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The Catalysts Start to Catalyze

For a couple of years now it’s been clear that the world was about to fall apart, with the only question being which local failure turns out to be the catalyst for a systemic breakdown. So many things were on the verge of blowing up…yet none of them did. The world’s governments have engaged in a heroic period of “extend and pretend” that has kept the system together longer than seemed possible.

But now the game seems to be ending. It’s still not clear which bomb will go off first, but a bunch of fuses have gotten very short indeed. Here’s a survey of old crises that are finally coming to a head:

California and Illinois
These two U.S. states are bankrupt by any reasonable definition, but are somehow managing to pay most of their bills. Their political classes are dominated by public sector unions, so neither has tried the tough medicine of places like Wisconsin or New Jersey. Instead, they’ve used a combination of much higher taxes (Illinois) and accounting gimmicks as a means to much higher taxes (California) to delay the inevitable reckoning.

Both are reaping what they’ve sown. Illinois, after raising corporate and income taxes, now faces an exodus of businesses to more friendly climes like Indiana and Texas. The governor is doling out tax breaks to keep major employers, a practice that 1) sends those new taxes right back out the door and 2) leads every other company to demand the same treatment. Latest on the list is the Chicago Mercantile Exchange, the state’s biggest financial institution. No end in sight but bankruptcy.

California desperately wants to raise taxes but can’t get an increase through the legislature. Thanks to a recently passed referendum, lawmakers don’t get paid unless they produce a budget, so they’ll do so pretty soon. But without more tax revenues it will fill the gaping deficit with gimmicks like delayed payments. No one will be fooled. The only question now is whether there’s room in Texas for all the California companies that will soon be leaving. Again, no end in sight but bankruptcy. Short munis and pretty much anything dependent on consumer spending, since the resulting public sector layoffs will devastate demand for cars and other luxuries.

The Middle East
As country after country blows up, the U.S. finds itself sucked into increasing numbers of “humanitarian” military operations that are, of course, really about protecting the flow of oil. It won’t work. An oil crisis of some sort is coming. Buy energy stocks, from oil to clean tech, short everything else.

The U.S. budget
With America borrowing, in effect, its entire military budget from China, unemployment headed back to double digits even by Washington’s fraudulent accounting, and neither party willing to really address the military/entitlements complex, the debt will keep piling up until it can’t. The rating agencies are now, belatedly, threatening the US AAA rating, the loss of which would either drive interest rates back to their historical average of 5%-6% (sending interest costs out of control) or force the Fed to start buying all the bonds issued by Treasury (sending the money supply out of control). Result: imminent currency crisis. Buy gold and silver, short Treasuries.

After seeming to stabilize for a few months, housing is tanking again. Sales and prices are down, underwater mortgages are surging, home builder confidence is at new lows, and poor innocent Bank of America is stuck with trillions of bad paper that it’s not accounting for. As home prices accelerate to the downside, look for huge bank write-downs, massive stock volatility, and maybe another bailout. Short anything in the financial sector.

Ah, the euro. Greece is imploding…riots in the street, the government is falling, and the Bundesbank and ECB can’t agree on how to handle the coming default. This one is coming to a head very soon, to be followed by the other PIIGS countries — assuming there’s still a Eurozone to try to save. Short the European banks with the most Greek paper, load up on precious metals.

Does it matter which blows up first?
Not any more. They’re all so close that just their prospect is enough to send capital running for cover. It’s a nasty year no matter what. But then comes the next stimulus plan, which complicates the whole “short the world” thesis. The markets have been consistently fooled by this kind of thing, and there’s no reason to believe that QE3 won’t ignite another rally in risk assets. So monitor those shorts and be ready to close them out when CNBC starts hinting at a big pending announcement from Bernanke or Geithner. Shift the proceeds into precious metals, which will absolutely rocket when the next wave of fake liquidity hits the market.

