Holy crap are we in economic trouble

I think good ol' G.W. is trying to leave a legacy similar to Cal Coolidge and Herbert Hoover. I can't think of a time since I've been alive with such bad fundamentals. First off, nobody wants our dollars anymore.

Antique store owners in lower Manhattan, ticket vendors at India's Taj Mahal and Brazilian business executives heading to China all have one thing in common these days: They don't want U.S. dollars.

Hit by a free fall with no end in sight, the once mighty U.S. dollar is no longer just crashing on currency markets and making life more expensive for American tourists and business people abroad; its clout is evaporating worldwide as foreign businesses and individuals turn to other currencies.

That's really unbelievable. I've been overseas a bit, and in quite a few places they'd actually charge you less if you paid in dollars just so they could get their hands on them. That's been true in good economic times and bad, because the dollar was seen as tied to a strong and financially secure nation. Clearly that illusion has been wiped clean.

At the Taj Mahal, dollars were always legal tender, alongside rupees, for entry into the palace. But because of the falling value of the dollar, the government implemented a rupees-only policy a month ago. Indian merchants catering to tourists have also turned bearish on the dollar.

"Gone are the days when we used to run after dollars, holding onto them for rainy days," said Vijay Narain, a tour operator in the city of Agra where the Taj Mahal is located. "Now we prefer the euro. It gives us more riches."

In Bolivia, billboards feature George Washington's image on a $1 bill alongside a bright pink 500 euro note, encouraging savers to turn to the euro to tuck away money earned abroad or sent home in remittances.

"If the dollar's going down ... save it in Euros!!!" say the signs popping up around La Paz for Bolivia's Banco Bisa.

I'm reminded of the book The United States of Europe, and while not everything prophecied in that book is likely to come true, clearly they have a fiscal stranglehold on us right now.

That's a long-term problem. In the short term we're absolutely in a recession.

The US economy has already fallen into a recession, according to a majority of economists surveyed by The Wall Street Journal published Thursday.

“The evidence is now beyond a reasonable doubt,” said Scott Anderson of the bank Wells Fargo. Anderson was among the 71 percent of 55 economists asked to assess the state of the economy who agreed it is already in recession.

The biggest evidence of this is that retail sales fell in February. With consumer spending accounting for 2/3 of the economy, as the strappy shoes from Thom McCann go, so goes the nation.

The two ways in which Americans kept solvent and above water for the last decade or so has been through cheap credit and ballooning home values. The home values are cratering and have plenty of a ways to go before they hit the floor, and this is tightening credit. There are no pots of gold left for the average American.

The median price for a (Southern California) home last month was $408,000, down 17.6% from a year ago, according to DataQuick Information Systems. Area home prices have now fallen 19% on average from their peaks last year.

....The rapid pace of the decline has led Los Angeles economist Christopher Thornberg, who last year predicted a 20% decline in Southern California home prices, to revise his projection. He now thinks prices will fall 40%.

$400,000 still prices most of the middle class out of the market, leading to stories like this. Actually the entire LA Times business section last week, with its stories for how to scrimp and save against the rising cost of living, was just overwhelmingly depressing.

Deanna Corbin, 46, would live in Los Angeles if she could. But she can't, at least not with a modicum of space and safety, not on her $38,000 salary as an administrative secretary.

So Corbin gets up at 4 a.m. every day and hustles her 11-year-old daughter out the door by 5 for the two-hour drive from their apartment in Lancaster to downtown L.A.

Most days, they don't return home until 8 p.m., when Corbin tries to devote some time to her daughter's homework before they both collapse into bed. It all begins again at 4 the next morning.

How's that for your American dream?

Hoenstly, at this point you'd have to be a maniac or a sadist to WANT to become President. Our economy is the equivalent of Wile E. Coyote standing two feet from the cliff and just about to look down and disappear in a poof of smoke. Or, as my dad said to me today, "We're a third-world economy and we don't even know it."

No Blood For Oil

I think I've figured out why the saber-rattling on Iran has continued apace, despite the NIE: they dropped the dollar.

Iran, the second-biggest producer of crude oil in the Middle East, has "completely halted'' all oil transactions in dollars, the state-run ISNA news agency said, citing Oil Minister Gholamhossein Nozari.

Nozari said the U.S. currency was no longer reliable as the dollar continues to depreciate. The Organization of Petroleum Exporting Countries has set up a team to study pricing oil in another currency, the INSA cited Nozari as saying. The measure is designed to prevent further losses in revenue to oil exporters, ISNA reported.

The war machine often mobilizes to defend our economic interests.

UPDATE: A very troubling consequence of the Bush years is how it has crumbled America's faith in their government. To wit:

Just 18% of American voters believe that Iran has halted its nuclear weapons program. The latest Rasmussen Reports national telephone survey found that 66% disagree and say Iran has not stopped its nuclear weapons program. Twenty-one percent (21%) of men believe Iran has stopped the weapons development along with 16% of women.

The survey was conducted following release of a government report saying that Iran halted its nuclear weapons development program in 2003.

The Administration politicized the intel on Iraq, and when it was revealed to be bogus, blamed the intelligence agencies. The learned behavior of the public is to question intelligence. That now works to the warhawks' advantage.

Becoming The Third-World Country We Seek

Apparently the fact that our money is worthless globally is now a plus:

The U.S. dollar's slump on world currency markets boosts sales prospects for U.S. exporters but could mean higher prices for American consumers already smarting from rising food and energy costs.

A weak dollar increases the chances of higher inflation. That could put the Federal Reserve in a tough position of having to choose between tolerating rising inflation or raising interest rates to curb it — even if that makes the emerging economic slowdown worse.

Cheap exports for the world, rising inflation, an enormous inequality gap - hey, when did we become Mexico?

Well, this is what you get when you have essentially unregulated capitalism driven by greed, and a systematic destruction of the federal agencies tasked with oversight. Massive deficits didn't help either; we've borrowed so much that our money has become worthless. The dollar has gone down because the Fed has been so concerned with keeping a lid on this mortgage crisis that interest rates have been cut. But when the dollar goes down, commodity prices go up, which means inflation as those rising prices are passed to the consumer.

There are, in short, a lot of pitfalls in this economy right now, and the options are simply poor.

UPDATE: This is funny.

So right after the Bear Stearns funds blew up, I had a thought: This is what happens when you lend money to poor people.

Don't get me wrong: I have nothing personally against the poor. To my knowledge, I have nothing personally to do with the poor at all. It's not personal when a guy cuts your grass: that's business. He does what you say, you pay him. But you don't pay him in advance: That would be finance. And finance is one thing you should never engage in with the poor. (By poor, I mean anyone who the SEC wouldn't allow to invest in my hedge fund.)