Monday, June 11, 2012

Greece Planning Emergency Exit Capital Controls

Longtime readers remember the following from the 2009 NY predictions -
Think of it as a game of musical chairs where there are 300 million players and only a million chairs and the leader is reaching for the volume knob and if you lose, you lose everything you own.
Over the course of that post, I laid out the reasoning why 2010 would be a pivotal year in people's understanding that this was no ordinary recession. I went further in stating that 2011 would be substantially worse. To that extent, we present Vox's column from today -
Although Paul Krugman and a few other mainstream economists are finally beginning to admit that the U.S. economy is not only in a depression, but has been in a depression for some time now, their neo-Keynesian models, which are entirely quantitative, still do not permit them to understand how or why that is the case. With their singular focus on gross domestic product, or GDP, they completely fail to even try to understand how qualitative changes in outstanding credit market debt have a significant effect on the economy.

According to the Bureau of Economic Analysis, or BEA, there has been just over $1 trillion in nominal economic growth since the second quarter of 2008, when the current economic crisis began – $1,066 billion to be precise. This is about 40 percent of the $2,564 billion of the economic growth that took place during the 15 quarters from 2004 to 2008 that preceded that period, which explains why the financial media has been describing the last four years as a slow economic recovery. There is GDP growth, but it is less than half what it had recently been; therefore, things are getting better. They’re just not getting better as quickly as everyone would like.

So, why do things feel so much worse than the economists are telling us they are? Because, due to the aggressive actions of the federal government, which doubled its outstanding debt in the last four years alone, there has been a significant qualitative change in the economy that does not show up in the quantitative measures.
How did we get here? Denninger explains this incredibly succinctly -  "Government cannot spend more than it takes in through taxation." Quite frankly, the government has turned into an uncle money bags which continually uses it's credit card to BUY VOTES. It doesn't MATTER what you want if you cannot pay for it because you will be dead soon after you get it.

It is to this extent that I penned the following, in September, of 2008, BEFORE THE CRISIS -
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.
Got that? The banksters created fraudulent 'monies' via credit emission that acted as a naked short against your purchasing power. They then created fraudulent derivatives that detonated, taking much of the 'economy' with it. After gouging you twice at that point, they then insisted that you via your tax dollars, bail them out for the insanity they created. And now, they're going to take whatever is left, because it 'belongs' to them -
European finance officials have discussed as a worst-case scenario limiting the size of withdrawals from ATM machines, imposing border checks and introducing capital controls in at least Greece should Athens decide to leave the euro.
Denninger rightly brings up Creditanstalt in this scenario as it reflects exactly the sentiment I was referring to back in Sept. of 2008 when I was comparing this downturn to THE GREAT DEPRESSION. Coincidentally, Vox gives us a good idea of just the amount of pain we have yet to go through -
In “The Return of the Great Depression,” published in 2009, I wrote that the debt/GDP ratio would have to fall from 3.75 to 1.5 before long-term economic growth could be expected to begin again. Thanks to the determined efforts of the Bush and Obama administrations to prevent that ratio from falling, to date it has only declined to 3.48. This suggests that we are presently only about one-tenth of the way through the Great Depression 2.0.
Got that? This is only 10% of the way finished and here comes the executioner's axe my friends...

Denninger is kind enough to draw attention to the smoking gun -
The Federal Reserve’s detailed survey of consumer finances showed families’ median wealth plunged from $126,400 in 2007 to $77,300 in 2010 — a 39 percent decline. That put them on par with median wealth in 1992.
Here's the problem though. As I keep continually pointing out, a large amount of that supposed 'wealth' was illusory as it was never actually there to begin with.In typical cowboy fashion, Americans were crowing about something that was never there. Think of it as a teen renting a Ferrari to land a hot model girlfriend, sure buddy, you got some cool things right now, but I don't look forward to the bill that will be coming in a month. (That and the lawsuit that your girlfriend turned wife hits you with after she figures out you've been lying to her.)

But we can't stop there, no, no,no.... We return to the earlier stat that Vox provided in which he stated that we are only 10% done with this correction. Let's assume that this is only half true and we're only looking at another 50% of correction. Using some horrible math, we come to the understanding that household wealth will decline a total of 240% by the time this is all finished.

Not possible you say? Well, we do have to honor our debts now don't we? And you need to work, to pay your portion off, right? Well, we just so happen to have these nifty little debtors camps that we're setting up until you get straight with the State... Of course, there is the trivial matter of interest...compounding interest...

No comments: