Here’s my answer to your question of “what’s coming.”

The economy is going to get worse.  I know that’s hard to believe considering that in the past 15 months Americans have lost over 2 trillion dollars of retirement savings, that Iceland which has a GDP of $14 billion and liabilities in excess of $100 billion held by its banks and is on the brink of bankruptcy and the International Monetary Fund has just warned of a global “major downturn” in 2009.

A Second Great Depression?

Just how bad will things get?  Recently, I had an off-air conversation with one of the titans in the business community.  He has been in the thick of what’s happening on Wall Street, the credit crisis and the economy.  I’ve been speaking with him about these issues for about two years and he has always been an optimist.  Every argument I would make about how bad things were going to be he would counter with an equally optimistic economic prognosis.  For the first time he’s now told me that our economy is in for a very “rough landing, at best” and that if our politicians don’t get the bailout exactly right we could see our GDP (a measurement of the total value of all the goods and services produced every year) falling between 15%-20% in one year.

So what does that really mean?  A 15%-20% reduction of GDP would be like wiping out between $2.1 to $2.8 trillion dollars from our $14 trillion GDP.  To show you how big that number really is, consider that in one year we spend about $583 billion to run the entire Defense Department, $43 billion to fund the entire Department of Homeland Security and have spent less than a trillion dollars fighting in Iraq since that war began.

By way of comparison, in the Great Depression, our national GDP fell 29% over a four year period (1929-1933) and in that period we saw 7000 banks fail, a 25% unemployment rate and a Dow Jones industrial Average suffer an 80%  decline.  And that was when the pain of a shrinking GDP was spread over 4 years!

About three weeks ago I had the opportunity to walk with very successful billionaire who has spent over seven decades doing business in America.  I asked him what it would mean if our economy suffered a 15% reduction in GDP in one year.  He stopped mid-stride, thought for a few minutes before saying, “I can’t begin to imagine how bad things would be if that ever happened.”

Credit Card Debt and Greedy Politicians will Prolong our Problems

All the financial ‘experts’ are telling us that whatever is coming our way will be short-lived.  Yes, times will be tough, but we’ll quickly emerge and be stronger.  I agree that we’ll survive and that we’ll be stronger, but I don’t think it will be a quick recovery.  

Unlike the Great Depression we don’t have a large industrial base that will assist in our recovery and too many people don’t have the savings to help them weather the storm.  Instead, the average American household carries at least$8,000 in credit card debt.  Lastly, our political leadership will be a burden, rather than a help, in getting us back on track.  Barney Frank, Chris Dodd, Nancy Pelosi, President Bush and Secretary Paulson wake-up each morning and gobble-up larger pieces of the economy and American businesses.  They tell us that ‘we need to do this or things will get bad’ but none of them have gone on record and told us that if we follow them we’ll be better off.

The Great Depression showed us that government intervention, at best, will only delay the eventual belt-tightening and pain that must take place to bring the marketplace back into balance.  The overbuilding and liquidity excess of the past 10 years has to be brought back into balance.  Despite 10 years of government programs under Hoover and Roosevelt accompanied by massive government spending it was not until World War II began that unemployment fell below 10%.  It was not a coincidence that the stock market finally regained the strength it had in 1929 only when the prospect of global war appeared to be inevitable in 1939.

How Hedge Funds Could Make things Much Worse

If the government regulated banks can be in as much financial trouble as they are now, just imagine the problems lurking in the unregulated hedge fund world.  Hedge funds are a 2 trillion dollar industry.  That 2 trillion has been leveraged by several multiples giving it much more influence than the 2 trillion would suggest. 

The super-rich invest their money in hedge funds because of their traditionally higher returns.  Along with the super-rich, teacher unions, government employee unions and large mutual funds invest in hedge funds, in short, if you have money invested in the market there’s a good chance some of it is held and managed by a hedge fund.

