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2012 – The year of living dangerously

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by Jim Quinn
of The Burning Platform
Posted on 8th January 2012 

http://www.theburningplatform.com/?p=27063

“In retrospect, the spark might seem as ominous as a financial crash, as ordinary as a national election, or as trivial as a Tea Party. The catalyst will unfold according to a basic Crisis dynamic that underlies all of these scenarios: An initial spark will trigger a chain reaction of unyielding responses and further emergencies. The core elements of these scenarios (debt, civic decay, global disorder) will matter more than the details, which the catalyst will juxtapose and connect in some unknowable way. If foreign societies are also entering a Fourth Turning, this could accelerate the chain reaction. At home and abroad, these events will reflect the tearing of the civic fabric at points of extreme vulnerability –  problem areas where America will have neglected, denied, or delayed needed action.” – Strauss & Howe – The Fourth Turning – 1997

IN DECEMBER 2010 I WROTE AN ARTICLE CALLED Will 2012 Be as Critical as 1860?, THAT PONDERED WHAT MIGHT HAPPEN WITH THE 2012 presidential election and the possible scenarios that might play out based on that election. Well, 2012 has arrived and every blogger and mainstream media pundit is making their predictions for 2012. The benefit of delaying my predictions until the first week of 2012 is that I’ve been able to read the wise ponderings of Mike Shedlock, Jesse, Karl Denninger, and some other brilliant truth seeking analysts regarding what might happen during 2012. The passage above from Strauss & Howe was written fifteen years ago and captured the essence of what has happened since 2007 and what will drive all the events over the next decade. Predicting specific events is a futile human endeavour. The world is so complex and individual human beings so impulsive and driven by emotion, that the possible number of particular outcomes is almost infinite.

But, as Strauss and Howe point out, the core elements that created this Crisis and the reaction of generational cohorts to the implications of debt, civic decay and global disorder will drive all the events that will occur in 2012 and for as far as the eye can see. Linear thinkers in mega-corporations, mainstream media and Washington D.C. focus on retaining the status quo, their power and their wealth. They believe an economic recovery can be manufactured through monetary manipulation and Keynesian borrowing and spending. They are blind to the fact that history is cyclical, not linear. In order to have an understanding of what could happen in the coming year, it is essential to keep the big picture in focus. As we enter the fifth year of this twenty year Crisis period, there is absolutely no chance that 2012 will see an improvement in our economy, political atmosphere or world situation. Fourth Turnings never de-intensify. They exhaust themselves after years of chaos, conflict and turmoil. I can guarantee you that 2012 will see increased mayhem, riots, violent protests, recessions, bear markets, and a presidential election that will confound the establishment. All the episodes which will occur in 2012 will have at their core one of the three elements described by Strauss & Howe in 1997: Debt, Civic Decay, or Global Disorder.

Debt – On the Road to Serfdom

The world is awash in debt. Everyone is focused on the PIIGS with their debt to GDP ratios exceeding the Rogoff & Reinhart’s 90% point of no return. But, the supposedly fiscally responsible countries like Germany, France, U.K., and the U.S. have already breached the 90% level. Japan is off the charts, with debt exceeding 200% of GDP. These figures are just for the official government debt. If countries were required to report their debt like a corporation, their unfunded entitlement promises to future generations are four to six times more than their official government debt.

Any critical thinking person can look at the chart above and realize that creating more debt out of thin air to solve a debt problem is foolish, dangerous, and self serving to only bankers and politicians. The debt crisis took decades of terrible choices and bogus promises to produce. The world is now in the midst of a debt driven catastrophe. At best, the excessive levels of sovereign debt will slow economic growth to zero or below in 2012. At worst, interest rates will soar as counties attempt to rollover their debt and rolling defaults across Europe will plunge the continent into a depression. The largest banks in Europe are leveraged 40 to 1, therefore a 3% reduction in their capital will cause bankruptcy. Once you pass 90% debt to GDP, your fate is sealed.

