Well, it was a tough weekend. After insurance giant AIG hinted that it might be heading for bankruptcy, investment bank Lehman Bros. went ahead and filed Chapter 11. Merrill Lynch grabbed at a $50 billion takeover from Bank of America, which is already regretting its takeover of the nation’s largest mortgage lender [Countrywide]. Stocks fell worldwide on Monday even after intervention from the Fed promising eased restrictions on emergency funds.

It’s not difficult to find gloom and doom on Wall Street today over how many jobs in the financial sector are going to be lost. Worse, that concern will in fact translate into a whole lot more jobs lost out in the real world where you and I live. Factories will be closed, inability to finance durable goods orders will exacerbate the problems, and GM is about to go under too. It ain’t even close to over yet, folks. If all you lose is your home, you’ll be among the lucky ones.

I’ll be posting more good information on stretching leftover dollars for those real people being harmed by all this, maybe even have something to say about the fact that there’s no gas in my region right now at all, leaving nothing to ration. Or tell you how I fare on my plan to sell my now-useless diesel ‘vintage’ Mercedes so I can buy a horse (have plenty of grass and kudzu). But in the meantime, best advice – if you’ve got gas – is to head directly to your regional farmer’s market and buy as much rice, other grains, fresh veggies and fruits as you can possibly afford. I’ll talk a bit about how to preserve it through the winter too, since it’s not really that hard.

I will also start posting information about growing some of your own food, even in the winter. There will be lots of links to great sources for information on these strategies too, so please stay tuned. The best advice I can give to people who end up here after searching something on Google because they’re just now joining our Shoestring Budget ranks, is…

Don’t Panic.

All you really have to do is survive. The future is the future, it’ll bring its own problems and opportunities. Right now you just need to “ride it out” in one piece (and all of a piece family-wise). Money’s just paper at this end of real life, you CAN learn to make do on much less of it. And who knows? Once you’re out the other end of the tunnel, you might even find that you can live a much happier, fulfilled and truly shared life without all that much of it. It’s a good lesson to learn. It puts things in perspective, something this modern world could use more of.

Links:

Lehman Brothers collapse stuns global markets
Lehman Files for Bankruptcy, Merrill Sold, AIG Seeks Cash
Wall St.’s Turmoil Sends Stocks Reeling
Credit Crunch: How to Survive the Recession
20 Ways to Live on Almost Nothing
Uninsured? More Ways to Survive

While those of us in the less-than 95th percentile of the American income scale celebrated a long Labor Day weekend with family and friends, the 2008 Presidential race heated up, took a bizarre turn, and looks more like a “North Country”-like sit-com every day. The New York Times published some Labor Day editorials that are as remarkably honest as they are politically timely in this era of double-digit inflation for basics like food and fuel, the mortgage crisis tossing millions of families out on the streets, and ever-faster distancing between ‘rich’ and ‘poor’ that can positively cause major depression if you think too much about it.

Why? Because things are getting worse, not better. Our shoestring budgets can no longer be thought of a a temporary condition, but something we’ll have to work with all our lives. This is what op-ed contributor Dalton Conley commented on Tuesday in his opinion piece, Rich Man’s Burden.

Conley begins by noticing that less wealthy Americans actually took the weekend off and were happy about it, while wealthier Americans mostly fretted over their BlackBerries and laptops and worked anyway, as if frightened of being left behind if they weren’t working constantly to get ahead. He describes a sort of “red shift” – like that of light reaching us from distant galaxies rushing ever further away from us ever faster – between the middle income group [~$200,000 a year] and the actually rich. The disparity between the middle and the bottom rungs on the economic ladder is not so great and isn’t accelerating much. But once you reach the middle, the rungs get further and further apart.

Princeton economics professor and former vice-chair of the Fed Alan Blinder offered a contrast between the political parties and their economic plans over the weekend that is well worth reading and digesting. He lays things out clearly and simply in what he calls the Great Partisan Growth Divide. The US economy has, on average, grown faster under Democratic presidents than under Republicans.

I call this the Economic Ag Cycle. Where Democrats grow the economy during their ascendency, so that Republicans can move in and reap the money crop (i.e., rob the country blind). Which one might think would balance out over time, but it doesn’t. And that’s why we find ourselves where we are today. From 1948 to 2007, Republicans occupied the White House for a total of 34 years, while Democrats held it only 26 years. There’s simply not been enough wealth grown for the amount of reaping the rich folks have been doing, so we are now worse off than we have been at any time since World War 2.