51 thoughts on "The Catalysts Start to Catalyze"

  1. What is the chance that there really is gold in Fort Knox and this will be dumped into circulation or used to issue new currency and resume the gold standard? Wouldn’t that crater the precious metals market? I know Ron Paul is suspicious the gold is already gone. This occurred before in the 70’s and there was a big conspiracy theory at that time. A Congressional delegate actually did an onsite inspection at that time and found the depository to be intact.

  2. It is fractionalized (paper) gold that will be the final endgame. Yes, the dollar is in fact a derivative. It is “money as debt” derived from “money as wealth”. You can bail out debt with more paper debt as fast as the Nank can press the “print” button, but as the physical gold reserves within the (bullion banking) system are all moved into allocated accounts, at some point the remaining claims will simply have to be cash-settled.

    A it becomes clear that paper debt can never bid for gold, and a medium sized holder of physical runs out of JPM or Barclays screaming “THERE’S NO GOLD” then the panic run of ages unfolds.

    For 14 years that run, (after LBMA’s first published daily flow report) was so carefully managed that huge volumes have been gradually shifting to where the chess pieces are now aligned, and the run-up in dollar price has been kept gradual and steady by the paper market curtain that hides volume flow.

    The central banks have bee told by the BIS to stop supporting LBMA and the paper gold markets (Forex, CMC, Oanda). Dodd Frank my arse. You cannot bail-out real gold with paper.

  3. Derivatives are called “insurance” and “spreading the risk.” I want to know why Insurance can be purchased by entities with no INSURABLE INTEREST IN THE CONTRACT/INSTRUMENT ETC. Declare all Swaps null and void before it is too late….

  4. I know it sounds arcane, but why don’t we simply sell California and Illinois to China in exchange for the U S Debt China currently carries at more or less -0- per cent interest? I am near certain they (the Chinese) would “gift it back” in five years or less to the United Socialist States of America (assuming that Mr. Obama is by that time Generalisimo Obama, of course).

    Next, let’s declare the U.S. Congress obsolete and acknowlege our nation as being no longer a “Republic” but an “Oligarchy (sorry, no spell check on this machine) ” = plain and simple that it already is, this would simply confirm the fact. Then ya’ll could draw a new Constitution without any authority to issue or print any kind of “fiat” currency, with everything based instead upon precious metal backed electronic currency of the new world currency reserve called the “Bancor.”

    But before doing anything like this, how about asking every American to chip in one dollar to the “Tom Blair Survival Fund,” and allow me to move to anyplace on planet earth where I might live out the rest of my days in “peace and safety.”

    Or should I first run for federal political office, eventually get elected and then flash a “full moon” picture of myself across the Internet and allow it to “go viral” and around the world…then retire and find a place somewhere on planet earth where I might live out the rest of my days in “peace and safety”?

    Am I nuts? Hmmm, maybe…but I’m also an American taxpayer, and I’m mad as hell and I’m not going to take it anymore! 🙂

    At least food for thought, is it not?

    Keep your powder dry…it is going to get really vicious and will happen far sooner than most Americans today think it can.

    Respectfully submitted,

    Thomas Avery Blair, EA

  5. Instead of helping to finance a small farm for a share of the harvest, why not package a bunch of small farms together and sell options on the harvest. The buyers of the options could then buy insurance against a major crop failure, etc., etc., etc.

  6. MREs should be part of a food plan that includes multiple types of food. Ensure that MREs do not freeze, as the expansion in the entree packages within the sealed plastic brown container will seperate, ever so slightly, and you will have food rot. ALWAYS smell the entree before consuming. You will NOT be able to tell if your MREs are bad until you open the brown plastic ‘bag’, and then open the entree pouch and smell it…I am willing to bet many of the MREs that have been sold over the past few years were improperly stored and will have bad main meals. Keep your food diversified, and keep real organic seeds on hand.

    1. You might also want to stock up on some ‘freeze-dried’, ready-to-eat food packets. Shelf life is 25 years. Good source is ‘patriotfood.com’, but they’re 3 months behind in shipping orders. All you do is add water!

