[A-List] The Worst Case Scenario (Someone Has to Say It)

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This is also the most likely scenario in my view. Excerpt:

"...In the interests of providing you with an alternate vision—something 
outside the mainstream—below are ten predictions for America through the 
year 2012. This is not boilerplate doom-saying. Rather, I am laying out 
in highly specific terms what will happen over the next three-odd years. 
Others have thrown around the term “Depression”, but I am going to tell 
you precisely what it means for you, your investments, and your community.

When these predictions come true, I expect to be rewarded with a 
seven-figure consulting gig, a book contract, or a high-level position 
in whatever administration succeeds the doomed Obama team—that is, if 
anyone succeeds it at all.

Prediction one. The twenty-five-year equities bubble pops in 2009. U.S. 
and foreign equities markets will stop treading water and realign with 
economic reality. Stock prices will cease to reflect the “greater fool” 
mentality and will return to being a function of dividend yields, which 
have long been miserable. The S&P 500 will sink below 500. In a bid to 
stem the panic, the government will enforce periodic “stock market 
holidays”, and will vastly expand the scope of its short-selling 
prohibitions—eventually banning short-selling altogether.

Prediction two. With public pension systems and tens of millions of 401k 
holders virtually wiped out—and with the Baby Boomers retiring en 
masse—there will be tremendous pressure on the government to get into 
the stock market in order to bid up prices.

Therefore, sometime in 2010, the Federal Reserve will create and loan 
out hundreds of billions of fresh dollars to the usual well-connected 
suspects, instructing them to buy up stocks on the public’s behalf. This 
scheme will have a fancy but meaningless name—something like the 
“Taxpayer Assurance Equities Facility”. It will have no effect other 
than to serve as buyer of last resort for capitulating smart-money types 
who want to get out of stocks entirely.

Prediction three. Millions of new retirees—including white-collar people 
with high expectations for a Golden Retirement—will be left virtually 
penniless. Thousands will starve or freeze to death in their own homes. 
Hundreds of thousands will find themselves evicted and homeless, or will 
have to move in with their less-than-enthusiastic children. Already 
strained by the rising tide of the working-age unemployed, state and 
local welfare services will be overwhelmed, and by 2012 will have 
largely collapsed and ceased to function in many parts of the country.

Prediction four. “Quantitative easing” will fail to restart previous 
patterns of lending and consumption. As the government sends out 
additional “rebate” checks and takes ever-more drastic measures to force 
banks to lend, hyperinflation could take hold. However, comprehensive 
debt relief via a devaluation of the dollar is even more likely. This 
would entail the government issuing one “new” dollar for some greater 
number of “old” dollars—thus reducing both debts and savings 
simultaneously. This would make for a clean slate a la Fight Club.

As there are many more debtors than savers in the U.S., the vast 
majority would support devaluation. The Chinese and other foreign 
holders of our bonds would be screaming mad, but unable to do anything. 
Every country that has not found a way out of dollar-denominated reserve 
assets by 2012 will see its reserves eliminated.

Prediction five. The government will stop pretending that it can finance 
continuous multi-trillion-dollar deficits on the private market. By late 
2010, the sole buyers of new U.S. Treasury and agency bonds will be the 
Federal Reserve and a few derelict financial institutions under 
government control. This may or may not lead to hyperinflation. (See 
prediction four).

Prediction six. As the need for financial industry paper-pushers 
declines and people have less money to spend on lawyers and Starbucks 
(SBUX), unemployment will rise until the private sector has eliminated 
all of its excess capacity and superfluous or socially needless jobs. 
The government’s narrow unemployment figure (U3) will rise into the high 
teens by late 2010. The government’s broader unemployment figure (U6) 
will cease to be reported when it reaches 25 percent—it will simply be 
too embarrassing. Ultimately, one in three work-eligible Americans will 
be unemployed, underemployed, or never-employed (e.g. college grads 
permanently unable to find suitable work).

Prediction seven. With their pension dreams squashed, and their salaries 
frozen or cut, police and other local government workers will turn to 
wholesale corruption in order to survive. America’s ideal of honest, 
courteous, and impartial cops, teachers, and small-time local 
functionaries will have come to an end.

Prediction eight. Commercial overcapacity will strike with a vengeance. 
By 2012, thousands of enclosed malls, strip malls, unfinished 
residential developments, motels, truck stops, distribution centers, 
middle-of-nowhere resorts and casinos, and small-city airports across 
America will turn into dilapidated, unwanted, and dangerous ghost towns. 
With no economic incentive for their maintenance or repair, they will 
crumble into overgrown, plywood-and-sheet-rock ruins.

Prediction nine. By the end of 2010, tens of millions of households will 
have fallen behind on their mortgages or stopped paying altogether. Many 
banks will be unable to process the massive volume of foreclosure 
paperwork, much less actually seize and resell the homes.

Devaluation (as mentioned in prediction four) could ease the situation 
for those mortgage holders still afloat, but it would also eliminate any 
incentive for most banks to stay in the mortgage business. In any case, 
the housing market in many parts of the country will lock up 
completely—nothing bought or sold.

With virtually no loans being made, even the government will finally 
acknowledge that most banks are fundamentally insolvent. A general bank 
run will only be averted through a roughly one trillion-dollar 
recapitalization of the FDIC, courtesy of new money from the Federal 
Reserve.

Prediction ten. As an economy is never independent of the society within 
which it functions, the next few paragraphs will focus on social and 
political factors. These factors will have as much of an impact on 
market and consumer confidence as any developments in the financial sector.

Whether rightly or not, President Obama, having come to power at the 
dawn of this crisis, will be blamed for it by over 50 percent of the 
population. He will be a one-term president. In response to his 
perceived socialization of America, there will be a swarm of 
secessionist and extremist activity, much of it violent. Militias and 
armed sects will be more prominent than in the early 1990s. Stand-off 
dramas, violent score-settlings, and going-out-with-a-bang attacks by 
laid-off workers and bankrupted investors—already a national plague—will 
become an everyday occurrence.

For both economic and social reasons, millions of immigrants and guest 
workers will return to their home countries, taking their assets and 
skills with them. The flow of skilled immigrants will slow to a trickle. 
Birth rates will plummet as families struggle with uncertainty and 
reduced (or no) income.

Property crime will explode as citizens bitter over their own shattered 
dreams attempt to comfort themselves by taking what is not theirs. 
Mutinies and desertions will proliferate in an increasingly demoralized, 
over-stretched military, especially when states can no longer provide 
the educational and other benefits promised to their National Guard troops.

There will be widespread tax collection issues, and a huge backlash 
against Federal and state bureaucrats who demand three-percent annual 
pay raises while private sector wages remain frozen or worse. In short, 
the “Tea Parties” of tomorrow will likely not be so restrained.

Finally, between now and 2012, we are likely to see another 
earth-shaking national embarrassment on the scale of the 9/11 attacks or 
Hurricane Katrina and its aftermath. This will demonstrate conclusively 
to all Americans that their government, even under a savior-figure like 
Obama, cannot, in fact, save them.

By 2012, there will be a general feeling that the nation is in immediate 
danger of blowing up or coming apart at the seams. This fear will be 
justified, given that the U.S. has always been held together by the 
promise of a continuously rising material standard of living—the famous 
“pursuit of happiness”—rather than any ethnic or religious ties. If that 
goes, so could everything else. We were lucky in the 1930s—we may not be 
so lucky again."
Read all here
http://seekingalpha.com/article/134820-the-worst-case-scenario-someone-has-to-say-it

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