Where is the USA Heading Now: 12/28/08

Executive Summary – Let us take inventory as to where the USA is now.

Real Estate – Currently the bailed out banks are still not lending. They are waiting for real estate values to drop another 20-25%, depending on whom you talk to. They think the real estate is still overstated and do not want to lend at such high prices. This is scary. Real estate lender sales of homes they have foreclosed on during the third quarter of 2008 have yielded only 70% of the loan value, think 30% losses. In 2007 the figure was 78%. I expect in the first quarter of 2009 the figure will be 50% to 60% and possibly as low as 60% in the fourth quarter of 2008. The average home in the USA is down 30% in value now. Foreclosed homes sell at low distressed prices. In the major former real estate hot spots the price drop will be 45% to 65% during 2009. Restructuring mortgages is not a viable solution according to the statistics. In just six months 56% of the restructured mortgages return to default. After three months 36% are in default again.

Please note it takes 90 days to get into default. Consider that in fourth quarter 2008 and in 2009 these figures will be appreciably worse since so many more people lost their jobs, their stock market equity, their lines of credit and of course the value of their home is dropping thus encouraging more walkaways. Doom and gloom for the real estate market as a whole. There are a few small pockets where values have only dropped 5% to 20% but in general things are down. No one is anxious to buy because they have no idea where the bottom of the market is yet.

Compound this with the fact that the lenders are not ready to lend yet until the market goes down another 20% to 25% and you have all the ingredients of a full scale depression era real estate market, actually worse in some ways. We have read of some homes in the San Francisco Bay Area that were selling for $370,000 during the peak now selling for substantially under $100,000. The San Francisco Chronicle Newspaper had some illustrations of this thus illustrating that a 75% price drop is possible in some areas. To see the story with pictures of these homes and the history of their value drop go here:

Bay Area sees deals on homes for under $100,000

We will see some extremely depressed housing prices. Commercial property will drop steeply too as a result of business closures. Real estate will always be worth something but it is not the safe harbor many believed it to be. The amount of time needed to sell a house will also be much longer than previously needed.

Bankrupt Local Governments – In third quarter 2008 there were 29 states with a 48 billion dollar shortfall. Projected for 2009 is a 41 state shortage of some 71 billion dollars. California is pulling far ahead of the others with a 31 billion dollar shortage and Florida is right behind them with a 5 billion dollar shortage. By the year 2010 the shortage of the combined states will exceed 200 billion dollars. Services for the poor, disabled, broke, homeless, those without medical coverage insurance are being cut. Bailouts for the rich fat corporations are being enhanced.

Public service jobs are being cut including law enforcement and corrections. Crime is going to rise and big time. The big corporations will readily adapt by employing enhanced private security at the business sites and for their key executives (bodyguards). The areas that will be the safest are the gated communities with armed guards patrolling the grounds and controlling the entry and exit of vehicles and pedestrians. Police response to alarms called in by alarm companies will be either very slow or non-existent due to cutbacks and layoffs of law enforcement people.

The specific crimes to increase will be: credit card fraud of all sorts, bank fraud of all sorts, car theft, car burglaries (like stealing entertainment equipment from the car, wheels etc) car jacking, home and business burglary, armed robbery, muggings, rapes, home invasion robbery and financial frauds of all sorts. Jail sentences are being lightened or discarded altogether now in many locations and this will rise greatly during 2009 since there is no money to pay for the prisons on the state and local level.

Judges are handing out alternative sentences like supervised release, early release, home arrest etc. Dates to report to prison to begin serving sentences are being postponed a long time (months and longer) so how law abiding is a fellow going to be while he is awaiting a date to report to jail to serve his sentence. Reduced law enforcement and rising crimes mean those law enforcement people left with jobs will be buried processing crime reports with little to no follow up investigative work. Crime clearance rates (crimes solved) will drop to insignificant levels. Laboratory work necessary to gather evidence will drop off due to budgetary restraints. The federal agencies may keep their law enforcement personnel at the exaggerated levels they now support or Obama may reduce them due to budgetary restraints, need to wait and see.

