In Sacramento, The Homeless Shelters Are Full; Tent City “Houses” 1200 People

Longtime readers know that I have long thought a depression was inevitable for the US and the world in general because of the enormity of our debt. In the fall I wrote a guest post that took the unusual position that we embrace a deflationary deflation. The economic rationale is described succinctly in this post on Naked Capitalism that points out it is taking all the world’s financial resources to prevent full collapse, and any “improvement” in the situation would cause those resources to start chasing higher returns, which would raise interest rates and lead to more deflationary pressure, starting the cycle all over again. In short, it’d take at least a decade in order to work through our bad debt, in all that time we’d have high unemployment and zero growth, and that’s the best case scenario. Japan had the “muddle through” decade of near zero growth and many commentators thought that’s what the US would look like over the next decade. I was persuaded to disagree with this prediction because Japan had the largest global bull market in history for its decade, not a global recession. Now that there is a global recession, Japan is one of the hardest hit and its industrial output is plunging faster than any industrialized country in history, including during the Great Depression. Nearly twenty years after their bubble collapsed, growth is nowhere in sight and their long term projections for supporting their retirees makes our look rosy.

The other part of my argument for embracing a depression was that by wasting time, labor and money trying to prevent it, we would see mass homelessness and hunger, as well as be caught completely off guard when a geopolitical or major financial event caused a worldwide firestorm. I thought about how we have way more houses than we need, and can produce enough food for the entire world (well if we stopped feeding so much to animals, but even including that we have more than enough for everyone in our country); the only reason why masses of people would go homeless or hungry would be about resource allocation. The way I looked at it, we could either put all our efforts into trying to avoid a depression (which I thought had about a 10-15% chance of succeeding) but have a humanitarian crisis if we failed, or we could accept the depression and put in the social, material and financial infrastructure to minimize suffering on a fundamental level.

Of course our leaders (and country as a whole) went towards the avoidance route, and our welfare systems are quickly failing due to overload. While the reports over the last few months have primarily been about unemployment insurance funds running out, I ran across an article that talks about a developing tent city in Sacramento because the homelesss shelters are full. My initial inclination was to be skeptical and wonder if the piece was sensationalist, but then I read this:

The city’s mayor Kevin Johnson said: “I can’t say tent cities are the answer to the homeless population in Sacramento, but I think it’s one of the many things that should be considered and looked at.”

Meanwhile, the country is seeing record home vacancies. “More than 14 million housing units are vacant. That number does not include an estimated 4.8 million seasonal or vacation homes, most of which are occupied part of the year.” This is completely insane. And the financial system? It’s still as close to complete collapse as ever for the United States, and in worse shape in developing countries and Europe. I would be very surprised if we didn’t see sovereign bankruptcies (even Ireland and Spain are increasingly at risk) of rather important countries in the next year, bankruptcies that could potentially lock up the European and hence global financial system to the extent it was for a few days last fall — but this time for much longer. I have a feeling the tent cities are going to get a lot larger.

Addendum: I read over my post and another thought popped into my head: ignoring the social nets now may give us a higher chance of failing to keep our economy from plunging into a depression. My logic is that a lot of people are paralyzed and aren’t spending money because they fear losing their jobs. If we had a much stronger safety net (temporarily) in place, then people would be more willing to buy assets at deflated prices, knowing that if they do lose their job then they will still have their basic needs taken care of…and if they don’t then they will become considerably richer on the other side of this mess. [Note: I'm not saying that people should be sustained at a level where they could afford to keep their assets.] This post about health insurance in China links to an article that points out that the Chinese save 30-40% of their income because there are no social safety nets. I don’t want this to get into a discussion about universal health insurance, but my point is very similar; there may be a substantial number of people that would be willing to risk large purchases, or at this point even living “normally” again, there was a higher level of social support.

I wish that Congress and the President would put social services programs that would activate in case of “emergency” now, so people will have an idea of what to expect if government efforts fail. Yeah yeah I know, the mere act of doing it would cause everyone to panic, but still…


Author: MIKKEL FISHMAN, Economics Editor

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  1. Our society, for better or for worse, has shifted to a focus on consumption as the driver of growth and the definition of well being. Unfortunately, our consumption was fueled by debt and our economy hasn't grown at all for decades. Now that the recent crisis has swept away any illusions we had about debt vs. real wealth, too many innocent Americans are without a job, without health insurance and without savings.

    I think the government and the wealthy in this country have a responsibility to make sure increasingly large numbers of Americans aren't left to fend for themselves with no savings. After all, they were the ones who shaped and ultimately benefited the most from this debt ridden economy.

  2. I believe (which is a far cry from “I know”) that we are still a good ways from the abyss of an actual, full blown depression with people living in tent cities and shanty towns across the nation, but if it comes to that then our priorities will most certainly change. Some day people will try to sort out who caused it, etc. but for the time being lifestyles would become far more simplified.

    In the end, whether it's a depression or a recession, though, I think we were long overdue for a huge correction and the various markets need to bottom out and have all of the bubbles pressed out of them. If we come out the other side in anything resembling stable shape, I only hope that we'll learn something from the experience and not just start inflating it back up again. I'm not hopefully of that, though. I imagine we'll keep up with the bad habits until we really have to sizzle in hell for a while before we learn anything.

  3. Jazz,

    Unemployment could double, tent cities could become common and Richard Shelby, John Boehner, Mike Pence, Mitch McConnell and Eric Cantor among others will still be saying the exact same things they are saying now. So will the Republican punditocracy.

  4. The solution to homelessness is hemp. If we mass produce hemp for fuel, fiber, cellulose, food, and medicine, the American economy would boom within the first growing cycle! Please do your research on hemp! When you realize that hemp is the solution to America's economic problems, organize your communities to lobby your state for hemp laws. And, hemp is “marijuana”. However, there are strains of hemp that are virtually THC free that are good for food, fuel, and fiber, and the fiber can be used for everything from clothing to building materials to paper and textiles that are literally as hard and harder than most steels, and if you mix the fiber with metallic fibers, you get extremely light weight, nearly indistructable materials!

    The first law in America was to require farmers to grow hemp to supply our armies and communities with food, fuel, and fiber to win a war!

    And here's what's interesting about hemp! If mass produced, it cleanses the air and heals the soil, the hemp seed can be cured and ground and provides the perfect sequence of amino acids so it is the perfect protein for humans to consume. The seeds are saturated in Omega 3 & 6 oils. It's high in enzymes. Hemp provides a highly nutritious food and cleans the air and, again, heals the soil. Also, it has the highest yield per acre compared to every other plant on the planet, many times over, including all trees. In other words, when it's grown in mass production, you get at least 4.5 tons more per acre of it, and it's all usable, no waste!

    Mass production of hemp can be accomplished primarily on small farms, but corporations will want to monopolize on it and continue oppressing us with high prices and poor quality. So, when you organize your communities, know that it cost pennies per pound to grow hemp, including medical grade hemp (“medical marijuana”, as we all know it). In other words, it costs less to grow and package a pound of medical hemp than it does a pound size bread, meaning, when you go to buy medical hemp from a farmer or store, you should only pay what, …$2.00 per pound? Here again, watch out, the people who make billions off of “marijuana” prohibition will want to continue monopolizing upon us and charge thousands for pounds.

    Anyways, if you do your research, you'll find the only solution to America's economic woes is hemp, but the corporations don't want you to know this, and our government is not helping, if anything, they, “the government”, are simply an extension of the corporations as they are heavily funded by corporations.

    Great thread!

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