It's a long way down.

The week is closing with a double whammy. This could be a touchstone week; one we will be able to look back on in the upcoming months and years as the week where the tide turned. The real law is being laid out for us and the true nature of our government is crystal clear.

We started the week with our government providing us with the facts of how the laws of the United States really work. There are two sets of rules and laws in this country. One, which applies to the citizens and another, which applies to government and corporations. We have to follow our rules; they have no rules.

By giving the telecom industry total immunity for their complacency in spying on American citizens the government has told us loud and clear that our rights are nothing but a shadow. We have ”rights” as far as the government deems we deserve them and none of them are absolute. The telcos are immune because they were/are in effect, agents of the government by allowing the alphabet agencies into their COs.

I swear, if I could ditch the phone and an Internet connection and all means of communication other than face to face, I would. Why make it easier for the masters to keep tabs on me? Why add more of my data to their database? While I don’t subscribe to the philosophy of removing one’s self entirely from “the grid”, I do believe on lowering your footprint in the grid. Then again, a void of information on a person could, in itself, spark even more curiosity on their part.

Based on this outcome with the telcos, don’t be surprised in the upcoming years when you live down wind of a toxic energy plant, spewing God knows what into the air, and they have immunity from the government for polluting your air because the government deemed it vital. If the government deems it necessary, tough shit for you and me. You and I aren’t the shareholders in this country and we cannot command resources the government deems vital.

The double whammy is rearing it’s head this morning. Freddie Mac and Fannie Mae have been clinging to life for months, today the shit is hitting the fan in regards to their financial health. Rumors are flying, with even Charles Schumer piping in, that the feds are set to take control of both. When this happens our national debt doubles at the least…least.

What happens if this occurs? We fall off the cliff we have been toeing. All shares of stock in Freddie and Fannie would be worthless with shareholders getting jack shit in return, and who owns this stock? Every financial institution in America. Think the Bank of America buys stocks in $100 blocks? Hell no. They buy stock, bonds, commodities and derivative packages in blocks of hundreds of millions of dollars.

If this happens our government will take every mortgage under these financials into their portfolio. You will be paying your mortgage directly to the Federal Reserve. If this happens our government will double the national debt overnight and the value of the dollar will plummet. Think gas is high now? Wait until these fuckers bail out Freddie and Fannie. Think food is outrageously priced now? Just wait. The dollar and all treasury bonds will truly be Monopoly money at this point.

Who gets fucked? Everyone. Worldwide fucking. The largest owners of US Treasuries are China and Japan, bye bye Asian market values. The majority of OPEC nations peg their currency and the price of oil to the US$, their inflation skyrockets and the price of oil in dollars will inflate like a puff adder about to be stepped on. This snake will bite us all.

Pissed off because the Arab nations have been burning through money like it was cheap generic cigarettes? Don’t worry, they were spending dollars for all these years and Dubai bought the Chrysler Building with those same worthless dollars. If you own the largest pile of horseshit in the world, you might have a lot to spread around, but in the end you own a lot of horseshit.

What happens if Freddie and Fannie collapse with no government intervention? A lot of the same. The government will still take receivership of their assets and try to sell the crap to other financial companies, or like the Bear Stearns sweetheart deal, they’ll fund someone to take over the pieces of the pie that once was Freddie Mac and Fannie Mae. We still pay for it, national debt still skyrockets and the dollar still plunges in value.

Time to put on that scratchy old 7” mono copy of Floyd Cramer’s “Last Date”, brace for the fall out and wait for the music to end. It is coming.

Where have all the good times gone?

Payday comes and you are thrilled the floater checks are covered and you hit the grocery store and gas pumps on the way home from work. You sit down and look at your checkbook and hardly anything is left. It’s going to be a hard two weeks until the next payday and a year ago it wasn’t like this.

It’s costing you $9 or maybe $18 per day to pay for gas to and from work, so you think this is to blame, but then you think about the few sacks of groceries you bought and those cost you $75 when a year or two ago they would have only cost you $45, so you think the food is to blame. Then it hits you.

Food is higher because gas is higher, and food is also higher because there is more demand for corn and rice and wheat and soybeans and now there is a shortage. Corn is more in demand for ethanol production, which was supposed to offset rising oil costs and make the fuel cleaner to burn but now it’s driven up the cost of food, food is in short supply and gas went through the roof anyway.

Fuel is higher because the dollar is far weaker than it was even 6 months ago and the people who have true wealth are moving their money into commodity speculation, so they are driving the cost of a barrel of oil higher and higher. Demand is still high for oil and refinery capacity has been decimated since the late 90’s when the big oil companies were given the green light to merge unabated.

