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Five Things You Need to Know: The Modern Stealth Depression Revisited


With wealth evaporating right before our eyes, the time for preparations has passed and fear is the only thing we can hold on to.


"It will pay to sell with Clay."

I'm standing in the parking lot of an old tobacco warehouse in Mt. Sterling, Kentucky, faded white cinder blocks stacked around red loading dock doors that somehow seem to predate the building itself, and this is what it's promising me: "It will pay to sell with Clay." It's not even 10 o'clock on a Saturday morning and the sun is beating down hot and fierce. I snap a photo of the red and white Clay Tobacco Warehouse slogan -- commandment, really -- and stand there in the heat a moment longer, puzzling over its grammatical ambiguity; something I'd never really considered even though I must have passed that sign literally thousands of times during the course of growing up in this town. "It will pay to sell with Clay." A man could take that statement in almost any number of not altogether profitable directions. I get back in the car and soon come across a Redi Mart gas station. Another picture. Another ambiguous promise; nothing much looks "Redi" about this mart, nothing much at all.

Let's be fair: These are only two businesses in a small town of about 6,000 or so that, from the outside at least, seem to be surviving the New Economy as well as any other small town. At the local high school a new fancy football field is being put down to go alongside the new basketball arena (remember: this is Kentucky, where every basketball gym is an arena). And it's true, after all, that far fewer people smoke cigarettes these days. And everyone knows that independent gas stations across the country have pretty much disappeared -- victimized by the growth of the major chains who would give away gas for free, if they legally could, in order to sell people the crap lining the shelves inside; crap that involves a much higher profit margin, naturally. Make no mistake, there are the same underlying economic problems here that exist all across America in cities both small and large: too much real estate development, too few home buyers; too many cars, too few cars buyers; in short, too much malinvestment, thanks to decades of artificially cheap credit.

Later tonight at a party at the auto auction -- which does seem to be booming, although I do notice a sign that warns ominously that any car sold for less than $1,000 is sold "AS-IS" -- a friend of mine who owns a 20-year-old local real estate business in town tells me matter-of-factly that he's going to be teaching kids math this coming school year... until business improves.

"Well, maybe you can throw in some stuff about mortgage amortization and how to calculate a monthly payment, whet their appetites a bit; kill two birds with one stone," I tell him, trying to look on the bright side.

He laughs. "I could, but none of them would get loan approvals anyway."

In Human Action: A Treatise on Economics, Ludwig von Mises writes:

The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. They are looking for the philosophers' stone to make it last.

Doomed. Indeed. I've been thinking about this doom for quite some time now. It's one thing to see the fire coming, quite another to walk among the ashes.

About 30 miles due west of Mt. Sterling, in Lexington, a hole occupies the middle of the city where once an entire block of businesses stood. Oh, these businesses were razed and replaced by this hole with the best of intentions; to build a 35-story, 550-foot-tall high-rise hotel with expensive penthouse condominiums on top and loads of retail and office space on the bottom. It was to be called CentrePointe... with an "e" on the end because ye knowe that an "e" addede to the ende of juste aboute any grouping of ye olde shoppes is sure to class things up a bit. Unfortunately for the developers, they announced this pie-in-the-sky project at the very peak of the credit cycle and, apparently, with no real plan in place to scare up the $250 million the project was expected to cost.

"Unlike the go-go days before the real estate bubble burst, few investors are interested now in luxury hotel-condo projects," Lexington Herald-Leader newspaper columnist Tom Eblen wrote recently. "Even in its new, scaled-back form, CentrePointe makes no economic sense."

Intended to be a showcase for Lexington in time for the World Equestrian Games to be held there this fall, today CentrePointe is just a pasture in the middle of downtown Lexington with black four-board fencing surrounding the hole it hides; like a special little paddock built just for commercial real estate speculators. All that's missing are the horses.

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