The pyramid scheme that is our economy is teetering on the brink of collapse. The subprime loan disaster is looking more and more like the detanator that will nuke the dollar, the banking industry and our economy as a whole.
When US homeowners default on their mortgages en-mass, they destroy money faster than the Fed can replace it through normal channels. The result is a liquidity crisis which deflates asset prices and reduces monetized wealth, says economist Henry Liu.
The debt-securitization process is in a state of collapse. The market for structured investments, MBSs, CDOs, and Commercial Paper—has evaporated leaving the banks with astronomical losses. They are incapable of rolling over their their short-term debt or finding new revenue streams to buoy them through the hard times ahead. As the foreclosure-avalanche intensifies; bank collateral continues to be down-graded which is likely to trigger a wave of bank failures.
Henry Liu sums it up like this: Proposed government plans to bail out distressed home owners can slow down the destruction of money, but it would shift the destruction of money as expressed by falling home prices to the destruction of wealth through inflation masking falling home value. (The Road to Hyperinflation, Henry Liu, Asia Times) It’s a vicious cycle. The Fed is caught between the dual millstones of hyperinflation and mass defaults. There’s no way out.
We are so fucked.
Unless somebody has a new economic system waiting in the wings I’ll have to start learning how to survive on rats, rabbits, squirrels … and probably human flesh at this rate. And that is not my idea of a good time.
The worst part is the feeling of helplessness. I can only watch these “financial experts” make one stupid decision after another. They’re only really experts at making themselves massive short-term profits. They don’t care about the damage they’ve done to the economy, which affects all of us.
The whole affair is depressing and maddening, but if you want to learn more, visit the Market Oracle.
As for me, I’ll be learning to hunt small suburban mammals.