Market Ticker presents an important Dylan Ratigan video dealing with the insolvent banking system. This problem is a gigantic mess and probably too big for the crooks in Washington to [...]
denninger
Aug 262011
Those who wonder what will happen when the economy/government collapses may not have to wonder for long. Things seem to be deteriorating rather rapidly both here and abroad.
Karl Denninger speculated about what a collapse means and provided a partial list of what he expects:
- Every pension fund blows up. All of them. Many doubled into the decline and will be utterly destroyed. Chief among them will be big municipal funds like CALPERs. If you have a pension of some sort, ask the pension administrator what happens to your pension if the S&P goes to 400 and stays there. He’ll poo-poo your question – but I bet he won’t answer it.
- Annuities and insurance companies blow up. You don’t think they can pay when they’re figuring on an 8% annualized return, do you? Well, no they can’t. Oh yeah, your state insurance on those is $100,000 in most states – the rest of your principal is “at risk.” This, of course, assumes the State has the $100,000 too. Did you know this in advance or are you learning it now (let’s not hope the latter is true!)
- The FDIC has no prayer of covering it. The good news is that if they act now they can shut the banks that are exposed and cram down debt to equity. The bad news is that they have a horrible record in doing that in a timely manner and of late the losses have been anywhere from 20-40% of assets, which is both a violation of the law (“Prompt Corrective Action” is supposed to prevent this from happening) and they have no way to cover it should it become a widespread problem. It will. Oh yeah, you can’t sue the government either. Have a nice day.
- The government Ponzi blows up. Unemployment will reach 20% or more. Tax receipts will get cut in half. Deficit spending will be impossible. Instead of a 40% “draconian” cut in government spending we will have to cut spending by 60% or more. Entitlements will be decimated; retirement entitlements will go last, but go they will. Food stamps, Section 8, Medicaid, all gone. Bet on it.
- All the other things that depend on the government Ponzi blow up. Medical care as we know it, education, state programs, all gone. We will return to a simpler time whether we like it or not, and we won’t like it. That much I’m sure of.
- Best guess on whether civil order is lost. In some places I’m sure things will be fine in that regard, likely in places where self-defense is recognized as the unalienable right that it is. In others? Not so much. If you live in a big city – or an “unfriendly” place in regards to self-defense, you need to be thinking about this quite-seriously. Yesterday would have been a good time to consider it and figure out what you’re going to do about it.
- Short-term and minor to moderate disruptions in what would be considered “essential” goods and services are likely. Go down the list and figure out what you must have and what you can do without. Be realistic. Most people won’t be, which will put you one step in front of them.
- The world will recognize the Depression we have tried to cover up. This is not a US-centric story. The Eurozone will get the unemployment and tax consequences too. Germany will be forced to choose between propping up the entire rest of the Euro (which it can’t) and detonating it and going back to the Deutsche Mark (which it will be forced to.) There is a very high probability of war that comes out of this, although the exact trigger is not something I can forecast. War is the classical solution to these problems, and it is unlikely to be different this time.
There are other items that could be added to the list, but you get the idea. We are headed for a very unpleasant and dangerous time. The most dangerous item of all is missing from the list. It is the possibility of losing our form of government and devolving into some form of totalitarianism. If so, the world will enter The Economic Dark Ages, instead of just Great Depression II.
Readers of this blog know that I believe this end is now inevitable. There is no political solution because of the motivations of politicians. They have made the decision not to attempt to prevent what is coming but to maximize their own situations. Mr. Denninger is in agreement, at least with respect to the inevitability of the ending:
The only real choice is whether that option will take place voluntarily and now, or involuntarily and later.
Either way it’s going to suck, but a voluntary acceptance of reality will both suck less and be over sooner, along with being able to be mitigated. An uncontrolled event – which is what we’re headed for at the present time – will be most unpleasant.
Aug 232011
The power of the Presidency is nowhere near as great as Obama believes it to be or would like it to be. Nor is his charisma. His presidency, to the extent it had any chance to succeed, is failing because of both beliefs.
Obama’s confidence in his powers of persuasion and charisma appear unlimited. Unfortunately, many citizens have seen through his shtick, making his behavior appear pruning, self-centered, egotistical and immature. During the presidential campaign, he was an extraordinary marketing success. But as they say in show biz “he has no legs.” Once tried, the product disappoints and repeat sales do not occur. Marketing can get a customer to buy once, but then the product must deliver. This one hasn’t. It was all Madison Avenue with no substance.
Now Obama’s “brand” is tired. It has been overpromised and overexposed. He is a case study in false advertising that no longer wears well. He does not unify, bring hope or govern. In that sense, the promises upon which people bought were fraudulent. Instead of improving the condition of the country, the product has been downright harmful.
The more people see of this man the more obvious there is no “there” there. Narcissism, arrogance and ego prevent the President from understanding what is happening. His relentless appearances on television, blaming everyone else for problems is old. His repeated use of “I” to take credit for the few things that have gone well, is not helpful. His obvious unwillingness to lead and his inability to manage are apparent to all but the Kool-Aid drinkers.
For most of us, he has morphed into a Public Nuisance, a common recurring annoyance that people want to avoid. His repeated appearances are empty. He has no solutions. Almost three years into this economic tragedy he promises to present a jobs program next week. Has he just discovered there is a recession/depression? Why has this taken three years to address? Does anyone think he will offer anything constructive?
President Obama is viewed by increasing numbers of the public as a mountebank, a Hollywood facade of a man, a common street hustler dressed up in nice clothes but with no record of achievement in anything. He will be seen by historians as an aberration, a mistake. Handlers likely recognize what is happening and recommend he spend less time in public and then only when he has something to contribute.
