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alstry (35.08)

Has America stopped thinking?

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August 01, 2009 – Comments (11)

We live in a nation where the reported unemployment rate is about 17% percent but the media reports the subset number only counting those receiving benefits for a relatively short period of time.

We live in a nation where the sales to New Home Contruction, Steel Manufacturers, and Autos are down 80%, 60% an 50% and we are only reporting the current condition as a Recession due to the fact that government is ramping up spending with money it doesn't have.

We live in a nation where we are trying to apply historical precedants to a condition that has no precedent.

The problem is very simple my friends...in the past 10 years, the banking system infected our economy with so much debt that I estimate that 80% of America doesn't qualify to borrow any more money.  That includes 80% of our cities, counties, states, businesses, and citizens.

THE AVAILABILITY OF DEBT IS NOT THE PROBLEM......there is lots of money available for those who qualify, it is simply that so few qualifiy to borrow.  The fact that revenues are now shrinking, the problem is getting even worse as the prior debt accumulation remains outstanding being serviced by lower and lower cashflow.

In the past ten years our banking system simply infected our country with a debt load it simply can't pay back and it will be mathematically impossible for the remaining debt free citizens to support the American economy.  Because of credit default swaps, the banks didn't care who they lent to and little was considered at the time about the consequences. 

Debt Creation was the business of America between 2000 and 2008.

In some nations, even this would not be too significant a problem, but in a nation like ours where over 70% of the population lives paycheck to paycheck, AND much of the economy is driven by credit creation....having 80% of your population Zombulated is a serious issue.  Included in this 80% number is the 1/3 of Americans dependant on government for income.

How can a sane person think a municipality can borrow necessary funds when revenues are shrinking so fast that it can't even service current debt?  If Bernanke really wanted to help American families and address the issue, he would cut credit card rates to 1% or less....not much different than the help he is giving his banking buddies on Wall Street.

You see Benny the B keeps telling you that he is making credit available, but that is not important when so few qualify to borrow.  It is like a doctor telling a starving person about to die that he has checked his heart and all is fine. 

All is not fine.  Most of our nation is now Zombulated.  As millions lose jobs, more and more will become insolvent and stop contributing to the economy.

Avanta just cut credit cards to 1,000,000 small businesses.  Credit Card companies are slashing credit to millions of Americans. Banks are calling in their lines of credit to business.  Few qualify for home equtiy loans.

Look around you, the country is shutting down because our government leaders are misdiagnosing the problem.  As more and more default on their debt, you will likely see many more banks shutting down, more homes being foreclosed, more businesses shuttering, and much more distress as incomes and ability to borrow evaporates and values continue to crash.

Until we start addressing the issue of excessive debt, and start purging the debt in an accellerated fashion, our nation will continue to shut down until there will not be much functioning for anyone.

None of this is hard to see if you just think.

11 Comments – Post Your Own

#1) On August 01, 2009 at 8:26 AM, alstry (35.08) wrote:

In The Great Depression, America had very little debt. Government was a relatively small part of the economy and we were an exporting nation.

Getting out of The Great Depression was easy, start loaning people some money, grow government and things started to take off...a World War didn't hurt either.

This time, the bankers know that few qualify to borrow....because borrowers are banker's customers and have access to their income statements and balance sheets.

By Bernanke not restructuring the debt, he is recklessly shutting down our nation.

Keep in mind, it does not take a total loss of income to become Zombulated.  If you have fixed monthly expenses, and monthly debt payments, just a 10% or 20% reduction in income can Zombulate a family, business or municipality.

When Alstry calls for a 50% reduction in GDP, an assumption is being made that we continue with our current Zombulation polices.  As long as the Fed keeps the Zombulator turned on and does not restructure debt, a 50% reduction in GDP will only be the beginning.

The math is not hard to figure out for a nation that has accumulated about $50 Trillion in debt by its citizens, businesses, and state, local and federal government.

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#2) On August 01, 2009 at 8:37 AM, brwn8484 (89.21) wrote:

Alstry.. Finally someone with a lick of common sense is drawing some accurate predictions on where we are heading.  It is truly sad that the majority of our leaders have no clue what they are doing. 