Your monthly bill to pay for gas in the car has skyrocketed, the bill for natural gas in your home has skyrocketed, and the electric companies are chomping at the bit to sack your earnings too. Water bills are rising, food is getting expensive and in short supply, insurance keeps going up year after year.

How have your earnings looked over the past 8 years? If you charted it out in a graph you would most likely see two big dips and a flat or slowly rising line between the two dips. Earnings have not only failed to keep pace with inflation, the average and median incomes of US workers have actually fallen. Your spending power is not what it was in 2000.

No one in the government dares even say the truth; we are in a deep recession. Economist eggheads flutter around the subject without saying it but some brave souls in the ether world of economics have been saying we are in an immense recession. Slowly but surely, some are leaning their language toward the big “D” word, the word that no one dares write or say in such circles.

On April 1st of this year the stock market rallied like crazy. The cause was an email from a respected economist who’s opinion is regarded like God’s truth. His outlook was Rosy Jack and upbeat and the market responded. Then the truth got out, his email, all comments in the writing, were an April Fools joke. He was being a sarcastic fucker like your humble blogger and the moneybags on Wall Street took off on a wild spending spree.

So, I have to ask you this question. Who and what really controls our economy? It’s not wise and learned men and women, for if they did the April Fools rally would have never happened. The cyclic dependencies that have brought us to this precipice would not have been allowed to operate had wise people been at the helm. What really controls our economy? Is it optimism? Greed? Blind luck?

I can’t answer those questions; I don’t have the foggiest clue.

Economics is a strange creature. Off and on for more than 20 years I have followed economics as an occasional, novice spectator. I’ve read various reports, books, journals and it’s all led me to a point where I see economics as a multi-headed Hydra. No precious gemstone could be cut with enough facets to equal the number found in economics.

Every now and then a small door will open and then shut just as abruptly that will lead me to a new realization of what is going on behind the scenes. The drive mechanisms of the economic bus are mysterious. These can be large or small revelations, some occur just by looking into the past.

If you sat down and read as many volumes as you can find regarding the touchstone moments of economics over the past 100 years you would have a heavy reading list and dear God, is it ever boring. It would take years to read the main books and journals, assessments and deconstructions, editorials and academic research. In the end you would be no closer to understanding the real foundation of economics. You would, however, keep seeing the same façade to the subject. Credit, payment of interest and control of resources. Those are the three subjects that maintain the façade.

Take the 1971 events where Nixon told the world to pack sand as an example. Credit in this case would be Federal Reserve notes and the valuation of currency. Interest on credits would have been the US gold reserves. Control of resources is the gold stockpile and the valuation of currency. It never changes. Credit. Payment of interest on credit. Control of resources. Thirty-seven years later and it’s still about those three subjects, only the players and the medium of credit and resources have changed.

Maybe the unrest in the economy is natural; perhaps it is not. I don’t know. I do know a few things. Level heads will prevail if and when things get messy. Level heads do not lie down on the floor and throw a tantrum. Level heads do not go out and try to assert some sort of flawed alpha type personality trait. Level heads do not wonder where the good times have gone and ask what they should do now.

Do you own a bicycle? If not, get one on the cheap through Craigslist or at a yard sale. Do it pronto. Get spare parts for it too. Do you own a small backpack or a large duffel or Navy sea bag? If not, get those items pronto. Do you know how to make a crystal radio? Download instructions on the web and try it out and commit it to memory. Do you own real work clothes, a real pair of work boots and the ability to snuff out your ego? If you say no to any of those things, get busy on them. You will need all three.

Did you ever talk to your older relatives about the Great Depression when they were alive? If you did, you better start plucking the wisdom from what they told you. If you have no idea what they did to survive that event, here is the short answer. Be prepared and ready to do whatever it takes to survive from day to day. I’m not talking about rioting and causing mayhem. I’m talking about being prepared to work for pennies and be so afraid of letting that money out of your hands that you are willing to go to bed hungry at night, for many nights, over many years.

Could you go to bed on an empty stomach after a hard day of manual labor and know you will do it again tomorrow if it means your child or elderly family member can have one small bowl full of mush? Would you be prepared to do that? Do you even know what mush is? Find out what it is and learn how to make it.

Are we heading down that path or am I just a crazy old paranoid fool? Maybe, maybe not. I do know this. We have not seen the bottom of the economic woes in this country; we are not even close to being able to see the bottom. We have only begun to start our fall into the hole.