Income inequality has been on the rise for 30 years. It gets greater and greater the higher up the ladder you go, and Blinder went all the way to the 95% vs. 5% level. Which, btw, is well below the $5 million income level John McCain set as his idea of when people become “rich.” In fact, it’s under $200,000.

Finally, Bob Herbert offers his advice to Head for the High Road and not let ourselves be swayed or fooled by ‘the usual’ political distractions and overblown pandering, but to pay attention to reality on the ground after the last 8 years of Republican reaping. Just as school districts all over the country are suddenly having to deal with huge increases in the number of officially poor and homeless children, those school districts have had to cut funding for programs serving those children due to concurrent huge increases in the costs of food and fuel.

So while I hope you all had a happy Labor Day and enjoyed yourselves immensely, do check out these editorials. They’ll put this political Silly Season into some realistic perspective. Many of us enjoy our lives way too much to be desirous of 24-hour workdays 7 days a week 365 days a year. It’s a rat race that would detract from our quality of life significantly, we only want ‘enough’. Yet if we’re not careful this November, we’re going to get another 4-8 years of less and less, until the American philosophy and the American Dream will become something most citizens can never even hope for. Their children will be less well-educated, they’ll make less money, they’ll have to work harder, they’ll suffer more, and suddenly there won’t be anything left to protect and defend. We must not allow this to happen.

Links:

Rich Man’s Burden
Head for the High Road
Is History Siding with Obama’s Economic Plan?

A very interesting piece of economic research appeared this week in ScienceDaily news service from the department of economics at Kansas State University, entitled Consumers Can Predict Inflation as Well as Professional Economists. This of course will come as no surprise to regular people, for whom economist’s double-talk is often seen as deliberately vague and couched in jargon that has no application to those in the lower echelons of economic stratification in this society.

Turns out that the actual price of milk and bread and gasoline can alert the average citizen of increasing inflation rates quickly and surely, and their predictions will then translate into how the family budgets their spending. Apparently one doesn’t need an Ivy League degree and a 5-figure Wall Street income to figure out that things cost more today than they did yesterday. Who would have thought such a thing?

Predictions about inflation are important because it tends to determine spending, saving and investment decisions for consumers and businesses. In a period of low to negative inflation savings accounts, bonds and long-term CDs are good investments, as return maintains the value of the dollars put away. In periods of rising inflation, extending credit and purchasing is a better bet, because the value of the dollars spent will continue to fall over time. Better to buy now and pay it back in yesterday’s dollars than save and have those dollars drop in worth.

Then, of course, there are those at the low end of the scale who simply do not have enough money coming in to save or invest, but who are merely trying hard to make the ends meet paycheck to paycheck. It is for those on a shoestring budget who suffer most in periods of rapid inflation. That they should be able to tell accurately that the money’s not going as far today as it did yesterday is no brilliant trick of statistical analysis. It’s just the way things are.

Duh.

Link:

Consumers Can Predict Inflation as Well as Professional Economists

The Sunday New York Times offered an in-depth analysis on August 3 by Larry Rohter entitled, Shipping Costs Start to Crimp Globalization.

A decade ago oil was going for $10 a barrel and “outsourcing” manufacturing facilities and jobs to low-wage regions of the Third World began to hit American labor hard. We were all told we must simply adjust to a whole new, world-wide way of doing things, and damn the torpedoes that were decimating labor unions and sending millions of skilled Americans into the minimum wage ranks of burger-flippers and WalMart greeters just to (not quite) get by.

Oil is trading today [Aug. 4] for just over $121 a barrel, down quite a bit from just a month ago when speculators bid it up to $138. The drop is attributed to falling demand as conservation kicks in on the user front. $4 a gallon gasoline and $5 a gallon diesel has cut into fuel consumption big time this summer as regular people choose not to drive if they don’t have to, and transportation fleets pool schedules to ensure their trucks, trains and ships aren’t wasting a drop. According to Rohter the big ocean-going container fleets have slowed down 20% to save on fuel costs, which translates into substantially slower turnaround on the goods.

We all recognize that greatly increased shipping costs as reflected in the upside-down cost of diesel fuel (remember when diesel was always a dollar LESS than gasoline?) must translate into an increase in the price of everything that moves by means of diesel fuel. This means inflation in every sector, at a time of stagnant wages, joblessness and increasing costs of basic transportation, heating and cooling for the average citizen.

A study in May by Canada’s CIBC World Markets investment bank showed that the recent increases in shipping costs amounts to a 9% tariff on all trade. All without governments having to do a thing. Their report concluded that…

The cost of moving goods, not the cost of tariffs, is the largest barrier to global trade today. [This situation] has effectively offset all the trade liberalization efforts of the last three decades.

