From The Economic Collapse Blog, here are 20 reasons we are heading for an economic black hole.

A sampling:

#4) In December, there were also 929,000 “discouraged” workerswho are not counted as part of the labor force because they have “given up” looking for work.  That is the most since the U.S. government first started keeping track of discouraged workers in 1949.  Many Americans have simply given up and are now chronically unemployed.

#5) Some areas of the U.S. are already virtually in a state of depression.  The mayor of Detroit estimates that the real unemployment rate in his city is nowsomewhere around 50 percent.

#6) For decades, our leaders in Washington pushed us towards “a global economy” and told us it would be so good for us.  But there is a flip side.  Now workers in the U.S. must compete with workers all over the world, and our greedy corporations are free to pursue the cheapest labor available anywhere on the globe.  Millions of jobs have already been shipped out of the United States, and Princeton University economist Alan S. Blinder estimates that 22% to 29% of all current U.S. jobs will be offshorable within two decades.  The days when blue collar workers could live the American Dream are gone and they are not going to come back.

The true question to ask, is whether we have passed the event horizon?

I am constantly amazed at the giant scientific illiteracy of the usual suspects in the media and the legions of government-schooled statists who will flock (pun intended) to every canard imaginable that will enable their rulers to …rule them more.  Sample this breath of fresh air.   BB

Scarcely a day goes by without us being warned of coastal inundation by rising
seas due to global warming.

Carbon dioxide, we are told, traps heat that has been irradiated by the oceans,
and this warms the oceans and melts the polar ice caps. While this seems a
plausible proposition at first glance, when one actually examines it closely a major
flaw emerges

In a nutshell, water takes a lot of energy to heat up, and air doesn’t contain much.
In fact, on a volume/volume basis, the ratio of heat capacities is about 3300 to 1.
This means that to heat 1 litre of water by 1?C it would take 3300 litres of air that
was 2?C hotter, or 1 litre of air that was about 3300?C hotter!

This shouldn’t surprise anyone. If you ran a cold bath and then tried
to heat it by putting a dozen heaters in the room, does anyone believe
that the water would ever get hot?

The problem gets even stickier when you consider the size of the ocean. Basically,
there is too much water and not enough air.

The ocean contains a colossal 1,500,000,000,000,000,000,000 litres of water!
To heat it, even by a small amount, takes a staggering amount of energy. To heat
it by a mere 1?C, for example, an astonishing 6,000,000,000,000,000,000,000,000
joules of energy are required.

Let’s put this amount of energy in perspective. If we all turned off all our appliances
and went and lived in caves, and then devoted every coal, nuclear, gas, hydro, wind
and solar power plant to just heating the ocean, it would take a breathtaking 32,000
years to heat the ocean by just this 1?C!

In short, our influence on our climate, even if we really tried, is miniscule!

So it makes sense to ask the question – if the ocean were to be heated by greenhouse
warming of the atmosphere, how hot would the air have to get? If the entire ocean
is heated by 1?C, how much would the air have to be heated by to contain enough
heat to do the job?

Well, unfortunately for every ton of water there is only a kilogram of air.
Taking into account the relative heat capacities and absolute masses, we
arrive at the astonishing figure of 4,000?C.

That is, if we wanted to heat the entire ocean by 1?C, and wanted to do it by
heating the air above it, we’d have to heat the air to about 4,000?C hotter than
the water.

And another problem is that air sits on top of water – how would hot air heat
deep into the ocean? Even if the surface warmed, the warm water would just sit
on top of the cold water. Thus, if the ocean were being heated by greenhouse heating
of the air, we would see a system with enormous thermal lag – for the ocean to be
only slightly warmer, the land would have to be substantially warmer, and the air
much, much warmer (to create the temperature gradient that would facilitate the
transfer of heat from the air to the water).

Therefore any measurable warmth in the ocean would be accompanied by a huge
and obvious anomaly in the air temperatures, and we would not have to bother
looking at ocean temperatures at all. So if the air doesn’t contain enough energy
to heat the oceans or melt the ice caps, what does?

