We are now facing the most severe economic collapse since the Great Depression, and one that may be even worse than that event, according to many analysts and social prophets. It will happen because of the enormous damage already done by Bush & Cheney and all their unregulated friends in the banking and energy industries.  The economy is now like a building in that awful moment of suspension just after the demolition charges have gone off. Viewed from afar it still seems standing, though all the inner supports have been blown. Moments later it collapses. Obama is taking office in just this moment of awful suspense. But the charges have already gone off, and there isn’t anything he can do to prevent the fall. Blaming him for what is about to happen is like blaming the NYFD for 9/11 as they arrived at the scene after the towers fell. But despair is not our only option. There is hope if we first inform ourselves about what is happening, then come together as one people to make the changes necessary to survive.

In this article I will present the vision of several social prophets who have been writing about the collapse we are now experiencing, James Kunstler and Dimitri Orlov chief among them, and offer a glimpse of solutions  we can take, in attitude, behavior and spirit. The bottom line? It’s going to be a scary ride, but there is hope if we become the change this world so desperately needs.

Now that we are finally free of the executive yoke Bush & Cheney saddled us with, all thoughts turn to the road ahead and the prospect for change that is now before us. One thing is imperative, as many still live with the glow of Obama’s victory, the road ahead will be bumpy, steep and narrow, particularly when it comes to the economy. Those who realize this, and adopt a proper attitude of frugality and caution, will fare far better than those who think Obama’s presidency will simply be about restoring our old standard of living and getting us back to “happy days” again. What will life be like in America as the recession economists have been squabbling about moves into its next stage?

A look at Iceland is instructive. Caught up in wild speculation, its three major banks all collapsed in the credit crisis, sending the once affluent and upwardly mobile population into a sudden depression. The collapse was swift and painful. People lost savings, retirement accounts, investment portfolios. Housing plummeted, wiping out equity and wealth. The currency itself, the kronos, quickly debased and lost 50% of its value in a matter of months. Inflation soared to 16% in a matter of weeks. Companies were caught in a vise, unable to secure credit to finance purchases for manufacturing, operations and inventory on one side, and finding that the consuming public had no money to buy the goods they produced on the other side. Unemployment is now soaring due to rapid scaling back in business, and even mass layoffs. Foreigners living in Iceland are quickly abandoning the country. The natives feel trapped, as if adrift on a wild sea without provisions. Paul Joseph Watson reported: “Riots and protests in Reykjavik calling for the government of Iceland to resign have increased following a financial catastrophe that has wiped out half of the krona’s value and put one third of the population at risk of losing their homes and life savings.” Ask anyone in Iceland today whether this is a recession or depression. There is no doubt that the dread “D” word is on their lips.

Whether Iceland is a microcosm of what awaits us is still being debated, but in this article I will present you with a few views on the possible outcome, and with solutions many analysts hold out as imperative.

James Kunstler , who predicted all this long ago in his landmark book “The Long Emergency,” believes we are in for some very difficult times in the short run. Like many, he lauds the change that will finally unseat the most damaging and incompetent administration in our history, but he fears the new Obama administration will, in his words, be handed the greatest “shit sandwich” in history when it takes over in 2009. Obama will necessarily preside over the wrenching changes we now face if we are to rebuild the nation. Kunstler’s initial caution, however, is that we will squander enormous resources, at many levels, by trying to restore the old status quo—a nation of credit based consumption, fueled by a petroleum based, car -centric society flowing in and out of our sprawling suburbia.

“The consumer economy we all knew and loved has died,” writes Kunstler. “There will be pressure from nearly every quarter to keep it hooked up to the costly life support machines even though it is dead…the age of Happy Motoring is over. Many Americans have already bought their last car—they just don't know it yet…The global economy as we knew it is finished. For one thing, the racket of American ‘consumers’ gobbling up the output of Asian factories in exchange for paper promises is over…As global trade relations wither, and they will, the US will be thrust back on its own devices, at the same time that oil resources grow punishingly scarce. Mr. Obama will have to contend with the radical reform of all the activities necessary for daily life here. Near the top of the list—invisible to most of the public so far—will be the question of how we produce the food we need. Industrial farming is done, just as suburbia is toast.”

If this is so, then trying to “keep the cars running by other means,” or simply restoring the system as it was, becomes futile activity according to Kunstler, and a wasteful investment of good money after bad. Of Paulson and Bernanke he says: “For the moment, they're content to shovel cash into the truck-bed of every enterprise in America that shows up at the Treasury loading dock. This can only have the effect of eventually destroying the value of that cash.” It’s actually worse than that, because the Fed and Treasury are really borrowing the money for these bailouts by selling Treasury Certificates, (increasing our staggering national debt) and if the foreign buyers get skittish and stop buying, they just create the money by printing. We’re throwing massive debt and counterfeited money into the vortex now known as the “credit crunch,” a policy that is doomed to fail. The cost is staggering, a sum now estimated at $4.28 trillion dollars by CNBC News a few weeks ago. That number soon ballooned to $8.5 trillion as Citigroup was bailed out and the Fed announced yet another rescue program for “troubled assets,” this time to the tune of $800 billion! The grand bailout total is more than the cost of WWII, and it has all slammed into the economy in just a matter of a few months. It is the greatest financial crisis... you know... since the Great Depression, and likely to produce a sequel.