“Those who remain unconvinced that rising debt levels pose a risk to growth should ask themselves why, historically, levels of debt of more than 90 percent of GDP are relatively rare and those exceeding 120 percent are extremely rare. Is it because generations of politicians failed to realize that they could have kept spending without risk? Or, more likely, is it because at some point, even advanced economies hit a ceiling where the pressure of rising borrowing costs forces policy makers to increase tax rates and cut government spending, sometimes precipitously, and sometimes in conjunction with inflation and financial repression (which is also a tax)?”Rogoff & Reinhart

The ECB doubling their balance sheet and funnelling trillions to European banks will not solve anything. The truth that no one wants to acknowledge is the standard of living for every person in Europe, the United States and Japan will decline. The choice is whether the decline happens rapidly by accepting debt default and restructuring or methodically through central bank created inflation that devours the wealth of the middle class. Debt default would result in rich bankers losing vast sums of wealth and politicians accepting the consequences of their false promises. Bankers and politicians will choose inflation. They believe they can control the levers of inflation, but they have proven to be incompetent, hubristic, and myopic. The European Union will not survive 2012 in its current form. Countries are already preparing for the dissolution. Politicians and bankers will lie and print until the day they pull the plug on the doomed Euro experiment.

The false storyline of debt being paid down in the United States continues to be propagated by the mainstream press and decried by Paul Krugman. The age of austerity storyline gets full play on a daily basis. Total credit market debt in 2000 was $27 trillion. It skyrocket to $42 trillion by 2005 as George Bush and Alan Greenspan encouraged delusional Americans to defeat terrorism by leasing SUVs and live the American dream by putting zero down on a $600,000 McMansion, financing it with a negative amortization no doc loan. Paul Krugman got his wish as a housing bubble replaced the dotcom bubble. Debt accumulation went into hyper-speed in 2006 and 2007 as Wall Street sharks conducted a fraudulent feeding frenzy by peddling their derivatives of mass destruction around the globe. By the end of 2007, total credit market debt reached $51 trillion.

In a world inhabited by sincere sane leaders, willing to level with the citizens and disposed to allow financial institutions that took world crushing risks to fail through an orderly bankruptcy process, debt would have been written off and a sharp short contraction would have occurred. The stockholders, bondholders and executives of the Wall Street banks would have taken the losses they deserved. Instead Wall Street used their undue influence, wealth and power to force their politician puppets to funnel $5 trillion to the bankers that created the crisis while dumping the debt on taxpayers and unborn generations. The Wall Street controlled Federal Reserve provided risk free funding and took toxic mortgage assets off their balance sheets. The result is total credit market debt higher today than it was at the peak of the financial crisis in March 2009.


Our leaders have done the exact opposite of what needed to be done to address this debt crisis. The country is adding $3.7 billion per day to the National Debt. With the debt at $15.2 trillion, we have now surpassed the 100% to GDP mark. The National Debt will be $16.5 trillion when the next president takes office in January 2013. Ben Bernanke has been able to keep short term interest rates near zero and the non-existent U.S. economic growth and European disaster has resulted in keeping long-term rates near record lows. Despite these historic low rates, interest on the National Debt totalled $454 billion in 2011, an all-time high. The effective interest rate was approximately 3%. If rates stay at current levels, interest will be between $400 and $500 billion in 2012. Each 1% increase in rates would cost American taxpayers an additional $150 billion. A rapid increase in rates to the 7% level would ratchet interest expense above $1 trillion and destroy the last remaining vestiges of Bernanke’s credibility. It can’t possibly happen in 2012. Right? The world has total confidence in pieces of paper being produced at a rate of $3.7 billion per day.

Confidence in Ben Bernanke, Barack Obama and the U.S. Congress is all that stands between continued stability and complete chaos. What could go wrong? Debt related issues that will likely rear their head in 2012 are as follows:

  • A debt saturated society cannot grow. As debt servicing grows by the day, the economy losses steam. The excessive and increasing debt levels will lead to a renewed recession in 2012 as clearly detailed by ECRI, John Hussman and Hoisington Investment Management.

