The last few days have been filled with news that brings up dread in the gut of anyone who thinks about our economy. Let's start with a small piece of news from teh Great Lakes. The Port of Duluth may close early this year because demand for iron has dropped sharply. The immediate concern is for the jobs in shipping, followed by the mines in Minnesota and Michigan. It calls into question recent moves to open three mines in the area - an economic boom for the region. But the fact that demand for steel is dropping sharply also raises questions about the direction of US manufacturing - mining machinery, the auto sector, industrial machinery, and many other sectors. The housing market dropped off beginning in late 2005. Retail expansion came to an abrupt halt late in 2007. Now it appears that manufacturing is falling.
Of course, there is other news from the business world. Auto sales have plummeted and GM may run out of cash by the end of the year. Its shares are trading at a 65-year low and it may have to file for bankruptcy. AIG needs twice as much cash as we were originally told, if it is to stay afloat. Retailers continue to struggle as they look at one of the bleakest Christmas seasons. Circuit City has declared bankrupty after closing 20 percent of its stores. It is the latest in a long list, and 2009 is likely to add companies like The Gap and Pier 1 to that list.
At least this time around it appears that rural areas may not be so badly affected. With high prices for corn and soybeans, and a boom in oil and gas, these parts of the country are riding high. Or are they? VeraSun Energy was one of the bright stars of the ethanol industry; a leader in innovation with one of the largest production capacities. Last week they filed for bankruptcy.Ethanol is not profitable with high commodity prices and demand for fuel is down. The worst to be hit are the small ethanol plants, often owned by local cooperatives, nad not enjoying the economies of scale found in the newest, largest plants owned by companies like Cargill.
Of course, the price of oil is down to its lowest level in nearly two years, after spiking earlier this year. In retrospect, that spike appears to be the result of speculation, rather than rising demand or lowered supply. Of course, at low prices, it does not pay to extract some of the more difficult to reach, or lower quality resources that have fueled the west's latest energy boom. Bust.
I tend to be bearish, although I can recognize opportunities when I see them. Right now, I am not seeing them. I am not even seeing where the downward trend will start to level off. Foreclosure and mortgage aid is not going to help when housing prices continue to slide or people do not have jobs to pay their monthly installments. The money we are putting into financial institutions is only stalling a realization of the full scope of the financial crisis. Bailing out auto companies does not address the problem that people are not buying cars, or for that matter, much of anything else. It all makes me think that we are in for a few years of true hardship, unlike anything we have seen for a long, long time.