Monday, December 28, 2009

On the Verge of Massive Deflationary Implosion

The government's stark acknowledgment the Fannie and Freddie have collapsed is a critical point in our national history. These are the two conduits from which a mountain of flimsy credit was once spawned. Without them, the entire pyramid scheme reverses and falls. The truth is, it has already failed, the chicken's head is in the bucket.

The world economy is on the brink. At any time, C, BAC, JPM, WFC, USB, and GS could fail, and ALL of them will fail. It is a matter of when, not if, the entire global banking system crumbles. That "when" is closer than most people want to believe.

(That was a more interesting prediction when I first made it in 2007, before they had all gone bankrupt once already.)


  1. another take on this might be that they're gearing up to do the exact opposite & increase the amount of flimsy lending they do:

    The companies’ needs would be unlikely to exceed the prior limits “even in a stress case scenario,” Bose George and Jade Rahmani, the New York-based analysts, wrote in a report today.

    “Given this outlook, we believe that the main driver of this significant change is the flexibility it gives the government to take more aggressive action to support the housing market, including potentially going down the road of allowing some form of principal writedown,” the analysts wrote.

  2. "another take on this might be that they're gearing up to do the exact opposite & increase the amount of flimsy lending they do:"

    Well, if they were able to increase flimsy lending they would not have collapsed. The essential element to these two mega failures is the lack of dumb borrowers, there are plenty of dumb lenders.

  3. FDR: I'm a little confused about something.

    In a previous message elsewhere, you mentioned that the difference between the U.S. dollar and other currencies that are no longer traded is that in the face of dwindling supply, the demand for the U.S. dollar will remain strong.

    My question is: since the U.S. dollar is now a fiat currency, how can the supply remain low in the face of strong demand? If there's strong demand for a currency, doesn't that imply willingness on the part of those who demand the currency to borrow it? Wouldn't that set up an inflationary scenario?

    If the supply remains low as a result of the demand for the currency remaining low, wouldn't that lead to the dollar disappearing (and becoming rare like the Weimar Mark) altogether, thus bringing anyone who holds onto dollars to financial ruin?

    If the U.S. consumer is knocked out of the game, which is what would happen in the event of a second depression, what incentive would anyone in the rest of the world have for using the dollar to trade goods and services instead of some other fiat currency like the Euro?

    The bottom line here is that I don't see how there is any scenario left on the table where there is significant upside to holding onto dollars except a "normal" recession, where price deflation occurs as a result of a temporary drop in the demand for goods and services. Few here agree we are in such a situation (I'm in agreement with most here that our situation is much more dire than a "normal" recession).

    So in the face of all of the above, what are your reasons for remaining bullish on the dollar?

  4. FDR, What banks do you see failing first? It's hard to believe that GS will fail as they are the "house" and the house always wins.

  5. "FDR, What banks do you see failing first? It's hard to believe that GS will fail as they are the "house" and the house always wins."

    It's impossible to say, but with (pumped up) D- ratings (and as non-NY banks, i.e. the primary targets for elimination by the private, NY Federal Reserve banking cartel) Citi and BofA are certainly high on the list.

    The FDIC will try to avoid that, since they have a negative insurance balance and it will require about $6T to repay depositors whose money has been speculated-away by those two banks, alone.

    Why is it hard to imagine GS failing? They've already gone bankrupt once. They resorted to stealing $320B in tax payer cash via the AIG bailout and their own. Even after that heist, their stock is in free fall.

    It was hard to imagine LEH, BSC, and GS failing when I first forecast it in mid-2007, I'll grant you that. To me it would be truly amazing if they don't declare bankruptcy a second time, and fairly soon.


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