“Here’s what ECRI’s recession call really says: if you think this is a bad economy, you haven’t seen anything yet. And that has profound implications for both Main Street and Wall Street.” – ECRI 

At present, we observe agreement across a broad ensemble of models, even restricting data to indicators available since 1950 (broader data since 1970 imply virtual certainty of recession). The uniformity of recessionary evidence we observe today has never been seen except during or just prior to other historical recessions.-  John Hussman 

Negative economic growth will probably be registered in the U.S. during the fourth quarter of 2011, and in subsequent quarters in 2012. Though partially caused by monetary and fiscal actions and excessive indebtedness, this contraction has been further aggravated by three current cyclical developments: a) declining productivity, b) elevated inventory investment, and c) contracting real wage income. In summary, the case for an impending recession rests not only on cyclical precursors evident in productivity, real wages, and inventory investment, but also on the disfunctionality of monetary and fiscal policy. – Van Hoisington 

  • The onrushing recession will send housing down for the count. With 2.2 million homes already in the foreclosure process and another 13 million homes with negative or near negative equity, the recession will push more people over the edge. As foreclosures rise a self reinforcing loop will develop. Home prices will fall as banks dump houses at lower prices, pushing millions more into a negative equity position. Home prices will fall another 5% to 10% in 2012, with a couple years to go before bottoming.
  • The recession will result in companies laying off more workers. It won’t be as dramatic as 2008-2009 because companies have already shed 6 million jobs. The working age population will increase by 1.7 million, the number of people employed will go up by 1 million, but the official unemployment rate will drop to 7% as the BLS reveals that 10 million people decided to relax and leave the workforce. Surely I jest. The government manipulated unemployment rate will rise above 9%, while the real rate will surpass 25%.
  • The American people rationally increased their savings rate to 6.2% in the 2nd Quarter of 2009. When you are over-indebted and the country heads into recession, spending less and saving more is a sane option. Consumer expenditures accounted for 69% of GDP in 2007, prior to the economic collapse. The “recovery” of 2010-2011 has been driven by Ben’s zero interest rate policy, the resumption of easy credit peddling by the Wall Street banks, and consumers convinced that going further into hock to attain the American dream is rational. Consumer spending as a percentage of GDP has actually risen to 71% and the savings rate has plunged to 3.6%. The 20% drop in gas prices since April bottomed in December. This decline temporarily boosted consumer spending, but prices are on the rise again. With the State and local governments reducing spending, do the Wall Street Ivy League economists really believe consumers will increase their consumption to 73% of GDP and reduce their savings rate to 1%? If you open your local newspaper you will see the master plan. Car dealers are offering 0% financing with nothing down for 60 months. The GMAC/Ditech/Ally Bank zombie lives as subprime auto loans are back. The “strong” auto sales are a debt financed illusion. Ashley Furniture is offering 0% financing for 50 months with no payments through Wells Fargo Bank. When the Federal Reserve provides the Wall Street banks with 0% funding, banks are willing to take big risks knowing that Uncle Ben and the naive American taxpayer will be there to bail them out when it blows up again.
  • With recession a certainty as fiscal stimulus wears off, home prices fall, employment stagnates, and consumer spending grinds to a halt, what will happen to the stock market? The Wall Street shills paraded on CNBC and interviewed by the multi-millionaire talking head twits assure you that stocks are undervalued and the market will surely be up 10% to 15% by 2013. It’s a mortal lock, just as it has been for the last twelve years, with the S&P 500 at the same level as January 1999. The fact is the stock market drops 30% on average during a recession. The talking heads declare that corporate profits are at record levels and will continue higher. Not bloody likely. Corporate profit margins are at an all-time peak about 50% above their historical norms. Profits always revert to their mean. These profits are not sustainable as they were generated by firing millions of workers, zero interest rates for banks, fraudulent accounting by the banks, and trillions in handouts from the middle class taxpayers to corporate America.

