Republicans and Free Marketeers Fiddle while the World Burns

By Donald Hunt and Simon Davies
SOTT.net

In Nigeria oil workers are protesting the ongoing wave of violence against their industry which operates with legal impunity among the poorest people on earth.

Unemployment soared in the US and Canada; while Obama's dreams of bipartisan support for the rescue of the US economy took a beating as the pathological Republicans in the Senate played their usual games of economic dogma and political mendacity seemingly oblivious to the risk that when the whole house of cards comes down they might not have that cozy seat in an underground bunker they think is reserved in their name. But at least one US politician has had the courage to tell defaulting homeowners to resist eviction for as long as possible.

Unemployment is rising the world over while the social infrastructure in many countries, weakened by years of deliberate destruction from pernicious application of Friedmanite free market ideology, is already struggling under the strain. We are living the Shock Doctrine in real time.

Economic Overview

World stock indexes rose last week as job losses mounted. Agreement in the United States Senate on a bailout package helped stocks rise, despite signs of economic depression nearly everywhere.

Africa

In South Africa, concerns that drops in exports are happening now and will be announced later this month led to the head of the central bank hinting at an emergency meeting of the Monetary Policy Committee.

In Nigeria there was more trouble in the oil regions, as there usually is whenever oil prices get too low. Funny how that works.

Nigerian Union to Strike Over Attacks, Abductions in Oil Region

Nigeria's white-collar oil workers' union will begin an "indefinite" strike on Feb. 9 in protest at attacks and abductions by armed groups in the country's southern oil region.

[ ] Members will also shut premises of foreign oil companies operating in Nigeria, it added. Royal Dutch Shell Plc, Exxon Mobil Corp., Chevron Corp., Total SA and Eni SpA run joint ventures with the Nigerian government producing more than 90 percent of the country's oil.

President Umaru Yar'Adua's government has shown "ineptitude" in dealing with violent unrest in the Niger Delta, Pengassan [an oil workers union] said. [ ]

Armed attacks, including kidnapping and hijacking of vessels in the Niger Delta, which is home to Nigeria's oil industry, have cut its exports by more than 20 percent since 2006. Nigeria is Africa's leading oil producer and the fifth- biggest source of U.S. oil imports.

The Movement for the Emancipation of the Niger Delta, the main armed group in the region, says it's fighting for the region's poor. [ ]

Shot Dead

The union decided to take action after gunmen shot dead an 11-year-old girl in the oil hub of Port Harcourt and abducted her 9-year-old brother last week. They were the children of an employee of Royal Dutch Shell Plc's local subsidiary.

Pengassan issued an ultimatum to the government to ensure the release of the boy and other kidnap victims or the unions will pull members out of oil locations in the region. Though the boy was released yesterday, the union said many oil workers abducted by armed groups are still being held.

Pengassan and its blue-collar counterpart, the National Union of Petroleum and Natural Gas Workers of Nigeria, or Nupeng, in the past warned they may suspend work over insecurity in the Niger Delta. This is the first time either union has called a strike over the issue.

Asia

Concern about Japan's economy spread last week, as exports plunged. The big problem is that Japan has recently moved away from the traditional concern with the long-term welfare of employees to a more U.S. style employment insecurity, a change that's taking place in France and in many other previously socially progressive countries.

Japan on the brink of the abyss?

The economic outlook in Japan is very grim, as brief overviews below indicate. Right now, Japan has the worst growth outlook in Asia. That is a surprising fact, if one recalls that this is a country presumably dusting itself off from the collapse of its own bubble nearly two decades ago.

After such a long period of economic crisis, Japan should be renovated and ready to thrive. Instead, it may be in worse shape than even the United States (though clearly not Iceland and much of Eastern Europe). Exports plunged a record 35% annually in December, while the industrial production figures for November revealed a record 8.9% month-over-month drop.

Japanese financial institutions were not big players in the markets for collateralized debt obligations, credit default swaps and the other toxic assets that have ravaged the capital bases of banks in the US and much of Europe.

Rather, Japan's key policy failure would appear to be over-reliance on exports as the engine of growth, while hoping that the fruits of this growth would trickle down into the rest of the economy and bolster demand.

But in the rest of the economy, deregulation of labor and other markets had seen firms shifting to insecure employment (especially part-time and contractual staff) and rolling back pay, thus crimping the level of demand. And that weak domestic demand was of course blunting domestic-oriented businesses' incentives to invest (compared with incentives for export-oriented businesses).

With the startling 35% drop in exports in December 2008, it's as if someone kicked the chair away from a man who was standing on it to test out what it felt like to have a noose around his neck.

The ruling Liberal Democratic Party and Prime Minister Aso Taro are trying to assert that the problem is global, a once-in-a-century event. But the pattern of fallout varies among low toxic-asset countries (especially Asian), notably in accordance with their degree of reliance on the trade bubble.

Japan seems to be suffering the legacy of the structural reforms of former prime minister Koizumi Junichiro and financial services minister Heizo Takenaka in that the reformists were content to rely on exports (stimulated by ultra-low interest rates) and to use deregulation, privatization and (to some extent) tax cuts to eviscerate the public sector's role and let the market determine the strategic focus of the economy.

They were loath to look at the Scandinavian model as a guide to building safety nets for encouraging labor mobility and laying a strong floor as the basis of the domestic economy (also by investing in education and encouraging higher remuneration and professionalization in elder care and other growth sectors).

They disparaged the role of the public sector in framing markets and in sketching the strategic focus of the overall economy, such as in deciding targets in energy and environmental areas and thus giving incentives for market actors to achieve.

Koizumi's neo-liberal brain, Heizo Takenaka, still recently trumpeted in the Japanese weekly, ekonomisuto (economist), the small state and deregulatory nirvana. Elsewhere he has blamed Japan's current crisis on insufficient deregulation.

But he and Koizumi were champions of low interest rates, even though these rates cost domestic savers some 35 trillion yen per year (nearly 12% of their previous income). This was not only a subsidy to the export industries. Low rates also helped keep zombie firms (about 20% of small and medium enterprises) in business, since low interest allowed them to roll over their loans even though they were effectively broke.

A strategic investment focus from the central government during the Koizumi "structural reform" years would have put momentum into the recovery on the domestic side and allowed the ratcheting up of interest rates while softening the damage from failures of zombie firms that simply couldn't modernize fast enough as their low-interest security blanket was lifted.

The extra income for savers (from normalization of interest rates) would have bolstered the domestic economy enough to provide new employment opportunities to labor and capital shed by many inefficient enterprises and retraining could have been offered to the hard-core unemployed.

That's all hindsight of course, but it beats the hindsight on offer recently: many of the newly anti-market crowd are trumpeting "Edo" (old Tokyo) society and even the Jomon Era (14,000-400 BC) as models for the present, lauding their closeness to nature, stability, and community values. One Jomon booster is a former free-market cheerleader who got his economics PhD from Harvard and has been big in government deliberation councils.