Kunstler long ago came to the conclusion that the suburban sprawl and subsequent reliance on autos was a dead end investment, the creation of a “Geography of Nowhere.” His view is a hard dose of reality and, thus far, his predictions have more or less come to pass as he called them, for he has seen through the fallacious underpinnings of our “economy” and looked directly at the enormous consequences we now face as it begins to finally collapse. His vision is not all dark, however. He sees hope if the leadership is there to guide us in the right direction now, and he has written about the world we are likely to be living in a few years hence in his latest novel “A World Made By Hand.” The title itself speaks to his basic premise that  this new world will not be one run by massive corporate conglomerates servicing mega-distribution centers for everything from food, to fuel, to the millions of “consumer products” that have flowed in and out of our old Wal-Mart society. High on his list of essential tasks for the nation now is a regeneration of our rail system, river commerce, and a localization of our food production and distribution.

On our waterways he aptly points out: “The once-bustling New York City Harbor, possibly the biggest and best sheltered deep water harbor in the world, has next-to-zero operating docks left along its massive perimeter.… Look at the waterfronts of Louisville, Cincinnati, Kansas City and a score of other inland port cities on great navigable rivers. What you'll see are condo sites, festival marketplaces, picnic grounds, and plain old empty lots -- everything but the infrastructure for commerce. We can't afford this anymore. We have to put these places back to work.”

The struggle to prop up and restore the old system, with multi-billion dollar bailouts at taxpayer expense, is the last throes of the dream we have been living with, one that has become our recent nightmare. This is the illusion that we can get something for nothing… no money down, easy terms, no payments for six months and then a low interest rate on the money we borrowed from someone else, from a bank that simply created the money out of thin air. Most people don’t realize that banks lend out over ten times the amount of money they take in from deposits. That means 90% of all those loans were just created with a few lines of text on a “promissory note,”  digital money manufactured at a keystroke. The loans were not backed up by anything in the bank. If that were not bad enough, then this 10-1 magic trick called “fractional reserve lending” was further compounded when these loans were used as a kind of financial collateral for investments in securities, bonds, and derivatives. The leverage quickly moved to 30 or 40 to 1 at all the big investment houses that have recently come tumbling down. It was a terribly risky and dangerous way to make profits, and these geniuses should have known better, yet they are still up to the same old games. Now they bet on which assets will be saved from the wreckage of the next institution to fall.

Paulson’s recent announcement about shifting the emphasis of the government TARP fund was instructive. It won’t be about buying up the bad mortgaged backed securities now, (the Fed has taken on that task), but will refocus on the credit card markets, auto and student loans.  A look at this chart may shed some light on why this move is being made just now. Note how the trading in mortgage backed bonds and securities dried up as the realization dawned that they were failing assets. Did the banks and investment houses learn anything from their mistakes in issuing all these securities? Not at all. They simply moved their chips to a new gambling table and began issuing and trading securities backed by…you guessed it—credit card debt, auto loans and student loans. Now these bond markets are freezing up. In this light Paulson’s move looks like he is trying to shore up this market, now in grave danger of default as the economy worsens. People without jobs cannot pay their debts . It’s that simple. Rising unemployment is just one reason retail sales plummeted in October and November this year.

This banking malfeasance, for that is what it is at root, had led us to the astounding fact that banks and brokers have now created, and traffic in, bonds and securities that exceed $600 trillion worldwide! (That’s  twelve times the annual GDP of all nations on earth combined). There’s even derivatives trading going on now over whether GM and Ford will survive. The traders are so manic over their game that they are all out placing bets on what collapses next. Talk about fiddling while Rome burns! If we have seen anything these last few months, it should be obvious to us now that this game of fantasy derivatives is itself a huge part of  the problem. We are looking into the darkness of the dead end where it has led us, a cliff’s edge where the whole system now teeters on the brink. No amount of bailout money can fill that  hole.

We have finally realized that we cannot pay for the life styles we’ve been leading in this country, all financed by credit and debt. We’ve been dancing, the piper has been playing, but there’s nothing but a huge debt hole in our pocket and no way to pay our dues. Our way of life was simply not sustainable, except through the fantasy wealth we created called “equity,” wealth that was also created out of thin air by pure speculation. An industry that relies on the lies inherent in all speculation is doomed to fail. By the same token, the “powers that be” are still living with the illusion that the current system can be rescued and restored to its old splendor, leveraged  at 40 to 1.

Karl Denninger of the MarketTicker.com describes our economy as one that “invents wealth that does not exist, and relies on people believing lies in order to succeed.” His article “Yes We Will (Have a Depression)” puts a fine point on the argument: “We did the same thing in the 1920s, and we got the consequences in the 1930s…Taken in total, the debt that must be defaulted in order to restore balance is likely in the $8-10 trillion range in the United States …when one looks at the global deflationary forces at play one is staggered - they may in fact exceed global GDP (~$50 trillion).”

Denninger’s analysis is grim yet unassailable. He sees the actions of the Fed as nothing more than a grand kiting scheme, like depositing a bad check in the bank, then withdrawing cash and taking it to the bank the bogus check was written on to make it good. It’s like using one credit card to pay another, a game of robbing Peter to pay Paul. In this case the US taxpayer is Peter. Paul runs the bank. And Denninger has it exactly right when he writes: “The entire reason we are in this mess is because banks and other institutions have been lying about their exposure, capital levels, and valuations, and we the people have allowed it to go on for more than a decade.”