The earth is tilted on its axis, and this gives us our seasons. When the southern
hemisphere is tilted towards the sun, we have more direct sunlight and more of
it (longer days). When it is tilted away from the sun, we have less direct sunlight
and less of it (shorter days). The direct result of this is that in summer it is hot
and in winter it is cold. In winter we run the heaters in our cars, and in summer
the air conditioners. In winter the polar caps freeze over and in summer 60-70%
of them melt (about ten million square kilometres). In summer the water is warmer
and winter it is cooler (ask any surfer).

All of these changes are directly determined by the amount of sunlight
that we get.

When the clouds clear and bathe us in sunlight, we don’t take off our jumper because
of greenhouse heating of the atmosphere, but because of the direct heat caused by the
sunlight on our body.

The sun’s influence is direct, obvious, and instantaneous.
If the enormous influence of the sun on our climate is so
obvious, then, by what act of madness do we look at a variation
of a fraction of a percent in any of these variables, and not look
to the sun as the cause?

Why on earth (pun intended) do we attribute any heating of the
oceans to carbon dioxide, when there is a far more obvious culprit, and
when such a straightforward examination of the thermodynamics render
it impossible.

http://www.quadrant.org.au/blogs/doomed-planet/2009/12/diy-ocean-heating

My colleague and friend, Phil P, wrote this brilliant essay for his blog (www.usarmyguyretired.com) and I want it to get the widest dissemination possible. We don’t happen to consume too many dairy products in my household but I realize how bountiful its residuals are in the entire food supply chain. Very alarming. -BB

The federal government is ignoring what very well may be the next “true” pandemic this country may face. The dairy industry is the carrier of the disease and the USDA and FDA are fully aware of the impending disaster but will take no action to prevent exposure to the population. The name of the disease is Johne’s (pronounced “Yo-nees”).
What is this impending disease and why should this concern us? Johne’s (pronounced “Yo-nees”) disease is a chronic, contagious bacterial disease that affects the small intestine of ruminants such as cattle, sheep, goats, deer, antelope and bison. All ruminants are susceptible to Johne’s disease. (http://johnesdisease.org/) The disease is incurable and related to the human version of Crohn’s disease. The human version is similar in its form causing an inflammatory bowel disease (IBD). It can lead to abdominal pain, severe diarrhea and malnutrition. There is no known cause for either disease.
How is the US Government complicit in the possible spread of this disease one may ask? The USDA and FDA are completely aware of the condition in the dairy industry. They are also aware of the relation between the bovine infestation and its ability to transmit to humans. The solution the government has chosen is not eradication of the infected herds but irradiation of milk products. The argument for irradiation is the premise that irradiating the milk will kill the infection. The infection lives in the fecal matter and irradiation does not remove the fecal matter from the milk. It is still present in every glass someone drinks from a production farm. If someone handed you a spoon of irradiated manure and told you it was safe to eat I doubt one would take a bit bite. Why do we accept this in our milk? The government accepts this level of contamination in milk and has no intention of intervening.
Many will question how wide-spread the contamination is in the dairy industry and does this really need to be a concern. In the U.S. it is estimated that 7.8% of the beef herds and 22% of the dairy herds are infected with M. paratuberculosis. Infection rates in cattle in other countries are generally similar. (http://www.johnes.org/general/faqs.html#4) This is a low estimate by some accounts. The problem in the dairy industry is not simply how many cattle have the disease. Even if it one agrees the infection rate is only 22% the problem is greater than it appears. The milk from the infected 22% is mixed in the same container as the uninfected cattle. Outcome, 100% of the milk is infected at this stage and irradiation is the accepted remedy. My original question remains, care for a spoon of manure? The government tells us it is safe.
The dairy industry continues to milk the infected dairy cattle and has no motivation to stop. Why? The government regulations do not prohibit them from using these cattle until they die from the disease. It is financially in their interest to keep these cattle than culling and replacing the herd. Remember, there is no cure. The only way to eliminate the disease from a herd is elimination of all infected cattle and equipment. The disease lives in the manure and any equipment is contacts becomes contaminated and a carrier.
The element of our society who should be the impetus to stop this infection is absent. The press is not concerned because it does not fit in their agenda. They should be at the forefront of identifying this impending crisis and highlighting it to the populace. The problem is they no longer do investigative reporting. The press has become complacent and waits for the government to hand them “news” stories. No wonder they are failing, people do not trust them any longer and for good reason. If they attacked this story they would go up against large conglomerations, the federal government, including the senators and representatives who have interests in their districts to keep the current system in place.
I am a free market advocate who believes in minimal government. The free market would correct itself because consumers would demand a change to operation procedure. The problem is the failure of the press to highlight the contamination of our milk supply. They will not do this while they are lapdogs of a burgeoning federal government. This is why the founders warned against such a strong central government. We are now bound to them as an agent to protect the food supply and they no longer care. They are more concerned with creating a larger, more centralized government in their zeal to control our lives.
What can you do about this problem? The federal government will not help you. Stop buying milk from any supplier who does not certify their milk as contamination free. If you can raise a cow or goat, than do so to protect your family. Choose an alternative to dairy if possible, soy milk or some other product. The federal government will tell us there is no known connection between the dairy and human version. How much do you trust the government? Go on; take a bite of that spoon.

