Friday, January 9, 2009

Drowning in Debt (Part 2)

I haven't found a better article to describe what is going on, and what we are really seeing.

This Comstock article is a must read. I know for those of you who aren't financially minded it may be dry, but it is very important that you understand this subject intimately, because it directly affects your ability to continue to live above the poverty line. This information also will directly impact your liberty, as your Government continues to play Russian Roulette with a revolver that has 5 loaded cylinders.

The Government and the MSM are not giving you the straight facts on what is really going on with the economy, but this sums it up pretty handily.

Mishandling of this crisis will be catastrophic.

To put the article above into perspective, and to vet the messenger, here is an excerpt from an article titled: How We Got Into This Mess written at Comstock in March, 2008. It's fairly prophetic (em. mine - GGM):

Superficially, it would seem as if the Fed can come to the rescue again. The problem with the Fed continuing to rescue the economy and stock market is that the total U.S. debt (both public and private) has increased substantially over the past 5 years to $49 trillion and the public sector debt is less than $8 trillion. The debt that has been generated by the private sector has grown to such a level that the Fed no longer has control. In fact, the main thing the Fed is accomplishing with these rate reductions and other "liquidity" measures is to drive down the US dollar. Soon they will realize that this is all they are accomplishing.

It is our contention that this latest "bull market" over the past five (2002-2007) years should have never taken place without a more significant recession (that would have reduced debt and encouraged savings) and a more severe stock market "wash-out". This would have gone far to correct the severe imbalances caused by the financial mania of the late 1990s, but unfortunately that did not happen. Right now the Fed is trying the same thing that seemed to work in 2001 & 2002. Actually, all they did was postpone what should have happened in 2003 to the present period. However, now they are attempting to manipulate the credit markets, stock market, and housing market by lowering rates, reducing regulatory restrictions (FRE & FNM), and encouraging special auctions to generate more "liquidity". They can throw as much liquidity as they have (about $900 billion-half committed-- unless they decide to print more) at the various problems as they sprout up, but it is futile.

The capitalistic system typically undergoes mild recessions that correct imbalances built up during the expansion. When these recessions are not allowed to occur, the imbalances just get worse and eventually results in a much deeper recession, or even depression. After the country goes through an incredible spending spree financed with debt, there has to be a period of cleansing. And if this indulgence is accompanied by almost everyone moving into homes they cannot afford or buying second and third homes based on unlimited credit, causing an incredible housing bubble that has to be corrected, it makes the problem much worse. There is nothing the Fed can do to stop housing prices from continuing to decline and commercial real estate will be the next shoe to fall.

The period of cleansing is called a recession, but if the government and Fed continue to interfere and maybe postpone it again, the recession might turn into a depression. Let's hope the Fed and the Administration realize what is inevitable soon, or it could really get nasty!!!

The excerpt above was posted in March. Six months before things went sideways. Now think about the article written on Wednesday that I posted above very carefully and understand the message it contains. We have a serious problem, and it goes far beyond the potential of a serious depression. The possibility now exists for the entire country to collapse if this situation continues to be grossly mishandled.

So Mr. Obama, what is your next move? The answer is not to throw more money at the problem.

No comments:

Current Quote

"I would rather be exposed to the inconveniences attending too much liberty than to those attending too small a degree of it." – Thomas Jefferson