Japan's public debate still hasn't cut through the nonsense of idealizing the "free market" or the "unique Japanese" and come to focus on what the public sector of this advanced, industrialized country needs to be doing in the midst of the worst economic crisis since the 1930s.

Japan's export troubles are causing a drop in the value of the Australian dollar to sixty U.S. cents, since Japan is the largest purchaser of Australian goods and inventories are piling up in Japan.

Eastern Europe

Russia is working to keep the Ruble stable by limiting money available to currency speculators.

Bank Rossii told lenders yesterday it will restrict loans to force banks to convert foreign-currency holdings into rubles, Kommersant newspaper reported, citing unidentified bankers. "Almost all" of the loans secured by bonds or other collateral in so-called repurchase auctions last month were used by banks to bet against the ruble, according to Natalia Orlova, chief economist at Moscow's Alfa Bank.

"This is a signal from the central bank that further speculation can be stopped," said Evgeny Gavrilenkov, chief economist in Moscow at Troika Dialog, Russia's oldest investment bank. "Those who accumulated dollars and euros will now have to start selling and the central bank will be able to maintain their level."

The currency slumped 35 percent against the dollar since August as Bank Rossii drained more than a third of Russia's foreign-exchange reserves, the third-largest worldwide, to stem the drop. A war with neighboring Georgia, sliding oil prices and the worst global financial crisis since the Great Depression spurred investors and locals to withdraw at least $290 billion from the country since Aug. 1, according to BNP Paribas SA.

The Czech Republic announced that it may need to exceed the 3% government deficit rule the European Union rules imposes on countries planning on adopting the Euro if the economy does poorly. These arbitrary EU rules are likely to be points of great contention in the near future as they limit the ability of governments to provide much needed social support in the crisis thereby effectively moving key elements of national sovereignty to the unelected technocrats in Brussels..

Western Europe and the U.K.

Norway announced a $15 billion financial bailout fund "to keep institutions lending" or rather to prevent them imploding.

The Governor of the Bank of France and member of the European Central Bank Governing Council, Christian Noyer lost all credibility last week by saying the recession in Europe will be brief, that French banks are "largely healthy," and by defending French President Nicolas Sarkozy's response to the crisis.

The U.K. further cemented its reputation as the economy most like the U.S. in this crisis when the leaders of its financial institutions paid themselves and their staff huge bonuses while being bailed out with public money.

Latin America

Brazil released some bad economic numbers last week, threatening the hope that its economy had somehow decoupled from the collapsing world economy. While there has been some basis for the decoupling theory, Brazil remains a country of extreme wealth inequality in which the middle class have been all but wiped out (economically) over the last ten to fifteen years.

New economic figures rattle Brazilians

Luciano Coutinho, head of Brazil's national development bank, has strong views on what has become a controversial subject for investors and economists looking at the world's tenth biggest economy.

"There is an idea going around that decoupling is over," he says. "That's a mistake. Decoupling has, yes, taken place and you'll see it in the rate of economic growth."

Brazil was widely said to have decoupled from the rest of the world because its increasingly vibrant economy has become less vulnerable to destabilising forces from overseas. Thrown off course by the Russian and Asian crises of the late 1990s, it had until recently weathered the current global crisis better than many expected.

But decoupling came under severe questioning this week after the release of some alarming economic data. Nevertheless, other contradictory evidence suggests that while Brazilians are suffering a crisis of confidence, they also believe their economic downturn will end soon.

Brazil is the second biggest of the so-called Bric countries - the others are Russia, India and China - which many economists say will deliver most of the world's growth as developed nations slide into recession.

So investors were rattled this week when figures for December showed Brazil's economy apparently hitting a brick wall. Industrial output slumped by 14.5 per cent year on year while, seasonally adjusted, more than 200,000 jobs were lost in the month, mostly in manufacturing. Both figures reversed recent steady gains, and were the worst on record.

However, also this week, a widely respected opinion poll showed approval of the government and of president Luiz Inácio Lula da Silva at all-time highs. Mr Lula da Silva's approval rating, at 84 per cent, is extraordinarily high for a president half way through a second term, suggesting Brazilians believe him when he says the crisis will be shallow and short.

By some measures, Brazilians should indeed have little to fear. The amount of credit in the economy is small by international standards, reducing the potential impact of a cut in lending.

And although Brazil's recent growth has been fueled by exports of commodities, the country has not been hit hard by falling commodity prices. It has a healthy domestic market and exports are equal to only about 14 per cent of GDP - much less than many of its peers.

So why did the economy stumble in December? Many observers say it is because banks, made nervous by the global crisis even though they source little of their funding overseas, simply stopped lending.

Shaun Wallis, head of HSBC in Brazil, rejects this. "Banks are open for business," he says. "The problem is primarily one of demand, not of supply."

He concedes that banks have become more cautious in the crisis but says many companies, themselves worried by the global slowdown, have chosen to fall back on cash reserves. Meanwhile salaried consumers, who by law receive an extra month's pay at the end of each year, used those bonuses instead of debt to fund year-end spending. Many retailers actually had a better December last year than in 2007.

Francisco Valim, head of Serasa, which provides credit risk evaluation services to banks, says the biggest danger to Brazil now is "fear of recession". And he warns that, without decisive action from the government, this fear could become a self-fulfilling prophecy.

The government has acted on several fronts. The central bank began cutting interest rates last month, although at 12.75 per cent a year its base rate is still high and market lending rates are much higher.

Mr Coutinho's development bank has been given an extra 100bn reais ($443m) to lend, especially for much-needed infrastructure projects. And on Thursday the central bank announced it would release $36bn from its international reserves to lend to companies with foreign debts falling due up to the end of the year, providing relief to many who would find it impossible to raise dollars on international markets.

Nevertheless, many economists worry about the government's capacity to promote growth through fiscal stimulus. Heavy commitments to new public sector employment have earmarked much of the available money, while tax revenues are falling as the economy slows. The government is still aiming for 4 per cent growth this year but many market economists expect growth to fall below 1 per cent.

Mr Valim at Serasa says banks should be obliged to make more credit available, although recent initiatives in this direction have had little impact.

With limited scope for action, the government must hope that Brazilian's faith in their president will outweigh their fear of the outside world and make decoupling a reality.