Karen is one of the keenest minds at LRC and writes a very interesting essay on debts and obligation. I am fortunate to be in a home in which I am not underwater but only because of the cash I have put into it. When we lived in north Idaho before moving to the SW, we had a paid for house and it was a secure feeling. I have to wonder how much of a bubble would have been created simply in the housing sector if the federal government had taken the position of neutral party to both money expansion and the underwriting of poor behavior on the part of both the creditors and borrowers. Financial lesson from the University of the Intuitively Obvious: live within your means and learn what time preference means from the Austrian economics school. -BB

Roger Lowenstein has written one of the best articles I have read on the topic: walking away from your house. The prominent author and journalist published a January 7, 2010 article in the New York Times with the headline, “Walk Away From Your Mortgage!” Lowenstein acknowledges that it may be financially careless for homeowners who are upside down on their mortgage to keep paying it in order to hang onto a fantasy of ownership and avoid the shame of default. In this article, Lowenstein’s subject is the borrower who can afford to pay the mortgage but considers opting out for reasons of financial benefit and survival. This is referred to as a strategic default.

Lowenstein’s thesis is exactly what I have been preaching to family, friends, and acquaintances for some time now. Many Americans are, by nature, very meticulous about paying off their debts and honoring contracts. Nevertheless, when they are stuck with a home that is worth far less than what they owe, the home becomes a noose around their neck, a pecuniary black hole, and a drag on household cash flow. It becomes what I call exorbitant rent. If the difference between the mortgage balance and the current market value is substantial, the homeowner is throwing away money on a home when it may take him years of mortgage payments to recover enough value to revert to a state where equity crops up. Thus the homeowner is essentially throwing money into an unpredictable black hole. If the mortgage payment is higher than a rent payment would be on a similar home, that adds the burden of overpayment for the “privilege” of being a quasi-homeowner paying high rent on a house you may never own, unless you plan to stay put in the house for a long time. If the mortgage is lower than an equivalent rental, there may be some advantage to hanging on for the short term, but that would depend on the condition of the house and various maintenance factors, as well as the additional costs of ownership.

After all, ownership requires payment for taxes, higher insurance (higher than renter’s insurance), and maintenance/replacement costs. I have gone over household budget/cash flow analyses with a few friends and family, and I have shown them the astounding cost differential between ownership of their “underwater” mortgage and renting a similar home. Yet people still aren’t willing to give up the cash-eating arrangement. Though I can spot the financial detriment, as a Certified Public Accountant I am very wary about giving direct professional advice, except to family – they know, perhaps too well, that I am never short of “pointers” for their financial situations. I refrain from telling people they “should” do this or do that because I don’t want to be blamed for someone’s unhappiness or other quality of life issues that may be the result of complex decisions. But I do try to make clear the alternatives to standing on the deck of a sinking financial ship. As Lowenstein remarks:

And given that nearly a quarter of mortgages are underwater, and that 10 percent of mortgages are delinquent, White, of the University of Arizona, is surprised that more people haven’t walked. He thinks the desire to avoid shame is a factor, as are overblown fears of harm to credit ratings. Probably, homeowners also labor under a delusion that their homes will quickly return to value.

