Definitely

California is seriousily considering sending out IOUs instead of welfare checks, tax refunds, and other state payments. (see news story) The state controller, John Chiang, says that California is simply out of money and options. People on welfare will be hit hardest and will be forced into a situation to fend for themselves. Some will sadly feel forced to turn to crime causing the crime rate in California to shoot up within 6 months.

As the economic crisis spirals out of control home values will continue to crumble. By the end of 2010 the average American home price will be down below $100,000. Forclosure rates will continue to rise as more and more people realize that it makes no sense to pay such high mortgage payments on homes worth so little. The demand for smaller, more affordable homes, will rise as people come to the realization that their desire for large McMansions is not an option any more. Banks will become ever tighter with their money and the bottom will not be reached until home prices stabilize at much lower levels. At that point the downward cycle will bottom out and the slow climb out of the second great depression will begin.

Governments across Europe are declaring states of emergency, ordering drastic reductions in gas usage, as a result of Russia cutting all gas supplies through Ukraine. The whole mess is over a dispute Russia has with Ukraine over unpaid bills.

In other words Russia just dragged Europe into their debt collection efforts by literally threatening them with freezing to death. This is exactly how wars get started.

The first six months of 2009 will prove to be very hard times, almost as bad as the Great Depression with major job losses. But as soon as the economy hits rock bottom and there is a general consensus among billionaires that the economy has bottomed out, they will jump in and infuse the world economy with huge investments. Buy low sell high. They are simply waiting for the bottom before jumping in and making their fortunes larger. Unfortunately for the rest of us this will simply mean we’ll be working for the man a little longer.

Before the year 2020 researches at a major Ivy League university will discover a way to translate the sounds that dolphins make into English. Hours after this discovery it’s discovered that Dolphins are in fact at least as intelligent as humans and have simply chosen to live a life without government and technology. Law are quickly passed around the world that make it an act of murder to kill a dolphin. Dolphins are also instrumental in answering many of the oceans mysteries through the telling of Dolphin folklore.

The current collapsing economies around the world will lead to more of the ultra rich moving their money into safe low yield investments. This risk avoidance will pull the rug out from under many middle market corporations causing wide spread economic collapse and job loss. Giant corporations, mom & pop businesses, and certain favored middle market companies, like discount retails and grocery outlets, will survive.

Some leading economists, like Jim Paulsen, are pointing out that the economy is not in that bad of shape and that only the housing and auto industries are badly hit. The numbers show that exports are up and many large corporations have large reserves of cash and are simply waiting for the economy to bottom out before they start taking advantage of the situation. Buy low… or better yet… buy at the lowest.

But the real problem is that the two areas hit by this pseudo recession have hit many of us in the gut and it’s caused a very serious reaction… maybe even an overreaction. The trouble with predicting the future of the economy in that this situation is that it’s never been seen before. The housing market bubbles have popped in America’s most expensive markets causing much of the middle class to reevaluate their spending and values.

Why December 2008? The holiday shopping season often illustrates the tone of consumer confidence. If the economy doesn’t bounce back in December large corporations will most likely buckle down and hold their money in reserve to weather the storm. We may even begin to see larger job layoffs which will trigger even more trouble in the housing, auto, and credit markets. We already seen major problems in luxury retail areas but if this continues that trend will continue into other areas.

Recovery from increasing job losses, foreclosures, and reduced spending will take time to fix. People will need to feel secure again in their jobs and houses before they’ll begin spending again and I suspect two years is a conservative number for people to get back on their emotional feet. So cross your fingers for us to have a great December and prepare to buckle down if we don’t.