In a true free market excess profits will draw more competitors and profits will fall due to competition. When corporate profits exceed the mean by such a large amount, you can conclude that crony capitalism has replaced the free market. Government bureaucrats have been picking the winners (Wall Street, War Industry, Big Media, Big Healthcare) and the American people are the losers. Corporate oligarchs prefer no competition so they can reap obscene risk free profits and reward themselves with king-like compensation. Mean reversion will eventually be a bitch. Real S&P earnings have reached the 2007 historic peak. To believe they will soar higher as we enter a recession takes the same kind of faith shown by Americans buying a $600,000 McMansion in Stockton with no money down in 2005. The result will be the same. Do you ever wonder how corporations are doing so well while the average American sinks further into debt, despair and poverty?

The brilliant John Hussman captures the gist of an investor’s dilemma in his latest article:

“With 10-year Treasury yields below 2%, 30-year yields below 3%, corporate bond yields below 4%, and S&P 500 projected 10-year total returns below 5%, we presently have one of the worst menus of prospective return that long-term investors have ever faced. The outcome of this situation will not be surprisingly pleasant for any sustained period of time, but promises to be difficult, volatile, and unrewarding. The proper response is to accept risk in proportion to the compensation available for taking that risk. Presently, that compensation is very thin. This will change, and much better opportunities to accept risk will emerge. The key is for investors to avoid the allure of excessive short-term speculation in a market that promises – bends to its knees, stares straight into investors’ eyes, and promises – to treat them terribly over the long-term.”


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Peak… Everything

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by Tom McCafferty
Posted originally May 20, 2011

Crude oil is just one of many things the world is running out of, says Tom McCafferty, author of Options Demystified and numerous other books on trading.

WE ARE ALL FAMILIAR WITH ALL THE HULLABALOO in recent years over Peak Oil. Dozens of books and websites devoted an enormous about of space to scaring the pants off of us. In a few years, we would be all be sitting in a dark, cold room without access to “Dancing with the Stars”.  Man… that will be a bummer! Before you get your blood pressure back under control, I’m here to tell you the Peak Oil is just the beginning. The World is facing more peaks that it can handle in the next few decades. For example:

•  Peak Water:  The World does not have enough water for crops or the increasing population. Every wonder why China was so aggressive to control sleepy little Tibet? Guess where the origins of the five great Chinese rivers are located? Or why it is importing so many tons of soybeans? When thinking about food importation, think of it as just a substitute for importing water. China is not alone. In India, the Green Revolution is now a disaster.

•  Peak Population:  How many people can the World sustain? I’m afraid we are going to find out the hard way. More specifically, how many senior citizens can it take care of… think of our Social Security system and then think of countries like Russia or Italy that have an even more serious aging challenge. China is right in line because of its one-child policy.

•  Peak Money: How much fiat currency can the World float? Remember, there has never a fiat currency that did not collapse.

•  Peak Weather:  Global Warming or long-term cycles? It doesn’t matter. Oceans and temperatures are rising.

•  Peak Politics It has always been a mess and it only seems to get worse. Are there any politicians or leaders that are not just out for themselves? Sadly, it also applies to their constituents.

•  Peak Taxes Will there every be enough tax money to solve every problem? Can our cities, states and national governments every balance a budget and reduce their deficits? If we can’t, how are the poorer countries going to cope?

My point is there are more than enough problems facing the World and its investors to keep all the prognosticators busy.

 

How Global Elites steal resources and technology

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by James Jaeger
Posted originally May 04, 2011

As many of you old-timers know, my colleagues and I have been working to expose the fraud of the Federal Reserve System for many decades, not only in our movie, Fiat Empire featuring Ron Paul, but at places like the MIND-X and The Daily Bell.

