Thursday, May 15, 2008

A drop in the bucket is not enough. ..

Robert Morley, Columnist
What Garage Sales Tell Us About Our Economy
May 13, 2008 | From
As people struggle to put food on the table, a wave of second-hand goods is sweeping the nation.

...Ellona Bateman-Lee is in trouble. With barely enough money to cover living expenses, she is having trouble coping with soaring food prices, utility bills and health-care costs. In desperation, she is turning to online flea markets as a last-ditch grasp at solvency...

... Struggling with billowing debt and rising prices, faced with a rapidly deteriorating economy and job market, cash-strapped Americans are selling family heirlooms, prized possessions, scrap, and just about anything with value.

Internet garage sale sites are booming. According to the Associated Press, Craigslist, one of the more well-known online flea markets, has seen the number of for-sale listings soar 70 percent since last July. says its sales rose a blistering 66 percent from February to March.

Pawnshops too are seeing higher numbers of clients. “People are cleaning out their houses of gold, silver, whatever, to get money just to fill their cars with gas,” says Nat Leonard, a pawnshop owner in Philadelphia. “People are pawning out like crazy.”

... Leonard’s sales volumes are up 20 percent over last year, with increasing numbers of first-time customers. “I’ve got business owners coming in to pawn things just to make their payrolls,” Leonard said. “I’ve never seen that before.”

“With this economy, we’re not done yet with bad times,” he said. “Not even close.”

Secondhand online merchandise is already selling for 25 to 35 percent below last year’s prices, says Brian Riley, senior analyst at the TowerGroup research firm. If the numbers of people trying to dump their stuff continues, prices will probably continue to fall.

Over the last several years, the ability of U.S. consumers to continually ramp up spending, even as real wages have stagnated, has amazed many. But if the buying binge is finally reaching an end, there will be serious ramifications for the economy...

... Prices of many essentials are rising. Food and energy costs are certainly soaring. Budgets are getting hammered, and $3.50 per gallon fuel is chipping away at what is left of discretionary spending.

Meanwhile, wages have hardly budged. Worse, if the U.S. Bureau of Labor and Statistics calculated inflation the way it used to, back in pre-Clinton times, real wages have probably fallen over the past several years...

... Federal Reserve interest rate cuts are also causing damage. Lower interest rates tend to undermine the value of the dollar. A weak dollar means the prices of imported goods like oil, clothing, electronics and food all rise. Since the United States is so reliant on imports for many of its daily needs, price inflation is hammering spending and consumers’ pocketbooks.

What does this all mean?

Booming online and offline garage sales and pawn shop inventories suggest that the economic downturn is just getting started. What’s the first thing people do when faced with financial stress? Sell what you don’t need. But that is just the first stage.

So you pawn your dvd player for gas money. How far will $5 or $10 get you? Literally, about 30 to 60 miles. When that’s gone after two days of commuting, what then? Sell your car? Downsize your house—in this market?

Americans are facing tough choices. But it is going to get tougher before it gets better. Seventy percent of the economy (as measured by gdp) is consumer spending. If consumers slow down, so will the economy. It’s a virtual guarantee...

... Here is what warned in February 2007, four months before the housing market began to melt down and take the banking sector and the economy with it, in “Inflation, Deflation, Stagflation: Weather the Coming Storm”:

There is coming a time when the consumer will be tapped out, and the debt-fueled consumption binge will end. When it does, consumer confidence will be replaced with fear and eventually panic. This panic will result in increased asset sales and reduced spending as workers attempt to pay off their debts (or save their homes). Evaporating confidence will cause consumers to rethink current and future spending plans. The economy, hit with a lack of demand, will slow, corporate earnings will fall, stock markets will plummet, and layoffs will become prevalent. As more people enter the unemployment line, the deflationary spiral will intensify.

Part two of the article continued,

If that happens, the resulting economic instability will lead to a vicious cycle of consumer spending cutbacks, a plummeting economy and soaring unemployment. Home prices, along with many other domestic-demand-driven assets, will be sucked into a deflationary spiral, likely stimulating a banking crisis as thousands of bad loans must be written off. Yet simultaneously, import prices will soar as the federal government continues to inflate and spend money in a vain attempt to stimulate the economy and keep paying promised Social Security and Medicare liabilities. The dollar will fall further as boatloads of rapidly depreciating greenbacks wash up on America’s shores as America’s foreign debt holders try to spend their U.S. dollars before they become worthless. And as is the case during economic crashes, the middle class almost always gets hurt the worst.