In one regard money follows a rule in physics. Money, like water and electricity and high pressures, will follow the path of least resistance. In the case of money, the path of least resistance is the path that will yield the highest return on investment. i.e. the payment of interest on an investment. Water will not flow uphill, electricity will flow through copper wire instead of steel cables and a failed seal on a vacuum chamber will always allow a higher pressure to enter the chamber.

Real money, not like what you and I have, will always move along to the next area to speculate, causing a bubble. This bubble ratchets up demand for that ‘thing’ and drives the prices to un-naturally high levels for that ‘thing’. Credit and real estate were speculated upon and a bubble formed. Prices inflated well above the intrinsic value of those things and rose many times higher than historical prices and what inflation could provide. The bubble is leaking; the higher pressure is entering that chamber. The path of least resistance is taking the money to food stocks and other commodities like oil and precious metals. When those have once again been pillaged beyond the last drop of interest, the money will flow out to another speculative bubble like water from a broken dam.

30 years ago the purchase of a house was a safe bet. You could expect a nominal increase in value over time along with the rise of inflation to provide you with a decent profit when you sold ‘if’ you made a wise purchase and kept your home maintained. Take a look at your county tax commissioner’s website and look at the graded and assessed build quality for homes. Check out the number of new homes that are only graded as Good when compared to the number of homes 40 years ago that were built to a higher quality standard and get an Average rating. There is your value in a McMansion. Only a Good rating for quality of materials and construction on your McMansion with a mudroom and Jack and Jill bathroom while a ranch house in the same neighborhood, built in the 1960’s is better constructed with better materials. Yes, infill was a bright idea. Actually, it was a bright idea for the speculators who made a killing on the gullible and the folks who misinterpreted the “American Dream”.

If you think a 20% or 30% drop in home values is the bottom, think again. This market has another 30% in it at the least. Look at the historical values of homes before the speculation began and you will see a modest increase yearly to compensate for inflation and demand and that is all. The ‘value’ of homes over the last 30 years has been driven by speculation and when there was no driving force to raise speculation the financiers created a credit bubble to facilitate a house speculation bubble.

We are still waiting for the Alt-A bubble to begin crumbling, we are waiting for the Put Option ARMs to begin resetting, we are still waiting for the credit markets to shrug off the excess credit load with write offs. We are still waiting for the fall out from lack of cash flow that will affect commercial real estate and retail far more than the credit collapse. Remember, right now we are seeing only the early effects of a so-called credit crunch. The credit was based on ether. It was money that never existed in the first place and a massive block of the economy was being driven by this credit. When credit is gone only cash is left.

When the cash is devalued like we are seeing now, inflation really sticks it to those who have cash. When credit is gone only those with cash can maintain the economy and when uncertainty and fear permeate the economy you won’t let a penny out of your hands unless you really have to. This is the direction we are heading toward. Cash did not keep the failed and failing companies alive, credit kept them afloat. Cash did not put people in million dollar McMansions, credit put them there. The credit is going away and the speculators are looking for cash only resources such as oil and gold and corn and wheat and soybeans.

I’m not saying the end is nigh, I am saying that we all need to be prepared and we all need a plan. I’ve got a bike, work clothes, some food socked away, some cash and no qualms about letting my ego take a kicking just to make enough money to eat a bowl of rice and beans or some sort of pancake concoction. Are you willing to do the same thing?

Signs on the road, sign of the times.

My trip to and from work every day takes me through quite a few contrasting areas and neighborhoods. I start out in the residential area just north of the Decatur city limits; work my way past Lavista, I-85, Buford Highway and Peachtree Street. I head north through the tawny and wealthy neighborhoods of Buckhead and cruise up to the north end of the perimeter where I hop on 400 north and feel the adrenaline rush of driving with the hogs of the road until I am finally able to escape the high speed and substitute it with the stop and go of a red light every 100 yards in Alpharetta. The path is flipped around in the late afternoon for the gas burn home. I have alternate routes for when the traffic plugs due to a wreck or water main break or God knows what.

The trip is interesting in the morning as I can cruise very well and make it through many red lights before I finally have to stop. I can see the neighborhoods as I pass and get a look at my surroundings for a little while. The OCD aspect of my personality is best suited for the drive as I count things while I drive. A trick to pass time that I picked up years ago when I would drive home to visit family when I was on leave in the Navy. I count red lights, mileage, elapsed time and a wide range of other things. If I run out of obvious things to count I’ll turn my attention to car makes, models and colors.

