So true so true.
People have ZERO clue.
And it's not hard (and I like fast food as much as anyone). Yesterday we went to the store. Ground beef, 5 lb packs on sale for 4.95. That's a buck a pound. We bought 20lbs (limit 4), we broke it up into 1lb chunks, put it in baggies and put it in the freezer. We do this about every 3 to 4 months when it goes on sale.

Pasta is 50 cents a lb (on sale, and it lasts forever) Spaghetti sauce goes on sale all the time for $1.50 a quart (or you can make your own) That's $3 for a meal to feed 4 hungry people and about 20 minutes to make.

Shoot, hamburger helper was on sale for 10 for 10 (buck a piece). That stuff doesn't go bad, buy tons, and now you have a meal (adequate, not killer) easy to prepare for 4 people for TWO dollars.

Buy a bread machine, craigslist, ebay, they are CHEAP used. You can make your own bread (much better tasting) for 50 cents a loaf. You just set the machine and come back 3 or 4 hours later. Bread is expensive in the store. We do our own pizza dough too (50 cents), can our own pizza sauce (what? $1? Maybe), now you have a GREAT pizza for about $3 instead of $20 and less than a half hour of prep work.

And, as you say garden. Onions last for 6 months. We haven't bought an onion in years. Winter squash lasts for longer than that (spaghetti squash is our favorite, even saves that 50 cents above, better for you too). You can can tomatoes and fruits easily with little effort or money. Flour, sugar, rice, etc are all extremely cheap in 25 or 50lb bags. You get a food grade bucket once ($5 at most and you never have to buy it again) and store the rest. You can buy 5 lbs of sugar for $8 or 50lbs of sugar for $12. Ummm, which is the better deal?

In our church, we'll go to member's houses to help counsel them if they are having monetary troubles or in over their head, or anything. And 90% of the time, what do we find? Pizza boxes (20 a pop), soda cans, fast food wrappers. Uh huh and you're having money troubles, hmmm, I wonder why. (they don't let me go much anymore. :-) )

Great article, keep hitting them over the head with it, some day it will sink in. Probably too late, but you never know, some people may see the light. And plus 10000000 on chucking the TV. Did it 5 years ago, don't even miss it, in fact I'm sure it lowers my blood pressure having it gone.

Michael Goodfellow
Your background assumption is that the system "gives" people jobs. People create jobs by the exercise of their spending, and supply demand by the exercise of their skills. There are several root problems here, none of them "selfish rich people":

- China added a billion low-skilled and semi-skilled people to the world all at once. That's driven down the value of low-skilled workers.

- Technology improvements across the board have also dropped the value of low-skilled work. Cheap communications means you can run plants anywhere in the world. Cheap transportation means you can get parts and finished goods from those far-flung plants. Automation makes the plants more flexible -- reprogramming is faster than retraining people. A short product life cycle means the plant is obsolete in a few years, so you can just restart somewhere else if labor costs have increased.

- At higher skill levels, the rest of the world is steadily catching up to the rich world standard. We can't assume that an American high school graduate is 10 times as productive as a third world graduate. I think it's only 2 times as good now. That advantage can be negated by cost differences.

To focus this, think of the call centers. In 1970, it would have been insane to try doing a call center in India. The phone call would have cost several dollars a minute. The $5 an hour you would have saved in labor costs would have been overwhelmed by the $120 an hour you'd pay for phone charges. Now, the phone charge is like $0.02 a minute, or $1.20 an hour, and shifting that work to India makes economic sense.

Second, in 1970, India would have refused the work, because of their socialist attitude towards inward investment (the same for China.) Now, they don't. And finally, India is now willing to train a person to sound very American and answer questions about products about as well as an American would (despite the stereotypes, this is definitely the case.) American high-school grads on the other hand, aren't any better than they were in 1970. Arguably worse if you get someone with an entitled attitude.

So like I said, none of this has to do with your usual bogeyman of rich elites shafting the little guy. The economic/technological climate has changed, and we are standing around like dinosaurs.

Eric Andrews
I'll take up Mr. Goodfellow's challenge. I heard it most eloquently in this phrase: "I'll be happy to make Chinese wages provided you sell to me at the price of goods on the streets of Singapore." I think that really sums it up.

