Medic
07-07-2009, 04:21 PM
Continuing on with Mike's early post about concern with Obama's economic policy I would like to offer the following article for mass digestion:
Denninger's Mid Year Review
http://market-ticker.org/archives/1178-Mid-Year-2009-Checkup.html
He spends a little time patting himself on the back for hitting some of his predictions but his analysis is absolutely spot on and is crucial to understanding the depths of how badly the government is fucking things up right now. I read this article and it was if I was experiencing a mind meld, he more specifically talks about the problems I brought up in Mike's thread and late in his article he directly answers some of the questions Gator and Mich97c had about CDS and the leverage in the markets. While it's long, I encourage all of you to read it. A small sample:
California is just the beginning of this unraveling; they are now issuing IOUs. Most other states will find themselves in similar circumstances and be forced to dramatically curtail spending along with raising taxes. The public labor unions (state and federal) are currently able to prevent their overly-fat pension and benefit programs from being brought in line with private industry, but this will not last forever, and when that wall cracks it will come with ferocious intensity. The "death spiral" of higher taxes leading people to erect their middle finger and either cocoon, go underground with their earnings, or depart has begun in California and will spread - count on it.
At some point reality must be faced, and we may as well do it now while we still have civil order. Those politicians, numbering nearly all of them from both parties, who argue that this can be "avoided" or that we can "support housing (and/or asset) prices" need to be run out of town on a rail.
There is no way to prevent the unwinding of leverage when the carrying costs exceed income and the more debt we as a society take on in trying to do so the worse things will get in the end, as we are simply adding to the pile of defaults that must occur.
I am quickly running out of possible scenarios to prevent a severe deflationary depression from taking place. By "severe" I mean 20%+ U3 unemployment, GDP contraction of at least 25%, and a possible loss of federal funding capacity leading to the immediate destruction of Medicare, Medicaid and Social Security, a 50% reduction of defense spending and near-complete-elimination of all other Federal Programs due to a "sudden stop" in the ability to fund Treasury issuance. Yes, it could get that bad, and it could happen a lot faster than you think.
Denninger's Mid Year Review
http://market-ticker.org/archives/1178-Mid-Year-2009-Checkup.html
He spends a little time patting himself on the back for hitting some of his predictions but his analysis is absolutely spot on and is crucial to understanding the depths of how badly the government is fucking things up right now. I read this article and it was if I was experiencing a mind meld, he more specifically talks about the problems I brought up in Mike's thread and late in his article he directly answers some of the questions Gator and Mich97c had about CDS and the leverage in the markets. While it's long, I encourage all of you to read it. A small sample:
California is just the beginning of this unraveling; they are now issuing IOUs. Most other states will find themselves in similar circumstances and be forced to dramatically curtail spending along with raising taxes. The public labor unions (state and federal) are currently able to prevent their overly-fat pension and benefit programs from being brought in line with private industry, but this will not last forever, and when that wall cracks it will come with ferocious intensity. The "death spiral" of higher taxes leading people to erect their middle finger and either cocoon, go underground with their earnings, or depart has begun in California and will spread - count on it.
At some point reality must be faced, and we may as well do it now while we still have civil order. Those politicians, numbering nearly all of them from both parties, who argue that this can be "avoided" or that we can "support housing (and/or asset) prices" need to be run out of town on a rail.
There is no way to prevent the unwinding of leverage when the carrying costs exceed income and the more debt we as a society take on in trying to do so the worse things will get in the end, as we are simply adding to the pile of defaults that must occur.
I am quickly running out of possible scenarios to prevent a severe deflationary depression from taking place. By "severe" I mean 20%+ U3 unemployment, GDP contraction of at least 25%, and a possible loss of federal funding capacity leading to the immediate destruction of Medicare, Medicaid and Social Security, a 50% reduction of defense spending and near-complete-elimination of all other Federal Programs due to a "sudden stop" in the ability to fund Treasury issuance. Yes, it could get that bad, and it could happen a lot faster than you think.