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1) New credit growth falls below interest payments
2) The Fed monetizes debt
3) Government deficit spending exceeds 10% of GDP
4) The dollar goes down while interest rates go up
CM is such a good communicator and educator. Even hard core deflationists like Karl Denninger are basically in agreement with the above.
KD gets away with his no hyperinflation call by asserting that the 5th step won't arrive, that US policy makers aren't suicidal/"that dumb" and will step off the gas as the dollar collapses/interest rates go up. But more and KD is perhaps coming around to the idea that maybe US policymakers might not, or won't until its too late. To me, as a somewhat longer term KD reader, this is quite a telling sign (might even call it a concession?). KD sounds a lot like CM. For example, from 8/24/09
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Nor does the "good news" end here. This Friday, after the market closed (of course) the Obama Administration confessed to what the CBO had said earlier this year: Over the next 10 years the government will add $9 trillion dollars to our public debt, up more than $2 trillion from their previous claims.
Let's be clear about this: This is not a "80%" increase. Oh no, its much worse than that. You see, about 40% of the debt is in fact held in what are called "intergovernment holdings" - that is, the scams known as Social Security and Medicare (the subject of another recent Ticker.) The externally-held debt today totals about $6 trillion dollars, so this "admission" means we're going to try to add 150% to that.
I say "try" because this year's interest payments are likely to total some $400 billion or so, and against a GDP of $13 trillionish (down from the peak) that is roughly 3% of GDP for interest cost. Today.
The sustainability of this level of debt (today) requires that interest rates not rise, for if they do so will the payments. And that's a problem because historically (over the last 100 years or so) every time a nation has gotten to around 6% of GDP for interest payments both its monetary and political systems have imploded. Argentina anyone?
BUT IF WE ACTUALLY ADD 150% TO THAT $6 TRILLION IN DEBT, EVEN IF INTEREST RATES DO NOT RISE, WE WILL EXCEED THIS CRITICAL LEVEL OF INTEREST PAYMENTS BY MORE THAN 50%. INDEED, WE WILL CROSS THE 6% THRESHOLD, BY MY ESTIMATES, SOME TIME IN 2012, AND THAT EVENT HAS A HIGH PROBABILITY OF DESTROYING OUR NATION OUTRIGHT.
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The banksters not only ripped everyone off and got bailed out after doing it by threatening to blow up the economic world BUT THEY ARE STILL RIPPING EVERYONE OFF TODAY and using a small piece of the grift to continue to buy Congress at the same time!
Not a damn thing has changed, except that we are lurching closer and closer to the cliff of national insolvency and both economic and political failure as a nation. The inability to fund the operating expenses of our government is quite possible. Social Security and Medicare have gone into deficit years earlier than expected and these programs have no money - they have only "IOUs" and to turn them back into money Treasury will have to sell more bonds.
But who will buy them? The Chinese? Why? Bernanke is lying about monetizing the debt - in fact he lied under oath - but the currency markets are not fooled.
The dollar is in the toilet and threatening to break all support levels. If it does, it may collapse to as low as 40, which will in turn rocket oil north to $300 or more and gasoline to $10!
If that happens it is too late to stop it and too late to reverse course. What we now know as a middle class will be reduced to sheer destitution - literal destitution.
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We are not on the cusp of recovery, we are on the precipice of disaster. Whether we avert it is an open question but this much is certain - if we wait until external funding disappears it will be too late to prepare and too late to act in furtherance of our nation's interests. When gasoline is $10/gallon as is heating oil the price of food will more than double, heating costs in the northeast will quadruple and millions will either starve, freeze to death or both. At the same time the ability to fund Social Security and Medicare will vanish - at the precise moment when it can't.
The economy cannot survive another commodity shock - Roubini agrees, and he sees the possibility - but he calls the potential cause "speculation."
Nonsense: there is nothing speculative about money printing and intentional currency debasement. This is an intentional act being promulgated by our government for the express purpose of papering over what has been the largest fraud and scam ever run in the history of mankind. The banks are indeed using this "profit opportunity" to buy and stockpile oil along with other commodities via both physical delivery and futures contracts, but this is not speculation - a bet made on an uncertain outcome.
Rather, it is a bet made on a CERTAIN outcome that is being created by the government as a DIRECT CONSEQUENCE of the demand (which was and is being met!) by the very same banksters to legalize the fraud and deceit that got us in this mess in the first place!
On the point of "greenback emissions" Warren Buffett has it right but a prescription to fix what ails us is missing, so I'll supply it: we must detoxify the drunk and lock up the bartenders, extortionists and their accomplices - all of them.
This means the end of "stimulus", it means the end of subsidization of grift and fraud, it means prosecution of those who have scammed throughout the last ten years, it means the cancellation of the so-called "guarantees" for the banking sector and it means a relentless cadre of regulators who go bank-to-bank - literally, to each and every one of them, marking every asset to the market and closing every last insolvent financial institution, no matter how large or small, barring for life from any financial role and prosecuting to the fullest extent of the law any executive in any firm that is found to have fraudulently overstated asset valuations, no matter by how much.
It means biting the bullet and recognizing that we cannot borrow our way to prosperity, nor can we solve a "declined" credit card problem by opening another one - either individually or as a nation.
It means Congress must force The Fed to disgorge every MBS they hold that does not have a full-faith-and-credit guarantee, we must allow real rates to rise in the economy and we must allow housing and other asset prices to contract to where they are supported by the underlying economic activity.
http://market-ticker.denninger.net/a...t-Of-Rope.html
I generally agree with KD as to what needs to happen, and his over the top writing amuses and entertains me. But he's silly to think what needs to happen will happen. It won't, so we get a collapse. I think KD sees the writing on the wall, he just doesn't want to believe it. He basically agrees with Chris Martenson.
We live in bizarre times.
Go CM.