The consequences of this stubborn effort to restore the old financial game will be severe, for the only real way out of our dilemma is to take our medicine now. Yes, that’s right, to suffer the pain and dislocation of the collapse that is already underway. The waiter has tripped. The five meal platter is already hovering wildly in the air as he flails to regain his balance. It’s going to hit the floor, and disappoint the nicely dressed patrons sitting with the linen and wine at their table as they watch it fall. We, as a nation, had better understand this—that our expectations of a sumptuous dinner at this restaurant are not going to be met.

Denninger’s final assessment: “We're headed for another Depression folks and I no longer consider the actions that are being taken by our government to be ‘mistakes’ - at this point they must be classified as knowing and intentional acts, depending on you, the public, being too ignorant of how banking and finance work to figure it out and demand that they stop it. ‘Stop it’ means what I've said all along - force the bad debt out into the open where it must be recognized and defaulted, no matter who it screws, then pick up the necessary pieces. This will result in a lot of bankruptcies but it will also realign debt payment capacity with debt outstanding, which is the critical element that must and will come back into balance. We can do this via the marketplace or we can continue to increase the imbalances and guarantee a far worse outcome; it is only through government endorsement of a refusal to recognize insolvency that recessions are turned into Depressions, and right now we're getting it in spades.”

He predicts auto sales to collapse entirely, the industry to fail, people being unable to drive or even afford auto registration causing thousands of cars to be scrapped. Unemployment could hit 25% and incomes will fall 30%. 20 million people will lose their homes, (up from the nearly 5 million who have already lost their homes to foreclosure). Distribution and delivery of food will break down. Denninger writes: “Civil unrest will break out in major cities when incomes fall but the cost of food and essential services fail to come down materially, leaving millions of Americans hungry, broke and homeless.  Unlike in the 1930s America will not quietly stand in soup lines - instead they will riot, loot and burn. The National Guard will be called up but will find it impossible to exert meaningful control without shutting down all commerce in the affected areas. The decision will be made to cordon off the cities and deny entry to anyone who does not live in that specific neighborhood, essentially shutting down commercial activity.  GDP will fall by 30%.”

Denninger’s view is particularly bleak, but it describes the more severe aspects of Stage I, II and III  collapse that Dimitri Orlov outlines in the next section. Let’s take a look at his roadmap now, and compare his analysis to what we have already seen happen.

Part II – A Roadmap for Change

The world is not ending—it’s changing. In all the discussion of “collapse” below, you can mentally substitute the word “change” to tamp down fear and restore hope. But it is wise to at least have some idea of how things will evolve. The difficulties before us now are the inevitable pain that must be suffered as our old life collapses and dies. This collapse, like a cleansing forest fire, is necessary if we are to rebuild a new, sustainable life in this country.

Dimitri Orlov witnessed a similar failure when the Soviet Union collapsed, and noted five stages in the process. Stage I  - Financial Collapse, Stage II  - Commercial Collapse, Stage III – Political Collapse, Stage IV – Social Collapse, and Stage V – Cultural Collapse. Orlov has made keen observations on the evolution of complex economies during times of severe downturn, and he shows how the new economy grows from an initial change in people’s awareness, beliefs and then behaviors. One of his most interesting points is that while events may take time to play out, the shift in people’s thinking about their situation can make sudden rapid changes. “Each stage of collapse also corresponds to a certain set of beliefs in the status quo, that is about to go by the wayside,” he writes. “It is always an impressive thing to observe when reality shifts. One moment, a certain idea is seen as preposterous, and the next moment it's being treated as conventional wisdom.” We have certainly seen this in our financial news recently. The $700 billion blithely pledged in a matter of a week to bail out failing banks, insurance companies and corporations, exceeded all the money painfully wrangled out of congress to fund seven years of war in Iraq and Afghanistan.

Stage I:  Financial Collapse

Characteristics of this stage, according to Orlov, are: “Faith in business as usual is lost. Risk can no longer be assessed and financial assets can no longer be guaranteed. Financial institutions become insolvent and access to capital is lost.” This is a perfect description of Wall Street recently.  Fundamentally, the only thing that has really changed is the assumption investors held about the “assets” they were supposedly buying and selling. While the bonds, securities, SIVs, CDOs, derivatives were believed to be sound, they were endowed with a fictional “worth” and the system entered a boom phase. Everybody was happy and investors drove stocks above the 14,000 mark in the DOW. As soon as this confidence was lost, however, the underlying assumptions were swept away and the reality of insolvency was all that was left. Financial collapse was inevitable as soon as the “gentlemen’s agreements” concerning the trafficking in these assets were violated by a general lack of confidence. The collapse was essentially a sudden psychological shift in attitude and awareness first, which precipitated a shift in belief and behavior. The same bonds and securities are all out there, it’s just that nobody believes they are worth anything now that the speculated housing equity that served as collateral has evaporated by the trillions.  They are finally seeing reality.

In a financial collapse, according to Orlov, all the financial fences and towers people build for their security come tumbling down. As psychological confidence erodes, credit contracts, like the oceans retreating just before a tsunami. Banks stop lending to each other, and to consumers and businesses. Paper “assets” like bonds and securities lose their worth and become what they actually are, liabilities based on debt. Equity evaporates as it has in the housing market, investments deteriorate to pennies on the dollar as it has in the stock market for many companies once thought invincible. People rush to move their investment capital to safer havens like gold and silver. This causes a kind of “run on the bank,” and companies that have stood for a hundred years falter and fail. All these waves have already hit the shoreline in our current crisis. In the later stages of financial collapse even cash savings are wiped out by inflation, and the credit/cash system itself is replaced by bartering. In this environment things like FICO scores, and all the things popular money gurus like Suzi Orman advise about the rules of the financial game become absolutely meaningless. In fact, millions of Boomers, many who faithfully followed all the rules with their 401ks and Roth-Iras, and all the rest are now finding that the Wall Street wizards and bankers have stolen them deaf, dumb and blind. Portfolios are off over 30%, and they’re going to sink much further. Some Boomers will be lucky to save even a small percentage of their expected retirement funds. So much for Suzi. The old rules no longer work when the game is rigged by crooks at the very top.

We have not yet reached that last point where hyper-inflation wipes out savings, however. The initial stages of financial collapse are characterized by deflation—the contraction of credit and money velocity in the economy. This is underway now, and the Fed and Treasury department are fighting it by opening the bail-out spigots and pouring on “liquidity.” But analyst Mish Shedlock has it right when he says: “You can’t fix a busted dam by pouring on more water.” But the banks are happy. They are taking the money they receive, using it for acquisitions passing the rest out as bonus bucks for the good old Boyz. Orlov is also correct in his assessment of the futility of these actions when he shows that the trillions being lent out now by the Fed, and allocated in these massive bailouts, has to come from somewhere. It is not sitting in a big vault at Fort Knox. The Government is already $12 trillion in debt! The conventional wisdom is that it will come from the taxpayer, but Orlov points out that the Federal government’s tax base has not suddenly increased a couple of trillion dollars in the last few months. Where does the money come from? First off, it is borrowed from foreign sources through the sale of US Treasury Certificates. Yahoo news reported on Nov 20 that: “The United States has asked four oil -rich Gulf states for close to $300 billion dollars to help it curb the global financial meltdown.” Nothing could be clearer about our dire financial condition--as banks and corporations line up with tin cups for bailout money, the Uncle Sam goes begging to the oil sheiks CENTCOM has been protecting the last twenty years. But if these foreign sources suddenly have a similar shift in their confidence in the ability of the US to pay back this enormous debt, and stop lending to us, what then? What if our biggest foreign benefactors stop lending?

Many Americans foolishly think the US is the richest nation on earth. In fact, the opposite is true. America is the world’s biggest debtor nation. We borrow billions each day from other nations just to keep our financial system and government running. Both CNBC and Moneyweek ran articles this week that spoke of the whispers now circulating that the USA itself could have it’s credit rating downgraded from AAA. We’d become a “subprime” nation as far as our constant borrowing is concerned in the eyes of the world. The road to default is a slippery one after that happens. Then the debt will have to be monetized by simply printing the required dollars—creating them from thin air.

This is when the tsunami metaphor completes itself, and the deflationary scenario now underway suddenly transitions into rampant inflation. You can’t have trillions of newly printed dollars flowing into an economy without destroying or seriously debasing the value of the dollar. This hyper-inflation may take time to develop, but it is the last and most destructive stage of financial collapse. Since banks are leveraged at about 13 to 1 now, if that debt were monetized it would create 1300% inflation according to Orlov. A half gallon of milk selling today for $3.50 would then cost close to $50.00, and this is what destroys the value of cash savings.

Stage II: Commercial Collapse

In Stage II, commercial collapse, it is the real “Main Street” economy itself that enters a downward spiral, again preceded by a loss of confidence. Orlov writes: “Faith that the market shall provide is lost. Commodities are hoarded. Import and retail chains break down. Widespread shortages of survival necessities become the norm.” The loss of confidence is already underway, as our latest “consumer confidence” index is now at its lowest point in 41 years. The NY Times reported on this erosion: “Across the country, Americans are tallying their many losses from the relentless rout in the markets. Financial message boards on the Internet are filled with confessions of fear — about hits to savings, job security and scuttled retirement plans. Based on interviews around the country last week as the market continued its steep slide, many people say they are sensing losses beyond the short-term hits to their portfolios. Some feel a loss of faith in the United States and its government. Others are lowering their sights for the kinds of lives they expect to lead in coming years.”

Commercial collapse, already in its initial stages, will be much more evident this Christmas as sluggish sales and empty shopping malls leave many retailers awash in red ink. Michael Chossudovsky of Global Research points out the damage already begun: “Bankruptcies are occurring in all major sectors of activity: Manufacturing, telecoms, consumer retail outlets, shopping malls, airlines, hotels and tourism, not to mention real estate and the construction industry, victims of the subprime mortgage meltdown.”

We are just a few days from “Black Friday,” traditionally the day after Thanksgiving when Americans go forth and shop to inaugurate the Christmas buying binge that generates about 50% of all annual retail profits. What if they gave a holiday and nobody came? It’s not because they don’t want to come. Shopping has been our reflexive pastime for decades in this country, presented as our civic duty by Bush after 9/11 when he exhorted us to “keep shopping.” But shoppers are already tapped out. The annual “Back To School” sales were anemic in September, and fell off a cliff in October. Retailers are finding that the old 20% to 40% discount lures are not enough. It takes 50% to 70% off to get  Shoppers’ attention, and those deep cuts all but obliterate profit margins.