In any event the federal law enforcement agencies do next to nothing to protect you, your life and your property. The vast overwhelming majority of their work involves prosecuting people for violating statues like SEC violations, money laundering, filling out loan or government forms incorrectly or with bogus information, tax violations, food and drug codes, customs laws, drug laws, immigration laws, etc. They are not going after the people breaking into your homes and cars to harm you, rob you, rape you, or steal your property.

The Federal law Enforcement Agencies do not respond to desperate calls for help when you are about to become a victim like someone is breaking into your house or following your car. The federal government dedicates a massive amount of money to the so-called war on drugs both inside the USA and abroad. How’s that war going anyway? Are drugs off the street yet? Of course not and this expensive war has been going on for a half a century which speaks to their effectiveness at controlling crime.

As people lose their jobs, homes, credit etc they become desperate. The social support system has run out of money and will not be of much help. It is easy to see why some will resort to crime as they see their family go hungry, without adequate shelter and medical coverage. The Federal Government will mainly focus on their own buildings and facilities utilizing their personnel to keep them safe and secure. They do not have even 1/100th of the forces needed to keep the country safe and secure from criminals, criminal gangs and riots from the disgruntled poor and homeless.

While hurricane Katrina was an interesting model it was one medium city all by itself in turmoil and the government did a miserable job. Imagine 85 New Orleans at the same time on an ongoing basis, how about 300 such cities. Now you are getting the picture. Forget these dreams of soldiers, National Guard or mercenary forces, which are super expensive or any other sort of help. If the rioters march on key installations the government will probably deploy tanks and helicopters to deter or kill the marchers in a fast and cost effective manner. This will deter riots after they do this several times and the word gets out. When you release people from jail (state and local now so far which is where the majority of those incarcerated are), delay ever sending them to jail, rely heavily on alternative sentences which keep the violent criminals on the street, reduce the ranks of the law enforcement officers on the streets, reduce the corrections officers, reduce the parole and probation officers etc. when the economy is at its worst in 70 years you are going to see a steep rise in crime.

Bailouts for businesses will only be a temporary Band-Aid cure that will fall off very soon leaving the wound exposed and festering. In two years the projected amount of Americans out of work is 25% to 38%, depending on whom you want to believe but in any case depressing figures. Homeless shelters, food banks, welfare programs will be out of money. Prison conditions will become worse and worse. Riots will ensue and the prison system will break down. This will lead to more early release programs, reduced sentencing or no jail time alternative sentences as a means to reduce the prison population.

Prison riots are expensive. Inmates get hurt and require medical care, which is costly. The physical facilities get damaged in riots and this is expensive to repair. Corrections officers need to work overtime, often around the clock, during riots and this is expensive. Corrections officers get injured and disabled during riots, which is also expensive. After the riots the lawsuits from the inmates ensue arguing cruel and unusual punishment etc and this is expensive as well. The way to sweep the problem under the rug is to reduce prison populations. In the long run crime increases and the costs to society is greater, but in the short run it saves money. Guess what they will do. What we did not do is add into the equation the hundreds of thousands of members of street gangs originating from Mexico and El Salvador that are very busy operating in the USA. Then we can discuss the 12-20 million illegal aliens who too will suffer from the bad economy and what they will resort to doing. So as bad of a picture that has been presented here, you can be assured that it has been conservatively presented. Study failed economies in the past to see what happens.

Cities will also have riots that will begin in the poor sections of the cities and flow out into the wealthier areas where the looting will be more rewarding. People will be stuck and stranded without power, food, gas, medical etc for days if not weeks at a time. Out of work people with no savings, no money, no credit, no jobs, no medical coverage that are losing their homes and cars for lack of ability to pay get disgruntled with the system real fast and can become out of control. Imagine a family of five sitting around in the winter with their utilities shut off, waiting to be evicted, out of work with sick kids. How far away from rioting do you think they will be?