      1. I do not believe that MRE’s are a particularly good source of long term storage emergency food. It is better to get # 10 cans filled with freeze dried food. These are good for 20-30 years so they are a better investment to my mind.

  7. Ahh…You forgot to add….

    Massive natural disasters including droughts (US, China, Europe, Africa); floods (US, China, India); fires (US); and the terrible Japanese earthquake as well as the Christchurch one.

    Food scarcity from a combination of growing demand, lack of additional agriculutrual land, fertilizer and the above natural disasters. People get ugly when they get hungry which leads to less production, which creates less food and we all circle the drain.

    1. Today, two teenagers, skateboards in hand, asked my wife and I for money. Their story was “no food at home.” She questioned them, decided to believe them and handed one a five dollar bill. They walked straight across a parking lot and into a Del Taco.

      At some point they stop asking. What then?

  8. Franchise Tax Board, California’s IRS has recently hired and unleashed 400 new auditors upon The People. Apparently, they’re not leaving a stone unturned. A friend with a little 9 table diner generates $2,500 per month in sales tax revenues. Nevermind that her transactions are virtually all electronic. Nope they smell money so she just got her audit letter.

  9. Guy Guignol, go to coin shows and ask around for someone who sells silver bars. I’ve got almost as much silver as I do MRE’s. I’m prepared for WWIII.

  10. REALLY??? You “have to wonder”??? Brother, unless you have three years of MRE’s (meals ready to eat) like I do, you’re going to starve to death. If you’re smart enough to do that, make sure you have at least three different extremely well-hidden, secret caches (not one) and enough bullets to take on Seal team 6, cuz when they’re hungry they’ll go get it like they got Osama.

  11. Wondering if anyone has any suggestions for reputable gold/silver deals from whom to purchase. Thanks.

    1. I’ve purchased most of my gold eagles from ‘coloradogold.com’ Nice people, good prices, and when you want to sell a few, they don’t charge you a commission on what you’ve purchased from them…

      Don’t forget the freeze-dried food and plenty of ‘lead’. Even if you never have to use the ‘lead’, it will fetch a healthy price if you want to sell some!
      Best source for that is ‘midwestammunication.com’ I’ve used them for years!

    2. Hi. The best prices I have found is Tulving. Free shipping, insurance. The lowest spread between buying and selling. Only problem might be the quantity that you have to buy.

      For lower quantities check CNI California Numismatic, but prices are higher


  12. Re the derivatives issue
    I’ve been watching this mess for a long time. The thing that interests me is the continual “it’s not my fault” that permeates comments sections. Of course derivatives are part of the problem and there’s far too much evidence to prove they are. It’s way too simplistic to state the definition of the basic concept when we all know, very well, things went way, way beyond the basic concept. Everybody in the country played and everybody knew so don’t hand me the it’s the bankers or the government or the regulators or the or the or the.

    I, often, think of my younger years and career as a drunk. Like all the deniers, I would say there’s nothing wrong with a couple of drinks. Absolutely true and I stuck with it for a long time. But I wasn’t stopping at a couple of drinks. I couldn’t get enough drinks. There’s nothing wrong with A derivative. The problem was the system couldn’t get enough of them. The proof is very simple. If there’s nothing wrong with the way derivatives are being used, why is the financial system fighting regulation? If there was nothing wrong with my drinking, why was I fighting quiting? That oughta bring on the rationalizations!!

    There’s nothing wrong with my “derivatives” check book unless I am writing bad checks all over the place. When I stop seeing endless excuses for our out of control behavior and start hearing “I’m part of the problem and here’s how”, I’ll know we’re on the road back. It wasn’t my wife, my boss, my parents, the economy, etc, I’m drinking and had drunk way too much. We all used derivatives way, way too much. The party’s over!! Welcome to the hangover.

    1. It’s not the derivatives. It’s what they’re based upon and whether that basis has been corrupted. Read my post.

  13. I think our president knew it along…I mean here is what he quoted back in 2006 when the national debt was at about $8Trillion.