When I first invited artificial intelligence enthusiasts at the MIND-X to read The Creature From Jekyll Island by G. Edward Griffin many apologists, who are either naive or who live off the fiat-currency system, fought me and argued for at least ten years. Given that this subject is now in the mainstream every day: I hope these people will now acknowledge that the issue has merit and the Federal Reserve – the FED – is an instrument of unjust enrichment.

As Ron Paul says – and many others now acknowledge – it’s become common knowledge that the Fed “prints money out of thin air” and this activity inflates the money supply, thus causing the hidden tax of “inflation” and a destruction of the dollar’s purchasing power. It is thus the Federal Reserve System that is the CAUSE OF THE CURRENT GREAT RECESSION, THE 2008 FINANCIAL MELTDOWN, THE LINGERING UNEMPLOYMENT and THE MULTI-TRILLION DOLLAR DEFICITS we are now experiencing.

That bit of housekeeping done, allow me to say further: the Federal Reserve’s MONETIZING of debt – now known by the euphemism of QUANTITATIVE EASING – and its practice of FRACTIONAL RESERVE BANKING have allowed an elite class of people to emerge, a class that has exploited the American middle class, if not driven many of them into bankruptcy. This has happened because the major corporations – majority-owned by this class – have sought ever bigger profits provided by exploiting cheap foreign labor and military services. The American Middle Class is justifiably getting REALLY pissed-off.

GLOBAL FRAUD:

The banking class – and the corporations that do business with this class  – have reconfigured U.S. laws to enable them to facilitate massive mergers and acquisitions over the past several decades. This consolidation took massive financing, so where did the money come from? It came from the Federal Reserve Member Banks as loans driven by fiat currency and fractional reserve banking. In other words, the major banks created trillions out of thin air and gave it to their cronies in corporate America in exchange for stock in the consolidated multinational corporations.

These multinational corporations, having driven most of their “free market” competition out of business (as a result of their access to fiat money) were now in a position to fund the campaigns of many congressmen. In exchange for campaign finances, many congressmen were behooved to relax anti-trust laws and provide all manner of special privileges. Such resulted in, for instance, the “financial services” industry whereby banks, stockbrokers and insurance companies were able to commingle their business plans to maximize market share and profits. The conflicts of interest that were created as a result caused the global financial meltdown which started in 2008 and proceeds more covertly to this day.

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The Grand Failure of Conventional Economics

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by Charles Hugh Smith
Originally posted April 4, 2011

The “fixes” of conventional economics such as Keynesian stimulus will all fail catastrophically within the next 10 years. The next decade will see the complete failure of conventional economics. Why is this so?

If we take the very long view, we find that all of conventional economics developed in the era of ever-cheaper, ever-more abundant energy and the miraculous “low hanging fruit” productivity gains made possible by cheap energy and the tools of mass production and industrialization. Like a creature that was born in the morning and has only seen daylight, conventional economics has never experienced night and so it has no conception of darkness.

This is true of classical, neo-classical, Marxist, Socialist, Keynesian, Neoliberal, “Capitalism with Chinese characteristics,” and so on.

Not one of these ideological strands of conventional economics recognizes the limits on conventional “growth” as measured by GDP, increased production, etc. When the planet’s population stood at 500 million, there were sufficient resources to enable a doubling to 1 billion. Then 1 billion tripled to 3 billion, which doubled to 6 billion. Now, the 600 million high-energy-consumption “middle class” of post-industrial economies is expanding four-fold to 2.4 billion.

There simply isn’t enough oil on the planet, in any remotely plausible scenario, for 600 million of China’s 1.3 billion people to live on an American scale of oil consumption, not to mention 600 million of India’s 1.2 billion, and so on for every developing economy.