Markets

The markets this week (to Feb 9th)

	Previous week's close	This week's close	Change	% change
Gold (USD)	928.90	914.30	14.60	1.57%
Gold (EUR)	725.02	706.51	18.51	2.55%
Oil (USD)	41.66	40.17	1.49	3.58%
Oil (EUR)	32.52	31.04	1.48	4.54%
Gold:Oil	22.30	22.76	0.46	2.08%
USD / EUR	0.7805 / 1.2812	0.7727 / 1.2941	0.0078 / 0.0129	1.00% / 1.01%
USD / GBP	0.6878 / 1.4539	0.6763 / 1.4786	0.0115 / 0.0247	1.67% / 1.70%
USD / JPY	89.920 / 0.0111	91.893 / 0.0109	1.973 / 0.0002	2.19% / 1.80%
DOW	8,001	8,281	280	3.50%
FTSE	4,150	4,292	142	3.43%
DAX	4,338	4,645	306	7.06%
NIKKEI	7,994	8,077	83	1.03%
BOVESPA	39,301	42,756	3,455	8.79%
HANG SENG	13,278	13,655	377	2.84%
US Fed Funds	0.19%	0.25%	0.06	31.58%
$ 3month	0.23%	0.27%	0.04	17.39%
$ 10 year	2.85%	2.99%	0.14	4.91%

United States and Canada

Shocking job loss numbers for January were released last week in the United States and Canada. Canada lost a stunning 129,000 jobs putting the unemployment rate at 7.2% and the United States lost 598,000 jobs for an official unemployment rate of 7.6%.

Global jobs crisis deepens: US sheds 600,000 jobs in January

In a clear indication the economic crisis is rapidly heading into a severe global depression, US employers purged 598,000 jobs in January, the most job losses in a single month since 1974. January's firings raised the unemployment rate to 7.6 percent, the highest level since 1992.

Job cuts accelerated even more rapidly in Canada, where 129,000 jobs were eliminated, the highest monthly toll ever, with the unemployment rate spiking to 7.2 percent from 6.6 percent. Given a Canadian population of about one tenth that of the United States, the job losses are equivalent to about 1.3 million US cuts. Canadian economists, who had anticipated a figure of 40,000, were left dumbfounded by the data from Statistics Canada.

The new US Labor Department figures, released Friday, also far surpassed the expectations of economists, who had anticipated 524,000 lost jobs. The figure for December (577,000) was also revised upwards. In the coming period, job losses are expected to soar well above 600,000 a month.

Economists used the following terms to describe the Labor Department figures: "horror show," "alarming," "terrible toll," "endless spiral," "no end in sight," "slow motion train wreck," "horrific," "massive hemorrhage," and "stunning."

In the 12 months since January 2008, the American economy has hemorrhaged 3.5 million jobs, the most in one year since 1939, during the Great Depression. About half of those job cuts came in the past three months alone.

According to the Labor Department, there are now 11.6 million unemployed workers in the US. In addition, there are 7.8 million more who are underemployed, workers who seek full-time employment but are unable to find the hours they need.

If underemployed and marginally attached workers are counted, the US unemployment rate stands at 13.9 percent, according to the Wall Street Journal. The industrial sector suffered the most, with 207,000 jobs lost, after losing 162,000 in December. This represented the steepest decline since 1982, when US industrial production was intentionally decimated by the high interest rate "shock therapy" of former Federal Reserve Chief Paul Volker, who is now a key economic advisor to President Barack Obama. There are now only 12.6 million US factory workers, the lowest number since 1946.

In Canada, meanwhile, nearly 80 percent of January's job losses were among factory workers, with Ontario particularly hard-hit. This is an indication that the collapse of the US economy is ravaging Canada's export-oriented industries and their suppliers.

In the US, the job losses extended across economic sectors. White collar and managerial workers were eliminated in large numbers, 121,000 in all. Construction companies cut 111,000 jobs; 76,000 temporary worker were fired; 45,000 retail workers lost their jobs; and 28,000 more workers are now unemployed in the "leisure and hospitality" industry.

The unemployed face increasingly long periods between jobs, if new jobs are to be found, Labor Department statistics reveal. The average job hunt for unemployed workers has increased to 19.8 weeks, up from 17.5 weeks one year ago.

The wave of job cuts is being undertaken in tandem with a broad assault on the conditions of those workers fortunate enough to keep their jobs. In keeping with the spirit of the Obama administration, employed workers are being asked to make new "sacrifices."

Over the previous months, US employers have launched an unprecedented wave of pay and benefit cuts, hours reductions, and other takeaways. The sacrifices of the employed are also registered in an increase in productivity, which the Labor Department recently revealed has shot up by 3.2 percent in the last quarter of 2008.

The flood of job losses in the US is such that the system of unemployment benefits has been overwhelmed, both financially and physically. After decades of free-market orthodoxy, the social safety system in the US is woefully ill equipped to confront an economic crisis.

The National Conference of State Legislatures recently released a report revealing that seven states have depleted their unemployment insurance funds, and eleven others will likely do so within a year. On Thursday, the Washington Post published an article noting that rising unemployment "is overwhelming claims offices" that are short on staff, facilities, and equipment to meet the needs of desperate workers ("Deluge Is Holding Up Benefits to Unemployed").

The prospects for the coming year are grim. Analysts anticipate that 3 million more jobs will be lost, although even these dire estimates are contingent upon passage of Obama's stimulus package and the administration's assertions on job creation.

"We see job losses accelerating for at least the next several months to the point where that 600,000 mark will soon be a dot in the distance behind us," said economist Guy LeBas of Janney Montgomery Scott LLC. Robert MacIntosh, chief economist with Eaton Vance Management in Boston, said, "it is just another confirmation that we're in a deep and long recession, and the bottom is not even in sight."

The flood of job losses in North America is an expression of a world process. In December, Japan experienced the sharpest increase in unemployment in 41 years. More layoffs are to come, as industrial production declines precipitously. The Japan Manufacturing Outsourcing Association has stated that 400,000 temporary workers will be laid off by March. Many of these live in company dormitories, and will be made homeless in the process.

Earlier this month, China announced a massive growth in unemployment. Some 20 million of the country's 130 million migrant workers are unemployed. Manufacturing jobs for export production have been particularly hard-hit.

In Europe, economists anticipate that the overall unemployment rate will climb to 8.7 percent for the 27 EU countries. French employers purged 217,000 jobs last year, and the unemployment rate is expected to rise to 10.6 percent by the end of next year. In Spain, Europe's fifth-largest economy, the unemployment rate is at 14.4 percent and rising. Industrial output in Spain fell by nearly 20 percent in December.

The International Labor Organization recently released a report that forecast global job losses with a range of 18 to 51 million. In the latter scenario, global unemployment would climb past 7.1 percent.

Enough U.S. senators reached agreement this past weekend to pass a weakened and reduced stimulus bill, which helped to buoy world stocks momentarily. The problem was to get even three Republican senators to support the Bill, the Democrats had to agree to decrease the overall size of the package while increasing the tax cutting components and decreasing the infrastructure spending components. Last year's Nobel Prize in economics winner, Paul Krugman explains why this is bad:-

The Destructive Center

What do you call someone who eliminates hundreds of thousands of American jobs, deprives millions of adequate health care and nutrition, undermines schools, but offers a $15,000 bonus to affluent people who flip their houses?

