Economic Doom and Gloom--Scenario 1

I am a worrier. It's something that is difficult to explain to people. But whenever I am faced with a challenging situation, my first reaction is to play out the worst case scenario--the one that will do me personally, the greatest harm. Then I worry about that for anywhere from 5 minutes, to a day. After that, I start to strategize, and think about ways to mitigate the dangers, confront the issue head on. I'll consult with people I trust, if the situation allows, looking for perspective. If I can do nothing to stop the scenario from unfolding, throw myself at the mercy of the situation, and hope I can dull the pain I am going to incur.

Then, surprisingly, once I have assessed the potential damage, I feel relaxed, calm, and prepared to face the situation.

So, applying this logic, I have started to look at the current economy, and I am trying to figure out what I need to see to get me comfortable that we are on the road to recovery. Because right now, I have that worry in my head, and in my heart. That feeling that we are crusin' for a brusin'.

Here's my worst case scenario:

1. Job Loss--The thing that is going to kill this rally is the fact that jobs continue to be lost at a blitzing pace. I am STILL looking for a sign that job losses have decelerated. I am concerned that this will not stop for months still to come. Here's my take on this:

Auto Industry--1 million jobs still to be lost. Whether GM goes bankrupt is irrelevant.
Auto "ancillaries" (Trans Plants, suppliers, parts, etc)--2 million jobs still to be lost
Professional Services--500,000 jobs still to be lost
Retail--250,000 job still to be lost
Transportation--250,000 jobs still to be lost.

That's 4 million jobs, NET, that I think we will lose in our economy before the end of 2009.

2. Unemployment? 12% by the end of the year

3. The dollar--we will lose our AAA rating, as England has, and we may be forced to raise interest rates. The Euro will rise to 1.75:1.00. The yen and other currencies will also appreciate.

4. Oil--as it is traded in dollars, we could be looking at $80-90 oil per barrel. $3.50/gallon at the pump. Yikes.

5. Earnings--The first quarter was good for one thing: it told us that the world was not ending. But beating an expectation that has been DRASTICALLY reduced, doesn't say much in terms of economic conditions actually improving. Look for disappointments in Q2 and Q3 from an earnings standpoint.

6. Stock Markets--look for a retest of the DOW in the sub-7,000 range. S&P below 700.

7. Real Estate--look for Commercial real estate to drag us down another leg, as we clear out inventory.


This could easily be the scenario we face, as we round out President Obama's first year in office...

...and this kind of scenario will destroy Obama's credibility on the economy, and could very quickly turn his term into a disaster. We could only speculate on the kind of social unrest this scenario would result in. Crime, poverty, terror alerts, perhaps worse. Some have argued that we are getting there already.


Sound nasty enough? Okay, let's not get hysterical. Government stimulus, basic living necessities, and other counter-cyclical forces (ie, worldwide depression will also depress oil demand, for example), should hold some of this in check. And people will have to get used to the idea that their jobs aren't all that safe, their credit cards are not ATM machines, and the Cheesecake Factory is NOT there for every third meal.

While Obama hasn't taken some of the steps I'd like him to take from a fiscal standpoint, I don't think any of these doomsday scenarios are unfixable. People think the deficit run up is irreversible, but it isn't. We proved that in the 1990's. Even Medicare and Social Security promises are not without their fixes too, including raising the age limits, means testing, and the like. None of these proposals are popular, but they are solutions, and would fix the problem.

On a positive, note, one thing I give President Obama a world of credit for is his willingness to take on each of these topics, and force the country to make decisions, and take action on some of the issues we have ignored for too long. For it is only with this action that we can start to understand what we can truly do to fix our pressing issues. We may not have the right course of action on these topics (government funding, health care, global warming, taxes, etc), but we are at least engaged in the real issues of the day, instead of flag burning, Teri Schiavo, "Year of the Bible" bills, and other such nonsense we have been dealing with for the past 15 years.

But back to my original point. The doomsday scenario I have laid out here may sound bad, but if we can stare this in the face, and survive it, and even come up with solutions to fix some of what ails us, we stand a chance of building a better America in the years ahead. It's time to get working on the solutions.