Stores that fail will lay off workers and stop placing orders in 2009. They’ll have a glut of unsold inventory, because all of it was ordered 6 months ago in the retail-link pipeline, before the real credit crunch hit us this autumn. Many will default on those bills. Manufacturers will get stung by those defaults, and will get fewer and fewer orders next year to pad the losses, so they will lay off and scale back in response. Many will go bankrupt. Unemployment will redouble, and people without jobs cannot shop, nor can they pay their auto loans and credit card bills. The vicious cycle will repeat and repeat.

Right now many are just struggling to pay necessities like rent, and those awful credit card bills that stack up each month. The American consumer is trapped in a revolving cycle of despair at 29.9% interest. There’s no more phantom home equity refi cash to bail them out, and what money the government has to throw at the problem is going to bail out the banks, not Average Joe and the Soccer Moms. Of course it would never occur to the banks that if they gave people fair interests rates and allowed them to attack principles owed, some of this pain could be avoided. But that’s like expecting Dracula to suddenly get religion. Face it, anyone trapped with debt above 20% interest is stuck with it now. Default is their only way out, because they will never be able to pay their way out of debt with their current income in the years ahead. 2008 was the year of financial collapse and the crisis on Wall Street. 2009 will be the year of commercial collapse and the crisis on Main Street when this becomes obvious to all who now use the credit system to survive. This is when the big changes will occur. They will happen because of one salient fact that all the bankers, investors, and government secretaries fail to acknowledge: People cannot repay the enormous debt they are presently saddled with, and they will be forced to default. The Credit-Debt society is over. End of story.

The failure of the old model precipitates a new set of behaviors and a new economy. As Orlov wrote: “An economy does not collapse into a black hole from which no light can escape. Instead, something else happens: society begins to spontaneously reconfigure itself, establish new relationships, and evolve new rules, in order to find a point of equilibrium at a lower rate of resource expenditure.” Thus the key formula to understand is:  Collapse = Change, not despair.

The drop off in retail sales is showing the sudden psychological shift Orlov writes about, as awareness of trouble ahead changes consumer beliefs and then behaviors. Frugality is starting to take hold, and it does not have to be seen as a hardship, but instead, as a necessary change in our behavior to adapt to the world that is coming. It can be seen as a way we work on ourselves to be more thankful for all we really have, and mindful of those who have so much less than we do. In effect, there is a spiritual dimension to frugality. Even making small, simple changes in lifestyle can be a gift of asceticism, mindfulness, and a way of also giving thanks for the blessings we have.

Yes, these changes will affect the broader economy, but we can’t go on spending as we have in the past, at a rate of 125% our annual incomes, relying on OPM—Other People’s Money, my acronym for “Credit.” Let us realize then, that if we are ever to reach a sustainable lifestyle, we must first suffer the pain of this economic contraction. If people just stopped the credit binge, and saved only 5% of their annual wages, the economy would have to contract by 30%. That’s the pain we have to suffer, but there is no other way.  Orlov’s guideposts help us understand what we can expect, and prepare us for the psychological, physical and spiritual changes we must make as we adapt.

Orlov explains how things quickly transition, as the initial commercial collapse we see underway now accelerates, most likely in 2009-2010. First money becomes scarce due to credit contraction. We see this happening now. This is then replaced by a scarcity in products caused by slowing production and reduced imports. Why? Just look at Iceland again. When foreign sources no longer accept your currency, imports erode away and products become scarce. There is little real manufacturing base in the US now, and a new industry creating domestic products will have to grow to replace imports. As we import most everything we buy now, this will initially create scarcity and hoarding…and may open the door to two other dark bedfellows, looting and civil unrest. Orlov continues by saying the idea of always upgrading to the new in our “throw away society” is replaced by austerity and frugality, particularly when the “all you can eat” mentality becomes “all you can scrounge.” The service economy becomes “self-service” when people suddenly realize they have to fend for themselves.  Shopping malls die and give way to local flea markets and black market trading and bartering. Supermarkets give way to farmer’s markets as the national food distribution system falters. These last evolutions will severely affect the commercial real estate markets as people adapt to the crisis, abandoning old models and behaviors.

First Month, Security and Lease - Another dead end business model doomed to extinction.

Commercial real estate, already contracting due to the credit squeeze on financing, will enter a phase of accelerated collapse leaving strip malls abandoned, and thousands of empty office and warehouse spaces. It will sit empty for years, draining the resources of owners who may eventually default on those loans just as homeowners did. Companies that rely on revenue from the sale or leasing of this property will fail, unless they evolve to a new business model.

A possible solution will require realtors to begin innovating and evolving their business models to reflect changing economic circumstances. Those who hold fast to the old habit of credit check, first month’s rent, security deposit and a lease will see their property sit empty. And buyers will be few and far between. Even the few who do step forward to buy will have difficulty obtaining financing and more escrows will fail than those that close. But what if the space could be used to stimulate the new local economy that will inevitably grow to replace the old? Creative use of the space could turn it from an empty liability to a profit center for forward thinking brokers and agents in the badly depressed real estate market.