A proud centrist.

Actually, at sott.net we call them by their proper name, psychopaths.

For that is what the senators who ended up calling the tune on the stimulus bill just accomplished.

Even if the original Obama plan - around $800 billion in stimulus, with a substantial fraction of that total given over to ineffective tax cuts - had been enacted, it wouldn't have been enough to fill the looming hole in the U.S. economy, which the Congressional Budget Office estimates will amount to $2.9 trillion over the next three years.

Yet the centrists did their best to make the plan weaker and worse.

One of the best features of the original plan was aid to cash-strapped state governments, which would have provided a quick boost to the economy while preserving essential services. But the centrists insisted on a $40 billion cut in that spending.

The original plan also included badly needed spending on school construction; $16 billion of that spending was cut. It included aid to the unemployed, especially help in maintaining health care - cut. Food stamps - cut. All in all, more than $80 billion was cut from the plan, with the great bulk of those cuts falling on precisely the measures that would do the most to reduce the depth and pain of this slump.

On the other hand, the centrists were apparently just fine with one of the worst provisions in the Senate bill, a tax credit for home buyers. Dean Baker of the Center for Economic Policy Research calls this the "flip your house to your brother" provision: it will cost a lot of money while doing nothing to help the economy.

All in all, the centrists' insistence on comforting the comfortable while afflicting the afflicted will, if reflected in the final bill, lead to substantially lower employment and substantially more suffering.

But how did this happen? I blame President Obama's belief that he can transcend the partisan divide - a belief that warped his economic strategy.

After all, many people expected Mr. Obama to come out with a really strong stimulus plan, reflecting both the economy's dire straits and his own electoral mandate.

Instead, however, he offered a plan that was clearly both too small and too heavily reliant on tax cuts. Why? Because he wanted the plan to have broad bipartisan support, and believed that it would. Not long ago administration strategists were talking about getting 80 or more votes in the Senate.

Mr. Obama's post-partisan yearnings may also explain why he didn't do something crucially important: speak forcefully about how government spending can help support the economy. Instead, he let conservatives define the debate, waiting until late last week before finally saying what needed to be said - that increasing spending is the whole point of the plan.

And Mr. Obama got nothing in return for his bipartisan outreach. Not one Republican voted for the House version of the stimulus plan, which was, by the way, better focused than the original administration proposal.

In the Senate, Republicans inveighed against "pork" - although the wasteful spending they claimed to have identified (much of it was fully justified) was a trivial share of the bill's total. And they decried the bill's cost - even as 36 out of 41 Republican senators voted to replace the Obama plan with $3 trillion, that's right, $3 trillion in tax cuts over 10 years.

So Mr. Obama was reduced to bargaining for the votes of those centrists. And the centrists, predictably, extracted a pound of flesh - not, as far as anyone can tell, based on any coherent economic argument, but simply to demonstrate their centrist mojo. They probably would have demanded that $100 billion or so be cut from anything Mr. Obama proposed; by coming in with such a low initial bid, the president guaranteed that the final deal would be much too small.

Such are the perils of negotiating with yourself.

Now, House and Senate negotiators have to reconcile their versions of the stimulus, and it's possible that the final bill will undo the centrists' worst. And Mr. Obama may be able to come back for a second round. But this was his best chance to get decisive action, and it fell short.

So has Mr. Obama learned from this experience? Early indications aren't good.

For rather than acknowledge the failure of his political strategy and the damage to his economic strategy, the president tried to put a post-partisan happy face on the whole thing. "Democrats and Republicans came together in the Senate and responded appropriately to the urgency this moment demands," he declared on Saturday, and "the scale and scope of this plan is right."

No, they didn't, and no, it isn't.

Of course, massive government deficit spending scares most people in the United States, but what is the alternative when the world is facing a deflationary spiral? According to the blogger Badtux, the alternative is Mexico North, he has a point:-

The paradox of thrift

Now, some folks have wondered why I consider personal savings going up as a problem. The answer is simple: by reducing consumption, this adds deflationary pressure to prices, which in turn makes people unemployed, which in turn causes consumption to decline even further. More importantly, by reducing the number of people that banks can lend money to (since businesses seeing reduced demand will not borrow and people who are increasing their savings will not borrow), it increases the effective reserve ratio and thereby decreases the money supply due to the fractional reserve multiplier effect basically operating in reverse to de-multiply. As I pointed out previously, if the ratio of reserves to loans rises from 10% to 15%, this is effectively a 33% decrease in the money supply -- which adds even more deflationary pressure to the economy.

This is called the Paradox of Thrift. The paradox of thrift can be explained simply: What is beneficial on a personal microeconomic level (keeping your consumption level down and savings level high so that you can more easily cope with changes in economic conditions), can be disasterous on a macroeconomic scale, resulting in a lower standard of living for everybody as consumption, wages and prices decrease yet debts stay the same (thus debt inflation, the primary characteristic of deflationary spirals).

Now, does this mean that you should immediately go out and spend down your savings? No. You have to make personal decisions based upon what is best for you. But it does mean that, if millions of other Americans are making this same personal decision to decrease consumption and increase savings, that there needs to be significant government intervention to a) re-inflate the money supply (by, for example, borrowing these excess reserves in order to build infrastructure projects), and b) increase consumption (by, for example, consuming goods from the economy in order to build infrastructure projects). Otherwise there is a significant risk of entering a deflationary spiral, and said deflationary spiral, sans government intervention, ends up with a typical Latin American solution -- most people chronically un-or-under-employed living in utter squalor and poverty, and a few wealthy people owning all the wealth of the nation. Which is nice if you're one of the few wealthy people, but not particularly good for America, since under-employed or un-employed people living in utter squalor and poverty are not contributing much to the economy.

So any time you see Rethuglicans saying "Obama's recovery plan is extravagant and spendthrift", recall what the end result of following their advice is: Mexico North, with most Americans under-employed or un-employed living in cardboard boxes in utter squalor and poverty. While their advice makes superficial sense because it works on the micro-economic (i.e. personal) level, on a macro-economic level their advice is pure disaster. America is currently in the process of de-leveraging -- reducing debt and increasing savings -- and while that can be a good thing in the long term, in the short term it requires significant government intervention to avoid going into a deflationary spiral, a deflationary spiral which Republican oligarchs have wet dreams about -- but which would be a nightmare for the rest of us.

