Good Morning!
– It is becoming more obvious that the way to destroy the United States is not to attack the country, kill people or blow up buildings but to lend Americans the money to buy goodies for themselves. Eventually, the Americans will accumulate enormous debts and their banks will fail. Everyone in America will wind up destitute.
– It is clear that deflation has been taking place for some time, since the Bush election in 2002, in fact. Shortly afterward came tax cuts and large US Federal budget deficits that have continued uninterrupted. The Fed during much of that period was extremely accomodative. All of this has been highly stimulative to the US economy.
– The current Federal deficit is approximately four times the amount of the original Bush deficit and future ‘base stimulus’ extends endlessly into the future. Yet, deflation accelerates.
– Bernanke should admit failure and admit his policies of monetary easing and Treasury fiscal excess cannot stop deflation. Denninger points out that $250 billion every single quarter is required to avoid credit system breakdown.
Here’s the underlying problem: Bernanke and the Government are throwing literally $250 billion a quarter down the toilet simply trying to prevent an all-on deflationary collapse.
Unfortunately that “prevention” only works so long as the $250 billion a quarter can continue to be spent – more than $1 trillion a year in annual deficit that must be continually added by borrowing from the Chinese and Japanese EACH AND EVERY QUARTER or THE SYSTEM WILL GO RIGHT BACK INTO COLLAPSE.
– The Chinese have been providing additional stimulus to our economy as well; the purchase of Chinese goods has returned funds to China which have been multiplied – by Chinese banks’ fractional lending – into more cash for both China and the Chinese’ US customers.
– ‘Doubling Down’ the US debt increases the risks of system failure and can only make the inevitable deleveraging more painful.
– The current health care proposals simply add up to yet more stimulus to the economy, this time to insurance companies, pharmaceutical firms and hospital/doctor groups.
– If the US health care proposals were targeted at the wealthiest 5% of the population there would be no controversy and no riotous public meetings or tea parties. Since the new plans aim to benefit the non- wealthy there is strenuous opposition. A reason for this is the widespread fantasy among the 95% that the ‘American Dream’ of great wealth is a winning lottery ticket or some other random act of good fortune away …
– The persistent Internet rumor of a ‘bank holiday’ has its foundation in the failure of the FDIC to close banks in a timely fashion. The concept orbits around the large and increasing number of failing banks. At some point there will be too many failures for the FDIC to administer at any given time triggering bank runs. The next step would be the bank holiday to allow for mass closings of banks.
This is more evidence of the failure of stimulus as well as hope that the banking difficulties can somehow cure themselves over time. Perhaps, the stimulus apologists can admit that this idea can’t work, and that time spent waiting for it to work amplifies the ongoing deterioration of loan quality.
– An effort needs to be made to divert a percentage of GDP toward deleveraging – by repaying some debt. Doing so would take pressure off banks.
Giving banks more capital and expecting them to loan more against that capital accomplishes what, exactly?
– China, Japan, Europe all face variations on the same US deflation. Only Brazil and some of the OPEC nations are outside, looking in. Does this suggest an oil price basis for our problem?
Have a great Monday!