As population and energy use per capita have expanded, the curve of consumption approaches an exponential function. Frequent contributor Harun I. has often commented on the impossibility of this curve continuing in the physical world we inhabit. Below: Exponential Growth and Depletion: Chart of the Century? (May 3, 2010)

Here are his recent comments on the impossibility of limitless growth as defined and measured by conventional economics:

Think about what pension funds expect, 8 percent per annum. Let’s think about this in terms of inputs and output. For simplicity’s sake let’s round to 7%. This means that every ten years inputs have to double in order for outputs to double. On the finite sphere that we call earth this reaches its limit at a pace that accelerates. Imagine that today if we were to make two iPads per household. In ten years we would need to make four, then eight, then sixteen, etc. We already have gone from one car per household to two. Since four cars per household is unlikely all eyes are upon China (brace for disappointment).

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Egypt’s Warning: Are You Listening?

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by Chris Martenson
Originally posted February 9, 2011

One day, a fruit and vegetable seller was arrested in Tunisia, sparking social unrest, and a few weeks later the government of Egypt was set to topple. Such is the nature of complex, chaotic, and unpredictable systems. The stresses build for years and years, and nothing really seems to be happening, but then everything suddenly changes. Egypt is therefore emblematic of what we might expect in any complex system in which pressures are building, such as the US Treasury market.

Can events in complex systems ever be predicted? No…and yes. No, because the precise timing and details can never be predicted. Yes, because we can be certain that anything that is unsustainable will someday cease to continue and things that are horribly imbalanced will someday topple. We can also be certain that the change, when it comes, will be rather sudden and abrupt, rather than gentle and linear.

That is, we can easily predict that a complex system will shift, and that it will probably do so rapidly, but not exactly when or by how much.

How unbalanced was Egypt? Very. Here are a few quite relevant statistics about Egypt (hat tip to an email from reader Mark O., with credit to Dr. John Coulter) to which I have added a few items:

The relentless math:

Population 1960:  27.8 million
Population 2008:  81.7 million
Current population growth rate: 2% per annum (a 35-year doubling rate)
Population in 2046 after another doubling:  164 million

Rainfall average over whole country:  ~ 2 inches per year
Highest rainfall region:  Alexandria, 7.9 inches per year
Arable land (almost entirely in the Nile Valley):  3%
Arable land per capita:  0.04 Ha (400 m2)
Arable land per capita in 2043: 0.02 Ha
Food imports: 40% of requirements
Grain imports: 60% of requirements

Net oil exports: Began falling in 1997, went negative in 2007
Oil production peaked in 1996
Cost of oil rising steeply
Cost of oil and food tightly linked

The future of Egypt will be shaped by these few biophysical facts – a relentless form of math that is hardly unique to Egypt, by the way – and it matters very little who is in power. Given the choice, I would not want to live there, nor in any other country that has fostered or permitted such reckless population growth beyond what the country itself can sustain.

The interesting part is that these facts have been in plain view for decades, building into economic and social pressures that were suddenly unleashed in a wave of social and political unrest. How was it that such obvious things escaped notice for so long before they suddenly reared up into plain view? Instead of being a surprising exception to the rule, we should instead brace ourselves against the idea that this is just the way things tend to work.

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Lies Across America

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by Jim Quinn
Posted on 28th November 2010
The Burning Platform

http://www.theburningplatform.com/?p=7783

“Every single empire, in its official discourse, has said that it is not like all the others, that its circumstances are special, that it has a mission to enlighten, civilize, bring order and democracy, and that it has a mission to enlighten, civilize, bring order and democracy, and that it uses force only as a last resort.” Edward Said

The increasingly fragile American Empire has been built on a foundation of lies. Lies we tell ourselves and Big lies spread by our government. The shit is so deep you can stir it with a stick. As we enter another holiday season the mainstream corporate mass media will relegate you to the status of consumer. This is a disgusting term that dehumanizes all Americans.

You are nothing but a blot to corporations and advertisers selling you electronic doohickeys that they convince you that you must have. Propaganda about consumer spending being essential to an economic recovery is spewed from 52 inch HDTVs across the land, 24 hours per day, by CNBC, Fox, CBS and the other corporate owned media that generate billions in profits from selling advertising to corporations schilling material goods to thoughtless American consumers.  Aldous Huxley had it figured out decades ago:

“Thanks to compulsory education and the rotary press, the propagandist has been able, for many years past, to convey his messages to virtually every adult in every civilized country.”

