The Treasury Bank Rescue plan tacitly acknowledges the biggest economic problem of the next 5 years–Overcapacity. In a comment yesterday, I called the eight banks “The Chosen Ones”, and the effect of the partial nationalization of these banks by the injection of $250 Billion of government capital, will be to begin the creative destruction of most of the mid sized banking operations in this country. There are simply too many under-capitalized banks in the U.S. and in two years many of them will not exist–their accounts having been subsumed into the chosen ones.
This of course does not deal with the larger issue of global overcapacity. There are too many auto factories, shoe factories, toy factories. And in the U.S. there are too many malls filled with “me too” retail shops all selling a slightly modified version of the same apparel. If the Christmas selling season is as brutal as I think it will be, the number of retail bankruptcies will climb. That, plus the fact that we will see more layoffs from the Big 3 Automakers, is why I’m afraid we could be facing 8% unemployment by Inaugural Day.