by Charles Hugh Smith
A "double-dip recession" makes no sense to the 76 percent of Americans who believe that the US economy remains in recession. And indeed, I argued inSuppressing the Cognitive Dissonance of a Bogus Recovery that the "growth" touted by the mainstream media and the Cnetral State propaganda machine is a mirage.
To the 24% of the populace who believes the U.S. exited recession in fine fettle, I offer a "Two Scoop Special": a Double-Dip recession is guaranteed for the following reasons:
1. The Eurozone is heading into deep recession, taking U.S. corporate profits with it. Three things are certain in the Eurozone: Austerity, higher taxes and more of each nation's budget will be carved off to pay interest on their ballooning debt. All three mean less money in consumers' pockets, and in local government pockets.
Please see Why the Eurozone Is Doomed for more on the Eurozone's structural problems.
2. China's unprecedented bubble in credit and real estate will implode, taking down China's economy. Warning signs already abound: please see If China Stocks Lead U.S. Market, Look Out Below and China's Towers and U.S. McMansions: When Things Fall Apart (Literally) for more.
China's imploding debt/real estate bubble will cut its already meager imports from the U.S. and dismantle the illusion of "growth" (note to economists: building 100,000 empty highrises is not "growth") that has enabled the commodity countries such as Canada and Australia to inflate new property bubbles at home.
3. Once China goes down, so do the housing bubbles in Canada and Australia, and the Asian economies which depend on sales to China for their own growth.
As those nations' tumble into a bottomless pit of bubble-popping recession, their taste for American goods and services will plummet as well. Good-bye, inflated Corporate-America profits.
China's bubble deflating will be felt in Japan and the Southeast Asian "Tiger" economies, all of which will see their exports to China crater. Since they are all merchantilist to the core, this drop in exports will push them into recession as well.
The highly popular fantasy that "emerging economies" will continue growing at insane rates forever will drop heavily into the dustbin of history.
If you have any doubt about this scenario, call up a chart of copper, which is generally considered a bellwether for commodities and the global economy. Copper has crashed.
4. Local government in the U.S. will have to shed tens of thousands of jobs. As Mishhas repeatedly pointed out, public unions could avoid massive layoffs by slashing the pay of all public employees and trimming their pension plans and other (in comparison to private-sector workers) gold-plated benefits. But the public unions seem bent on turning back the clock to 2006: they are rejecting any meaningful cuts in pay or bennies, and they also want limited/zero job cuts.
That isn't possible. Any politico so beholden to the State fiefdoms that he/she votes in taxes high enough to fund the public union fiefdoms will lose power this November. States with 20% unemployment cannot survive massive tax increases, on top of all the junk fees and hidden taxes which have already been imposed on a burdened public.
This realization is slowly going mainstream, for instance: The Bankrupting of America: We have a ruinous collaboration of elected officials and unionized public workers.
The loss of hundreds of thousands of jobs (and don't forget those 1.5 million Census jobs are temporary) will deplete the amount of income and borrowing power needed to sustain "consumer spending."
5. Bank reform will force layoffs and consolidation in the financial sector. It's been a tough year for the banks; after all, U.S. commercial banks generated a record $22.6 billion in derivatives trading revenues in 2009--that's commercial banks, not investment banks.
Aw, poor babies.
Reforms will eventually shutter many trading desks and curtail various high-labor gaming within the financial sector, triggering another round of layoffs. More "jump, you f**kers" signs will appear on Wall Street.
6. Housing's bogus government-induced "rally" will implode. Just scan patrick.netfor dozens of stories outlining the implosion: mortgage applications are plummeting, building permits are plummeting, sales are plummeting, etc. The Federal government essentially nationalized the entire U.S. mortgage market to save housing, and now that the Fed has announced an end (or so they claim) to their $1.2 trillion buying spree of toxic mortgages, then the Mortgage Emperor is revealed to have no clothing. There is no private mortgage market in the U.S. anymore; there are only the rotting carcasses of Fannie Mae and Freddie Mac, still soaking up tens of billions of dollars in tax money to sop up soon-to-default mortgages.
For an on-the-ground report from once-hot San Diego, check out the San Diego Housing Forecast: the values of pricey homes is still falling, and buyers are now scarce.
7. The massive Federal bailouts accomplished nothing but propping up a rotten status quo for a year. No new jobs were created; what was "saved" by squandering trillions of dollars? The counterparties to AIG's bad derivatives bets; Goldman Sach's ability to skim profits day after day, month after month, a housing market doomed to slide much further, destroying the trillions dumped in to prop it up, and and a handful of pork-barrel projects at the state and local levels.
Now the "stimulus" and bailouts are drying up, and we have nothing to show for it. The bloated status quo cannot maintain its payrolls without the trillions in Federal largesse, and so payrolls and spending will fall throughout the status quo.
8. The vaunted "recession-proof" sickcare industry will start shedding jobs as Medicare and other funding sources implode. Texas doctors opting out of Medicare at alarming rate:
“This new data shows the Medicare system is beginning to implode,” said Dr. Susan Bailey, president of the Texas Medical Association. “If Congress doesn't fix Medicare soon, there'll be more and more doctors dropping out and Congress' promise to provide medical care to seniors will be broken.”
More than 300 doctors have dropped the program in the last two years, including 50 in the first three months of 2010, according to data compiled by the Houston Chronicle. Texas Medical Association officials, who conducted the 2008 survey, said the numbers far exceeded their assumptions.
The largest number of doctors opting out comes from primary care, a field already short of practitioners nationally and especially in Texas. Psychiatrists also make up a large share of the pie, causing one Texas leader to say, “God forbid that a senior has dementia.
Once again, this shouldn't be news to oftwominds.com readers, as we addressed this trend back on April 10, 2010: The Politically Inconvenient Medical Realities of Opting Out. Simply put, there isn't enough money in the known Universe to fund U.S. sickcare, and now the reality is bursting through the walls of denial and complacency. The "recession-proof" sickcare (a.k.a. healthcare) system will start shedding jobs, not adding them, as the money dries up--not just Federal money, but private insurance funding as well, as employers cut headcount and laid-off employees find they cannot afford COLA coverage or sky-high private insurance rates.
For more on the general trends at work beneath the fast-spreading oil-slick of propaganda, please see Why the "Nascent Recovery" Won't Last (April 27, 2010) and How We Get Ahead Now: Gaming the System (April 20, 2010).
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