    Barack Obama quoted this…” The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies…

    Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”

    – Sen. Barack Obama (D-IL), March 20, 2006

  14. The demand for a form of money will never disappear. True, the amount of food that is available will decrease and demand will grow hugely. At the same time, the demand for money will also grow. Gold and Silver will always be money, just as they have been throughout human history. nobodyatall has it backward, you will get 50 cans of beans for an ounce of silver. The number of people eating will drop until there is a new equilibrium. That is where keeping your silver will get more difficult, as people with nothing to lose, will lose it.

  15. really a good point. PMs mite protect the wealth of the super rich who may very well continue to have uninterrupted access to food, etc. come what may. but for the rest of us, it probably makes more sense to invest in some means of food production / self sufficiency. it’s a little tough to contemplate taking this step, but if we don’t now, when will we?

  16. Since there seems to be a “derivatives” thread here, I thought I’d throw in my 2c.

    There is nothing wrong with derivatives, financial or otherwise, and for the most part derivatives are quite simple even when stacked up. Unless you own gold for the sake of owning gold, gold currency is a derivative of the goods and services you may wish to exchange for it. So is silver. To alleviate the problems associated with using gold and silver directly, the US dollar has at various times served as an excellent derivative of gold and silver. The dollar today is a rather poor and direct derivative of the goods and services you may wish to exchange for it. The checks in your checkbook are derivatives of dollars. The credit line on your credit card or home equity loan is a derivative of your collateral. And so on.

    The purpose of derivatives is to “lubricate” an economy, making possible transactions that would otherwise be too inefficient to take place. Each of these transactions represents some person or group achieving a desired goal. It is ridiculous to bash the entire notion of derivatives just because there are some bad ones, just as it would be silly to bash the whole notion of having a car just because some cars don’t work well and turn out to be poor investments.

    In particular the Collateralized Mortgage Obligation (CMO) has been the subject of much undeserved rancor due to its involvement in the housing collapse. I am about to buy a house and I plan to finance the purchase with a mortgage. If it were not for CMOs, which bundle mortgage obligations like mine and match them against similarly bundled pools of lenders’ assets, I almost certainly couldn’t finance this house. Yes there might be some prodigious saver in China who might be willing to personally make me my loan, but my overhead in finding him/her would make the whole transaction prohibitive, as would the lender’s risk in making a direct loan to me. The CMO makes possible the efficient low-risk lending of pooled assets to corresponding debt pools.

    Despite ridiculous propaganda to the contrary, there is nothing complicated about a CMO. I know because I implemented the software transactions to manage CMOs for a hedge fund administrator. Some would have us believe that the supposed complexity of some derivatives is itself the basis of our financial collapse. Preposterous. And one of the earlier posters here would have us believe that bankers are like little children playing with high explosives, desiring nothing more than to hide their activities from responsible adults (who all seem to have government jobs) while they blow themselves up.

    So what is it that gave CMOs a bad name, and how exactly did bankers get wrapped up in this? Well .. just as vegetables irrigated with poisoned well water are likely to poison you, so too are derivatives that are based on poisonous fiscal policy. The real fault was with the mortgages underlying the CMOs and the lack of oversight BY THE BANKERS (as opposed to government regulators) in assembling and trading them. So now the question becomes: why would bankers be so remiss as to fail to check the quality of the mortgages comprising their own CMOs?

    The answer is too long to print here, but basically we’ve had 80 years of government policy designed expressly to encourage overvaluation and overinvestment in housing, to guarantee bankers against any possible losses in the mortgage market, and to punish bankers who invest prudently. If you have an hour to spare and truly want the details, watch a Fox News special called “Saving Our Economy: What’s Next” on hulu.com. It is the most thorough and concise coverage of this matter I have ever seen, and it correctly names many of the perpetrators in this mess.

