The Coming Economic Apocalypse: Harlem Is Screwed, But So Is Everyone Else
The Harlemite cats, dogs and people I know have been discussing the possible effects of the recent economic meltdown on our nabe, and I'm interested to find out what others think this situation holds for us. To kick things off, I'll do a little recap of how we got here, look at some possibilities of what is to come, and lay out a couple of strategies. Then, it's up to you to fire away.
Where We Are:
As a country, we find ourselves in an uncertain job market wondering if we will be in our home next year with debt pouring out of every bodily orifice. So how did we get here? The answer is fairly simple.
We swapped out production and saving for consumption and financing. Basically, we didn't make many things or save much money, but we bought a lot of stuff, and did so with easy credit. A good portion of the credit came from home values, and home values increased because the credit was easy.
It sounds like a nice existence, but it can't last forever. At some point the credit came due, and when it did, a bunch of people found themselves wondering what happened as they stood outside of a Midtown office building gripping a few personal possessions in a cardboard box, classing up the bum scene with their work attire.
This was definitely a buzz kill, but we could have lived thought it. That is one thing a recession can do, correct the market. It would not be great, but over time Americans would cut back on financed purchases and begin to rebuild savings. It's kind of like waking up on Sunday morning with a killer hang over from Saturday night. You've lost some brain cells, they are not coming back, but if you suck it up and resign Sunday to recuperation, you can be back kicking ass when it counts on Monday morning.
However, the powers that be in Washington didn't want the party to end. They dumped what is at this point about $7.6 trillion of your tax dollars into banks and other places that made bad decisions with the hopes people would continue making more bad decisions, and this would somehow work. (For those of us with a home we can afford at a fixed interest rate and no credit card debt, this is really irritating.) Instead of toughing it out, they did the financial equivalent of shot-gunning a bottle of Jack Daniel's on Sunday morning. Sure, it brings back the feeling of Saturday night, but this kind of behavior inevitably ends up with someone dead in a cheap Vegas place after a mostly sexless relationship with a hooker. And that seems to be where we are heading.
Where We Might Go:
So does this affect Harlem? Of course. Much of the recent changes in Harlem were due to rising real estate values. This fueled everything from the increase in rents and new developments to the cleaner streets, lower crime, and growing selection of amenities. With tightening credit markets and lower home values, we can expect these things to change. With the bailout shenanigans in Washington, we are probably in for something really, really bad.
Adding debt worth about half of our nation's GDP to the public tax burden will be ugly. The middle class can be expected to shoulder a lot of this, because that always happens. With more of our tax dollars going to debt finance, we will see reduced spending on infrastructure and cut backs in services. With more of our income going to taxes, we will see fewer people able to live a middle class life. We may see building construction stop unfinished, and plenty of neighborhood amenities shut down.
Will Harlem be a bit worse off than other places? Maybe, but it will be the difference between someone punching you in the stomach, knocking you down, and urinating on your face versus someone punching you in the stomach, knocking you down, and urinating on your face after eating asparagus.
You don't have to go that far back in time to see that other nabes were not always so glamorous. The Lower East Side really still is one big drug corner. SoHo is what it is because not long ago starving artists moved into bleak, unused buildings. The Upper West Side was still West Side Story when most of us were born. We can expect the only nice neighborhood left to be floors two thru 18 of 740 Park Avenue. For those who can't live there, the Upper West Side probably wins the location, location, location pick, as 'kick, snap, spin, kick, stab' is more charming than just 'stab.'
So what about the rest of the country? Here is one possible scenario.
Washington goes on with its IOU printing party to try and keep borrowing its way out of debt. At some point the rest of the world catches on and realizes that buying IOU's from people selling IOU's to cover other IOU's they can't pay back is not a good investment. Our country then turns to printing money to make good on promised funds, devaluing the dollar like mad. Seeing it sink, entities around the globe using the dollar as a reserve currency start dumping it, furthering the devaluation, and inflation takes off to destabilizing extremes.
All hell breaks loose. Cash will be king. The reason for this is we can still withdraw large amounts from banks in clumps of one dollar bills to burn in garbage cans during the cold winter months. People in the street will be heard saying "If only I moved all of my savings to Argentine pesos, I would have so much money." Enterprising Mexican men move their wives and children to the United States and sneak across the border to Mexico so that they can work, send money back here, and give their families a better life.
It's at this point we realize why Hillary Clinton wanted to be Secretary of State. The position has not proved well as a launching pad to the presidency, but but that's because others tried to get elected president. Hillary, having used her diplomatic skills to warm world leaders to recognizing her new rebel government, throws a coup in the mist of the mayhem, and rules with an iron fist as President for Life in a pant suit-based military uniform.
Can anything save us from this fate? Shy of some truly extreme event like the death of everyone in third world industrial nations, no. So what should we do? Depending on your personal style, here are some options.
The Optimist: Move to Las Vegas
Befriend a hooker and drink yourself to death.
The Survivalist: Move to Michigan
So why would moving to a state that already has an 8.6 percent unemployment rate be a good idea? I look at it this way; if only one of the big three auto makers fails, that dumps about another 300,000 unemployed, burly people with mechanical know-how and access to the scrap yard that is Detroit onto the streets. It won't be long before these skills are used, and Michigan's people are your Mad Max vehicle-driving overlords. You might as well start making nice now.
The Risk Taker: Leverage yourself to the Nth degree and buy every real asset you possibly can
So if over leveraging ourselves got us into this mess in the first place, why would I encourage doing more? The reason is that the government also got itself way over its head in debt, but unlike us, they have access to the money supply. Some genius will figure that they can get themselves out of this mess by printing more money and stoking massive inflation. In a climate like this, if you have a fixed rate mortgage, the amount you owe plummets. When this passes, you are in a much better position.
Any other ideas?