Americans were given the mental capacity to critically think. Sadly, a vast swath of Americans has chosen ignorance over knowledge. Make no mistake about it, ignorance is a choice. It doesn’t matter whether you are poor or rich. Books are available to everyone in this country. Sob stories about the disadvantaged poor having no access to education are nothing but liberal spin to keep the masses controlled. There are 122,500 libraries in this country. If you want to read a book, you can read a book. The internet puts knowledge at the fingertips of every citizen. Becoming educated requires hard work, sacrifice, curiosity, and a desire to learn. Aldous Huxley describes the American choice to be ignorant:

“Most ignorance is vincible ignorance. We don’t know because we don’t want to know.”

Continue reading…

Trigger Points, Black Swans, and other unpleasant realities

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by Giordano Bruno
Originally posted October 27, 2010

Neithercorp Press

AN AVALANCHE IS NOT AN “EVENT”, IT IS AN EPIC; A SERIES OF SMALLER EVENTS DRIFTING AND COMPACTING ONE AFTER ANOTHER until the contained potential energy reaches an apex, a point at which it can no longer be managed or inhibited. A single tremor, an inopportune echo, an unexpected shift in the winds, and the entire icy edifice, the product of countless layered storms, is sent crashing down the valley like a great and terrible hand.

In this way, avalanches in nature are quite similar to avalanches in economies; both events accumulate over the long span of seasons, and finally end in the bewildering flash of a single moment.

The problem that most people have today is being unable to tell the difference between a smaller storm in our economy, and an avalanche. Very few Americans have ever personally witnessed a financial collapse, and so, when confronted with an initiating event, like the stock market plunge of 2008, they have no point of reference with which to compare the experience. They misinterpret the crash as a finale. Untouched, they breathe a sigh of relief, unaware that this is merely the beginning of something much more complex and threatening.

So, without personal experience on our side to help us recognize a trigger point incident; the catalyst that brings down our meticulously constructed house of cards, how will we stand watch? Will we miss the danger parading right in front of our faces? Will we be caught completely off-guard?

The key in avoiding such a scenario is in identifying the primary pillars of our particular financial system, and tracking them carefully. Once we are able to cut through the haze of distractions and minor events promoted mostly by the mainstream media, and focus on that which is truly important, our ability to foresee danger greatly increases. But what are the crucial mainstays of our economy, and what kind of disastrous occurrence could possibly bring them tumbling down?

Mortgage Crisis Redux

The health of property markets is a vital indicator of the stability of almost any country, but most especially in the United States. The reason why the bust in mortgage values is so dangerous to our particular economy is because Americans allowed themselves to become completely dependent on debt in order to sustain their consumption. We have been surviving on mortgage loans and Visa cards for nearly two decades! The fantastical boost in stocks and retail during the late 90’s and early 2000’s was an illusion built on artificially low interest rates and easy credit. Of course, it doesn’t help that corporate interests outsourced most of our industrial foundation to the third world leaving us with an emaciated jobs market utterly reliant on the service sector. Many people were given few options besides taking loan after loan using homes they couldn’t afford in the first place as collateral.

Regardless, without the support of solid industry and innovation in a system to supply employment opportunities and create true wealth (not debt), we have only “derivatives” and toxic securities, worthless bits of paper representing liabilities that will never be repaid. Now that these contracts are known to be worthless, there is only one thing left to prop up the economy; fiat printing of the U.S. dollar.

Back in 2008, I called the bailout of Fannie Mae and Freddie Mac a “black hole” of debt which would siphon the last remaining vestiges of wealth from the American taxpayer, and this is exactly what has happened. Every quarter, MSM analysts claim the housing market has “bottomed” and is ready for a rebound, yet, every quarter the mortgage crisis gets just a little bit worse. It is now projected that Fannie and Freddie could end up costing taxpayers over $1 Trillion:

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