    Why all the bad press about derivatives? Well the average American isn’t educated enough to understand them, and your friendly elected representative is in desperate need for scapegoats on which he/she can offload his/her culpability. But the real culprit is the American public, which keeps voting for Santa Claus in the belief that every day is Christmas and that the fraudulent fiscal policy that our government keeps implementing at our behest is going to make us all rich someday.

    1. Interesting argument, but I’ll go with Mark C. on “derivatives”. Everything is fine, up to a point. When it gets to the point of not merely speculation on speculation, but speculation on speculation on speculation (CDS’s), then things have gone too far. And there’s no transparency here; just an opaque three-dimensional web of debt and speculation on debt that is going to rip apart…very suddenly. Anyway, good luck with your mortgage.

  17. I wonder what a guy can buy with P.M.s when there is nothing being produced? A can of Pork & Beans will take 50 ounces of silver if you want to eat otherwise your screwed. Hell, I can’t afford beans NOW!!

  18. Thanks for the cogent derivatives explanation. So it’s just a legalized gambling contract exempt from all state insurance regulations like it says in the preamble to The. Commodity Futures Modernisation Whatchamacallit Act. Yes. Unregulated, unreported. But these Bankers are not dumb. Surely they keep a book of their derivative obligations holdings so all the bets more or less balance out, right? Uh, yeah, just like Lehman’s CMO factories (no one ever defaults in institutions of this size and scale, just as the value of housing always rises). But me thinks not. Ask those Goldman bastards. When these babies come whipping down Wall Street, it will be the Bernank’s turn to throw up in his trash can and appear white faced with President Alfred E Newman to propose the proper injections. Yes, the proper injections–to avert a global catastrophe and collapse of the world financial system as we know it? Then men will plead with God to let them die, finacially speaking. Buy a farm now with it’s own water , guns and ammo, a stash of dried food, some seed and livestock. And, oh yes, some gold and siver coins. Get to know your neighbors. Oh. Look, they have a sniper tower. We don’t have to build one of our own.

    1. “buy a farm…” good advice. except now you’ll need 10 years or so to figure out what in the hell to do with it! i know. i’ve been at it for nearly 15 years and it’s still a money pit. a better plan may be to find someone struggling with a small farm and offer to help capitalize the thing…in exchange for a piece of the production.

      1. “you’ll need 10 years or so to figure out what in the hell to do with it!”

        Ain’t that the truth, lol. My family has some land in Appalachia that is mainly wooded hillsides. I’ve been trying to figure out how to make money out of it for years.

        On the other hand, gardening has a much shorter learning curve. Just had a bowl full of delicious, home grown strawberries. Also, watered the strawberries with water from a rain barrel.

  19. ya know, I watched the movie “The Matrix” last night; very apropos. We’ve lived in the ‘financial matrix world’ our entire lives; most don’t even realize it’s all a big fake. Just like in the movie, most just accept it as real. This is the real essence of the current financial problems of the world: reality is attempting to intrude into the fake world set up by the bankers / Gov’t. And now reality is beginning to win. People will be forced to realize that ‘the matrix world’ of unbacked fiat currency that can be created with an enter keystroke and backed by nothing is unsustainable. I hope the realization hits home soon……

  20. “Shift the proceeds into precious metals, which will absolutely rocket when the next wave of fake liquidity hits the market.”

    There is an itchy trigger finger amongst the hard asset types (and anyone with assets worth protecting), on that very theme right there, JR. Right now, they’re ‘dollar cost averaging’ into this mess as JT, Yourself and others have wisely suggested for a time now.

    On any solid news that any kind of new stimulus (or euphemism thereof) is on the way, this thing is gonna do a Jim Sinclair… You can almost feel the anticipation. The Chairman knows this too, but he’s content to let the market come begging to him first. Thus, he gets a double; Ability to again lift the spirits of the market, and exoneration of his past actions to ‘stimulate’ the market.

    Of course it’s perverse – but what did you expect? We don’t live in reality anymore, nor have we for years. Buy some 1/10th oz. Eagles and enjoy the surrealism –

  21. This article is a great segue to one of my favorite topics: financial derivatives. One of my predictions for 2011 was that ‘everybody will come to learn about the derivatives problem’, so I’m taking this opportunity to provide a little primer to those who may be interested or would like to be stay ahead of the learning curve.