I agree on the second point – almost all people are delusional and think the post-bubble housing crash is the aberration, and that the housing market will return to normal one day in the (near) future. They do not understand that the bubble was the aberration, and those days are over and dead. They thought the bubble prices were the new norm. And the strange thing is that they liked it. They delighted in receiving a high price for their home, and never seemed to be able to factor in the reality that they would also pay a higher price for another home. Not understanding the bubble is a principal part of the problem in getting those people to understand the whole of their financial problem. Also, people do indeed desire to avoid default and they fear the effect that a poor credit rating will have on their future. I agree with Lowenstein that most credit rating fears are a bit overblown, and besides, it is far less problematic to absorb the short-term trauma from a shoddy credit rating and radically improve your long-term financial prospects while shedding the iron monkey on your back.

The other snag is that most individuals, no matter how “educated” they may be in the college sense, are financially ignorant and cannot conduct basic analyses of their own financial matters, let alone weigh the costs and benefits of a complicated scenario. There are plenty of talented and smart people who don’t have the skills to sort out budgets, expenses, debt, and investments. That is not a criticism – it is just a fact. Furthermore, add to that the fact that the boom years produced rabid consumerism, and keeping up with the Joneses become a core family value for so many debt-worshipping Americans. The gotta-have mentality destroyed what common sense that would have otherwise emerged.

Enter the typical, boom-period mortgage representative, a guy who also knows nothing about business, finances, or accounting. He was most likely hired as a short-termer, with no experience in the business – he was hired for his sales ability and arm-twisting skills. Or he may have a college degree in finance, accounting, or economics, but washed out trying to make it those competitive fields. He was hired to help the mortgage company keep up with the demand generated by the housing bubble, and he knows nothing more than what he was taught in his introductory training that focused mostly on seduction skills and reaching sales goals. Those people sense the gotta-have desperation and they pounce on the vulnerable would-be borrower. ARMs and interest-only loans became a new middle-class norm, which amounted to certain disaster for the person who became a homeowner during the bubble. The natural human instinct for handling undesirable affliction is to get rid of the offending parasite and make things right as quickly as possible. This is your moral duty to yourself, your family, and your future. Moreover, Lowenstein makes this point:

Former Treasury Secretary Henry M. Paulson Jr. declared that “any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator — and one who is not honoring his obligation.” (Paulson presumably was not so censorious of speculation during his 32-year career at Goldman Sachs.)

Federal officials like Paulson, along with others who have in interest in keeping you hogtied to the sinking housing market, are trying to depict struggling Americans as irresponsible scoundrels who are rashly walking away from their commitments. Various political special interest promoters and academics that pontificate from outside of the real world that the rest of us live in are reflecting that view. George Brenkert, a business ethics Professor at Georgetown on the Potomac, was quoted in the Wall Street Journal as saying “borrowers who can pay – and weren’t deceived by the lender about the nature of the loan – have a moral responsibility to keep paying.” A follow-up quote from the article states this:

A standard mortgage-loan document reads, “I promise to pay” the amount borrowed plus interest, and some people say that promise should remain good even if it is no longer convenient.

But, like Lowenstein says, the borrower signs a promissory note and “the contract explicitly details the penalty for nonpayment — surrender of the property. The borrower isn’t escaping the consequences; he is suffering them.” Lowenstein also places some blame, as he should, on those folks in the mortgage industry who took full advantage when government-created bubbles made their businesses bloom, and now they are on the defensive when debtors are looking to escape the wrath of the bloody aftermath.

But to put the onus for restraint on ordinary homeowners seems rather strange. If the Mortgage Bankers Association is against defaults, its members, presumably the experts in such matters, might take better care not to lend people more than their homes are worth.