And where will these events leave the majority of Americans? Without a job, without a home, with little or no money (what little savings Americans do have will be destroyed by inflation), coping with food shortages and skyrocketing food and heating prices.

Sound a little too apocalyptic? The fact is, it doesn’t matter what any one of us may think: The storm is coming.

Well, the storm is almost here.

Headlines like “Americans unload prized belongings to make ends meet” are a warning that it is already beginning.

Over the past century, Americans have become more rich and increased with goods than any other nation in the world. Many still think they have need of nothing. Unfortunately, most don’t realize that these riches are illusionary. The dollar is fiat and could collapse overnight. At the same time, goods often aren’t even paid for in “real” dollars; they’re bought on credit.

U.S. private household debt is now almost $14 trillion. Add in federal, state and local debt, plus unfunded government liabilities such as pensions, social security and Medicare, and the national debt load may exceed $75 trillion.

The bills are coming due, and America is headed toward the biggest garage sale ever—and economic meltdown. •

Thinking of selling your gas-guzzler? It's too late, class. Thinking about dumping your expensive electronics and jewelry and gadgets? Don't expect to get what you paid for them, because you're not going to.

This is the ugly side of asset devaluation. I know it may be hard to imagine, but hyperinflation is actually worse. Unfortunately, a hyperinflation does appear to be happening in the grocery business and at the gas pump, of course.

Food Costs Jump Most in 18 Years
By Howard Schneider
Washington Post Staff Writer
Thursday, May 15, 2008; Page D01

Rising global grain prices helped spark the largest increase in monthly food costs in nearly 20 years, as consumers paid more in April for cereals and baked goods, and the dairy, meat and other animal products that rely on feedstocks, the government reported yesterday.

Food prices have risen at a seasonally adjusted annual rate of 6.1 percent past three months. The 0.9 percent rise from March to April was the biggest one-month advance since January 1990, according to the Bureau of Labor Statistics.

The rise in prices covered all categories of food but was most severe among such staples as grains and oils -- goods where inflation has touched off food riots in some less developed countries and led to concerns about shortages...


Get Ready to Spend $6,000 a Year on Gas
By Mark Clayton, Christian Science Monitor. Posted May 14, 2008.
With prices at $120 a barrel, Americans are feeling the pain.

...While many energy-security experts worry about a terrorist attack that suddenly crimps global oil supplies and hammers the US economy, Dr. Wescott and other experts say a terror attack is hardly the only, or even the worst, oil threat the nation now faces. "What we are seeing today is more of a slow-motion, rolling oil crisis rather than a sharp shock, yet ultimately we end up with the same sorts of impacts [as a terror attack]," says Wescott, now president of Keybridge Research, a Washington economic-consulting firm.

Unlike the 1970s, when an oil embargo left Americans waiting in long lines at gasoline stations and paying higher prices, today's oil crisis has been stealthy. Its economic impact has been masked by consumers tapping credit cards and home equity to cover the rising cost of energy and some consumer goods.

"We're having a replay of the 1970s without the Arab oil embargo part, so it's been hard for many people to see," says Amy Myers Jaffe, an energy scholar at the Baker Institute at Rice University in Houston.

Even with US airlines cutting flights and SUV sales now tanking, the effects of expensive oil on the American family could be stark, Wescott's report says.

In 2003, with oil approaching $40 per barrel, the average US family spent about $1,900 (4.8 percent of its income) on natural gas, heating oil, and gasoline. But today at the $120 per barrel level, a family will spend about $6,000 a year or about 15 percent of total annual income, Wescott's report predicts...

Ah, the 70s.

Combining these two, rising prices with falling wages and falling asset resources and you get...stagflation! Talk about a blast from the past, modern economists assured us this type of thing could never happen again...yet here it is, in all it's miserable glory.

Loads of fun, nu?

No comments: