Market Ticker’s Karl Denninger continues to warn of a complete system breakdown in To The Barkers: Answer This Question.
You can’t replace consumer activity with government borrowing for very long. You can try in the short term but it won’t work in the intermediate and longer term. More proof is found in our trade balance, which despite massive dollar devaluation is now at the worst since January, while the dollar has plummeted. Dollar devaluation was supposed to improve our balance of trade. It failed to do so, just as the printing of money has not spurred credit creation and capital formation as we were told it would.
It would be nice if the policy prescriptions followed thus far could work, but in a saturated debt market they cannot.
All modern monetary systems are credit-based.
This is about mathematics, not “feelings” or “beliefs.”
All we have now is the carnival barkers claiming that “prosperity is returning!” even while storefronts are darkening and debt is defaulting.
It hasn’t worked this time, and the policymakers know it, just as they knew it in 1930.
But policymakers didn’t stop lying in the 1930s and it appears they’re not going to now.
If any of the policymakers believed what they were selling neither the $8,000 homebuyers “tax credit” or the zero percent Fed Funds rate would still be in place.
More than two years into this mess with myself and a few others warning that the policy path elected was both futile and destructive, we are finally seeing foreign governments wake up as they realize that Japan’s ZIRP was bad, leading to two bubbles and then crashes in the global equity markets and one in property markets that served up enormous pain.
If we don’t stop with our boozing on “free money” for the banksters (which is NOT filtering to the common man!) the resulting crash will have consequences for our nation and indeed the world akin to liver failure rather than a hangover.
[emphasis added]
Karl Denninger asks why, if the economy is recovering and prosperity is returning, do we still require stimulus programs like zero interest rates from the Fed, $8000 home-buyer tax credits, FHA zero-down loan underwriting, and 30% interest rates on major credit cards?
The Fed, Treasury, Congress and Obama administration would have us believe that everything is returning to normal. Yet they will not stop stimulus spending and the Fed will not tighten monetary policy.
They are either incompetent, or someone is lying. I suggest the latter. The policy makers at The Fed and Treasury know full well where we stand.
If they slow down the printing presses the problems in the economy will become apparent almost immediately. There will likely be a massive sell-off in stock markets, credit will collapse further and consumer spending will be totally destroyed.
Denninger concludes:
It is better to lose a limb than your life.
In economic terms that’s the choice folks; the gangrene is spreading and if we do not amputate it will reach our torso.
If it does our economic and quite possibly our political system will die.
I’ve said it before and I will say it again. We are in the midst of the largest credit collapse in the history of the world. There is no easy way out of this. Mr. Denninger suggests that pulling stimulus and bailouts, and tightening monetary policy may be our only hope. There will be pain, but it may not kill us.
It may even be too late for that. We should have taken our medicine back in 2001, but we didn’t. We should have taken the medicine in 2008, but we didn’t. It may now be too late to save the system as we know it. Either way we slice it, it is probably better to take the hit now, then to wait another two or three or five years, because the longer we wait the more severe this will be.
Mr. Denninger is right on target when he says that an economic collapse may seriously impede our political system as we know it. When nations collapse because of debt, things tend not to return to the way they were before.
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