Garth is correct in pointing out that he is not forecasting a deflationary Great Depression II, but responding to inquiries by people who are aware of his upcoming second book “After the Crash” on steps to take if such a scenario becomes a reality.

The individual who is known as Ilargi and writes post for the Automatic Earth (a very good website by the way) and comment #8 on this blog feels that Garth Turner is optimistic given his accurate analysis of the economic situation that we are facing at the moment.

I happen to agree with Ilargi because few if anyone has been able to dispute this persons view that we are headed towards a depression. It is also backed up by a book written in 1993 that examines the economic history of depressions from 1670 to the present time

James Dale Davidson and Lord William Rees-Mogg wrote a book called the Great Rekoning which was published by Simon and Schuster in New York. The ISBN number is 0-671-86994-9 and copies are currently avalible from Amazon.com for under $30.

In Chapter 14 of the book(pp438-485), the authors present a chilling even frightening analysis of how the private and public economy could decline in a deflationary depression. Here is a brief synopsis of what could happen between 2009-2012:

There could be an increase in highways being privatized into toll roads for ailing states and cities to raise revenue for road maintenance and repair not to mention collecting badly needed funds for their operating budgets. Approximately 60% of the highway system is in fair or poor condition. In addition 42% of the 575,607 bridges in the USA are classified as obsolete or structurally deficient. The estimated repair bill is $500 billion but the final cost could top $1 Trillion dollars. This may lead to the development of smart roads in suburban areas not affected by a economic collapse and can be protected(p474-75)

In the last 4 depressions in the US there has been evidence of migration in every case. Dr Jack Lessinger author of Regions of Opportunity feels that in the next depression people will move from suburbia to exurbia. That is rural areas of the US that have small cities near farming zones. Remember this is only speculation, because migration patterns in depression are hard to discern. People will leave highly urbanized areas during an economic crash to escape poverty, crime and ruin to areas of safety and opportunity(pp476-77)

The first migration occurred in the depression of the 1870′s due to factors to the overthrow of the Articles of Confederation and the adoption of the US Constitution. There was a move of people from the original 13 colonies to new regions to the north and south such as Vermont, New Hampshire and Georgia.

The second migration occurred during the decades of depression from the 1820′s to the 1840′s. People moved westward and southward through the Ohio and Mississippi Valleys.

The Third migration from 1873-1900 resulted in the settlement of Western US. This situation led to the development of industrial and trading cities of Chicago, Minneapolis, San Francisco, Portland and Seattle.

The fourth migration began in 1929 just before the Great Depression of the 1930′s. It was a move to suburbia from the major cities in the US(pp478-9)

James Dale Davidson and Lord Rees Mogg is of the opinion that suburbia is in decline. They have become run down congested, pollution and may be as crime ridden as centre cities. Property taxes have gone up and the quality of public education has declined.

The automation of the manufacturing base has resulted in smaller plants, more skilled workers and made the educated investor wealthy.

Starting in the year 2000 most jobs require post-secondary education. The authors feel that a high concentration of poorly educated, unskilled workers are entering the job market in metropolitan areas. These areas may be unlikely areas of dynamic growth and may be centres of high costs.

Northeastern cities such as New York, Washington DC, and Philadelphia will suffer fiscally. The Philadelphia Examiner reported on Nov 14, 2008 that the City’s mayor and that of the Cities of Phoenix and Atlanta have petitioned Treasury Secretary Poulson to give US municipalities a $50 billion bailout package from the TARP plan.

US Cities could face infrastructure problems such as sewer and watermain breaks due to decades of funding cuts and power outages leading to brownouts and blackouts. With regard to the electrical power grid, failure could occur due to old age, diminished availability, lack of repair due to falling revenue of sabotage. Growing violence in cities may require the need of private security firms to back up local law enforcement agencies(pp480-481)

The authors state that 4% of the US population live high growth exurbs. This area covers a land area than that which house 1/2 of the nations population, it could quadruple in size during a migration. These semi rural areas have adequate infrastructure to support higher population, cheap land, literate populous and low crime.Lastly they will be known as information cities as they are plugged into the world wide web and could be centres of innovation. Aspen Colorado is an example of such a city. That means that if a fifth depression is underway these areas may grow dramatically between 2009-2013(pp483-484)

The Canadian Situation:

I would like to add some information that coo berates post #8 submitted by Ilargi from the Automatic Earth about Canada’s indebtedness.

Eoin Callan(Financial Post-Wednesday Sept 17, 2008)

AIG Credit default Swaps exposure to Canadian banks

Royal Bank of Canada-$300 billion
Toronto Dominion Bank-$197 billion
Bank of Montreal-$118 billion
Bank of Nova Scotia-$110 billion
CIBC-$86billion of which $25 billion is level 3 assets (toxic paper no one wants to buy)

If you really want to be frightened, CIBC has approached the bank of Canada twice this year for a bailout and was refused. Unnamed source from Bank of Nova Scotia.