Speaking of Latin American-style disparities of wealth, tax scandals have derailed several of Barack Obama's high-level appointees. More important than the non-payment of some taxes was the clear indication of the different world these people live in. Coupled with bank CEOs whining about having to live on $500,000 annual salaries, populist anger is justified. As Joe Kishore put it,

The proliferation of scandals - and in particular tax scandals - involving top government picks in the new Obama government reflects the outlook of the layer from which these posts are filled. Those considered "qualified" for the top positions - that is, those with sufficient connections to the political and financial establishment - are drawn mainly from a relatively small and thoroughly corrupt social milieu.

American society is characterized by an enormous social chasm. In the midst of the biggest economic crisis since the Great Depression - which is leading [to]massive job losses, wage cutting, and impoverishment - the American ruling class has moved rapidly to engineer the transfer of hundreds of billions to the financial aristocracy.

These class divisions are reflected in the personnel of the political establishment, increasingly composed of millionaires who move in and out of government and corporate positions. Corruption is pervasive and exudes out of every pore of the political system.

For this layer, laws, including the payment of taxes, are considered optional (Leona Helmsley once encapsulated this sentiment with her famous declaration, "We don't pay taxes. Only the little people pay taxes."). In fact, if an ordinary person were to commit the "mistakes" committed by Daschle and Geithner, he would find himself with massive fines, financial ruin, and potential imprisonment.

Given the context of class struggle bubbling up in the United States, a milestone was crossed last week. A member of the U.S. Congress from Ohio, Marcy Kaptur, advised homeowners facing foreclosure to stay in their homes as squatters if threatened with eviction:

Kaptur advises owners facing eviction to stay

U.S. Rep. Marcy Kaptur (D., Toledo) is advocating home-owners threatened with foreclosure exercise squatter's rights in trying to stave off the loss of their house.

"I'm saying to them possession is 99 percent of the law; you stay in your house," Miss Kaptur said yesterday, continuing a crusade she started several weeks ago in Congress and CNN picked up Thursday night.

She said she believes that many so-called predatory and subprime loans - those made to borrowers who did not qualify for a conventional mortgage - may have been illegal.

She urged homeowners not to panic and leave their home just because they receive a foreclosure notice from their lender, and she said they should demand that the mortgage-holder produce a mortgage audit.

"I say to the American people, you be squatters in your own homes. Don't you leave," she said during a speech in Congress earlier this month.

Miss Kaptur was interviewed Thursday night on CNN by Lou Dobbs, and a CNN report cited a woman who lives on Cass Road in South Toledo as an example of the trend of homeowners ignoring foreclosure notices from their lender.

But Jim Moody, a Realtor who is running for mayor of Toledo as a Republican, said Miss Kaptur may be misleading people into thinking they can stop a legal foreclosure once a judge has issued an order.

"I think those are dangerous statements," Mr. Moody said. "What's she going to say when the sheriff comes and puts all their stuff on the street when they didn't leave because Marcy Kaptur said they could stay and become a squatter?

"I think she's clueless. This is goofy. Of course, the attorneys file the proper paperwork," Mr. Moody said.

Allen Seelenbinder, a Toledo-based mortgage banker with Main Street Financial, said the only audit the borrower is entitled to is an audit of the borrower's payments.

Asked if the mortgage lender is required to prove that its loan was made properly and that the borrower was qualified to sign the loan, he said, "absolutely not - you're under a contract that you both signed.

"The only audit they're required to provide to you is that the payments that you made are made correctly. It's a transaction history," he said.

But Sandusky lawyer Dan McGookle, who is representing a homeowner trying to have a predatory loan rescinded, said mortgage firms may not be able to prove they complied with truth-in-lending laws and other state and federal procedures.

"We have strong reason to believe that a majority of the mortgage loans made in the last 10 years are defective - unenforceable for various reasons," Mr. McGookle said.

Ironically, Mr. Moody agreed that people threatened with foreclosure should try to work out a solution and should stay in the home as long as possible.

Cathleen Tillman, director of the Lucas County Sheriff's Department's civil section, which carries out court-ordered foreclosures and evictions, also said people should remain in the homes until the deed has been transferred, and not to abandon a home that is still listed in their name.

"The foreclosure takes a long time," she said. More than 4,000 foreclosure actions were filed in 2008 in Lucas County, and the sheriff's department carried out 85 foreclosure-related evictions.

Miss Kaptur said she started advocating that homeowners fight foreclosure by staying their home after it became clear that the $700 billion bailout of the financial industry passed last year was not working as intended by Congress.

Signs of the Economic Apocalypse, 7-7-08

From SOTT.net:

Gold closed at 935.50 dollars an ounce Friday, up 0.5% from $931.30 for the week. The dollar closed at 0.6367 euros Friday, up 0.6% from 0.6332 at the close of the previous week. That put the euro at 1.5706 dollars compared to 1.5793 the week before. Gold in euros would be 595.63 euros an ounce, up 1.0% from 589.69 at the close of the previous week. Oil closed at 144.18 dollars a barrel Friday, up 2.8% from $140.21 for the week. Oil in euros would be 91.80 euros a barrel, up 3.4% from 88.78 at the close of the Friday before. The gold/oil ratio closed at 6.49 Friday, down 2.3% from 6.64 for the week. In U.S. stocks, the Dow closed at 11,288.54 Thursday (Friday was a holiday), down 0.5% from 11,346.51 at the close of the previous Friday. The NASDAQ closed at 2,245.38 Thursday, down 3.1% from 2,315.63 at the close of the week before. In U.S. interest rates, the yield on the ten-year U.S. Treasury note closed at 3.98% up one basis point from 3.97 for the week.

Recent trends continued last week with gold up, oil up much more, stocks down and, in the U.S., jobs down.

Job losses mount as US economy heads into virtual freefall

Jerry White

3 July 2008

Job losses in the US are mounting as inflation, the credit crunch, plunging home values and tighter family budgets are combining to produce a perfect storm of economic malaise, which is threatening the livelihoods of tens of millions of working people.

The private sector eliminated 79,000 jobs from May to June, according to a survey of nearly 400,000 US businesses released Wednesday by Automatic Data Processing, Inc. The ADP National Employment Report said the decline was “broad based across industrial sectors and suggests continued weakness in employment.”

The goods-producing sector slashed 76,000 jobs last month, ADP reported, with manufacturing employment falling by 44,000, marking their nineteenth and twenty-second consecutive monthly declines, respectively. Service jobs also declined by 3,000, the first fall-off since November 2002.

Construction and financial services related to home sales and lending are the two sectors of the economy hardest hit by the housing and mortgage crises. In June, ADP reported, construction employment dropped by an additional 34,000 jobs, marking the nineteenth straight monthly decline. A staggering 349,000 construction jobs have been lost since the peak of August 2006. Three thousand jobs in financial services were also lost in June.

“It’s clear that the housing downturn and credit crunch are still very much under way,” Andrew Tilton, an economist with Goldman Sachs told the New York Times. Clearly, there are more jobs to be lost in housing, finance and construction—hundreds of thousands of more jobs to be lost collectively.”

