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.

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0 Responses to Overcapacity

  1. Ken Ballweg says:

    Eight percent? Unfortunately Jon, you are being way too optimistic. One of the sad facts is that such a large percentage of Americans are carrying debt proportional to what the failed banks carried and there will be no way to bail them with their own tax payer’s money.

    People forget that the slow slide into depression came well after the dramatic market crash in ’29. Like interest, the misery will also be compounding, and the contraction of the whole American Service based economy will become something no one is prepared to deal with. It’s the mother of all Boa Constrictors and we are all in the middle.

    Temporary resolution of the market crisis still only delays the margin call on past consumption. But hey, the far right culture warriors can take great pride in managing to return America to a simpler time. Sadly it will be 1931 rather than 1956, but time travel for a whole nation is still in it’s early days. Hell the way things are going on the Party of Deficits campaign trail, we may even get all the way back to the early 1860s. How prescient of the good old boys to have kept their confederate flags all these years.

    To extend the earlier snake analogy it’s the economic equivalent to the Worm of Ouroboros. We will have to devour ourselves to be reborn.

  2. len bullard says:

    So our choices are a decade of bathtub gin, loose women, homegrown weed and fine jazz or bigger banjos, moonshine, bunheads and rotten cotten?


    Do you know what the sweetest sound a banjo can make is? The sound of it hitting the accordion in the dumpster.

  3. Ken Ballweg says:

    Errr, Len, all that first part came before ’31, it’s more dust bowls (yet to come, but coming when agribiz can’t plant all those acres cus there’s no profit) bread lines, in-migrations, and very hungry kids.

    For the second, think Antietam, Bull Run etc. only with more efficient armament.

  4. Ken Ballweg says:

    But then, you are right about that banjo thing.

  5. zestypete says:

    Does this mean I have to brush up on my Hobo codes (http://en.wikipedia.org/wiki/Hobo)?

  6. len bullard says:

    I’m assuming the underground economy will reassert itself. Burn your confederate money but save your stems and seeds. Keep the flags. They scare the rabbits.

    <serious mood=”sigh”>
    Arms will get better. There will be fewer developed in the initial production runs. Notice what happened in the former Soviet Union while they were ‘down and out’. As soon as they had money, the production runs came out of the closets.

    In downturn periods with normal conditions, armament industries turn to R&D because existing stockpiles are credible. After eight years of two wars, stockpiles aren’t credible so a big chunk of spending will go to reprovisioning existing systems and near-promise systems will slow down R&D but continue. Others will be carefully shelved for future consideration.

    Sad but so.</serious>

  7. Brian says:

    Jon, I went to a local hiring event this morning – by local I mean within 60 miles of my house – and there were at least 1,000 applications within the first four hours since it started.

    American is already well above 8% unemployment if you count all those who have given up trying to find a job or have exhausted their benefits. The true unofficial and underground unemployment rate is over 11% and climbing fast. By February we could have 15% to 20% unemployment.

  8. Tom Wilmot says:

    This irrational banjo hatred must stop – it’s divisive and culturally biased and is tearing our nation apart.

    Additionally, most depression era music was frantically optimistic stuff such as Bing Crosby’s “Pennies from Heaven”, Ted Lewis’ “Sunny Side of the Street” and Paul Whiteman’s “Let’s Have Another Cup of Coffee”.

    You’d think after the popularity of Jon’s “Cranky on Culture” post, you’d know this stuff.

    On a more serious note – I’ve decided to go into the bindlestick business – invest in bandanas NOW!!

  9. len bullard says:

    Ok, Tom, the banjos can stay but the accordions have to go. No polkas!

    It’s true: when life gets tough, entertainers become optimistic in public. Why? No one pays to get more depressed during a depression and it’s all about getting paid to play, as opposed to the last eight years of getting played to pay.

  10. Chris Weekly says:

    @len et al — Off-topic sidebar continued:
    Even accordions can be worthwhile! I had my mind recently changed on this by the amazing band “Beirut” and their album “The Flying Club Cup”. It’s a phenomenal recording that stands up to repeated listening. Check it out.

    Anytime I find myself saying “I hate ___” I inevitably run into an exception. I hate country music — but Cash is amazing. I used to think I hated hip-hop — but DJ Shadow and then DJ Spooky and DJ Olive have really opened up my ears. Accordions are not my thing — but I give Beirut 5 stars. I used to scoff at “Southern Rock” — but seeing the Allman Brothers live destroyed my ignorant bias and opened my eyes to Derek Trucks and then Duane Allman and other amazing slide guitarists and etc.

    Slightly more on-topic, my hometown of Plymouth, MA is getting a new movie studio (twice the size of Paramount!) nicknamed Hollywood East. Since the entertainment industry is relatively recession-resistant, here’s hoping that moves forward apace….

  11. I think I understand now why the executives of the eight chosen banks are camera shy. If they did the right thing and offered to work for $1 a year, then they would be able to show their faces again.

  12. Dan says:

    Ah but you’ve forgotten about the darker classics such as “Let’s Put Auntie Polly in the Tree Chipper” and “This Land Is My Land, This Smith & Wesson Is My Gun.” Seriously though, how about “I’ll Be Glad When You’re Dead, You Rascal You”?

    So the market is tanking again today. What happens tomorrow? A third $700 billion bailout?

    That reminds me of a point I wanted to make. I continue to hear from the right that the credit crunch was caused by liberal fascists handing out mortgage treats to the poor. Well, we’ve now lined up 1.4 billion for the banks. How many poor households are there in America? Well, let’s take, say, the bottom fourteen million households. With that 1.4 billion, we could have given each of those households a hundred thousand dollars apiece. That’s the scale of the payout to the banks.

    And yet the loans that have been made under the programs to encourage home-ownership among people with below-average incomes represent only 25% of all mortgages.

    What? Did every single mortgage made under these plans fail? And all other mortgages have remained sound?

    I would greatly enjoy seeing a report that categorized all foreclosures in the past 18 months by size of loan and income of the mortgage holder. I think it would let some of the air out of the tires of this particular rightwing Desoto.

    Also, these programs have been around since 1977. Isn’t it ironic that it took 31 years for the damage to be done…and then the meltdown happened a mere three years after the SEC let investment banks start rating their own bonds.

    To my mind, that closes the “liberal fascists have destroyed America with bad loans for shiftless bums!” argument.

    My next trick will be to debunk the theory that smoking is good for your digestion.

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