What if all the vacant commercial space in the business parks could be turned into co-ops open to anyone to come and utilize space and resources for business purposes? Each building could cater to a given area of the economy. There could be a computer co-op where people offering PC skills, graphic artists, web designers, writers, photographers congregate to offer their services in otherwise vacant office buildings. There are thousands with skills but without the money to open and finance a business along traditional lines. And there are thousands more who will be losing traditional jobs—people who have a wide range of skills. A commercial co-op creates a business community center focused on its defined skill set. People can come to the center to take advantage of the space for meetings, to use computers and other peripherals, to find other talented artists, image specialists or designers, locate a network guru. They could sell, trade or barter services, and the property owner just charges a set fee for daily or weekly access to the entire co-op.

Imagine a center like this focused exclusively on clothing, where women could come and make their own clothing, buy the necessary cloth, access sewing machines, or just sell or trade items from their own wardrobe. The way women love to dress, shop, and network with one another would see a place like this explode with activity in no time at all. Now expand the idea to include maintenance services in the blue collar sector where all the laid off construction guys can come and join mechanics, plumbers, electricians in a co-op. Imagine an electronics bazaar where people can bring their TVs, audio equipment, cameras, iPods, cell phones, computers, Playstations and then buy, sell or trade. Our households are overflowing with this stuff anyway, and because they won’t have money to buy new, people will adapt and “make do” with existing products. The idea of planned obsolescence, constant upgrading, and throwing the old away will give way to frugality, reusing the old, making do with what you have. Imagine a food co-op selling home made everything: pastries, pies, jams, home grown and home canned foods. Imagine a place like the existing antique stores one usually finds in the more distressed parts of most towns, co-ops where people can come to sell or barter anything.

How does the property owner make money? Instead of collecting rent from a single tenant, he uses the realtor and his agents and brokers as property managers for the co-ops. They collect  revenues by just issuing access passes to anyone using the facilities, either day passes, or weekly or monthly passes--in amounts people can easily afford. The idea is to get the space thriving with activity, for it is this activity that will generate the revenue return for the agent and owner over time. Americans are already familiar with the shopping club concept. They have membership cards to large warehouse stores where they look to buy new goods cheap. The same idea can be applied to buying, selling or trading existing goods when people don’t have money to even to visit “Price Club” any longer. Think of it as a local eBay, right in your otherwise abandoned business park. The Property manager deducts their fee, and the rest goes to the property owner. The more active the co-op is, the greater the revenues, which could easily exceed amounts collected under a more traditional lease/rent agreement.

The economy will eventually evolve into these arrangements anyway, with bartering, flea markets, garage sales, farmers markets, co-ops taking the place of big box stores, shopping centers and malls. People will adopt these behaviors on their own because they will be forced to. In fact, they are doing this already and I long ago predicted that popular sites like eBay would get even more popular when times get tough. USA Today recently reported on how Americans families are cutting back on dinners out, entertainment, yard service and a host of other areas. “Americans are digging deeper. They're selling old gold jewelry and ransacking closets to find "stuff" to put up for sale on eBay. More are using grocery coupons and buying holiday gifts on layaway...Americans typically have about $3,200 worth of goods at home they could sell to raise cash, says eBay CEO John Donahoe.” If you are out of work, yet need something and can’t afford a trip to Macys, then what? eBay is ahead of the game, but similar bartering and auctioning activities will soon spring up in the local economies of cities and towns all across the nation. These new commerce centers will replace the old corporate driven economy in a vast new underground network that will slowly become the new norm. Landlords who try to hold fast to the old models as the economy changes, will sit with empty, unleased property that will be a negative liability for them month after month. Shrewd landlords who see the change that’s coming can evolve, innovate and thrive… and the change is coming fast.

The USA Today article just talked about the leading edge of the storm most people will be forced to confront in their lives. The article focused on how Americans are selling unneeded “stuff,” eating more at home, trimming grocery costs with coupons, saving up to buy something instead of charging it on credit, buying fewer luxuries, renting movies instead of going out to the theater, vacationing closer to home, and  looking for a second job to boost income. In effect, they still cling to the same life-style behaviors, but just scale them back a bit.  This is a start, but it will not be enough. These behaviors are like the first rising swell of wind before a hurricane. No one will  get by with these modest adjustments in life style. The changes coming will be more severe and dislocating than people realize now, and they may be upon us sooner than anyone thinks.

Orlov’s prediction that the US fall will come hard and fast is echoed by another noted Russian economist, Mikhail Khazin who claimed the US economy would eventually contract by 25 to 33 percent! When asked what this would mean in real terms, Khazin responded “It means an uncontrollable increase in unemployment, a horrible depression, a sharp increase in the effect of social services on the budget… Now, the U.S. is jumping all over the place doing everything its can to rescue this fraction of the economy. The government is stimulating banks and manufacturing… But regardless, in 2-3 years, the U.S. will face a crisis similar to the Great Depression.”

Just look at Chicago, where corporate leaders told Mayor Daley the city should expect massive layoffs in the months ahead. CBS2chicago.com reported Daley’s response: “This is going to be all year, so it's going to be a very frightening economy…Each one tells me what they're laying off, and they're going to double that next year. We're talking huge numbers of permanent layoffs for people in the economy. It's going to have a huge effect on all businesses…We never experienced anything like this except people who came from the Depression,” Mayor Daley said. “When you have that many layoffs early – and they're telling me this is only the beginning of their layoffs – that is very frightening.”

