Shanty towns and bank runs: recession may be the optimist’s outcome

Before the fiddlers have fled
Before they ask us to pay the bill
And while we still
Have the chance
Let’s face the music and dance

Last March, the BBC ran a story about shanty towns springing up in the US.

At the time BoingBoing and those few others who saw it asked why we were learning about this from the UK media and not from the US media. Now, a scant six months later, the US press has paused from parsing porcine lipstick and noticed.

The relatively tony city of Santa Barbara has given over a parking lot to people who sleep in cars and vans. The city of Fresno, Calif., is trying to manage several proliferating tent cities, including an encampment where people have made shelters out of scrap wood. In Portland, Ore., and Seattle, homeless advocacy groups have paired with nonprofits or faith-based groups to manage tent cities as outdoor shelters. Other cities where tent cities have either appeared or expanded include include Chattanooga, Tenn., San Diego, and Columbus, Ohio.

We’ve already had a bank run in the classic sense and one updated for today’s world: Yesterday’s announcement that Putnam was liquidating a “$12bn prime money market fund because of a spike in redemption requests from clients.” Just because they have the money to cover this — as it appears they eventually will — doesn’t make it any less of a run.

Today the early headlines say Stocks soar at opening after gov’t rescue plan. Forgive me for thinking the markets are indulging in some irrational exuberance. We’ve seen this sort of response before. This is from the Wall Street Journal on March 19:

Stocks and commodities plummeted on Wednesday as the euphoria that carried equity markets to massive gains a day earlier gave way to nervousness that the broader U.S. economy hasn’t yet escaped the dangers of the credit crisis.

At some point we are going to see a huge impact from the Fed’s determination to once again deal with another issue by printing more money. Some commentators say this will simply mean an explosion in the size of the national debt. I wish that was all. The current crisis was created by pumping increasing amounts of money and credit into the economy, it is beyond me to understand why doing more of this will help fix it.  You know what they call it when you keep repeating the same behavior and expect different results, right?

I am not smart enough to determine if we are about to hit a period of inflation or deflation but I know something is going to happen and will keep happening until all the difference between the amount loaned and the actual value of assets comes into balance. (If you’re a debtor start rooting for deflation — it means any money you do use to pay off a debt will be worth less than the money you originally borrowed. A net gain, if not a happy one.)

As the year has gone along, I’ve tagged a number of items under Recession? What Recession? I can’t say they make for happy reading:

In March, when the BBC ran that shanty town story, it still seemed possible to have a reasonable disagreement over whether or not we were in a recession. Now the D word is in play. Soon we will be hearing that we are not in a depression and that we are trying to avert one. That is becoming the economic equivalent of promising to have the troops home by Christmas. As soon as you hear it, you know it’s a lot worse than anyone is willing to say.

The leading indicator of the “we are not in a Depression” meme came last week when Alan Greenspan — who is mostly responsible for the crisis — tried to put lipstick on this pig by saying, “First of all, let’s recognize that this is a once-in-a-half-century, probably once-in-a-century type of event.” Given that the Mississippi river keeps getting hit by floods that were once described as “once in a century” events, this is not a heartening phrase. Another troubling indicator is that the folks who decided what’s in the Dow Jones Industrial Average have replaced the now defunct AIG with Kraft. I suspect the real problem with leaving AIG is that it would have made the Dow actually reflect the economy.

Someone once asked Tom Lehrer why he stopped writing those wonderful, witty songs about the news. Having turned out anthems on topics from pollution to nuclear proliferation, Lehrer said he had begun to feel like a citizen of Pompeii being asked to say funny things about lava. Without having matched Mr. Lehrer’s accomplishments, I can certainly empathize. I have been saying for the last seven years that the real problem with the Bush administration is that it took all the fun out of being able to say “I told you so.” Unlike Mr. L, I refuse to leave the scene — especially when we are in such a target rich environment.

There may be trouble ahead
But while there’s moonlight and music
And love and romance
Let’s face the music and dance

While many people have recorded this song — but not Roxxy Music, for some reason — I still prefer the original by Fred Astaire. It’s on the soundtrack to Follow The Fleet. A happy little musical by Irving Berlin that was made into a movie in 1936.