Many things contributed to the decline in demand, including Americans choosing to stay close to home this summer, and/or trading in their gas-guzzling SUVs for more fuel efficient vehicles. GM is in trouble for betting on the wrong market, and other American automakers who could have beat the Japanese at the MPG game but didn’t bother to do so are also taking a hit. Union busting plays a role as well, as corporate job losses rose 33% over last year.

Some corporate jobs, however, are doing just fine. Seems that corporate number-crunchers have figured out a way to convert the pension plans of their workers into retirement benefits and ‘golden parachutes’ for executives. The Wall Street Journal offers Companies Tap Pension Plans to Fund Executive Benefits. If you’re still counting on that pension, you’d better start doing something about this before you find yourself at age 65 having to try and live on $1,000 a month in raw Social Security.

Also in the news, the FDIC took over yet another bank on Friday, as Florida’s First Priority becomes 8th bank failure this year. Once again, the good and the not-so good advice of financial pundits should be taken seriously by all who can put away some cash just in case their bank shuts its doors.

Links:

Shipping Costs Start to Crimp Globalization
The End of Globalization?
Globalization begins the great unwind
Companies Tap Pension Plans to Fund Executive Benefits
Florida’s First Priority becomes 8th bank failure this year

As the economy continues to slide ever deeper into recession – dragging the entire civilized world along with it in one spectacular leap into the great oil scam abyss – we get the mainstream media’s too-cute economic pundits telling us things designed to make us laugh out loud. Which could actually be semi-useful, considering how many neurosciencey-type researchers keep telling us how much humor can help us conquer stress and depression and other unavoidable side-effects of living in interesting times. But only if you actually read their sage advice *as* comedy, meant to lighten your mood.

For instance, the jokers over at CNN Money have some real thigh-slappers on what we regular people should do ‘just in case’ the worst happens (the whole house of cards comes tumbling down). We need to beef up our “emergency funds,” we’re told, as if we had more cash to stash in zip lock bags in the freezer than the two to three weeks’ worth (which we’d still have to scrimp to save up) advised in the post Hold On: The Ride’s Just Starting.

We are told that in the face of bank failures, job losses and investment wipeouts that the “standard advice” is to keep at least three months’ worth of living expenses ‘socked away’ if there are two wage earners in the family, six months’ worth if there’s just one breadwinner. Surely it can’t be that difficult to just take ten or twenty thousand dollars out of your bank or investment portfolio in small bills and find a safe place in the house to hide it from the teenagers, right? Hahahaha. That’s a good one.

Of course, in a recession such as the one the deputy campaign manager and financial advisor for Republican candidate John McCain told us was “all in our heads,” a year’s income is a better idea, particularly if you’re fairly close to retirement. I mean, that money’s not exactly going to grow any time soon, and will more likely melt away into nothing instead. They say buy a money market account or put it into your savings account, but what good is that going to do when the fund goes bankrupt and the bank shuts its doors? Hmmm… I guess at that point we’ll be really glad we’ve got that week or two’s worth of expenses in the zip lock bag in the freezer. True clowns.

But fear not! Those of us who don’t have big investment portfolios or maxed-out savings accounts and CDs are, according to CNN Money, still demonstrating a strong reluctance to give up everyday pleasures. But the truth is that Americans are eating out less, not spending a lot at movie theaters, cutting back on buying clothes and taking exotic vacations, and not driving nearly as much as they used to.

Americans are, not surprisingly in view of inflation and cutting back elsewhere, shelling out for HD and flat-panel televisions and are not dropping their expensive cable or satellite subscriptions. There are also inexpensive ways to travel or take nice family vacations close to home. More and more people are learning about the thrill of thrifting and seeking things they need secondhand or even free. Even better – for everyone’s health given recent salmonella outbreaks across the country due to fresh produce imported from Mexico – people are flooding local farmer’s markets and buying food produced closer to home.

While not exactly a joke, it’s nice to find ourselves ahead of the curve on advice now being given to the wealthy on how they can possibly survive the coming depression. When it gets bad, they may look around and see that not everyone is lining up to jump out of 7th story windows, but are instead living life just fine without a lot of money.

Last month I asked the question, Is It Depression Yet? and linked quite a few opinions of economic pundits about when the recession no one in DC cares to admit we’re in will turn into a full-fledged depression.