Why can China and elsewhere pay lower wages? Many reasons, but all of them will have to do with REDUCING the price of things here in the US. You can't simply reduce the wages and not the expenses. Obviously, this leads to bankruptcies, and with the size of the US, and the size of the wages being eroded, it will lead to severe distortions globally.

Like good companies (see GavKal), obviously they wish to PAY employees at a low rate and SELL to employees at high cost, themselves taking the arbitrage. That's basically straight capitalism. However, this also has the air of colonial extraction in the sense that there is a short window in which that arbitrage will work: the brief period where the US still has money to buy with. Once wages fall, they no longer have the money, and can no longer buy the offered goods.

What does that mean? What we already know about China and the world market: massive overcapacity. The US is some 1/4 of world GDP, 70% of that is consumption. The moment the US consumer's wages drop too low for the Platform Companies to sell to, the arbitrage ends and there are no buyers at a price which produces a profit.

Henry Ford said it best, essentially, he said, "If my employees can't afford my cars, where is my market?"

Today's corporations and economic thinkers seem to have forgotten the father of capitalism.

Yes, US wages will fall to match the rest of the world--that's expected and spoken of. What is overlooked is that NECESSARILY--prices, and profits...and taxes...--must fall to meet them.

I'd like to put this one other way: an economy is nothing but people trading to shuffle things around and make life nicer for themselves. As Bastiat said, Everybody cannot live at everybody else's expense and everyone get rich: it sometimes works with ONE v Everyone, but not Everyone v Everyone.

But there's another side: if there is no way for everyone get rich at everybody else's expense, then everyone must increase in wealth TOGETHER. ...And that doesn't sound so bad. For things to improve for ME, I also need to help YOU...and that is also capitalism. Its good and productive side.

I'm happy China has increasing wages and opportunities, however, in exchange, I need the vastly lower taxes, food, and housing costs. That fair exchange for my now permanently low wages is being stonewalled by the companies scooping up that differential--but it's a historical anomoly that is now ending. Chinese wage inflation is +5%, and english-speaking professionals now receive about the same wages worldwide.

Greenspan's last paper showed that perhaps ALL of the 2001-2005 boom was due to Home Equity Withdrawl. When that ends--and it has--demand will fall precipitously, and with it, prices. Economists have another name for massive overcapacity, low wages, and falling prices: Depression. Get used to it because they tend to last a long time.

DOOMERS.... If you want to keep your friends follow this survival plan!

I quite like being a "Doomer", for years i watched it total disbelief as this insane Credit bubble developed. "New time" was the term i keep hearing....."the end to boom & bust".... Oh Please!.... To misquote Plato only the dead have seen the end to boom & bust. I always known that a recession will one day arrive, i left school at 16 and walking into mass unemployment of 1980s Britain. Some off you might recall the riots that ripped though Britain at that time including the Toxeth riot here in Liverpool.... I remember it well.... I was THERE!

I got a job in '84 and things ran well till 1988, again house price bubble that was totally unstoppable.....by '89 things began to flounder by '90 we had a Recession. It wasn't too bad, over quite quickly and those whom didn't understand the term "Prudence" where taught a VERY hard lesson. I noticed that since 1945 Britain has "enjoyed" a recession every 12 years or so. In 2000 with the Dot Com crash i got ready, house prices had inflated a bit too much and this would "Clip" them back down to earth nicely.

I waited, but nothing happened, no recession.... What i didn't know was the Fed along with the BOE (Bank of England) had a plan, to flood the World with cheap credit. Thus the Housing bubble swelled to such a size that it was only a period of time before it must POP. An Example is my Mum's House, £110,000 in 99.... £385,000 in '05 (that's the price one next to her's went for). 400% in 6 years!.... WTF!

I began to research on the Web and a friend in Oz gave me the link to Aaron's site and from there i found "HP" and others....i was not alone. Smart sensible people around the planet were as alarmed by this as me! The icing in the cake was "Euro-Pacific" site and the video interviews with Peter S.... This guy is a real live wire and his logic is unshakable.