Counting on the government that got you into this mess, to get you out of it may make some sense to some of you; others will see that their abilities and motives are inconsistent with really helping you out. For the size of the bailout to banks and automakers they could have paid off $150,000 in mortgage debt for about 10,000,000 homeowners. This would have placed more disposable income into the economy, got the banks portfolios balanced out and would have enabled the banks to lend again. Did they even consider this? No. Some people get it early on and do nothing.

Some people get it later on when it is hard to do anything corrective. Others never get it at all even when it is all over. Very few get it early enough to act with determination and save themselves. Very few. People are not comfortable making such decisions. They prefer to stay put and play the I hope, I hope game. The government will absolutely assist those wishing to play the I hope game by feeding them distorted news in their media. It gets worse, read on.

The Hospitals – They are in dire straits now. Where is society if the already diminished supply of hospitals gets a lot smaller? Many now rely on the emergency rooms for treatment. Certain hospitals have to take them and treat them and they never pay the bill. They do not even need to show ID to get treatment, which means they do not even need to be citizens of the country. The hospital emergency rooms are an important safety valve. Sure the wait is awful but you can eventually be seen and get treated

The USA hospitals employ 5 million people. Insurance companies are delaying payments 90 days or longer now. Patients are putting off elective procedures due to the failing economy. The employer insurance plans are operating with high deductibles, which the patients cannot pay so many of those that have insurance are delaying treatment. Patients are not paying their hospital bills, those with and without insurance. Moody’s recently changed its outlook for hospitals from stable to negative. Negative means they are going to go bankrupt or merge. Mergers are a tricky thing. How can more of a bad thing make it better, it can’t.

In the state of New Jersey 47 % of their hospitals profit or non-profit, claimed losses in 2007. New Jersey has 79 acute care hospitals, and five of these closed during 2008. In Hawaii two hospitals filed for bankruptcy this year already. A survey was taken of 550 hospitals. In the previous year during the third quarter they collectively showed a profit of almost 400 millions dollars. In 2008 they collectively showed a loss of 550 million dollars during the third quarter. This is bad. Moody’s no longer considers them a worthy industry so who is going to lend to them. So the carmakers got a bailout but the hospitals are overlooked?

America Has A High Illiteracy Rate – We should look a little into some root causes here without getting too philosophical. America is not manufacturing anything like it used to. This of course is a root cause of the economic problem. There are 42 million Americans who cannot read yet hold high school diplomas. There are 50 million who can only read at a forth or fifth grade level. 80% of the households in the USA during 2007 did not buy even a single book. Ever wonder why the fast food restaurants always have graphic detailed pictures of the food on the menus in the restaurants.

The Princeton Review did a study on the grade level of literacy a person needed to comprehend the context of the presidential debates during different times in history. In 1858 when Lincoln debated Douglas the literacy level required was 11th to 12 grade, in other words a high school graduate or almost one. The debates between Kennedy and Nixon in the 1960’s required one to have a 10th grade education to understand it. During the Bush and Gore Debate the grade level required was about 7th grade on average. I am sure if the study was done on the McCain Obama debate it would be lower yet. This should speak for itself.

Equity Lost – So far 32 Trillion USD has been lost worldwide in equity markets (stock markets). Yes the USA is not the only place that is in a financial crisis. It is the only country in the financial crisis that has more privately owned guns than people and that is food for thought. So far 6 trillion USD has been lost in USA real estate equity only. Commercial Real Estate is way down since businesses are closing. Many malls will probably be vacant by the end of the first quarter in 2009. Losses in the Commodities markets are also massive. The worst is yet to come in 2009.

The US Dollar – This is a hard one to figure out but lets lay out some ground rules. A cheap dollar helps 1% of the country. Those exporting goods to other countries and those benefiting from increased tourism do well. When the dollar is cheap foreigners take vacations there. Americans do not really understand looking for countries with a cheap currency to take a vacation in but in other countries it is a popular procedure when vacation hunting. Even the carmakers went upside down with a very low dollar for many years. Shows us their level of competency. A strong dollar helps 99% of the people since imported good are cheaper and inflation goes down. The value of the dollar is relative to the other currencies. There is so much manipulation by governments and others it can be puzzling to figure out.