The US Bureau of Labor Statistics will release its monthly jobs report on Thursday, with economists predicting a loss of as many as 60,000 jobs in June. This would be the sixth consecutive month of employment declines.

Meanwhile, the Chicago-based job placement firm Challenger, Gray & Christmas Inc., which tracks job cutting announcements by employers, said planned layoffs rose to 81,755 last month, up 47 percent from June 2007.

“Downsizing in the financial sector has remained heavy, but now we’re seeing increased job cuts in other non-housing-related industries, mostly due to the added burden of skyrocketing oil prices,” chief executive officer John A. Challenger said in a statement released Wednesday. “The overall economy could continue to experience net losses for several months to come.”

…The massive loss of jobs in the US is part of an international trend fueled by the worldwide credit crisis, economic slowdown and spiking commodity prices. On Wednesday, the Paris-based Organization of Economic Co-operation and Development (OECD)—which includes 23 European states as well as the US, Australia, Turkey, New Zealand, Canada, Mexico, Japan and South Korea—warned that joblessness in industrialized countries would rise by 9 percent to 34.8 million, reversing the downward trend of recent years.

In the face of spreading unemployment, the OECD noted, “the growth in real compensation per employee should slow down in 2008 in the majority of the 30 OECD countries and be broadly in line or below productivity gains.”

From the standpoint of the world’s corporate and financial elite, this is the positive side of the growing economic insecurity felt by masses of working people. Citing the OECD figures on slowing job growth the Financial Times of London noted, “Rising unemployment, however, should dampen fears of inflationary pay rises as workers worry more about retaining their job than using their bargaining power to increase real pay.”

Meltdown of the US auto industry

Job cuts, higher prices and crushing levels of debt all threaten to slow US consumer spending, which accounts for 70 percent of the country’s economic activity. In a sign of the impact this is having on retailers, Starbucks, the world’s largest coffee chain, said Tuesday it would close 600 stores in the US—in addition to 100 already announced—laying off more than 12,000 employees.

American Airlines—which, like several other carriers, has cut back routes in the face of the high cost of fuel and fewer air travelers—announced Wednesday it would furlough 900 flight attendants.

UnitedHealth, the largest US health insurer, also announced it would lay off 4,000 workers, due to falling profits and rising health care costs.

The auto industry has been particularly devastated, with vehicle sales hitting a 10-year low, down 18 percent in June. Detroit automakers continued to see sharply declining sales, with Chrysler’s June sales down 36 percent compared to a year ago, Ford down 28 percent and General Motors falling 18 percent. Japanese automaker Toyota was also hit hard, with US sales down 21 percent.

Analysts predict automakers will sell well below 15 million new vehicles in the US this year, far fewer than the 16 million typical sold throughout the decade.
The decline—driven by high gas prices and falling demand, including from contractors and construction workers, for SUVs and pickups, upon whose high profit margins the US automakers depend —has now raised the prospect of the financial failure of one or more of Detroit’s famed “Big Three.”

GM, which is reportedly burning up $1 billion in cash reserves each month, could face bankruptcy, according to Merrill Lynch analyst John Murphy, who lowered his outlook for GM stock to $7 a share in a note to investors Wednesday. “The key change in our outlook is a much lower forecast for US auto sales that is driving higher cash burn necessitating a much larger raise than the market is currently anticipating,” Murphy wrote in reference to GM’s need to quickly borrow money.

Other analysts say GM must raise as much as a $10 billion as early as this quarter to keep operating. The company says it has liquidity and flexibility to meet its financial requirements. However, it could find raising additional cash difficult, if not impossible, because of the unfavorable rates in the tight credit market.

The threatened collapse of the once mighty icon of US industrial supremacy underscores the historic decline in the world position of American capitalism and the virtual takeover of the US economy by various forms of financial parasitism. Wall Street has carried out a deliberate policy of deindustrialization, in order to free up capital from unprofitable industries and invest it in more lucrative and speculative ventures, including the dot-com boom, the housing bubble and the new frenzy in oil, corn and other commodity future markets.

GM stock has fallen to a 50-year low, plummeting from $43 last November to close at $9.98 Wednesday. The total value of GM stock is the least of all companies traded on the Dow Jones Industrial Average. By contrast, the Internet company Google is selling at $527 per share and has a market capitalization 28 times the size of GM.

“What’s GM worth now—$7 billion?”, Bruce Birger, managing director of Birger Capital Management asked the Detroit News. “People can write checks for that amount.”

Ford, which has borrowed heavily against its assets, is not much better off, with shares of its stock selling at $4.36, roughly equivalent, the newspaper noted, to the price of gas in some major American cities.

Both companies are reportedly scrambling to sell off assets or use overseas divisions as collateral for new loans, which could mean selling them off to raise cash.

Another candidate for bankruptcy is privately-held Chrysler, which was bought by the private equity firm Cerberus. “They’re a limited liability company—when they run out of money, they’ve run out of money,” Steven Davidoff, a law professor at Wayne State University told the Detroit News. “Cerberus may push for the nuclear option and go into bankruptcy to restructure the organization,” he added, suggesting that the company could follow the lead of auto parts maker Delphi, which used the bankruptcy court to tear up its labor agreements and impose 50 percent wage cuts on its workers.

The News reported that there was “talk” of the automakers reopening union contracts, less than a year after the four-year agreement signed by the United Auto Workers bureaucracy, which handed over massive wage and benefit concessions in return for what have proven to be worthless “job guarantees.” All three of the companies have since carried out mass layoffs.

The burgeoning economic crisis is taking place in the middle of an election campaign that is remarkable for the lack of any serious proposals to meet what is increasingly becoming a catastrophe for tens of millions of working people in the US. The economic stimulus checks Washington sent out to the public have long since been eaten up by rising gas and food prices, and neither party nor their respective presidential candidates—Democrat Barack Obama and Republican John McCain—has any proposal to provide relief to workers facing the loss of their jobs and their homes.

These are the economic effects of a crumbling empire: loss of jobs, falling currency.

The buck doesn't stop here; it just keeps falling

Tom Raum

July 6, 2008

Dollar woes cramp economy, US consumers, but the government's options are limited

WASHINGTON (AP) -- Things in the U.S. sure are tough. Brother, can you spare a euro? Signs saying "We accept euros" are cropping up in the windows of some Manhattan retailers. A Belgium company is trying to gobble up St. Louis-based Anheuser-Busch, the nation's largest brewer and iconic Super Bowl advertiser.

The almighty dollar is mighty no more. It has been declining steadily for six years against other major currencies, undercutting its role as the leading international banking currency. The long slide is fanning inflation at home and playing a major role in the run-up of oil and gasoline prices everywhere.