Chrysler gambling with sales incentive that helps pay for gas

Not sure if this is brilliant or depressing. Or both.

Chrysler announced Monday an offer that caps the price of gasoline at $2.99 a gallon for three years for people who buy or lease new vehicles from Wednesday through June 2. The offer is based on 12,000 miles of driving per year at the vehicle’s rated fuel economy. Customers will get a card for buying gas that is linked to their own charge account, Chrysler said. The customer will be billed $2.99 a gallon, and Chrysler will pay the rest.

I’m sure the honchos in Auburn Hills did their math on this (and when was the last time a US car company didn’t correctly anticipate fuel costs?) but to me it looks like this could get pretty expensive.

The story goes on to point out that at the current $3.61 a gallon average gas price, someone who buys a new PT Cruiser (est. 21 MPG) would only cost the company $1075 per car. That seems a bit much but not ridiculous for a car with an MSRP of $15,285.

However let us take the radical notion that gas prices have not yet peaked. If the price of gas hits $5 a gallon (and I wish that were unthinkable) the total cost to the company hits $3300*. Even if the price “only” hits $4.50 per, the company is on the hook for $2580 per car. Suddenly that PT Cruiser is costing Chrysler a lot.

All of this, btw, assumes something we all know to be false: That there is a relationship between the advertised MPG and what you actually get. If the car actually gets 18 MPG then Chrysler has to pick up the actual difference. At today’s prices that means a mere $150 increase over three years. However at $4.50 it’s about $500 more — which means Chrysler is in essence selling the PT Cruiser for about $12K. For the consumer it’s a great anti-inflation move, for the shareholders though? Well, for gas company share holders it’s great.

The other thing that will contribute to Chrysler’s costs is the fact that consumers will probably buy more expensive grades of gas. Why not always get super premium if it only costs me $2.99?

Here is my own personal indicator of the impact of the price of gas: I am now driving at or below the speed limit. This news so shocked Mrs. CollateralDamage that she briefly put down the latest guide to Disney.

*(In case you’re wondering here’s the formula I used 12000[miles] / 21 [MPG] = total gallons consumed [which I’ll call G]. G * price = total cost / (G * price – 2.99) = annual cost to Chrysler * 3 = total cost to Chrysler. Given my legendary inability to do anything beyond basic math I put this out there so that someone can and will correct me.)

Italy unleashes PR stunt to stop inflation

Shades of Jerry Ford and Whip Inflation Now

WINItaly’s government has decided to appoint a special commissioner to try to curb price rises after inflation hit a three-and-a-half year peak in November … The ombudsman, dubbed “Mr Prices” by Italian media, will inform the industry minister of any “anomalous” or unjustified price increases and can also make proposals for legislation.

What exactly is an “unjustified” price increase? Isn’t that basically at the heart of the theory of capitalism? I set a price and either the market meets it or it doesn’t. If I can sell bananas at $500 each then shouldn’t I? I’m not saying this is a good thing but it is how we’ve designed the system.

This brings us back to the debate over “price gouging” by oil companies last year.

Just as no one can define terror, no one has any idea what price gouging is either. This fact is made plain in the GOP-sponsored House bill, which leaves it to the Federal Trade Commission “to develop a definition of price gouging.” You have to love a law that is so specific about the penalty and so vague about the crime. (and if I do say so myself the rest of that rant is pretty good … I suggest reading the whole darn thing.)

I expect Signor Prices will, in some form, be coming to the US soon.

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What do you like to whistle as you wander by the graveyard?

“We have found that the U.S. economy has been surprisingly resilient, surprisingly able to manage the increase in prices that we have already seen. I am hopeful that it will continue to do so.” — US Energy Sec. Sam Bodman

I have a law that I would like to see passed as soon as possible. It’s very simple: anyone who wants to prognosticate about the economy is required to shop for his or her own groceries. No one who has watched the price of apples go from $1.29 lb to $1.79 lb and milk hit $4 a gallon (brand name not store brand) is going to use the word resilient unless preceded by words “Hope it’s”.