A look at the headlines these last few months certainly argues for a fast collapse scenario, though Orlov does not try to pinpoint the timing of these events. It may happen suddenly in a large city economy like Chicago, but take many more months to play out in a smaller urban town. “One reasonable way of thinking about the timing is to say that collapse can occur at different times for different people,” writes Orlov. “You may never quite know that collapse has happened, but you will know that it has happened to you personally (when it does), or to your family, or to your town. The big picture may not come together until much later.”

Stage III: Political Collapse

In Orlov’s vision, as he saw it happen in Russia, Stage I and II collapse soon leads to Stage III, political collapse, where the central government slowly becomes impotent and the country breaks into more autonomous regions. Imagine the airlines going bankrupt and gasoline returning to its $4 - $5/ gallon mark, or going even higher when our worthless dollars can’t buy the fuel from Saudi Arabia any longer. What happens when the Arabs want real money in exchange for their oil, like gold? Do you see why the US Army is in Iraq now? Without that imported fuel, we have only Amtrak to link our coastlines and regions in this country, and Orlov, like Kunstler, claims the badly degraded rail system will not be able to do the job. Political collapse begins with a slowly rising social unrest that presents as increased crime statistics, particularly property crime—things like break ins, burglaries, theft will spike upward. In some cases it could be catalyzed by gang activity or transition into local looting, particularly in our larger cities.

Laid off workers are already expressing their anger with organized protests in Europe. Cities that are bipolar, where you have a sharp line dividing more affluent neighborhoods from the poor sectors, will be more dangerous, particularly if you live near that line. In cases where this economic divide is also reflective of a sharp ethnic or racial divide, watch out. There are a lot of cities that have huge, segregated “minority” populations that live on the lower economic rungs of the system. They are the most dangerous city environments to be in during times of real economic hardship, because desperate people do desperate things. This is why Obama’s rise to power, from an ethnic minority, and his message of hope, is greatly needed now. If Obama can articulate the need for change, rally us to hope and cooperation instead of despair and violence, then his coming to the political scene at this grave moment will be a godsend.

In its most severe stage the nation itself could begin to break apart, with regions and states ignoring edicts of the central government just as it happened in the old Soviet Union. “We might have a Reconquista,” writes Orlov, “where former Mexican territories become ever more Mexican, the South might rise again. New England, California, and the Pacific Northwest might decide to go their separate ways.” We are already seeing states, cities and communities affected by the financial crisis. At the moment they are also in the bail-out line seeking Federal help, but when that is not forthcoming or effective, they will realize they are on their own. Regional solutions will then trump Federal solutions. Local law enforcement will trump Federal enforcement, no matter what the US army does.

Red vs Blue - The divisiveness must end

This political collapse, if it happens, will take place during the Obama administration, and the same men and  media minions who led us to this financial and commercial crisis are now busy laying the groundwork of blame to insure their return to power in 2012. They expect that the coming hardships will divide and embitter the nation as never before, and they will use all the art and craft of their media manipulation to make it so, for only in an environment of lawlessness and chaos could their message ever again be heard. It was the same message Bush laid on us after 9/11—be afraid, be quiet, and start shopping…we’ll keep you safe if you do what you’re told.

Gerald Celente of the Trends Research Institute was recently interviewed on Fox News. He’s another prophet who has been right about the coming downturn in the economy in the past, but Fox used his information to try and blame Obama for the whole mess! About three minutes into the interview, as Celente described the changes that will begin this Christmas and beyond,  Fox put up the headline “Predicting Obama’s Impact.” Celente wasn’t laying any of this at Obama’s feet, but Fox is a master of mixing headline over image to make its propaganda points.

That is, of course, the plan now. Bush and Cheney led us to where we are today, but as they pass from the spotlight the blame will hung on Obama. Face it, the same folks that claimed he was in league with terrorists and radical preachers, and wasn’t even a US citizen, will be whipping up the hate in no time at all. Come 2012, after the inevitable commercial collapse that is now upon us, Fox and similar agents of the Neo-Con right wing that caused this collapse will be howling to return to power and “keep us safe.” Mark my words. A wise man once said on the Senate floor: “When fascism comes to America it will be carrying a bible and waving an American flag.”

Let’s get this one thing perfectly clear: the events described by the analysts and thinkers I have quoted in this article will happen because of the enormous damage already done by Bush & Cheney. The economy is now like a building in that awful moment of suspension just after the demolition charges have gone off. Viewed from afar it still seems standing, though all the inner supports have been blown. Moments later it collapses. Obama is taking office in just this moment of awful suspense. But the charges have already gone off, and there isn’t anything he can do to prevent the fall. Blaming him for what is about to happen is like blaming the NYFD for 9/11 as they arrived at the scene after the towers collapsed.

We can’t avoid the fall, the inevitable change in store for us all, but is there hope that we can get beyond the amazing ignorance, bias and obviously sinister agenda of a so called news organization like Fox, and get about the business of rebuilding this nation?

Preventing Social Collapse: Is there hope?

The newly elected President Barak Obama had nothing whatsoever to do with the mess we are in now, yet it will fall to him to try and mitigate the collapse and lead the recovery. The Obama campaign was all about change and hope. Is there any real chance that we will survive this imminent collapse and restructure our way of life? Yes, we can, as the campaign slogan asserted, but not without first suffering the pain as the old life withers and dies. The sooner we face that, own it, and hear it articulated by our leaders and media, the better our chance of recovery becomes. People have to be prepared for what is to come, and not by Fox News, which is just setting up the arrival of the next junta in 2012.

