A Clarification of Alstrynomics
September 13, 2009
– Comments (31)
It is funny, some people think Alstry is a perma bear.....nothing could be further from reality.
What Alstry is analyzing is the creative destruction of a system....a system that will be changed forever....it is not about being a bull or bear.....simply being aware and understanding a change.
For the past 60 years, America has been an ever growing consumer economy. It originally started out as a production based low leverage economy and recently morphed into a primarily high leverage credit driven MASSIVE consumer based economy.
Most of our jobs and incomes are dependent on massive consumer consumption, so is the tax receipts our government depends on....without massive domestic consumption, most of us would be unemployed or making simply a fraction of what we are currently earning. In that past ten years, much of our consumption was driven by a UNPRECEDENTED amout of borrowing.....without borrowing, much of our consumption would have never been possible.
Now the banks are cutting off credit, raising interest rates and forcing many to save. As we switch from a consumption economy to a savings economy.....many will not be able to adjust to much lower incomes and revenues. Many have fixed expenses such as rent, mortgages, insurance, property taxes etc.....and many will not be able to adjust to a 30-70% reduction in income.
As a result, most American Families and Businesses will go bankrupt as we change from a consumption based economy to a savings and hopefully over time a production economy. This problem will only be exacerbated by the massive amount of accumulated debt over the past eight years incurred at peak consumption prices.
In addition, tax receipts will evaporate due to much higher savings and less spending causing extreme stress on our federal, state, and local governments.
Again, it is not the end of the world....simply the end of an economy as you know it. Clearly many of you are not prepared. Niether are many of our pension fund managers, or bankers, or government officials or economists.
This is nothing like what happened to Japan....Japan was always an export economy and its population had relatively low leverage....so when it went through its lost decade, it was really not a structural change, simply a slowing of a system.
For America, it is the radical change of a domestic consumption system based on leverage to a lower consumpton savings economy. Most of our jobs, incomes, and expenses are based on the old system. Changing into the new savings system will be very convulsive as revenues, incomes, and asset values evaporate. Few will be able to make the adjustment without going bankrupt as fixed expenses are not very flexible.
The entity least prepared is government.....government consumes $6.5 trillion dollars per year and is responsible for paying the incomes of over 150,000,000 million Americans. Such massive consumption is not feasible in a savings economy absent some massive miracle productive ramp up. Not likely.
As a result, since few are prepared for the change, the process will be very convulsive and distressing for many. The main problem, as Alstry sees it, is the unreasonable expectations government and bankers are setting for citizens. Unreasonable expectations often lead to disappointment. Disappointment among the masses can lead to unrest. Massive dissapointment can lead to massive unrest...especially as we only bail out the chosen few Wall Street bankers.
This whole process of changing our economy from a massive domestic consumption based system dependent on leverage to a deleveraged savings economy was orchestrated by Benny B and his banker buddies. They knew exactly what would happen when you cut off credit to a massively leveraged credit dependent economy...comparable to an addict withdrawing cold turkey. Now we are living with the consequences as we are just in the early stages of this process as only a small amout of the total debt has been paid down.
Going forward, things will get much more convulsive as we proceed with the change. At this point, government doesn't seem too concerned as the social distress is clearly rising over recent weeks. My guess is the trend for anger and unrest will continue.... and government and bankers know this......unless something happens in 9.09 to distract the masses.
The last time we were a deleveraged savings society was in the sixties....go back and see what prices and incomes were back then.......and you will have a pretty good idea where we are headed.
Change is change and in the end it will likely be good for our country. The process will only be good for citizens if they are prepared. Are you prepared?....not for the end of the world....but the massive economic change.
When many are not prepared.....what do you think is going to happen as huge numbers of pensions, hospitals, school systems, cities, counties, states, families and businesses go bankrupt?????????
Now you know why Alstry says we must restructure the debt....so we can prepare for the change as the debt can not be serviced in the new savings system. And if the debt can't be serviced by the masses...there are going to be lots of angry people.
Now you are beginning to understand Alstrynomics as we proceed through 9.09.
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