Vacationing Europeans are finding bargains in the U.S., while Americans in Paris and other world capitals are being clobbered by sky-high tabs for hotels, travel and even sidewalk cafes. Northern border-city Americans who once flocked into Canada for shopping deals are staying home; it's the Canadians flocking here now.

Everything made in America -- from goods to entire companies -- is near dirt cheap to many foreigners. Meanwhile, American consumers, both those who travel and those who stay at home, are seeing big price increases in energy, food and imported goods. The dollar has lost roughly a quarter of its purchasing power against the currencies of major U.S. trading partners from its peak in 2002.

Since oil is bought and sold in dollars worldwide, the devalued dollar has made the recent surge in energy prices even worse for Americans, leading to $4 gasoline in the United States. Analysts suggest that of the $140 a barrel that oil fetches globally, some $25 may be due to the devalued dollar.

Further declines in the dollar will add to oil's appeal as a commodity to be traded.

Oil, suggests influential energy consultant Daniel Yergin, is "the new gold."

The limp greenback has had one big benefit to the U.S. economy: Since it makes American goods cheaper overseas, it has helped manufacturers who export and other U.S. based companies with international reach. Exports have been one of the few bright spots in an otherwise darkening U.S. economy…

Mark Zandi, chief economist at Moody's Economy.com, said expanding exports due to a weak dollar are "an important source of growth, but it doesn't add a lot to jobs, it doesn't mean very much for the average American household. For the average American, for the average consumer, these are pretty tough times."

The loss of the dollar's purchasing power and international respect has some experts worrying that the euro might one day replace the dollar as the so-called primary reserve currency. And that could trigger a dollar rout as foreign governments and international investors flee from U.S. Treasury bonds and other dollar-denominated investments.

Making matters worse: The gaping U.S. current-account deficit -- the amount by which the value of goods, services and investments bought in the U.S. from overseas exceeds the amount the U.S. sells abroad -- and the low levels of domestic savings means that foreigners must purchase more than $3 billion every business day to fund the imbalance.

Since roughly half of the nation's nearly $10 trillion national debt is held by foreigners, mostly in Treasury bills and bonds, such a withdrawal could have enormous consequences.

Yet Washington finds its options limited.

President Bush asserts longtime support for a "strong" dollar, and made that point again Sunday in a news conference in Japan with Prime Minister Yasuo Fukuda. "In terms of the dollar, the United States strongly believes -- believes in a strong dollar policy and believes that the strength of our economy will be reflected in the dollar."

But not once in his presidency has the U.S bought dollars on foreign exchange markets -- called intervention -- to help prop up the greenback. There's no telling where the buck will stop these days, although for the past few weeks it seems to be in a holding pattern. Even as three Bush Treasury secretaries in a row spouted the strong-dollar mantra, the dollar kept tumbling against the euro, the pound, the yen, the Canadian dollar and most other major currencies.

The Federal Reserve could prop up the dollar by increasing interest rates under its control. Increased yields would make dollar-denominated investments more attractive to foreigners. But that could undercut the already anemic economic growth in a frail U.S. economy rocked by soaring fuel costs, falling home prices and rising unemployment -- and the lowest reading of consumer confidence in 16 years.

The Fed must do a balancing act between keeping the domestic economy from going into recession and keeping inflation at bay.

Furthermore, no Fed likes to raise rates aggressively in a presidential election year. It seems more inclined to hold interest rates low for now to give financial markets time to recover from the housing meltdown and credit crunch. It did just that in its meeting on June 25, leaving a key short-term rate at 2 percent. The rate reached that level in April after a series of aggressive cuts that brought it down 3.25 percentage points since September. Those cuts helped ease the housing and credit crises -- but drove the dollar further down.

In early June, Bush declared before his trip to Europe: "A strong dollar is in our nation's interests. It is in the interests of the global economy." That, plus a warning by Fed Chairman Ben Bernanke that the dollar's weakness was contributing to U.S. inflation, seemed to temporarily break the dollar's tumble. Presidents and Fed chairmen don't usually talk directly about the dollar and exchange rates -- leaving that up to the Treasury secretary -- and international bankers and investors took note of the high-level attention.

Over the past few weeks, the dollar has remained relatively stable, although it took a dip after the Fed decided to leave rates unchanged. The long slide may not be over.

Still, if the Fed moves to lift rates later this year, as some traders and investors anticipate, it could buttress the dollar and spur an exodus of speculators from the oil market -- helping to both prop up the dollar and drive down oil prices. But few economists are sanguine that the economy will improve any time soon.

The other main tool to move the dollar -- intervention in currency markets by buying dollars and selling other currencies -- is risky.

It would take great sums of money to make any difference. The foreign exchange market is the largest in the world, with over $1 trillion traded each day. Seeing the U.S. trying to prop up the greenback by buying dollars could be taken as a sign of desperation and possibly trigger a renewed round of selling.

Furthermore, there has been little encouragement for such a strategy from finance ministers from the Group of Eight wealthy democracies -- Japan, Britain, Germany, France, Italy, Canada and Russia plus the U.S.

Leaders of the eight countries were to meet in Japan beginning Monday, but the falling dollar was not even on the formal agenda. It's too touchy an issue, and the dollar's relative stability over the past few weeks makes it easier for world leaders to steer clear. "People will be talking about it in the corridors," said Reginald Dale, a senior fellow with the Center for Strategic and International Studies.

Treasury Secretary Henry Paulson has suggested that nothing is "off the table" including intervention. But Bush has made statements suggesting he intends to let market forces set exchange rates.

The dollar has fallen so far, it will be difficult to halt or reverse its slide.

U.S. efforts to persuade Saudi Arabia and other major oil-producing nations to increase their production -- and help ease pressure on both oil prices and the dollar -- have brought scant results.

"There's no magic wand," said White House press secretary Dana Perino. "It's not going to be a problem that we solve overnight."

The impact of the falling dollar is not always visible to the average consumer. Not like the big numbers on gas pumps that give stark evidence of price levels.

But imported goods, from fuel to cars from Japanese automakers and toys from China -- are getting more expensive just as U.S. wages are either stagnant or falling.

American companies suddenly look cheap to acquisition-minded foreigners, particularly those based in Europe.

Belgian-based InBev's hostile bid for Anheuser-Busch is a recent example. It has bid $46 billion to acquire the company -- a 30 percent premium above where Anheuser's shares traded before the June 11 proposal.

A successful acquisition by InBev would put the last remaining mass-market American brewer in foreign hands. InBev is based in Belgium but run by Brazilians. Anheuser-Busch, which brews both Budweiser and Bud light, holds a 48.5 percent share of U.S. beer sales. Anheuser-Busch rejected InBev's bid, but the Belgian brewer forged ahead, seeking to unseat Anheuser's 13-member board and take its offer directly to shareholders.

If the takeover goes through, it might open the floodgates to other foreign takeovers of American companies.

