests that are way too invested in seeing the eurozone succeed.  In addition, the legal, economic and political obstacles that would have to be overcome to fully break apart the eurozone are absolutely mind-numbing when you start thinking about them all.

Instead, what we are likely to see are calls for even more European integration.  Already, many politicians are claiming that the current crisis has been caused because Europe is simply not integrated enough.

So, no, the eurozone is not likely to break up, but that doesn’t mean that we are not going to see massive economic problems in Europe over the coming years.

Will The U.S. Congress Extend Long-Term Unemployment Benefits?

The U.S. Congress continues to debate whether or not they are going to extend long-term unemployment benefits for an estimated 2.1 million unemployed Americans that have stopped getting unemployment checks.

So will they end up getting it done?

Probably.

But there are a growing number of lawmakers that are extremely alarmed about how incredibly fast the U.S. debt is growing.

It is a shame that many of them were not concerned about it 12 or 13 trillion dollars ago.

Not that we shouldn’t help the millions of American workers that have been out of work for a long time and can’t get jobs.

A lot of people are really, really suffering out there right now.

So where did all the jobs go?

Well, as we detailed in a previous article, our politicians and our big American corporations have been busy shipping them off to China and to a whole host of third world nations over the past couple of decades.

The millions upon millions of jobs that have been lost are gone permanently and are not coming back.

So we are likely to continue to have a growing underclass of chronically unemployed blue collar workers that don’t have jobs and can’t get jobs because there are not nearly enough of them for everyone.

So, yes, Congress is likely to extend the unemployment benefits soon, but what those millions of Americans really need are good jobs.

Will The World Trade Imbalance Continue To Get Worse?

It was recently announced that China’s trade surplus climbed 140 percent in June compared to a year earlier.

At least globalism is working well for somebody.

The truth is that someday people will look back and think that U.S. leadership must have been insane when they allowed the greatest economic machine to ever be assembled to systematically be dismantled and shipped off to China, India and dozens of other third world countries around the globe.

The other side of this tragedy is the tremendous exploitation of third world populations which we are allowing big global corporations to get away with.

In one of his recent articles, Stephen Lendman told the tragic story of sweatshop worker Naran Dhula Bhil…. 

In February 2009, he was hospitalized at Dharmaj, in Gujarat state, coughing, very weak, struggling to walk, and unable to lift anything heavier than five pounds. Since mid-2008, he lost almost half his body weight, dropping from 132 to 70 pounds of skin and bones. On April 14, he died of silicosis, the result of greed, indifference, and consumer ignorance about buying “gemstones of death.”

Bhil was 11 when he began working as a grinder, shaper, and polisher, making gemstones into hearts, pendants, rings, beads, and various type ornaments.

For a day’s work, he produced 100 – 150 for 15.5 cents an hour, $1.08 daily, or less than a penny for each stone produced, each giving off silica dust that killed him. By age 20, he knew it, stayed on the job, borrowed money to buy gemstones, and became “bonded,” meaning he couldn’t quit until out of debt, what few grinders ever do.

Bihl said his shop employed 35. Only four or five are left, the others sick or dead. “So many have died,” he said, and when he expired “he did not have a single penny to his name,” as true for most others.

Could you imagine if that was your life story?

What big global corporations are getting away with is absolutely mind blowing.

The global economic system is broken and the only ones who seem to really be benefiting from it are the giant corporations and the ultra-rich.

Is this going to change any time soon?

No, unfortunately, it will not.

Will Americans Continue to Be Obsessed With Money?

According to a new poll of Americans between the ages of 44 and 75, 61% said that running out money was their biggest fear. The remaining 39% thought death was scarier.

Running out of money scarier than death?

Yes, it is very important to provide for ourselves and for our families, especially as we head towards economic collapse, but the obsession that the American people have with money and wealth is completely and totally out of control.

At the end of your life, do you want your life to be defined by the pile of stuff that you have accumulated or by what you were able to do with your life?

The truth is that we don’t even actually “own” most of what we think that we own.

There is so much more to life than getting stuff and having stuff, but the mainstream media will continue to push Americans to love the “consumer culture” which has come to dominate our way of life.

So, yes, Americans will continue to be obsessed with wealth, money and with who LeBron James is playing basketball for. 

But you can make a different choice.  You can choose to live your life for what really matters.

Is The U.S. Economy Going To Turn Around As We Approach The Christmas Season And The End Of The Year?

Many analysts are hoping that as the holidays approach the American people will get back to their old ways of spending massive amounts of money and that this will help jumpstart the U.S. economy.

So is there reason for optimism?

Well, no.

Vacancies and lease rates at U.S. shopping centers continued to get even worse during the second quarter of 2010.  In fact, in some of the most depressed areas of the United States, many malls and shopping centers could end up looking like ghost towns by the time Christmas rolls around. 

So what are some of the areas in the U.S. that are the worst economic disaster zones?

Well, everyone knows about Detroit.  Once regarded as one of the crown jewels of American industry, Detroit is now a rusted-out war zone that is a shell of its former self.

South of there, the state of Illinois has now become a complete and total disaster zone.  The government of Illinois has stopped paying even its most essential bills and it now ranks eighth in the world in possible bond-holder default.  Universities and government agencies are experiencing absolute chaos as they try to figure out how they are going to continue to function without any money.

Of course then there is California, where the Schwarzenegger administration has won an appellate court ruling saying it has the authority to impose the federal minimum wage of $7.25 an hour on more than 200,000 state workers as California wrestles with its latest budget crisis.  Things are now so bad in California that in the region around the state capital, Sacramento, there is now one closed business for every six that are still open.

Next door to California, in Nevada, things may be even worse.  Official unemployment in Nevada is hovering around 14 percent (unofficially it is much higher of course) and it is estimated that a whopping 65 percent of all homes in the state of Nevada are underwater.  There is perhaps no state in the U.S. that has been hurt more seriously by the housing crash than Nevada.

Unfortunately, things look like they are going to get even tighter for state and local governments in the year ahead.  Economist Mark Zandi is warning that up to 400,000 state and local government workers could lose their jobs in the next year as states, counties and cities grapple with lower revenue and less federal funding.

On top of all this, there is the threat that the Gulf of Mexico oil spill could push the teetering U.S. economy completely over the edge.

Many cities along the Gulf of Mexico coast were already economic disaster zones even before this oil spill.   

But now we are talking about an economic nightmare of unprecedented proportions.

The seafood, tourism and real estate industries along the Gulf coast have been decimated and people are leaving in droves.  It could be years, or even decades, before things get back to some kind of “normal” in the area.

Some are even warning that this oil spill could cause the collapse of BP, and if that happens it could bring about absolute chaos on world financial markets.

Why?

Well, it turns out that BP is a major source of global liquidity and is a major player in the worldwide derivatives market.

If someday the worldwide derivatives market crashes, there won’t be enough money in the entire world to fix that problem.

But that is a topic for another day….

The Economic Collapse

Be prepared for a new round of “tanks in the streets if you don’t cut that crap out!“

The Federal Housing Finance Agency on Monday said it had issued 64 subpoenas to unnamed firms in an effort to uncover misleading statements that Wall Street banks and others may have made when they bought and packaged risky mortgages into securities. Fannie and Freddie were two of the largest investors in those securities.

And why would the FHFA have to issue subpoenas?  I mean, couldn’t Fannie and Freddie just ask for the data they wanted?

The FHFA said that it had opted to issue the subpoenas after being rebuffed in earlier efforts to collect loan files.

Oh, I see.  The banks were asked, and replied:

Well now why would they do something like that?  You don’t think there might be something to hide, do you? 

Like, perhaps, that they didn’t have good recordable titles?  That they had endorsements-in-blank and thus couldn’t record them?  That they either knew or had every reason to believe that the claimed levels of income and/or assets didn’t exist?  That the appraisals were doctored? 

Naw, none of that stuff happened, right?  There weren’t any straw buyers, there weren’t any second-home riders executed on investment properties, why there wasn’t any fraud at all that was perpetrated during these years and then sold off to Fannie and Freddie, pocketing a spread and (attempting to) stick the taxpayer with a few hundred billion in losses, right?

This ought to get good.

The Market-Ticker