Last year, I took note of Vox Day’s predictions for 2010 and noted the following:
Not sure it will get this bad by the end of next year–there will be more government-induced prop-ups that may mitigate the damage for a season–but I’d wager that Vox is closer to the truth than Krugman is.
In fairness to Vox, I didn’t quantify anything; I simply had a hunch that this year was going to be an otherwise flat economy propped up by government spending.
While Vox and Denninger were/are spot-on regarding the factors driving the economy–which is why they are absolutely correct in that there is no recovery and there has not been a recovery as yet–government spending managed to keep the economy floating.
How does this factor into 2011? No one really knows. But I know this much: if you lose your job, and then proceed to support your pre-unemployment lifestyle through credit cards, you had better get a new job before the credit lines get dry. Oh, and that new job had better be sufficient to cover your cost of living AND service the debt you piled up in your unemployment. Otherwise, you will be insolvent.
If creditors see excessive debt–and, trust me, they monitor these things–then your life can get ugly very fast. They can raise interest rates, making it more expensive for you to borrow money. If the situation is bad enough, they can cut off lines of credit. That spells default. When that happens, they can sue you and lay claim to your assets. Once you reach that point, the only way out is bankruptcy.
With sovereign nation-states, the dynamics are similar: you cannot live on borrowed money forever. At some point, you will run out of room to service your debts. Creditors will demand higher rates. Creditors may even refuse to lend more money.
Governments can and do run out of money. Governments can and do default on debt payments.
And when major columnists–such as Pat Buchanan–openly remark that America is on the path to default, which has NEVER happened, the situation is far worse than Bernanke and TurboTimmy want you to believe.
What am I predicting? Heregoes:
1. Unemployment (U-3) will exceed 11%. U-6 (which includes discouraged workers) will reach 20%.
2. Illinois will go Tango Uniform.
3. At least one major city will file for bankruptcy. I’m betting Detroit.
4. The layoffs of state and municipal workers will continue.
5. At least one major bank will go Tango Uniform.
6. The Dow will fall at least 10% for the year, 30% for the 4th quarter.
7. Oil will exceed $100 per barrel, before crashing in Q4 to about $80.
8. The current commodity bubble will pop.
9. Housing prices will fall 5%.