Finally, Someone is Getting IT!!!!
From the WSJ:
WASHINGTON -- The U.S. government, recognizing that the banking crisis is far larger than originally thought, is laying the groundwork for a second phase of its rescue attempt, with plans to purge bad assets that are paralyzing the financial system.
Officials at the Treasury, Federal Reserve and Federal Deposit Insurance Corp., in consultation with the incoming Obama administration, are discussing a plan to create a government bank that would buy up the bad investments and loans that are behind the huge losses that U.S. banks continue to report, say government officials. Also under consideration is an additional and giant government guarantee of banks' assets against further losses.
The discussions, which are intensifying, show how the rapid deterioration of bank assets is outpacing the government's rescue efforts. Banks are now struggling not only with the real-estate investments that sparked the crisis, but also with the car loans, credit-card debt and other consumer debt that have taken a hit with the faltering economy.
This is what I have been explaining for the past year, that debt(money) was evaporating MUCH faster than the government was printing. In other words, we are running out of money much quicker than we are replacing it. By my calculations, around a ratio of about 3 to 1 and if you factor in asset depreciation, we are looking closer to 10 to 1.
This process will inevitably lead to a DEFLATIONARY depression as we let the cancer spread too far. We will purge the system of bad debts which will set us up on a foundation for future growth.
The patient has a very serious cancer. We must apply chemo. It will be very uncomfortable for a while.....VERY UNCOMFORTABLE!!!!!!....but Alstrynomics is getting optimistic about the future.
Alstry's guess...whatever something costs in 1980 is what it will cost in 2010. Gold was $800 an ounce in 1980 and it is about $800 an ounce today. A house was about 2X a person's income and it will be about 2X a person's income going foward. If you think about recent wage cuts, we are not getting too far from 1980s wages in many professions. Others are rapidly heading in that direction.
As far as the stock market, we are now in a globalized economy....so 2X or 3X 1980s values seems reasonable.
Is that the end of the world....not even close.....it just that getting there will suck for many.