Apparently Obama’s ego prevents mitigating his fall. Tragically when a man trades solely on image, he must preserve it. Obama has squandered probably the only asset he had. Apparently Obama believes his own press clippings, even though they are written by sycophants in the mainstream media. As a result, he is in the process of destroying himself by exposing the empty suit that he is.
Karl Denninger discusses Obama’s recent performance in the debt ceiling debate:
That was an absolute disaster for Obama.
Let us not forget that this President came into office and ran the credit card to the extent of more than $1,500 billion a year for the last two years. He continued the bankrupt policies of George Bush who did the same damn thing. He has blown money like crazy, yet has utterly refused to face the fact that there is no way he can continue to do what we’ve been doing with these deficits for the indefinite future.
We were told these deficits were necessary due to a crisis in 2008. But we have also been told the crisis is over. That our economy is recovering. That Wall Street is “healthy.” That the banks are “ok” and “well-capitalized.”
These are lies and The President knows it! The economy is a damn wreck. The banks are only “solvent” because they’re lying about asset values. And Wall Street is punch-drunk – again – on cheap leverage, headed for yet another utter and complete disaster.
So now, having run smack into the Tea Party and Boehner saying “no more damnit; we’re going to blow up if this crap continues!” The President now turns around and throws a temper tantrum on national television threatening the old “tanks in the streets” (effectively) if he does not get what he wants – which is yet another blank check.
Well Mr. President I want to know when the blank check demands stop!
Why? Because there’s no damn money, that’s why. The US Government is unable to keep doing this crap forever.
It has to stop!
In fact S&P has clearly stated that if you pull the crap you intend the downgrade you claim you’re trying to avoid will come.
I know in advance it is going to suck when the deficit spending stops. I’ve been writing on it for more than four years and have been utterly consistent. There is no escape from the mathematical facts.
So, Mr. President, if you intend to demand this crap continue, you have the affirmative obligation to tell the American people exactly when and how this is going to stop because you are not a King, you’re a President and you are subservient to the people – not the other way around.
If you can’t or won’t then Congress has the absolute responsibility to say NO - period – and force a balanced budget right now, since you will have, by doing so, declared that you never intend to resolve the underlying problem.
It’s that simple.
The Democrat Party is coming hard upon decision time. Do they support what appears to be a sure loser or do they abandon him? Their decision could affect the survival of the party itself. For individuals in close races, it seems suicidal for them not to break with this albatross. Their careers in politics may depend upon which way they decide to go.
Jul 192011
The video below is probably the best reporting I have seen on CNBC for a long time. It puts the financial system of the world in perspective.
The rating agency, Egan-Jones, is not beholden to the US or any other government. It works solely for clients with the purpose of protecting them and their assets.
The European and US situations are disastrous. H/T to The Market Ticker for the following, including the video:
The Market Ticker – US Downgraded: Egan-Jonesby genesis
Here it comes… yeah, I know, Egan-Jones isn’t one of those firms people think is important.
Oooook!
It should be noted that this downgrade comes after Weiss Ratings reduced the US government to “near junk,” a “C-” rating. An analyst from Weiss stated:
the U.S. has debt and deficit problems whether or not the debt ceiling is raised.
The debt ceiling issue is merely a sideshow. Resolving it, does not resolve the underlying problem with the US.
Jun 212011
Albert Einstein defined insanity as doing the same thing over and over and expecting a different result. By that definition, clearly our economic policymakers in Washington belong in the little rooms with padded walls.
Karl Denninger discusses below the use of debt as a means to bolster GDP. There is not a sign of evidence to support government’s belief/actions. If that is truly government’s objective, then surely insanity is a difficult conclusion to avoid.
But there are other motives, unstated but possibly driving government behavior. My guess is that the primary purpose of government over much of the past thirty years was to grow bigger and more powerful. More recently, growing government has likely been displaced by saving government from bankruptcy. Debt is now needed to enable government to continue paying its bills. Either of these hypotheses is consistent with the data and likely more plausible than insanity. Perhaps there are other motivations that could be at work.
Denninger does not speculate regarding motives and just presents the devastating data:
You’d think that after more than fifty years people would wake the hell up and smell the coffee.
What is this chart? Why, the history of our idiocy. It’s quite simple; this is the multiple that each dollar of debt (anywhere in the economy) has returned in GDP looked at on a quarter-on-quarter basis, net of the debt increase itself. That is, if the multiple is “1″ then for each dollar of debt added to the economy there was one dollar of output in the form of GDP added as well during the same period of time. If it’s “0″ then the debt itself produced no additional output, but did fund itself. If it’s negative, well, into the black hole you go. Since this is a quarterly number it’s quite noisy but there’s no mistaking what it tells you.
If you pay attention you’ll note that since 1980 this has never been positive – not even for one quarter – and it was only rarely positive before that time!
Why is this important? Because it underlies the idiocy of everything we’re attempting at the present time with our economic policy. It underlies every claim about “getting lending going to small businesses” and “getting lending going to consumers.”
Lending – that is, the increase in debt - is not additive to GDP, it is subtractive!
This is the exact opposite of what is trumpeted on CNBS every day, it is the opposite of what our President has said, it is the opposite of what Congress has claimed is their goal in their regulatory zeal and it is the opposite of what is taught in our edifices of “higher education“.
But this – directly from The Fed’s and BEA’s own numbers – says that all of those “economic theories” are in fact crap. They are in fact knowing lies in the face of what is nearly sixty years of unbroken statisticalfact.
Your challenge is to calibrate the policies and expected outcomes of our government’s policy, the ECB’s and EU’s policy, and other government policy and pronouncement against this statistical and irrefutable fact and then figure out the likely outcome of once again doing the same thing we’ve done over the last thirty unbroken years.
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