The other week I found myself counting For Sale and For Rent signs along the side of the road. I tallied 25 homes for sale and 7 for rent. Of the 25 homes listed for sale, 16 of them were in the upscale Buckhead neighborhoods. This didn’t include the numerous condo projects that are still being built and the ones that have recently been completed. 16 multi-million-dollar homes for sale just between Peachtree Street and Pill Hill on the northside, and this was seen on one road, Peachtree-Dunwoody. Think about that for a minute, I’ll come back to it.

When financial “bubbles” burst, they do one of two things: 1) A sudden and widespread deflation. 2) A slow and prolonged leak. The mortgage crisis is a bubble that leaks like the latter, it’s a slow and drawn out process. The highest number of sub-prime loans that had a reset has just come and gone. October was the month that saw the highest number of interest rate resets. The fall out from those resets will not be seen for quite a while. The folks who have already been caught up in the crisis were those who got on the bandwagon early. The ones who jumped on while it was in full swing are just now being pulled through the wringer.

As I drove north on Peachtree-Dunwoody that morning and caught myself admiring the many older, more lovely homes I noticed that it was the newer infill style McMansions that had the for sale signs and very few of the older homes were for sale. I thought about the millions of dollars spent to buy the land, paying crews to tear down the old homes and build the new houses. I thought about what some of those places will look like after they have sat vacant for months. I thought of the stories we are hearing out of Cleveland and the Slavic Village neighborhood.

Slavic Village, for those not familiar, is an old, established neighborhood in Cleveland that was settled by European immigrants starting back in the 1800’s. It has been the most severely effected neighborhood in the entire nation, by this mortgage crisis. The last figure I saw stated that about 800 homes are vacant in this area and the director of a foreclosure prevention center in Cuyahoga County stated that it takes approximately 72 hours after a home is vacated before the looters break in. The looters are stealing recyclable materials such as copper and aluminum.

I don’t think this would happen in Buckhead as there is too much concentrated wealth and power living there to allow it to happen and I don’t think “white flight” is going to be an issue like Detroit saw decades ago. The housing trend in Atlanta has reversed in recent years with more people moving back inside the perimeter. Still, the thought of massive McMansions sitting vacant all through this upscale and power laden neighborhood is chilling.

Reports across the board show that the worst is still yet to come. An analogy would be that what we see now is simply the salad being brought to the dining table and the main course is only now being put in the oven. We are being bitten by commodity inflation and a trip to get groceries carries it’s own sticker shock. The earned wages of Americans have not kept pace with inflation over the last 6 years and now we are in a spot where the dollars is breaking records on an almost daily basis for all-time lows in value. Money doesn’t stretch because it is becoming worthless. Where will this end?

Like those homes in Buckhead, there are people who have massive personal wealth, the sort who can survive this economic slide with no problem. There are also people who are on the periphery and barely making it, even in the higher income brackets and even in those tawny neighborhoods. We, like our nation as an entity, are getting close to the breaking point. How much longer it will last before the rubber band snaps is beyond my knowledge. The fallout is going to be massive and it doesn’t take an economist to see that.

All any of us can do is hold on and wait to see when the other shoe drops.

Forget the Wall Street Journal, drive around town to understand what the economy is like.

One of my favorite Saturday activities is to hit the yard sales and thrift stores. Sometimes I score some real finds in the areas that I collect and to sell on eBay. The real scores aren’t frequent but they do occur. This year I can claim among my finds; some 1st pressing Kinks LPs in astounding condition, the obligatory stash of great books and a Heywood-Wakefield end table. There is a side benefit to hitting these spots each weekend and that is a chance to gauge the market and financial situation among my fellow Atlantans.

Last summer I began seeing a noticeable rise in for sale and house for rent signs on my typical routes. As this summer has come to a close I have seen a serious drop in those signs along the road but the homes are not being sold. They sit empty, the yards beginning to look un-kept and messy. Next will come random vandalism as the homes sit, unsold and unused. The vandalism will ruin the homes and bring down the values of the surrounding houses even more.

The thrift stores are seeing more and more shoppers. I’ve noticed this as the summer has progressed. I’ve been used to a mix of three distinct groups of people at these stores over the years. One, the group I am a part of, is the dealers who sell on eBay or have booths at antique malls. Two is the group of folks who just love to find bargains and the thrill of looking for a serious “find” at the stores. The last group is the folks who really do benefit from buying clothes and household items at thrift stores. I think the latest upswing in shoppers at the thrift stores is comprised of folks who have suddenly felt the pinch of the economic downturn. I see more new cars parked in front of the store and more folks who are dressed like the stereotypical suburbanite.

