The Empty Easter Egg Becomes Hollow Halloween Candy
Oct 15, 2008
Back in March around Easter time, I posted an item about how the reduction in people’s equity in their homes (below 50% for the first time ever) represented a soft spot in the economy – what I referred to as “the Hollow Chocolate Easter Nest Egg.” I was right in direction, but wrong in degree.
Seven months later, just in time for another choco-loving holiday, it’s become apparent that this financial hollowing-out of the real estate business has led to the virtual collapse of the entire global financial system. Just like the proverbial butterfly’s wings can flutter momentarily, only to cause a subsequent hurricane elsewhere, the real estate bubble has incited a tsunami effect of insolvency for too many people, and even entire countries like Iceland and Ireland (if I lived in Italy, I’d be worried that the fiscal grim reaper was proceeding alphabetically…).
I love this picture taken recently in London’s financial district; it about sums it all up (scroll down a bit):
In farm country, the deflating of the global excessive credit/real estate/financial leverage bubble is also bound to have an effect, as this story indicates. The roller coaster of grain and oilseed prices rose, and sure as the combines are rolling through corn country right now, those prices have dropped back down (assuming of course the combines are going to bring in a bumper harvest commensurate with expectations – still no sure thing).
I don’t believe our global grasp on prosperity was illusory. Real money was made, and spent, by billions of people in the past five years. But too much of that was borrowed, and indeed, too much was hocked to the hilt. Leverage works great on the way up, but on the way down, it’s a…real pain.
As I mentioned in my previous posting, life will go on, for most of us. Job losses will be concentrated in places that are, or were, either related to industries facing serious decline, like automotive production, or those tied to the epicenter of this credit bubble, such as real estate, mortgages, and finance.
But we’re surely all to feel poorer in the months ahead. I just looked at my 3Q 401k statement, and it was nasty…and it didn’t even reflect the seven days in a row of stock market drops in October. A little trick or treat chocolate may soothe the pain come Oct. 31st, even if the sugar crash is a trick we could see – shouldn’t we always? -- coming.