    This may seem presumptuous on my part but you will never get a clear understanding of them from the official media because they represent such a toxic subject with “unthinkable” implications that there really isn’t much to say about them on national TV other than “AAAHHHH!”. Just as evidence for a dead star or black hole is only indirect in that its existence is implied by the effects it has on visible astronomical bodies, financial derivatives are never discussed directly, and yet it is their powerful presence in the dark matter of the global financial universe that explains the odd and seemingly inexplicable events that we have all witnessed since 2008, as JR alludes to.

    As complicated as some people have made them sound, a financial derivative is basically pretty simple. It is a financial product or instrument that is DERIVED, or based upon, something else. Depending upon your point of view they could be considered a means of gambling, or leverage, or insurance. You could buy, say, a “derivative contract” that would pay you the par value of a bond if the bond issuer defaults on the bond. In that example, it would be like buying a put option on a bond except that it is based not on a time frame nor a price level but rather an event.

    As you might imagine there can be, and literally are, thousands of different kinds of financial derivatives in existence today, limited only by the creative efforts of Wall Street nerds. It should be no surprise then that there are derivative products that are interconnected with other derivatives that has now formed an impenetrable web of complexity that no one fully understands. (That’s why Warren Buffet called them “financial instruments of mass destruction”, but that was back in the 90’s when people could understand them.) Watch out.

    Nevertheless, that is pretty boring stuff by most standards, I admit, so you may be wondering what all the intrigue is about. Well, there are two more facts that may whet your interest a little more. The first one is that financial derivatives are UNregulated. I don’t mean to imply that if the SEC were on the qui vive then all would be well, I’m saying that because they are unregulated the market for them is not transparent. That means neither buyers nor sellers really know what other derivative contracts exist, how much money is on them, or how many more or kinds of derivatives may be created that could affect those already in existence. Imagine that situation for a moment, and then consider that anywhere from $600 trillion to $1,000 trillion are in play at this time. That’s about ten to twenty times world GDP, but no one knows for sure.

    But why so much, you ask? If they’re really just complicated options why are they so popular? Keep reading.

    The second little detail about derivatives, even less understood, is that they have been used to successfully hide liabilities from government regulatory agencies. That is why derivatives became so popular, and still are. Believe it or not (that phrase doesn’t have the same impact any more does it?) “everybody” accepted financial statements that were white-washed with derivatives arguably used has hedges to effectively (or mathematically, really) decrease balance sheet liabilities. That’s how the pre-2008 off-balance-sheet transactions by the banks got so big, and how Greece got into the EU and managed to stay there until…

    I mention Greece not just they’re my personal pick for “the fuse that burned old Europe down…” but also because they’re hanging on to the financial derivatives lynch pin for dear life. (“Gimme good terms or I’ll default!”) Some people like to point out that since Greece represents less than 2% of the Eurozone’s GDP that all the angst about its debt problems are overblown. But that’s only superficially true. The real problem is that if Greece defaults then there will be people and institutions from there to the other side of the globe sucking wind at both ends. Not that I can say that for sure, nor can anyone else one way or the other, since no one knows what’s out there, but just about everyone involved in the euro circus fears getting reamed new one, for whatever that’s worth. That explains why otherwise bombastic beurocrats and politicians are scrambling to come up with some new term for “default”, however embarrassing.

    That derivative example above is a real class of derivatives held by banks all over Europe with many billions of dollars invested in them. And then there are other derivatives that are undoubtedly based upon some performance or another of those same institutions. If Greece defaults on their bonds then all hell breaks loose, depending of course on the rule of law being upheld. “What does default really mean?” Their answer could set a precedent for how the global debt problem plays out.

    Getting back to the point of JR’s article, financial derivatives are why it really doesn’t matter which domino falls first. They’re all connected.