In September, hedge funds around the world recorded their biggest drop since August 1998.  Investors that wanted to pull their money out were prevented from doing so by mandatory ‘lock-up’ periods imposed by hedge funds that prevent investors from pulling their money out without giving advanced notice, typically 60 or 90 days.  I can only imagine that lots of people have given notice and when they can, will be pulling out their money. When that happens the smaller hedge funds will be wiped out and the larger ones will take big financial hits.  The next big test for hedge funds will be October 23^rd when an estimated $400 billion in Lehman related credit-default swaps will have to be auctioned and settled, those hedge funds that can’t come up with the money will be wiped out.

Our Politicians keep Playing Politics while our Country is on Fire

Look for our politicians to take advantage of this crisis to promote their own agenda.  They keep treating this like a game and are taking actions only after weighing whether their action will help or hurt ‘the party’ at election time.  Our country is at the edge and our politicians are worried about elections.  This can’t be about Democrats or Republicans.  This has to be about saving America.

It’s shameful that Obama and McCain haven’t told the American people that there is no money for all of their proposed spending plans.  No, our candidates continue to promise us new plans when we don’t have enough money to pay for the ones we already have.

During the last debate Obama told us that America is the richest country in the world and that we need universal health care.  Maybe one of his advisors should tell him that this richest country in the world is borrowing 2 billion dollars a day from foreign countries because that’s how much more we spend than take in, and that was before we started bailing out Wall Street, Main Street and homeowners.

Obama is unbelievably still planning on redistributing wealth in the middle of an economic crisis by taxing those who earn in excess of $250,000 and then redistributing that money to those who make less than $200,000, including sending people who don’t pay any taxes at all $1,000 check.  His plan has been called a New Tax Welfare Plan.  Call it what you want, we don’t have the money to pay for it.

McCain’s plans for revamping our health care system and his support for a carbon-tax plan are also unaffordable.  He should come clean with the American people and tell us that. His failure to so demonstrates that he really doesn’t understand what is taking place in our homes and businesses.

Congress wants in on the action too.  Nancy Pelosi, Harry Reid, Barney Frank and Chris Dodd will flood our country with new programs.  The progressive ultra-left has taken over the Democrat Party.  They are so liberal and so out-of-touch with mainstream America that Senator Lieberman, a longtime Democrat, left the party and is now an Independent who is publicly thinking about no longer caucusing with the Democrats.  Longtime Democrat and chief fund-raiser for Hillary Clinton, Lynn Forester de Rothschild, has said that her party is too far leftand is now actively campaigning for John McCain.

Politicians Waiting to Exploit the ‘Right’ Tragedy

Too many politicians are anxiously waiting for the right moment to expand government.  They’re waiting for the “Megan Law” moment.  That moment when the stars align so politicians can pass legislation over any objections, whether it’s good or bad.

Megan’s Law is named after a 7 year old girl who was kidnapped, raped and murdered by a repeat violent sexual offender.  The public had finally become so outraged that the politicians had to act.  Megan’s Law requires the posting of information about sexual offenders to the public.  Passing Megan’s Law was the right thing to do but it shouldn’t have taken this tragedy to do it—but it took Megan’s tragedy in order to overcome the opposition from the ACLU and other groups who kept screaming about the rights of the accused.

Pelosi, Reid and the progressive left as well as many Republicans still don’t believe that our very survival is at stake with what is going on today.  They still look at this meltdown as just another opportunity to score political points.  If the Democrats in the House of Representatives really believed that our country’s economic security was at stake then they would have passed the bailout bill.  They didn’t need any Republican support.  They had the votes.  But Pelosi and the Democratic leadership didn’t want to risk a massive voter backlash so they didn’t push the bill through.  That is playing politics.  If the Senate believed that our country’s economic security was at stake they would have passed a bailout bill without the $100 billion in ‘goodies’ attached.  That is playing politics.  Do the right thing for the country, stop playing politics.

As the crisis worsens and takes a higher emotional toll on the public we will see tragic stories.  We will see more stories about people giving up hope, losing focus on what’s truly important and ending their lives and the lives of people they love.  And when the ‘right’ story comes along, it will be exploited to take away more of our freedoms, to shred the Constitution just a little more and grab more money for the government from the people who earn it.