Friday, September 19, 2008

Sugar Time!

The Telegraph speaks about the junkie's need for a bigger dose of the good stuff.

Yesterday's move by the US Federal Reserve, the European banks and the Bank of Japan to douse the global banking system with $184bn (£101bn) may get us through the week without another catastrophic failure, but it does nothing to halt the downward spiral into debt deflation.
The yield on three-month Treasury notes remains near zero - a level last seen after Pearl Harbour - reflecting a near total loss of confidence in all financial instruments. The five-year CDS credit default swaps on a great clutch of America's biggest companies are flashing imminent bankruptcy signals: Washington Mutual (2638), General Motors (2284), MBIA Insurance (2187), Advanced Micro (1773), Ford Motor (1718).
Former Fed chief Paul Volcker is now calling for a vast sink - underwritten by the US taxpayer, and modelled on the Resolution Trust Corporation (RTC) - to soak up trillions of dollars of toxic debt and asset-backed securities once and for all.
"Until there is a new mechanism in place to remove this decaying tissue from the system, the infection will spread, confidence will deteriorate further, and we will have to live through the mother of all credit contractions. This contraction will undercut the financial system, and with it, the broader economy," he wrote in a joint article with other elder statesmen.
"It will in the short run require serious money. But a failure to act boldly would cost the taxpayer and the country far more. The pathology of this crisis is that unless you get ahead of it and deal with it from strength, it devours the weakest link in the chain and then moves on to the next link. Crisis times require stern measures."
The Real Effect
How much would it cost? Prof Kenneth Rogoff, former chief economist at the IMF, says the bill would run to at least $1 trillion. This would increase the US government debt from 48pc to 55pc of GDP (under IMF measures) - still lower than that of Germany, France, Italy or Japan. (Reminds me of the argument used for gas prices)
Oh, only a 48-55% increase in government debt, well at least we're not crazy like Japan. At least we're not selling our children into slavery with interest payments via the IRS.
Let's get a few things straight here:
  • "They" are not "us". If the banks fail, then let them fail! It is the consequence of their consummate greed in over-leveraging these loans. This money used for the bailout is coming out of your pocketbook and going into theirs. When was the last time a bank or corporation was this nice and allowed you to set your debt aside at their expense?
  • "You" will be left holding the bill. Your children and grandchildren will be held responsible for paying off this debt when it comes due.
  • This will not fix the real problem. Do you really think giving someone a free ride when they are being greedy is going to change the behavior? There is no negative incentive for them not to participate in the behavior.
  • The downside to this is way above one trillion - This figure is optimistic. If things get ugly, the taxpayers are holding tens, if not hundreds, of trillions of dollars in these "toxic" loans. Oops...
"President George W. Bush, flanked by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, acknowledged that the program will put a "significant amount of taxpayers' money on the line."
Think for a moment. If they are admitting that this will "put a "significant amount of taxpayers' money on the line."", what do you think is really going to happen? This -
"The administration is asking Congress to give it sweeping new powers to execute the plan."
Now where have I heard that before? Hmmmm... 'Give me power and I'll fix it'. Stalin? Nah. Hitler? Couldn't be...

Notice how on the above picture that the bottom of the "Great Depression" didn't come until much later than the intial plunge? The market is reacting like an addict, convulsing with desire for more goods (I.E. - Fiat debt-based liquidity). This will only make the fall that much harder.

Wednesday, September 17, 2008

The Blood Flows

It's pure carnage for any investment/holding company right now. Let's review shall we?

Countrywide, Indymac, Columbian Bank and Trust of Kansas, Integrity Bank, Bear Sterns, Fannie Mae and Freddie Mac fell, Lehman Brothers, Merril Lynch, AIG are falling by the economic sword.

In addition, today Goldman Sachs is down 25% , Washington Mutual is down 10.7%, Morgan Stanley is down 33% and the Dow is down 300+ for the second time this week. Oh and theFDIC is running out of money to "protect" you. Guess you'll be paying yourself to get your money back.
Almost three years ago now, while all the "experts" were claiming there was no end in sight, I posted the following:
I strongly believe this will lead to a panicked sell-a-thon which will flood the market with overpriced housing, driving the prices down to at least pre-bubble levels. This will leave many holding large outstanding debts as much of their investment's value plummets.
Why would they do such a thing? I posted the following a few months before this. While the timing is off, the results are the same.
In order to achieve a Global Union, the current global problem solver, the United States, must be effectively removed from the picture. I believe that this will be accomplished by plunging the American economy dramatically, suddenly and then selling off her assets gradually over the next year ending roughly in June of next year.
The Real Effect
Ladies and gentlemen, this is not going to be pretty. The economy is hanging by a thread now, propped up by Federal debt and misplaced-optimism.

This is going to be difficult for many to follow, but I will do my best to explain how this cycle is going to destroy the economy and make the 30's look like the Promised Land. Right now there are several trends to follow:
  • Iran - We just sold thousands of "bunker busters" to Israel. I wonder what they could use those for? Hmmm... And all this after we swore up and down that we wouldn't be helping Israel at all. There are reports of thousands of tanks on the borders of Afghanistan waiting to go in. (Timeframe: 3 - 6 months)
  • Oil - The price will continue to fall or hold near this level as the "leaders" have sold off their oil at the peak a short time ago. For now, oil is not a factor, but will later play an enormous role when it aggressively retakes the amount that it has lost and then some. This will be the final nail in the coffin as it leaves many unable to afford energy. (Timeframe: 6 - 12 months)
  • Russia -Go read Ezekiel 38. Did I mention they are taking an economic pounding as well?
  • European Union -They will be hit by this economic downswing, but where the US will be ravaged by this downturn, the EU will "weather the storm" precisely because they are the EU. This will lead for calls to imitate them with the North American Union in order to survive. (Timeframe: 1 - 3 years)
The long and short is they are bleeding the real assets out of the United States and passing them into foreign control. Make no mistake, they will bleed this country dry. Savings, checking, 401K, gold, assets, they want it all and will not stop until they get it. The only companies that survive will be those that primarily serve the industrial military complex. Overnight this country will be transformed into the new prison state for the Global Order. Get food, get water, get a gun and get ready to defend yourself.

Edited for appearance and labels on 5/4/2010. Spelling on 10/7/2011