In going down the list of ominous signs that we’re going down for the third time, the key ingredient apart from a burst credit bubble was rising oil prices. Well, this last weekend gasoline went over $4 a gallon, and diesel was pushing $5. So while families and workers in cities can start taking mass transit to work and school and just stay home this summer instead of driving to the Grand Canyon, the price of diesel – which runs all our shipping fleets, trucks and trains – is going to cause swift inflation in the price of food as well as everything else that is transported from here to there. It is no longer a wild conspiracy theory that oil will go to $200 a barrel, now projected by the end of this year and possibly right around election time. It could hit $150 this month and no one will be shocked.

Thus I read with interest an article in the June 9 New York Times entitled Rural U.S. Takes Worst Hit as Gas Tops $4 Average. A survey by the Oil Price Information Service did a survey which showed that the price of gasoline has its biggest impact on rural areas, particularly in the Southeast, and that for the people euphemistically called the “working poor” the cost of just getting to work and to the store is quickly eating as much of their income as food and housing. Since their incomes are not rising and aren’t likely to rise, the situation for people in rural areas of the south, New Mexico, Montana, Wyoming and the Dakotas will soon become a choice between food and transportation.

In that previous post asking what signs will tell us we’re in a depression (since our dear leaders in Washington will never admit it), the moment that transportation becomes effectively unaffordable for people who have no other transport options, depression is upon us. Now, the millions of rural or suburban Americans who have to quit their jobs because they can no longer afford to get to work will not show up in the unemployment figures the government releases each month. Because if you quit your job rather than getting laid off, you won’t be getting any unemployment insurance payments. So the government figures – always low by a large factor due to not counting anyone not receiving benefits, will be low by much larger factors. When we can safely multiply the government figures by tens (where 300,000 lost jobs really means more like 3 million jobs lost), denial among the political class won’t be fooling anybody in the real world.

Mine is a rural family. Worse, we live in the hard-hit Southeast. Even worse than that, we live in Appalachia, which is and has always been an official “economically depressed region.” Jobs are scarce and getting scarcer, and commutes can be long. Outside actual cities of 100,000 or more mass transit is nonexistent. I work from home (which is nice), but daughter works in retail, grandson will be starting college this fall (and must drive unless he can share an apartment with a friend close to campus), and hubby’s job involves considerable travel in the region. The boss tells him that if gas goes to $5 a gallon he’ll have to simply close it down.

So what I’ve been doing is looking at some possible alternatives that don’t involve selling the property at cut-rate price and moving to some dingy city we’ll hate. My ‘vintage’ diesel Mercedes has been parked for months now, is probably going to be the first vehicle to go. Daughter’s will be second. We have to keep the pickup truck because this is a rural homestead and we need it. We’ll just have to keep it parked most of the time.

I’m thinking our best bet is some motorcycle type of thing. Because while a bicycle would be a healthful alternative, this is the mountains. No one in their right mind wants to bike 15 miles to work on steep mountain roads (where you’d end up walking it instead of riding it). So it looks to be your basic Barley Harley scooter or glorified Moped that gets about 100 miles per gallon. With that sort of mileage you can put up with some rain and wind, and spend a bit more time getting to and from (can’t use the interstate!). Turns out that you can buy a used scooter for a few hundred dollars, but it may need repair and that’s usually a few hundred dollars too. Yet fairly reliable transportation for under a thousand dollars is a pretty good deal, and the cost of running it saves a lot on gasoline. There are also brand new scooters for under a thousand dollars, which might be a wiser investment.

I’ve discovered that you can also buy saddlebags, trunks and baskets that would allow me to use the scooter to do minor grocery shopping or carry some things while traveling. This is quite a plus. A good ski outfit and well-styled rain gear will get me through rough weather, but do they make any helmets with windshield wipers?

So if rising prices are cutting deeply into your way of life, you might want to check around your area and some of the information and supplies sources listed below to see if there’s a good alternative for personal transportation in your future. Or, I suppose, we could spend the money on a horse and convert the little Honda into a carriage. How about a donkey and cart? I figure that if America wants to be a Third World country (parts of it already qualify), we might as well look like one.

Links:

Rural U.S. Takes Worst Hit as Gas Tops $4 Average
Go Motor Scooter Blog
Motoscooter Muse
The Advantages of Scooters
Motorscooter Economy

As we start moving into summer I thought it might be interesting to take a look at some economic predictions made way back in 2007 by an “informed” opinionator over at Sustainable Living’s Natural Hub, a Q&A piece entitled Timing of a depression triggered by high oil prices.

