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.
I agree that the conditions underlying the ‘decline’ has been worsened, perhaps dramatically, by policy. That said, while our team has clearly embraced the concept of ‘too big to fail’, I find myself wondering if perhaps the rest of the industrialized world may be thinking along similar lines – that perhaps the US is ‘too big to fail’. Historically, that has never been the case. In fact it was usually the opposite: too big to survive. But these are different and (historically speaking) more coordinated times. What are the ramifications of China, Japan,the EU, etc. deciding that the US is too big to fail? Obviously an unsustainable choice but nevertheless a choice. And their politicians are as shortsighted as ours…..
Great point Tom. Is the US too big to fail? Hypothetically, what happens in the rest of the world if the economic system of the United States of America were to experience a total collapse? Let’s go extreme — total economic collapse, leading to a breakdown in the political system as we know it. Social unrest in the US, hyperinflation, food shortages, etc.
We would have it quite bad in the USA. But what about the rest of the world? Will they avoid a similar fate?
Doubtful.
The systems are so intertwined, that when we sneeze, the rest of the world catches the Baxter strain of H1N1 Swine Flu.
The upper echelon leadership of countries like China, Russia, Germany, France, and Japan probably realize that if there is instability in the USA as described above, there may very well be a threat to their own existence.
I suspect, at least for the time being, that avoiding collapse (and I am not talking about the stock market) is in the interest of everyone. This will likely change, but for now, the USA is the one and only super-power, regardless of what globalists would have us believe.
The USA runs the show. The Fed knows it, the Obama administration knows it, and China knows it.
I am not 100% convinced that our ’empire’ is going to fully collapse just yet, if ever. This is economic warfare and it is serious business. There will no doubt be pain in the USA. This seems inevitable. But there is always pain in war, right?
I wouldn’t count the US out just yet. but, I will maintain that whatever the end result of all of this is, it will not be as it was before (or is currently). The world we live in will be fundamentally changed one way or the other.
Agreed on ‘fundamentallychanged’, aka ‘The New Normal’, aka ‘We’re F**king F**ked!’. But to extend the concept of too big to fail at a sovereign level, at what size does a country (as viewed by its trading partners) become too big to fail? For example, Latvia is on the ropes – and the Swiss banks are mostly holdling the paper. Do you rescue Latvia as it’s TBTF or do you rescue Latvia because Switzerland is, Too Big, or perhaps merely Too Important To Fail. As/of today at least 3 of the G-7 are in trouble: Britain, Japan & the US. Just as neither you nor I could bailout our local thrift were it to become insolvent, I don’t see how these ’emerging’ economies have the wherewithal to do much for the behemoth West. Comparatively speaking, subprime as an event was really small potatoes (pearl onions even). As a trader, it’s trying to unravel this global knot that continually drives me to tequila…..
I am filled with despair at the thought that this “system” will continue for perhaps quite a few more years, or decades, or more. Every day more and more honest hard working little people are losing their jobs, their savings, their homes, their hope – you name it. To think that they have to endure much much more of this drives me to the brink.
And still the government persists in propping this thing up. Do they not see the psychological damage they are inflicting on the populace? Can they be that stupid? My answer is no, they cannot. They are instead completely maniacal with keeping this unjust, unfair debt machine going. All their actions in the past 2 years sadly point to the fact that they do not care one iota about the American population, and are really just evil incarnate.
I have been “prepping” for the great unravelling of society for a few years, but have to keep one foot in this sham of a life because it just won’t die. It is becoming increasingly difficult – I almost feel bipolar living this way. Maybe I’m somewhat of a sadist for wishing for all this, but I’m tired of living a lie. That, plus my FRNs are running out due to inflation and simply trying to survive. My collapse-scenario investments are fine and in place, but my question is what happens when I cannot afford to keep them anymore? What if I lose my home? I guess time will tell.
Hey friend,
Nobody should be in a hurry to see this all ‘unravel’ merely to expedite what may or may not be inevitable. Things will unfold in their own way & time. In the meantime, hope for the best, prepare for the worst and live for the day. Now go watch this happy, hopeful video…..
http://www.youtube.com/watch?v=zlfKdbWwruY
Cheers!
TOTN
Not bad, Tom. Good video.
One comment – though I agree that we should be optimistic up to a point, the thing I, and I think others, fear most is that all of the crap being done right now is not only NOT making things better…
…but just another attempt to kick the can down the road…which in the end is only going to make things worse.
IF that is true…again, IF…the sooner this all “unravels,” the better.
So, one COULD make an argument that the “optimistic” view is that it unravels as soon as possible, so we get it over with…with the least amount of “damage” possible.
Just thinking outloud…
See, and non-doom and gloomers thought we were pessimists.
WE’RE THE OPTIMISTS!
🙂
That’s it, Mac.
I’m going pro.
http://www.youtube.com/watch?v=90m6qCVGbkE
Go to about 4:00 in…
LOL. I told you, you should definitely go pro!
“I been sayin’ it. I been sayin’ it for ten damn years.” -Randy Quaid in Independence Day
I think Schiff RSS feeds your comments and then makes his daily videos.
Ha!
Yeah, just before he does his video blog, he Googles “Rick Blaine comments economy stock market Mad Max.”
Rick,
We’re on the same page. While the resulting pain should have been managed, the debt sweep should have been allowed to occur. Instead policy choices have (IMO) dramatically exacerbated the eventual, inevitable resolution.
That said, there will likely be many more twists and turns in the tale before we get there. What impact health care & climate legislation? A tax on the notional value of securities transactions? Now THERE’S an idea!
In the meantime CRE is plunging, Private Equity is around the corner, and recently there’s a disturbance in the force……the TBTF banks are emitting some discomfitting (in this era of Fed backstops) new vibes…I wonder what that could be?
No, I wish this would have been handled by Volker & Seidman, but wishing won’t make it so……I may as well mix a drink, add my ire to the blogosphere and settle-in to wait for a critical mass of our fellow citizens to join us on our page.