Some things we can glean though follow: As the Fed interest rate drops the demand for fed instruments drops, then the demand for the dollars used to buy these instruments drops, and then this pushes the dollar down due to a lack of demand. The low oil prices drops demand for dollars as well since oil is generally priced in US dollars. Lower oil prices mean fewer dollars needed for oil purchases thus lower demand for dollars. When the stock market in the USA plummets down the demand for dollars goes up since people get margin called out of their positions and hold dollars while they watch and weep. When the market climbs people buy into the market and thus use dollars so the demand goes up again. When people do not invest heavily in American markets dollar demand drops. See how confusing it can be. Very hard to predict. Would be slow to doom the dollar altogether. Many major players in the world like the Russian Federation, China, South America, Central America etc are trying to get away from the dollar not trusting the US anymore to maintain a sound monetary policy. This will drop demand for dollars but it is a lot easier said than implemented so let’s wait and see. This is going to take some time but it is coming.

What we need to See Obama Do? – First he needs to attack the root cause of the problem, which is an irresponsible monetary policy and system. Here is what they have now.

A private bank was created in 1913 called the Federal Reserve Bank. It is not a government institution and its employees are not government employees. They do not pay any taxes having been granted an exemption. by the government. Nice huh. They are not run or controlled by the USA government. They have their own board of Governors and in turn the 12 different Federal Reserve Banks have their own Board of Directors that runs them which consists of private bankers at the end of the daisy chain. These are the guys causing the problem and the same guys getting the gain from the interest payments on this money they manufacture out of thin air that the government is nice enough to print for them to lend an air of credibility to it all. Obama has selected some of his key advisors that were former Federal Reserve Bank people. This is throwing kerosene on the fire. This institution has been founded on extremely unsound monetary policies.

It got much worse when President Nixon free floated the US dollar, which was previously issued as a silver certificate redeemable in silver on demand. Thus it was a hard currency backed monetary instrument. The monetary notes now are just promissory notes from a private bank called the Federal Reserve Bank backed by nothing but good faith. If you study history every time a government goes to unbacked fiat money it runs into massive difficulties. The bankers behind the scheme always get richer. When the government issues money like in the case of the bailout, it pays interest on this money to the private bank called the Federal Reserve Bank. The people paying the interest payments to the private bankers are the taxpayers of the USA.

The collection arm of the Federal Reserve Bank (The IRS) was founded coincidentally at the same time as the Federal Reserve in 1913. The IRS collection practices are indicative of the attitude of the Federal Reserve Bank towards the people paying these taxes. Who in their right mind can believe a system such as this would not eventually be exploited and corrupted to the max. Well here we are. It would be wise for Obama to eliminate the Federal Reserve Banking system and go to another system. Presidents Kennedy and Lincoln tried this and they got a major headache each time for their efforts. The Government themselves can easily print bank notes backed by the good faith of the US Government and cut the private bankers out of the loop thus eliminating much of the national debt this way. You hurt a handful of unscrupulous irresponsible bankers and save the economic lives of several hundred million people. This of course only works if the politicians are loyal to the people, not the rich banker class.

Well they are not even talking about doing this including Obama. Going to hard backed currency like gold and silver coins to control out of control government spending is even further away from being on the table. What Obama is going to give the world is more of the same unsound monetary practices; actually from the way he is talking he will even compound the problem. The people will wait as they are told it will take time but after 3-6 months waiting will become painfully difficult and the people will see no hope in sight. Then trouble may ensue. Obama knows this as well as you do and he is taking steps to prepare for this and these steps rest assured do not include bankrupting the corrupt Federal Reserve System to save you from economic peril.

