Train Wreck on the Way

There is little doubt in my mind that we are heading for a train wreck. The timing and catalyst that trigger this reaction are much more difficult to determine. The potential catalysts are many, any one of which would trigger the wreck. A dollar crisis or a Treasury fund-raising crisis (likely to appear simultaneously) are probable. Or, it could come via an unexpected, virulent outbreak of inflation from all the dry tinder the Fed has injected into the system. Just the opposite of that, a deflationary collapse, could occur although I think this scenario less likely. (It is likely that the real economy will continue to decline, however, perhaps even violently.)

Or, it could come, once again, from the financial sector. Banks and other financial institutions are nowhere near healthy. The housing crisis hasn’t ended and bank collateral against mortgages continues to deflate. We do not know how bad this situation really is because regulators and banks continue to pretend that there is no problem in their efforts to survive via a “pretend and extend” strategy. Here is an opinion from Robert Toll, head of Toll Brothers, who suggests it may come via the financial system, specifically via the FHA which has been converted to the new Fannie and Freddie. We know how that worked out.

Related posts:

1. Banking Mess