In the same Wall Street Journal article noted above, John Courson, Chief Executive of the Mortgage Banker’s Association, lowers the boom on the bogged-down buyer and asserts the guilt game:

But it isn’t just a matter of the borrower’s personal interest, says John Courson, chief executive of the Mortgage Bankers Association, a trade group. Defaults hurt neighborhoods by lowering property values, he says, adding: “What about the message they will send to their family and their kids and their friends?”

This is the same corporate state-special interest slimebag who lobbies feverishly for favors from the feds so his mortgage industry clientele can profit handsomely and the taxpayers can foot the bill by bailing out companies that fund his industry, such as Fannie Mae and Freddie Mac.

Then there’s Megan McArdle over at The Atlantic – someone who has the financial wherewithal of a lobotomized cadaver. Megan rants about deadbeats who don’t pay their debts and instead choose bankruptcy as an easy way out of an accumulation of bad decisions. Indeed, my article and blog archives are loaded with invectives on this very same topic – few people have written as much criticism as I have about how hare-brained, high time preference Americans have gone wild on consumer spending and debt, thanks to the Federal Reserve’s funding of the credit bubble and other economic factors that all trace back to Big Government and its corporate state compadres. I have never absolved these impetuous debtors from their role in perpetuating their own problems because they could have chosen to abstain from the spending frenzy mentality.

However, Megan cites the same Wall Street Journal article, and she is confused because she doesn’t draw the distinction between those who go on a reckless debt-o-rama spree and walk away from the financial carnage, and mortgage debtors who are underwater due to the breakdown of a completely unsustainable economic system. If McArdle had any business sense, she would understand that strategic defaults are a conventional business practice. Throwing good money after bad just isn’t an option, either for a corporation trying to maintain a brisk bottom line or an individual who needs to keep his financial house in order. Daniel Gross recently wrote an article in Newsweek titled “Default Nation,” where he discusses this very fact, including the mention of recent strategic defaults by Stanley Morgan, KKR, and Six Flags, a company where Bill Gates has 11% ownership. Mr. Gross writes that it is surprising that, given market conditions, there aren’t more consumer defaults.

Let’s return to Roger Lowenstein, where he reveals, “We are all economic pinballs, insensibly colliding for better or worse.” What Lowenstein doesn’t say is that individual mortgagers are not responsible for the credit bubble, the housing bubble, or the unsustainable and corrupt federal policies that encouraged and fueled the speculative boom and bubbles. The economic meltdown and ensuing fallout in housing values has been a recipe for financial disaster for many households, and each individual or family must commence a course of action that is sensible, sustainable, and provides for long-term financial security and growth. It is not unethical or immoral to relinquish a strangling and injurious debt load on a house that ties you down in favor of mobility and a healthier household financial plan. In fact, it is state worship and economic ignorance that fuels the notion that you, as a victim of the state and its corporate state special interests, have some obligation to ruin your life and bend over to “take one for the team.”

If all factors point to your best option being a default, then walk away guilt-free and boost your cash flow and future prospects, because ultimately, you are responsible for you, and none of these babbling naysayers are going to bail you out or come by to help clean up the mess. Walk away, free yourself from unnecessary bondage, and let the giant banks sort out the mess that they helped to perpetuate and swell.

January 11, 2010

Karen DeCoster, CPA [send her mail] is a libertarian accounting/finance professional and writer. She was writing about rabid consumerism and debt, the housing bubble, corporate bankruptcies, boom-period business malinvestments, and the economic crack-up long before it was fashionable. She likes to occasionally look through the piles of hate mails from those times while sipping on an Oregon Pinot Noir. This is her LewRockwell.com archive, her Taki’s Magazine archive, and her Mises.org archive. Check out her website and blog.

http://www.lewrockwell.com/decoster/decoster169.html

Over at Lifehacker, they have a great post on some winter projects, energy savers and tricks.

Make sure to check out the related article “The Best Time To Buy Anything, Year Round“