An Overview of unfolding recession as the oil economy fades was published in 2006 explaining the various factors that would mark a worldwide recession due to increasing oil prices. Some of its indicators have long since come and gone, others have been with us for years already, and some of the predictions have come true in these last few months. For those of us living in the real world, recession and ‘stagflation’ have been facts of life for years despite the mainstream news media’s reluctance to actually use the word when reporting on where speculators have taken futures on oil and food supplies lately. They won’t use the ‘D’ word either [depression], but here’s a list of signs that it’s already upon us.

Sign 1. “For there to be a deep recession, there first has to be a credit bubble – a high level of personal indebtedness in the community.”

Well, this one’s sure a no-brainer! Hopefully most readers of this blog have made real efforts to minimize or get out from under personal debt over the past few years (exempting mortgage issues), or were never deeply in debt in the first place. Those who consolidated credit card and other installment loan debts by refinancing when the mortgage boom was on may be facing serious issues with that mortgage now, but that’s such a huge issue that if mortgage debt is the biggest of your worries, you’re doing pretty well.

Sign 2. “Will the collapse of the housing bubble trigger a depression?”

The speculative real estate frenzy was maintained by artificially low interest rates maintained by government need to sell federal junk bonds to overseas investors (mostly China) in order to finance oil imports and maintain massive military costs for its 2-front wars. The “housing bubble” has officially collapsed.

This expert claims that the collapse is enough to trigger deep recession, but not enough to trigger a depression. For that, you need something more…

Sign 3. “Will rising oil prices trigger a depression?”

Short answer: Yes. The expert opinion prognosticating how this would work is positively eerie looking back from here inside the deepening worldwide depression (complete with global food crisis). Check it out…

“First, the credit bubble has to collapse [done]. Next, oil has to become structurally expensive [done]. A reasoned guess post-credit-collapse would be when oil both reaches and maintains a price of close to $US80 a barrel [it's at ~$120 a barrel now and still rising]. …At the point of oil settling at or over $80 for a year or longer there is likely to be structural (oil component of goods price adjustment) inflation of 10% – 20%. At this point, if price movements in 2005 are a guide, petrol may reach close to $US4 a gallon at the pump [it's well over $4 a gallon for diesel with no indications it will ever come down]. This will make petrol effectively unaffordable for many low income people who have no other transport options (chiefly a USA condition).

Huh. This expert put off the scenario in his own mind until 2015, but we already know that expert economists like to pretend things are always better than they really are. So for a final sign of depression…

Sign 4. “How many months or years will a deep recession last before it becomes a depression?

Most of us at the lower end of the economic scale know by our own community and regional experience that the government isn’t reporting real unemployment figures, and isn’t even counting most of the people who are unemployed at any given time (number-fudging, basing reports entirely on who’s getting unemployment money this week). This expert suggests that when we reach 25% to 30% unemployment, when part-time workers have less work than they want, when there are “few business start-ups,” when tax take no longer equals expenditures, when food prices have doubled and when the trend is “no end in sight” for those conditions, we will be in a depression.

It is very difficult to find real figures for unemployment and underemployment in the U.S. these days. TNTalk figures that rates are routinely underestimated by 150%. Which as of April 2008 would put real unemployment at very nearly 15%. Another source places the total defacto unemployment rate at a firm 13.3%. If we add those part-timers (people who have gone from full employment to inadequate part-time jobs), we may already be at 25% for all practical purposes of making ends meet in working class America.

We are there, despite government figure-fudging on unemployment. The trigger events this expert cite will be; a) when oil is so expensive that most low income earners can’t afford to run a car, b) when food and retail prices in general have risen by 20%. These conditions – if they do not already prevail in your locality – should affect a majority of the population by summer. 2008, not 2015.

The whole essay is worth reading for its historical value if nothing else. The wildly errant projections of when all this may come to pass seem positively infantile considering this was written just a year ago. Gold has risen, the dollar has fallen and keeps on falling, oil is over $100 a barrel and NOT coming down, the credit bubble has burst, millions are threatened with immediate homelessness, oil is too expensive for truck fleets, trains, shipping and home heating, and jobs are few and far between.

It behooves concerned citizens to ignore what government Pollyannas are telling us month to month, instead arranging our affairs as if reality on the ground is the reality we must deal with. Because it is. We cannot expect experts in or out of government to tell us the truth, or to help anybody out of their increasingly untenable situations. Further postings to what people can do while living inside a real world-wide economic recession will be forthcoming, so stay tuned!

And don’t forget to plant some ‘maters and peas, even in patio pots if that’s all the room you’ve got. Nobody will be able to afford those at the grocery store this year!

Links:

Is It a Recession? Or a Depression?
Overview of unfolding recession as the oil economy fades
Timing of a depression triggered by high oil prices
Sustainable Living: The Fading of the Oil Economy