    1. I just read that European bank’s exposure to Greece is 80% direct, 20% credit default swaps. For US banks, its just the opposite. The same foolishness that brought AIG to the brink of collapse, and the rest of Wall Street along with it had AIG not been essentially taken over by the Fed, has continued uninterrupted.

    2. Hey Bruce C.,

      The argument that derivatives can simply just unwind is specious because eventually the loss is accounted for somewhere? If so, what of the offsetting gain, the other side of the derivative?

      The part of this theory I don’t get is why aren’t derivative transactions a wash?

      All the best,

      1. Brad-Let’s say you hold $20 billion in Greek debt. You buy some sort of derivative insurance that pays you that amount in the event of a default. So let’s walk through this:
        a. Greece defaults.
        b. You ask for your $20 billion from the derivative writer
        c. They attempt to raise the $20 billion they owe you by cashing in some winners they have elsewhere (they aren’t going to have $20 billion gather dust, just for you)
        d. Instead of raising $20 billion, they just push other entities into default
        e. Grab your ankles

        Presumably, The Bernank and ‘tricky’ Trichet would intervene at some point and make everybody whole, with freshly printed fiat. But if they are gonna do that, why don’t they just go ahead and print enough now to make everybody whole and let’s start over with a debt free world? That is the eventual outcome anyway. Creditors like china won’t like it, but surely they realize that their fiat holdings aren’t worth the paper they are printed on.

        1. I get that Jason. It’s the AIG scenario. Essentially, what the Central Banks did with Greece and AIG is provide a form of “debtor-in-possession” financing as was done for GM. You probably heard ECB announce a $170b bailout for Greece’ bankers.

          I guess we know it’s Greece’ bondholders and not Greece that is getting bailed out. With the debt restructured there is no default. Everybody is made whole.

          I absolutely agree with you in principle that this policy of privatizing profits and socializing losses is fraught with peril. The arithmetic doesn’t work. We’re on the same page here Jason.

          In this game JR started of trying to identify the “canary in the mine” I suspect oil prices might be that bird.

      2. Because of the cost of money. These transactions are being made with borrowed money ….it is leveraged money. When you use / borrow depositor’s monies and then leverage it many times thru other transactions then you accumulate a cost of money which is not obvious on the surface. Remember, ….

        “TANSTAFL There Ain’t No Such Thing As A Free Lunch” ..Robert A. Heinlein

        If you unwide, fail to award to the winner, any transaction then someone has to eat the cost of money.

  22. Yesterday Jesse (of Jesse’s Cafe Americain) wrote: “Someone with credibility suggested to me yesterday that a panic liquidation in all assets may be in the cards in the minds of the Wall Street banks and the monied class.”

    He seems to have contacts in high places, and certainly isn’t the sort to exaggerate, so I found that interesting. Any of the above financial crises could be blamed for setting off the conflagration.

  23. I really was hoping we avoided a massive great depression, but when we see entire countries lose the ability to borrow, you have to wonder.. Credit has been far too abused and there is only one ending to that story, default, for all of us, and it will take too many years to recover what will be lost. Even if you invest in metals, there will not be an economy to support any of us, The best route for someone like me is a $40000 dollar cup of coffee , provided i can earn the same so i can pay off my mortgage in a week…..
    Any body watching saw this coming in the 90s , but that does not mean we could have ever saved enough to ride it out…

    1. save enough to ride it out, no…but seeing it coming in the 90s certainly gave us time enough to make reasonable preparations. i’m amazed that all those who now claim to have predicted the current pinch apparently chose to sit back and do nothing.

    2. I was on the hook to my wife after predicting six or seven years ago that there would be a mortgage/credit crises, outsized Keynesian response and eventual Fed-induced hyperinflation. Once proven right, the question became “So what are you doing about it?” We bought 5 acres, raised a flock of chickens and planted a big garden. $40000 bell pepper, anyone?

      Even knowing it was coming, it is surreal to watch it play out. This is history being written.

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