Some of the dollar's decline depends on hard-to-measure factors, like the psychology of foreign investors.

When the U.S. economy is weakening, many investors stay away. The slide of the dollar has coincided with a long period of relatively low interest rates.

And some of the decline in the dollar's global role "is due to the foreign policy failures of the Bush administration, not just to recent economic developments and policies," suggests Adam S. Posen, deputy director of the Peterson Institute for International Economics and a former economist at the Federal Reserve Bank of New York. In other words, some international investors unhappy with Bush's policy on Iraq or toward other parts of the world might not wish to invest in American companies or buy U.S. bonds…

No, not because investors are “unhappy” with the policies. It’s because the policies have failed and have wasted over a trillion dollars. These policies have enriched a few insiders feeding at the trough while bankrupting the U.S. government. If there is one think we can thank George Bush for it is for destroying the U.S. empire and making the United States just another country. And as a U.S. citizen, I mean that sincerely, not ironically. Let’s let Joseph Heller explain, in Catch-22, in the scene where Lieutenant Nately encounters a disrespecful old man in an Italian whorehouse:

“America,” he said, “will lose the war. And Italy will win it.”

“America is the strongest and most prosperous nation on earth,” Nately informed him with lofty fervor and dignity. “And the American fighting man is second to none.”

“Exactly,” agreed the old man pleasantly, with a hint of taunting amusement. “Italy, on the other hand, is one of the least prosperous nations on earth. And the Italian fighting man is probably second to all. And that is exactly why my country is doing so will in this war while your country is doing so poorly.”

Nately guffawed with surprise, then blushed apologetically for his impoliteness. “I’m sorry I laughed at you,” he said sincerely, and he continued in a tone of respectful condescension. “But Italy was occupied by the Germans and is now being occupied by us. You don’t call that doing very well, do you?”

“But of course I do,” exclaimed the old man cheerfully. “The Germans are being driven out, and we are still here. In a few years you will be gone, too, and we will still be here. You see, Italy is a weak country, and that’s what makes us so strong. Italian soldiers are not dying any more. But American and German soldiers are. I call that doing extremely well. Yes, I am quite certain that Italy will survive this war and still be in existence long after your own country has been destroyed.”

Nately could scarcely believe his ears. He had never heard such shocking blasphemies before, and he wondered with instictive logic why G-men did not appear to lock the traitorous old man up. “America is not going to be destroyed!” he shouted passionately.

“Never?” prodded the old man softly.

“Well…” Nately faltered.

The old man laughed indulgently, holding in check a deeper, more explosive delight. His goading remained gentle. “Rome was destroyed, Greece was destroyed, Persia was destroyed, Spain was destroyed. All great countries are destroyed. Why not yours? How much longer do you really think your own country will last? Forever? Keep in mind that the earth itself is destined to be destroyed by the sun in twenty-five million years or so.” (Joseph Heller, Catch-22, ch. 23)

But the downfall will be hard on those who grew up in affluence. Who knows how it will play out, but Ran Prieur wrote an essay two years ago imagining six different collapse scenarios. He concluded by imagining how it plays out for one person:

In 2006 there's a war that doesn't seem to affect you directly. But you really start to notice prices going up. You can't sacrifice on fuel, and you couldn't stand to live with other people, so you slash your food budget -- no more organics, and more white sugar and white flour. Your health deteriorates, you get depressed, and when the first serious crisis hits, you find yourself on a bus to an "evacuee facility" where you get sick and die... Back up.

You decide to share an apartment and cut your rent in half. It's no fun having to compromise with other people, but it builds your skills in working out conflicts and tolerating annoyances, and makes you generally more adaptable. You spend the extra money paying higher prices to maintain the lifestyle you're accustomed to. Then you lose your job. For a few months you live on credit cards, but they run out, and the company hassles you to collect your debt which now grows exponentially even though you're not spending anything. You live in fear of eviction and stand in line all day to get really bad food. Your health deteriorates, you have to sell your car, you get desperate, and one day you get caught stealing something, and you're sent to a prison where everyone is left to die in the next disaster... Back up.

Seeing that you might lose your job, you decide to build up savings. You stop spending on entertainment, learn to cook meals from bulk foods, get all your clothing from thrift stores, and turn the heat off. When you lose your job, you immediately sell your car, pay off your credit cards, and move to someplace even cheaper and more crowded. Here you're able to squeak by year after year, doing odd jobs, scavenging metal... Wait -- this isn't good enough. Back up.

When you lose your job, you drive your car to stay with a friend who lives on remote land. But it's only a little cheaper, since you still have to pay car expenses, and the land is nowhere near self-sufficient in food. Pine bark and larvae taste awful, and the social isolation is driving you nuts. Back up.

In the crowded cheap place, you spend a year reducing your possessions and learning skills to drop down another notch. Also, you start talking to people about your plans and building a group of allies. Together you pick out an abandoned house and openly move in and fix it up. At the same time, you find a backup abandoned house in case you're thrown out of this one. But you're able to stay for several years, with almost no expenses beyond food. You get an old wood-burning stove and scavenge wood from wrecked buildings, and one of you learns basic medical and dental skills. You catch and store rainwater from the roof -- even with the asphalt shingles it's better than city water, and later you scavenge sheets of metal to catch it. You meet someone with a farm just outside the city, and arrange to trade work at harvest time for a share of the food. This is survivable, but the food is still tight. It could be better. Back up.

Even before you find the squat, you scout some places in the near suburbs, out of the way and with good sunlight, and spend your spare cash on seedlings -- blueberry, apple, walnut, juneberry, goumi. As other food sources decrease, these increase, and you learn propagation and set up hundreds more trees and bushes around the city. You gather lamb's quarters seeds in late summer and scatter them on disturbed ground in the spring, and plant hundreds of wild onions. Most of this food is discovered by other people but there's still plenty for you and your friends. After a few more years you occupy a small area where a lot of the trees are, and set up a second homestead, but keep a presence in the city.

All this time you're working with other groups to help people get food and water and medical care, to transform the infrastructure, and to deter violent crime, or clean up after it. There are drug gangs, right wing death squads, and the occasional marauding horde of government troops and/or bandits. There are giant storms and hard summers and winters. But the vast majority of your friends are not killed, and people go about their lives less fearful than they did at the peak of the Empire.

If you don't have kids, you help raise other people's kids. They don't go to school, but jump right in doing what adults do, and spend a few weeks learning to read and write when they're ready. By 2030, the city is full of gardens and orchards. You don't know anyone with a car, but a few techies are still using old computers and surviving satellites and fiber optic lines to connect to a patchy internet. You hear strange stories of distant lands, and wonder where it's all heading. At the end of a long and very interesting life, like all your ancestors (except the most recent), you die at home surrounded by people you love.