During one of my many calls to my representatives, one of the multiple assistants I spoke to replied that I knew more than my congressman about the financial crisis.  A middle class citizen with no political experience, no law degree and no claim to any special talent understands the financial crisis better than the people who are supposed to be protecting the free world.

It's a little scary when you realize that our elected leaders have about as much common sense as a pile of manure.    I have come to the conclusion that our leaders have lost their minds.  Similar to the madness that overcame King Nebuchadnezzar in the biblical book of Daniel.

Regardless, even the small town folks that admit to calling me their friends, are alarmed at the level of incopetence being displayed in Washington.  Many have confided with me that they cannot believe what they are seeing.  We all are shocked, dismayed and ultimately angry that our leaders have taken our money and helped themselves and their political friends with no thought as to the consequences. 

As an example of our leaders true brilliance, we have given away millions in foireign aid (even to our enemies), while our own citizens are losing their homes in record numbers.  And while we continue to trumpet growth, most Americans realize that our governemnt is about as trustworthy as the statisitics being slung at us.  Unfortunately, unless someone with a backbone, moral courage and true wisdom steps up to the plate, we will continue to march slowly toward a complete financial shutdown of the free world.  

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#3) On August 01, 2009 at 9:11 AM, alstry (35.08) wrote:

Here is the real unsettling part, that $50 Trillion of debt is the assets on our banks and insurance companies balance sheets.  It is what our pension and mutual funds invested in....

And now the lonas are defaulting at an accelerating pace.  It is why banks are collapsing all accross America.  Many more would have shut down but for not enough staff to enforce the rapidly declining balance sheets.

Don't sell the Fed or you political leader short, they know exactly what is going on....they presided over its creation and are doing everything they can to extend and pretend.

Just watch the following video of Benny the B responding to a question on point:

http://market-ticker.denninger.net/archives/1275-TickerGuy-Rebuttal-Bernanke-On-PBS.html

The funny part is the 20% of America who think they are OK.  Those 20% depend on the 80% to function in order for their 20% to have any value.  It is the 80% who are the customers of the business they work at...and if they have no customers, they have no business.

Soon America will realize that their only lifeline between a crashing economy and no economy is Obama's spending.

When you built an economy are giving credit to anyone over the past ten years, and that credit creation was responsible for most of the profits of the nation, once you take away the credit creation, the only thing you are left with is a pile of debt that can't be paid off.

Now we are only bailing out the Wall Street Banks and letting the rest of the country fail....and the joke is many on CAPs are cheering it on.....what they don't realize is that they are next in line.

When the government needs money, it takes it anywhere it can get it....do you see many politicians taking pay cuts?

 

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#4) On August 01, 2009 at 10:00 AM, alstry (35.08) wrote:

Federal regulators are starting to impose stricter capital requirements on banks that may have a history of loan problems -- even if those problems appear under control, say bankers and regulatory experts. Some frustrated bankers say the shifting rules have made it harder for them to book new loans and grow their way through the worst economic downturn since the Great Depression.

"It's like beating a dog while it's down," said Matt Anderson, an analyst with Foresight Analytics, a California research firm that tracks and analyzes bank data. "The regulators' actions are not necessarily too late, but they're definitely belated."

http://www.startribune.com/business/52228667.html?elr=KArksLckD8EQDUoaEyqyP4O:DW3ckUiD3aPc:_Yyc:aUUsA

Oh Great...we are going to tighten credit further as we keep telling the world we are turning around.  We give the Benny the B's buddies all the money they need but shut down the community bank.

Many of the community banks are getting hurt because the purchased the Trust Preferreds packaged by the Wall Street banks.

Soon practially everything will be Zombulated in a nation where few will qualify for credit and those that do have little use for it.

How hard is this to see?

If those that need to borrow don't qualify and those that qualify have no need, pretty soon practically everything shuts down until you change policies.

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#5) On August 01, 2009 at 10:05 AM, alstry (35.08) wrote:

Next time Benny the B tells you credit is loosening...give him the above link:

This week, federal regulators disclosed enforcement actions against two Minnesota banks -- American Bank of St. Paul, and Americana Community Bank of Sleepy Eye -- that appeared to be on sound financial footing. Both banks were ordered to put away more cash to cover future loan losses, even though their losses had shown signs of abating. The government also ordered the banks to come up with plans to raise their capital levels, even though they were both well above the regulatory minimums.

