Yesterday, we looked at the possibility of rising energy prices or residential mortgage defaults derailing our economy and destroying the value of the dollar and all of your wealth along with it. Today we’ll look at a few more bombs set to go off in the near future.
- Commercial Loan defaults. Commercial loans are usually more short term than residential mortgages. The government does not subsidize them, so bankers must make more prudent decisions about how and to whom they lend money for these buildings. Over $2,000,000,000,000 (2 trillion) worth of commercial mortgages will mature between now and 2013. A great many of these won’t qualify for refinancing because they were purchased too high and the market has fallen. This could indeed be the straw that breaks the camel’s back in the US economy. However, it’s unlikely that the government will allow such mass destruction. It is much more likely that they will borrow and/or print more money to subsidize these mortgages. What’s another trillion between friends? But is that the straw that breaks the camel of the world’s back when it comes to trusting the US government or its Dollar?
- Banks go under. 100 banks have gone under so far in this recession. For many years the banks have been able to depend on the Fed to bail them out of situations and have been pushed and incentivized into making loans to people who shouldn’t have been loaned money. For a variety of reasons, many banks have left prudence at the door and have made many stupid loans based on hopes and dreams instead of sound underwriting. As more and more banks go out of business, this has a devastating effect on the economy. Is your bank safe? Check this site to see.
- FDIC goes under. Of course it won’t go under, it will get bailed out by the US government. I’m impressed by the woman who runs the FDIC. She is doing everything possible to not go to the government with her hat out. The FDIC is self-funded. The member banks pay premiums for the FDIC insurance every year. We’ve been telling people for years that the amount of funds that they have to insure the huge liability is no where near enough, and that situation will come to a head soon. The FDIC has asked member banks to pay in early three years worth of premiums (or dues or whatever they’re called) because it is out of money. But this will only delay the government stepping in.
- The Pension Benefit Guarantee Corporation (PBGC). Pensions have a very similar insurance. 44 million workers have pensions insured by this federal program. They are broke and run a deficit. How are they going to step in to pay for the market losses suffered in these pension plans? They won’t be able to, but surely the US government will step in. They print money after all and can surely print more of it.
- State and City Defaults. It’s harder to run a state or a city than it is to run the US because you can’t print your own money. (That’s not entirely true – earlier this year the state of California printed IOU’s when they couldn’t pay their bills). Many cities and most states are in serious financial trouble. We’re in Texas and Texas must run a balanced budget, so we don’t see that here as much, but California (at the extreme) and many other states have been playing the same game as the US government of spending more money than they bring in. But they can’t inflate away these problems. These bills must be paid. It seems to be all the rage for the US government to step in in these situations, so perhaps that will help them out. But how will that affect you?
Could anyone of these things push our economy over the edge? This is probably not an exhaustive list, but could several of them combine to bring a cataclysmic change to life as we know it? It seems that there’s a very good chance that something worse than a “recession” could happen. Tomorrow we’ll look at a few more of these bombs and then examine what life could look like afterward.
You’re invited to a free event November 8th in Austin to discuss these things in greater detail. If you would like more ideas on how to prepare for this coming storm, please sign up for our free newsletter here. If you’d like to read more about the spiritual realities behind what’s happening, read the series we just finished on Daniel.
This post is Part 9 in the series Financial Outlook of the United States. To continue with this series, click on Pt 10. To gain more insight, you can read about the coming storm here, in Pt 1, Pt 2, Pt 3, Pt 4, Pt 5, Pt 6, Pt 7 and Pt 8.
Photo credit: Heberger Site