A CRISIS summary......Time for a Break for a while
At this point, the issue is pretty clear....... incomes in America are evaporating and the mainstream press is starting to tell you. What they havn't told you yet is why. That an huge percentage of America's income over the past five years was dependent simply banks loaning out bags of money and now that is stopping causing incomes and spending to evaporate and asset values to crash.
This crisis will affect those that borrowed and those that didn't.
We see it in businesses shutting down and going bankrupt, foreclosures rising, and governments and hospitals running out of money. We tell ourselves this will stop soon but we are still in the early stages of the unwinding process.
Nothing about what I am saying is new to anyone really following the problem,,,,it is just that the system has allowed the CRISIS to be masked by illusory accounting practices. This is a good summary of the issue:
Chancellor Darling has "let the cat out of the bag" calling this the worst economic crisis in 60 years.
There is simply not enough income to pay the debt. Add in the pension/entitlement obligations and our governments are in hole so deep Superman couldn't fly out.
At the end of the day, America depends on most of its constituents being able to pay each other. If Business A owes Business B a lot of money for goods and services, and A can't pay, then B could also fail as well along with its employees. If this process spreads, the failure rate grows exponentially.
We are now at the point where the failures are becoming more and more visible. We see the stress everywhere as I have documented it ad nauseum.
The problem is enormous......Obama's new $100 Billion stimulous plan is idiotic as it will only put the nation into more debt and will do little to offset a much larger issue.
Basically, a huge percentage of the assets in our banks is loans collateralized by Real Estate. Much of that debt was issued or refinanced in the last five to seven years. A lot of that debt is failing and for the first time ever, the collateral is crashing at a rate never seen before.
This is well documented with the continually rising home foreclosures. It has now reached the point where for the first time, prime foreclosures are exceeding subprime foreclosures and subprime is still increasing.
It is spreading now to commercial RE. As more and more businesses fail, more and more vacancies arise causing more and more distress to commercial RE.
Again, I guestimate that there is about $20 Trillion of debt loaned to RE. Loans collaterized by RE is the majority of many banks assets. A material part of that debt was current simply by the borrowers being able to borrow money and make service payments.(sorta like these idiotic governemnt stimulous plans).
During this process we all benefitted by rising asset prices and increased sales in our businesses. But anyone who purchased any RE in the past five years, especially if they borrowed money against it, could be facing a situation where they are now underwater.
Think about the number of people involved who either purchased RE in the past five years or benefitted from people borrowing and spending against their RE. It is practically every business and government in America. Many businesses and governments expanded and levered up on the increased spending compounding the current problem.
Since banks are tightening up, we must now deal with the ENORMOUS debt created. An unprecedented amout of debt. These debts are our obligations and the banks assets. As our incomes fall, servicing the debt is becoming harder and harder for more and more....not just people and business...but government as well.
The government issue will really start heating up right now. There is simply no way for government to meet debt obligations with the current decrease in tax revenues. Cutting the budgets will not work as the problem is too big and minimum spend obligations too high. Increasing taxes won't solve it even if you tax 100%.
We are becoming a nation, and world, that more and more simply can't meet their obligations due to the fact that we leveraged up soooo much and credit is being cut off. For those that didn't leverage, they were still beneficiaries of the system whether through rising asset values, stable bank accounts, or recipients of governent services.
Now the evidence is finally becoming more mainstream over a year beyond when it should have been obvious. The rising food and fuel prices are only going the make this CRISIS much worse.
There is simply no easy way to solve the problem of incomes evaporating accross America. As people can't pay, others will lose their jobs, and the cycle will get bigger and bigger faster and faster.
This is not a fun subject to focus on.....but it is the single most important issue facing America today AND WE NEED TO DEAL WITH IT AS A NATION RIGHT NOW. If America doesn't have a system where people can meet their basic needs....we don't have much.
I have documented the early part of the Crisis over and over and over.......now it appears the mainstream press is ready to inform the world of a situation that should have never been allowed to materialize.
I know, we have been through crisis before.....just never one close to being this big......in the past the world had been through bombs before....but when nuclear came along.......the stakes changed.
As you read the crap put out their by so called analysts and cheerleaders, just remember these numbers.....
there is about $20 Trillion dollars of loans in America alone collateralized by RE alone (compare that to the total value of gold in the world or the total value of America's agricultural output) much of which was issued in the last five years.
At the peak, Americans were withdrawing appraoching $1 Trillion dollars in HELOCs per year(compare that to the impact of a $100 billion dollar stimulous package) Add in toxic mortgages, commercial RE loans, and private equity debt and we were over $2 Trillion per year goosing the economy.
ASK YOURSELF THIS SIMPLE QUESTION.....WHAT WOULD OUR GDP for the past five years BEEN IF THIS TOXIC LENDING DIDN'T TAKE PLACE?????? (Then you will see why I call it a ponzi scheme)WHAT WOULD ASSETS REALLY HAVE SOLD FOR WITHOUT FREE MONEY???
The debt created became the assets in our banks protecting our savings (less the hundreds of billions in bonuses bankers took for themselves). As more and more banks fail, the FDIC will step in.....the only problem is there is now less than $50 Billion of insurance protecting $5 Trillion of debt.
Not a single political party is addressing the crisis. They are both feeding us dreams about a better future while the present is crumbling around us. If enough debt fails, America's economy will become crippled as incomes and assets will evaporate and few will have anything to pay each other.
Until someone proposes are credible plan to restructure the debt very soon.....our nation's dreams will become nightmares very very soon.
Note: this is an IMMEDIATE crisis simply based on an income/debt analysis....factor in unsustainable pension obligations, impossible entitlements(social security and medicare). and rising food and fuel prices.............................and I am not sure how you characterize it.
I have little doubt these issues will change America to a degree we have never seen before...the only question going forward is how??????