The system as it is, is hopelessly broken and cannot continue as it did in the past. They are scared of something and thus they are printing bailout money. This thrills the Federal Reserve Bank since it means more interest payments to them. The bad news is more taxes for the citizens. Collecting these taxes may be a problem as in you cannot get blood from a stone. Imagine the Federal Reserve Bank forgiving debts, I can’t. If they change the system which we do not hear talk of, rest assured it will be another faulty system allowing the government to print money whenever it wants to and the private bankers will stand to gain from it.

The USA has had a field day getting the world to accept their freely printed fiat money. This allowed them to grow a military, incarcerate more people than any other nation, play world policeman etc. Now the world is sick and tired of their monetary practices and they a re seeking alternatives, and fast at that. If the USA cannot keep the demand for dollars high enough they will fall into chaos. This could explain why most major USA corporations moved physically offshore in recent years. So the question is can they keep the world operating on US dollars any longer. I doubt it. Too many countries too mad at them at the same time. What we are most likely to see from Obama on world affairs

Obama and the Patriot Act – Remember how Obama said he was in favor of eliminating certain portions of the Patriot Act? Notice how now you no longer hear anything about that? They are afraid of something and want these powers in place. I would not look for any reduction in the emergency powers the government has.

Scary Things to look For – These are some things that should get you very concerned as to what is happening if you see them come to pass.

Immigration control for USA passport holders.

Formal exit visas. Now they are informal in the form of the no-fly list, which has recently been expanded to include state-to-state domestic travel. A formal exit visa system comes next if they rack it up a notch. How would it work? Your travel agent has to get your ticket 24 hours in advance with your passport number. Then you stop at homeland security at the airport for a passport swipe and maybe an interview as to why you are traveling. Your exit visa can be denied at any point in the process.

If there is a draft expect the younger people to have to clear a selective service system check before being granted permission to leave. Please bear in mind that in an awful economy military enlistments pick up but the military of the USA has been doing so poorly with enlistments they may go to a conscription army. Just a thought. Now this is easy since they have virtually closed the borders anyway and just need to require those under 26 years old or whatever their cutoff age is to go through some special steps to leave. They also might not be able to leave unless they completed their service. If you think they will not go to a conscription Army look at all the things they have pulled already and then reconsider. Try starting with the constitution.

Currency Controls – This is another warning. Generally works like this: Before you can send money out of the country you need to show the bank an invoice, which they approve. If they do not approve it your international funds transfer does not go out. The bank is liable for bad approvals that could lead to charges fines etc against the bank. Your visa card will now only be good in your own country unless the bank activates it for foreign currencies before you travel. They often also put a dollar cap on this as well.

Attacks on Offshore Banks – They do not want money held privately free from their confiscatory laws etc. They want the money where they can get it. Taxes or other penalties for moving funds out of their reach is a warning sign of things to come. Be careful here.

Attacks on Offshore Expat Havens – They will not want people leaving to go to other countries where the freedoms are great and the economy is good. The disabled, homeless, criminals, unemployed, welfare recipients, and those with government jobs are not the ones leaving. The small to medium size businessperson and the executives are the ones leaving. This means goodbye tax basis. In other words they do not want to see one of their most valuable resources walking out the door for good.

Passports, Second Citizenships – They will prohibit second citizenships and passports as means to deter people from leaving. Those with them already will be grandfathered in and allowed to keep them, while no others will be allowed to get them. Do not wait if you considering this.

Aggressive Gun Control – In every instance without fail when the government seriously curtails the right to private gun ownership the crime rate increases. The states with the highest crime rates have the most restrictive gun laws. In the face of a massive increase in crime serious gun control laws would be a major warning sign. It will elevate the crime rate that it is being argued they are trying to reduce. All gun control laws have as their ultimate goal confiscation of all guns, leaving the government with the only guns. They will start with nonsense laws like assault weapons bans, tax on bullets, not leaving loaded guns in home without a locked container and other harassing laws. Remember when you see this the goal is to confiscate all guns so understand this.