Unnamed sources have indicated that CIBC exposure to ABCP and credit default swaps may result in the bank being insolvent. This means that it may have to merge with another bank to survive.

Even more frightening during the collapse of Bear Sterns in mid March 2008 an Asian banker told a CBC TV reporter that there WILL NOT be 5 commercial banks in Canada when the crisis ends. He said that after some mergers there will probably be 3 banks left. The reason bad subprime loans and credit default swaps.

Don’t forget about the $33 billion of Asset Based Commercial Paper (ABCP) that is still under litigation in Ontario since fall 2007. A majority of the investors will be lucky if they see half of their investment. CBC reported last year that a couple living in Alberta had their life savings of $300,000 in the funds and was told by lawyers that they may get 1/2 of it back. They cannot even sue the banks or the investment firms involved. Litigation will take 10 years if they do not settle soon they will lose everything.

I have not made up this information. It was reported publicly on television and newsprint

Statistics Canada 2005

Household Debt-$916 billion
Mortgages-$815 billion
Combined direct debt Federal, Provincial and Municipal from 2000-01 to 2004-05- $800.4 billion down to $791.2 billion.

Corporate Debt-Unknown

fathersforlife.org

Government of Canada liabilities-$1.7 Trillion
Direct public debt-$565 billion
Direct debt and unfunded liabilities-$3.5 trillion

Fraiser Institute-Tuesday May 20 2008

Canadian Government debt-$2.4 Trillion (direct debt plus OAS and Medicare)

OAS, Medicare and Canada Pension Plan-$1.3 Trillion

So if you think that Canada’s commercial banks are safe and that our governments have our unfunded liabilities under control think again.

In Chapter 15 of the book “Rational Living in an age of Crisis” (pp486-524) the authors present 15 steps that anyone can implement right now to be ready for a second Great Depression should it occur:

1) Get Committed
2)Involve your Spouse
3)Act as if the Depression has already begun
4)Gather knowledge
5)Master Compound Interest
6)Stop Shopping
7)Turn off the Television
8)Connect more closely to family and neighbors
9)Do not be a Victim
10) Watch the calendar, not the clock
11) Treasure your health
12) Don’t Boast
13) help others
14) Defend the open society
15)Tell your Children

In the next post I will briefly elaborate on each of these points.

I do not need to review Iargo or anybody else’s mistaken past posts. I do not need to understand their POVs.

The only thing I need to know are these facts: is the FED/BoC increasing or decreasing the money supply?

The Central Banks have consistently increased the money supply. They almost always increase the money supply. They occasionally pause, and we get a recession/correction. Then they resume inflating.

The FED/BoC increased the money supply quite steadily through late 2006 when they paused. That set off the credit crisis last August, including the serious decline in US, and later, Canadian real estate.

They kept the rate of growth of the money supply low for about a year. Then this fall, they went ballistic. To the tune of about 800%.

Iargo’s opinion or previous posts don’t matter. All that matters is the central banks have resumed inflating the money supply at an accelerated rate, and this will work its way through to you and me in about 6 – 12 months. Then the prices of EVERYTHING — except houses — goes up again. That is inflation.

All we are seeing now is a decrease in prices in a few sectors…stemming from the central banks having put the brakes on the rate of inflation over a year ago. This is the correction/recession in essence. But there is a blizzard of digital bucks in the pipeline now.

Inflation = an INCREASE in the money supply. Deflation = a DECREASE in the money supply. PRICE DEFLATION is simply an unwinding, or correction of prices downward.

It is factually and mathematically IMPOSSIBLE to have deflation right now, or ever, as long as politicians pull the strings on a government owned money supply. There is too much money out there right now. There will be no deflation beyond the temporary price deflation we are seeing in stock prices, commodities including oil and gold, and in real estate which will be a long time in recovering for reasons beyond money supply.

Look for auto, gasoline, and most conumer goods prices to slide downward for another year or two at most. Then when the tsunami of recently created credit hits the street 18 months from now, watch out for price inflation like few reading this have ever seen in their lives.

I have to share this, I was listening to the radio (talk show) today and the gal interviewer is talking to the head of the Morgage Brokers and this guy says….

“today we are asking to see full docs to give out loans, we are back to how it was 10 years ago, not like we have run the last 5 years”

OUCH nope no Sub-Prime here… and if you act fast you can listen to the show, they hold all shows for 7 days in the audio vault…

go to 2 pm friday nov 14, you can scroll the time meter to around 35:10 and this is where the interview starts… I couldn’t believe how this guy is still trying to PUMP the greater fools into signing a “new” mortgage.

cheers

http://www.cknw.com/StationShared/AudioVault.aspx

Tammy and her partner made a sizeable downpayment, 25%, and have a mortagage only slightly higher than their annual income.

A pretty secure situation it appears.

On the “plunge” in real estate prices the biggest drops appear to be in the cities where prices skyrocketed; what’s happening in the hinterland where prices never did get crazy?