I tried to discuss this others whom just laughed at me: "Mike, THEY won't let it happen".... The Fed will sort it out. "We don't have recessions any more". I got the feeling that i was getting known more & more as "Chicken little Mike". However the news is NOW beginning to make the MSM (now that they stopped "Flip that House"). You think people would be happy or at least admit I was right to be concerned.... not a bit of it!

Just as they were convinced that Iraq WAS a major threat about to attack us with WMD (only to find that was a lie) they feel "Sure" that this Sub-prime thing will blow over. Now if you're in the same position might i suggest a survival plan.

1. Yes, you were right, you were always going to be right, now yes feel smug, but don't show it.
2. "Suffer" with your friends, yep they will be in DEEP trouble, may be losing their homes etc, be sensitive to that.
3. Don't buy a new car, nothing kicks in the balls quite as hard as seeing somebody doing FINE when your NOT.
4. Don't discuss "offshore banking" or buying Gold/Silver....These people are going to be BIG pain and very short of cash.
5. Remember people in pain can become quite spiteful, e.g. they will happy to drop you in trouble with Tax or Police etc simply to feel "better"
6. Don't Cheer at getting a VERY large saving rate at the bank, remember they're paying for that.

Yes they were dumb and you were not, but you must appear to be as dumb as well as to fit in. My late Irish Grandfather had a great saying.... "Be carful about following the herd because its either being led off to be milked or slaughter!"

"Chicken little Mike..... more like Maverick Mike".... Enjoy this recession, make good use of the "fire sale" opportunity's that will come, invest well into the recovery.... profit greatly from it... Just don't show it!
cheers--

The visual satisfaction of seeing all those graphs lined up was entertaining but I think you need to remember you are comparing absolutes, ratios, second derivatives, etc. so the "natural pattern" you seek isn't really what happens. I'm reminded of a Gary Larson cartoon showing a bunch of dinosaurs hanging out having a smoke. The caption reads "The real reasons the dinosaurs went extinct." Likewise the dinos might have bought the long dirt nap for a really unexpected reason, maybe not a meteor but rats. There's reason to believe protomammals might have been decimating their nests explaining the pre-"K" event decline. Many of the same points apply to the other graphs. Thanks for the consistently great reads.

Ashen Skies and HAZE
Stumbling, Great Dinosaurs' FATE
The END of an ERA ??

Granted calling the Subprime Implosion is accurate but are the MSM's (mainstream media) over- using the term to shift the blame in the masses' eyes to the PDFs (poor, dumb, fools) from the greedy pigs? Because the first words you hear are subprime then whatever debacle is attached to it. But the subprime part is what will stick in the MMs' (mollified masses) minds. And those one rung up from the PDFer's will think to themselves .... God hates losers and poor people so these subprimers deserve what they get and look to God's chosen few.... Wall Street and the Fed to save them from the mess that the subprime trash created.

None of what was said today changes the fundamentals (reality) of what has happened. Encouraging lenders to re-negotiate terms causes me to critically ask, what does that mean in terms of the overall situation? For example, if all loans are written down to reach compatibility with median incomes wouldn’t that imply that trillions in value would suddenly disappear? What effect would that have on the currency and the broad economic landscape (i.e., the other derivatives backed by these loans that are on the books of hedge funds and banks)? Is this going to keep consumers spending at their current rate, if so, how? Where will they get the money?

I have said it before but I will repeat low incomes are incompatible with high asset prices. It would seem that our elected officials are having a difficult time with this concept. Credit expansion on a massive scale was the short-term answer, which is no longer viable. And yet I heard the President say that he still wants products developed to help low-income people afford homes, this from a man with a Yale MBA? Of course this is the same man who implied that after almost 60,000 of our servicemen dead and nothing accomplished, we should have stayed in Vietnam.

Have you noticed that these loan products are being referred to as innovative by government hacks? Industry insiders refer to them as toxic waste.

Regardless of whatever idiotic claptrap that keeps coming out of so-called experts and high officials mouths, fools keep rushing in. But trend traders do not fret; they just ride the trend until it ends.

This is only speculation but I think the strategy has been set. The administration will do what it can to stabilize the current situation to give Republicans a shot at the White House; however, if that fails the economic downturn that will worsen with time will all but ensure the Democrats will have one term.