What It Will look Like If the Egg Hits the Fan – It can come a number of ways and is very likely you will see some of this. One of the most profound signs will be people stop listening to the various governments. They think they failed and give up on the government. Hurricane Katrina again as a model. Remember seeing the police officers in uniform looting the stores:

Perm link to this video

People will have little regard for the law. There are numerous people being provided for by the government, other than the major corporations they bail out. These are people receiving disability, welfare etc that have been on these programs for their whole life and in many cases they have been on such programs for several generations. These people think they have aright to be supported by the government and in turn the taxpayers. Take this away from them and they will become volatile. One or two bank holidays and the people will start using cash not trusting the banks. Employers will be forced to pay people in cash like the old days (up until 1970’s). In the big companies an armored car service with guards would set up with bags of cash inside the workplace and people would cash their paycheck in the building where they worked. Their cash was put in an envelope. This will encourage people to use cash. Merchants will stop collecting sales tax. People will work off the books more and more. Bartering will become popular.

When you see the law enforcement officials operating like they did in Hurricane Katrina it is time for big trouble. That means it hit the fan and law enforcement may become full scale corrupt shaking down storeowners, motorists etc like they do in many other countries, of the world. Criminal gangs, which are already present, will grow fast and expand their territories. Police will not be able to cope with them. When the USSR failed the KGB agents were out of work. What did they do. Well they got together with their criminal contacts and set up an elaborate international series of crime syndicates that thrives to this day. These people understand crime, internal security, intelligence and law enforcement. When they were out of work they quickly learned to fend for themselves.

The USA equivalents will be no different, go back and watch the New Orleans Police looting stores again openly in front of cameras. When the law enforcement people at all levels lose their jobs what are they going to do? They have no private sector skills. A few of them will go into private security at the management level. Private security is renowned for low pay and bad working conditions. If an out of work state trooper applies for work the person interviewing him or her is likely to remember the time they got a ticket with a lecture and an I do not care attitude for going five miles an hour over the speed limit, or seeing the movies of people getting shot by tasers cruelly for failing to get out of their car or stand still.

What about an IRS agent trying to get a job? Are they not going to remember what the IRS did to a friend, relative or themselves? What about Homeland Security. The job interviewer will not remember the hard time they got at the airport with attitude from the homeland security. People are not fond of law enforcement types in a Police state and this is going to count when it comes to being absorbed into the private sector during bad times.

What To Do? – If you do not like the way the USA government has been handling your financial situation vote with your feet and leave. At least move your assets out where they can be safer. We can help you either way. The ones who get out first get out with the most is rule of thumb when there is a massive mess like this. There are a lot of healthy economies in Latin America free from all this madness-taking place in the USA.

Many countries in Latin America like Guatemala have strong economies. Most of the businesses are small to medium size, not monopolies. Guatemala has two oceans to fish in. It has beef, pork, chicken that is bred without steroids, antibiotics or chemicals. The animals walk around outside and eat the food they were intended to eat. Guatemala has vegetables, grains, and a full assortment of fruit. Labor is cheap. Businesses are easy to start and run. The government allows for freedoms like the USA did 75 years ago. You can still get a beachfront three bedroom house for $100,000.

You can have a modest house in a rural area for $40,000. The main city Guatemala City has 2 million people and about the same amount of people in the surrounding area. You can get anything you want. There are 16 shopping malls in the city and suburbs. Numerous restaurants, small shops etc. A live in maid is $250 a month. Internet and phones are similar to what you have now. Doctors make house calls for $25. Most drugs are available with prescription and they deliver. Temperature in Guatemala City is 55 to 75 degrees year round.

Panama is good for an urban lifestyle along with warm weather. Real estate is a little pricey so it is perhaps more for the affluent. It is a city of condos many of which have water views. There are restaurants galore, mostly all good. There are three malls and one can get most anything there. Banking is great. The country is small with 3.2 million people, 900,000 in Panama City.

If you are ready to take some action and leave call us. If you think it is time for your assets to at least leave in part call us.

We are here to help. If you just want to chat about things, that’s ok call anyway.