There is hope, if we make the decisive decisions now, take on the hardship, and embrace a new way of living in this country. We have to begin rebuilding our communities so they are ready for the changes ahead. Like Kunstler, Dimitri Orlov also describes a future where we live in smaller, more local economies, where centralized forms of commerce, distribution and even energy management give way to local solutions. To prepare ourselves for this mentally, an inner shift of attitude and awareness is essential first, followed by an equal shift in belief and behavior. I’ve been doing this in my own life for some years now—eliminating debt and reliance on credit, scaling back, simplifying, saving.  I’ve also been trying to raise awareness to shift people’s attitudes and behaviors, because we can get through this to a better world if we all pull together.

Become the change...

Voice of America recently reported on a how a typical American family began to face the crisis we’ve all been reading about and make real changes. “Sharon Astyk is a stay-at-home mother of four children. Seven years ago, her family was barely getting by on her husband's salary as a teacher. They decided they could live better by simplifying their lives. Astyk explains how her family created a simpler lifestyle in a new book, Depletion and Abundance: Life on the New Home Front. ‘We started producing more of our food. We started sharing resources with our family and bartering with our neighbors. We tried really hard to stay out of debt. That meant when we didn't have enough money to do things, we just didn't do them.’ That lifestyle, she notes, is a more environmentally friendly one. ‘We only have one car for our family, which is unusual,’ she says. ‘We just walk places or we bicycle or we don't go anywhere.’ We divided it up into seven categories: electricity, transport fuel, heating and cooling energy, consumer goods, water and others, and we've gotten to 80 percent reduction in every category. We're getting much closer to the use of energy that people in India or China are using right now.”

Those who adopt effective strategies to change with this new world will survive and thrive. Those who remain in denial, thinking the old life of affluence, easy credit, easy motoring, easy terms, house flipping and constant consumption is coming back, are in for the real hardships and disappointment. Those who listen to organizations like Fox News for their information about what is happening in the world will be the worst informed, the most shamefully manipulated, and the most frustrated and anger filled of all segments of the population. It’s the same group that sent gun sales surging just after Obama’s election victory. It’s the same group that Chris Hedges writes about on AlterNet when he says: “Millions of Americans live in a non-reality-based belief system informed by childish clichés - they can barely differentiate between lies and truth…Huge segments of our population, especially those who live in the embrace of the Christian right and the consumer culture, are completely unmoored from reality. They lack the capacity to search for truth and cope rationally with our mounting social and economic ills. They seek clarity, entertainment and order. They are willing to use force to impose this clarity on others, especially those who do not speak as they speak and think as they think.” That is the audience Fox caters to with its obviously distorted message. “This ability to magnify these simple and childish lies,” Hedges concludes, “to repeat them and have surrogates repeat them in endless loops of news cycles, gives these lies the aura of an uncontested truth.”

Surviving Ourselves

It is clear then that if we are to survive as a nation, we must first get beyond this red-blue divide, and cross the enormous crevasse between left and right that organizations like Fox seek to widen and exploit. We must break the cycle of divisiveness, embrace hope, pull together, and accent our common good. We have to get informed, and leave the image mongering, manipulation and ignorance of Fox and its cohorts behind.  If we fail to unite now as one people, then we will have all the most dire consequences of Stage IV Social Collapse that Orlov witnessed and described in the old Soviet Union—consequences he says we must avoid at all costs.

“We may yet succeed in finding ways to cope,” writes Orlov. “We may learn to dodge financial collapse by learning to live without needing much money. We may create alternative living arrangements and informal production and distribution networks for all the necessities before commercial collapse occurs. We may organize into self-governing communities that can provide for their own security during political collapse. And all of these steps put together may put us in a position to safeguard society and culture.”

American corporations are quick to line up at the Treasury Department for bailout money as they face the consequences of their myopic vision of the future. If business wants to survive, if corporate America is to have any future at all, it must start having a vision of this new life we have to build, and start investing in that future. Here’s an example of what I mean. I mentioned MIT researcher Daniel Nocera’s stunning new breakthrough in an earlier article. Specializing in chemical and biological energy conversion, the Nocera Research Group is essentially finding ways to turn sunlight into a chemical based form where it can be stored and converted to useful energy—a kind of photosynthesis. The trees and plants make it work, and so can we!

The New York Times quoted Nocera describing the vision and aim of his research: “With the right investments in science and the right policy you’ll have a house with shingles generating your electricity during the day when the sun’s out,” he said. “You’ll take the extra electricity and, if battery technology works, you’ll put it in batteries. Or you’ll put it in chemical fuels like I want to do…. At night you drive your electric car in, you plug it in, the next morning you get up and leave again. So your whole little world of energy is going to be generated around where you live. In some little village in India they will be doing the same thing. That’s the world I see. That would be the unifying thing. It won’t be centralized. We’ll all be generating our own energy. Energy is money, so the world will be more prosperous.”

James Kunstler has little faith in alternative energy solutions: “I regard the most dangerous fantasy in America right now to be the wish that we can keep running things just the way they are now by replacing oil and gas with ‘alternative fuels.’ This just ain't gonna happen. We're going to use every kind of alt.energy there is and they will still require us to live very differently than we did the past sixty years. The public just doesn't get this.” But Daniel Nocera does get it. In fact, he’s done the math, which is why he is developing something entirely different than the normal ways people have been thinking about alternative energy.

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