Even at the farmer’s market I am seeing more folks who drive cars and are dressed differently than the people I normally see. Among the chores I had to do this weekend was a trip to get some groceries, so off I went to the International Farmer’s Market in Chamblee. Normally I see an interesting mix of folks at this market, this time I saw more middle class, suburban white folks than I am used to seeing there. They were all over the fresh produce and fruit aisles and to be honest I am actually very happy to see this development. These stores offer the best buys and the produce really is tasty like fresh from a backyard garden. I’m all for supporting independent stores and giving the middle finger to the big chain stores.

People are frugal for only one of two reasons, they want to or they have to. I am trying to live a more frugal lifestyle and I’ve straddled the fence between living more along my means and higher than I should have for years. I seem to go in cycles where I wise in managing my money and blowing it. Blowing it has always led me to feeling depressed after a while. When I reach the cusp of realizing what I am doing I have been able to back down and live a more reasonable lifestyle but by then the damage has already been done. On comes the depression.

I think there is a sudden increase in people who now have to live a more frugal lifestyle and I don’t think they are too happy either. Imagine losing your home and winding up back in an apartment? Imagine going from buying the latest plasma widescreen TV to hitting church and charity thrift stores looking to buy a used washer and dryer? I see those folks shopping at these places, their faces are new, their clothes are new and they drive cars more expensive than my Jeep. They don’t look very happy to be shopping at St. Vinnie’s.

We are being given warning signs by even the mainstream press that the economic downturn is just going to get worse in the upcoming months. I’m not an economist but even I can sense and see things that lead me to believe that we are only seeing the early stages of things getting hard in this country. I have a feeling I’ll be seeing more unhappy folks at the thrift stores. I’ll be there looking for good deals and things I know I can sell on eBay. I’m afraid they will be there not out of choice but out of necessity and that bothers me a lot. To all of the new shoppers at the thrift stores who aren’t happy with this new twist in life all I can tell you is buck it up, it could always be worse and stay out of the record bins. I’m the cat who buys the vintage vinyl for his collection.

New definition of an escrow account -- A piggy bank begging to be cracked open.

An article posted on the Baltimore Sun website offers a true example of a nightmare for any homeowner. Baltimore City and Baltimore County tax officials are acknowledging that property tax checks from American Home Mortgage that were meant to pay property taxes for their customers, are bouncing. The situation is so serious that Baltimore County is no longer accepting corporate checks written against the bank accounts of American Home Mortgage. All payments from them will have to come in the form of a certified check. Just as troubling in this report is a comment by a senior financial analyst from Bankrate.com that property tax checks are not even being sent.

Regardless of the financial situation faced by a homeowner in this day and age one thing any homeowner would expect is for the mortgage company to have maintained the funds necessary in the escrow account for each borrower. It appears that this has not happened. Unless American Home Mortgage has failed to deposit the funds given to them by the buyer into the escrow account, I simply can’t see a reason why these checks would bounce. There has been a suggestion that their escrow bank account has been frozen for protection while it undergoes Chapter 11 bankruptcy proceedings.

This also does not ring true with me. Unless the account was frozen out of concern that AHM would dip into this account to keep itself afloat or rob the coffers. So, where does this story stand? Has American Home Mortgage failed to live up to its side of the legal agreement it made with its customers by not depositing funds into their escrow accounts? Have the escrow accounts been frozen because there was withdrawal activity seen which set off red flags? Is it just a simple mistake?

All postulation aside the most troubling story behind this is that if the property taxes are not paid by American Home Mortgage the homeowners will be the fall guys. The taxes will still be due and if they are not paid by AHM the homeowner will be hit with a late payment penalty and if they can’t pay that bill their property can be put up for auction at a tax sale.

Imagine you’ve paid your mortgage payments and you are just holding on and keeping your head above water and this hits you. Or, just as horrible, the mortgage company doesn’t pay your homeowner’s insurance and you suffer a fire or, since the mortgage terms always state that you must maintain insurance, they cancel your insurance for non-payment and order you to pay for insurance on your own?

The scandals involved with the housing conspiracy continue to deepen. Coming up in the mix…insurance companies get shafted and lay off employees, lose their income stream and fail. Also in the pike are stories about the “winners” in this conspiracy, the financial institutions that gain control of large swaths of American property. Just beyond that, homelessness for former homeowners who can not find affordable rental property or cannot find an apartment leasing company that will rent an apartment to them because of their foreclosure. Down the road…vacant homes, American suburbia becomes a ghost town.