My friends, whether the Fed's behavior is intentional or reckless, the consequences will affect you, your family and your community...PREPARE!!!

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#6) On August 01, 2009 at 12:15 PM, chiragpatnaik (< 20) wrote:

prepare? how?

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#7) On August 01, 2009 at 1:41 PM, VintageCat (< 20) wrote:

Prepare?  Who knows what's going to work.  We paid all of our debts in the past few years in anticipation of retirement, closed a business and banked cash to pay present taxes and living expenses for a few years. With all of the disorder in the economy we decided to buy a small travel trailer (cash) and will take off to see the US and Canada for a few winters with our dogs (while we can) until everything sorts itself out (or not).  

Could everything collapse around us, our property taxes rising by 40% or more, basic commodities getting priced through the roof, destroying our prudent preparations?  Possibly.  We acknowledge that we are the 20 percenters that are well set today but pretty much need the rest of the world to be semi-functional to carry on with our plans.  I think if I understand Alstry (if anyone can) he is saying to be emotionally and intellectually ready to have your plans shattered by events that you can't control.  Pretty much that is the way of life.  God laughs at man's plans.  

Given the direction of this financial crisis, I'd be very nervous if I had a lot of debt and/or dependents, was living pay check to paycheck, with one set of not easily transported/translated job skills, but of course this is the profile of those institutions getting bailed out, so who knows, that profile of individual citizen may be next.  Being a very independent sort I wouldn't want to bet on it. 

 

That's how I see it.  I'm sure others have different insights. 

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#8) On August 01, 2009 at 1:57 PM, ozzfan1317 (79.35) wrote:

I actually agree things are gonna be tough for many americans for a while even if the bleeding in the economy stops soon. It will be years before the healing really completes itself.

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#9) On August 01, 2009 at 3:01 PM, alexxlea (65.62) wrote:

Debt allowed people to buy more and companies to invest more and this just made the rift of the haves and have nots grow and grow because when credit expanded wages contracted. Eventually the end outcome of this is that with our newly leveled international wages (they are coming, trust you me, ourtsourcing and insourcing are only the start of it) we will all have around the same standard of living. What does that mean for us?

Bye bye all the things we now can't live without that never used to exist that we couldn't buy with our normal wages anyways. Hello, rationing and survival of the fittest. It's not going to be a post apoc-scenario, it's going to be the apoc-scenario that we're giong to have to live through. 

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#10) On August 01, 2009 at 6:31 PM, Eudemonic (66.56) wrote:

We also live in a nation where bank employees can make billions of dollars of worthless loans yet receive billions of dollars in bonuses.

With that kind of incentive, is it no wonder that this country is maxed out?

 

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#11) On August 01, 2009 at 9:20 PM, angusthermopylae (39.17) wrote:

Prepare might mean different things to different people:

--If you are in the deflation camp, it could mean getting your hands on all the cash you can, getting rid of debt, burying it in the back yard, and guarding  it with all the military grade munitions you can handle.  After all, everyone is going to be willing to "hoar"* themselves out for every dollar they can get when there's no cash available....imagine an army of serfs and minions, dancing for that dollar....MWAH-HA-HA-HA....

--If you are a hyperinflation-ista, then preparation could mean  doing the opposite.  Move your worth out of cash (or at least, USD), buy gold, buy Pounds, buy Yen...triple mortgage the house and convert that to something else.  After all, in 6-months, that $100,000 loan will be equivalent to a bag of groceries.....MWAH-HA-HA-HA.....

--If you are a "end of days" type, convert your assets to guns, seeds, canned goods, and crawl into your bunker...'cause "they" are not going to be able to take care of you any more, and (the other) "they" are going to become a horde of starving locusts, looking to take all your stuff....so lock and load!   ...oh, yeah....MWAH-HA-HA-HA......

My point?  I think VintageCat probably has it right--it's not that there is a preparation formula (like, say, Preparation H) that will be The Only Way....it's a matter of being ready to deal with whatever might happen.

We live in a time of flux, a cusp, a period where the ol' market belief of "So it is, it always was, and ever shall be" just don't work so well anymore.  Even here on Fool, there's been a lot of observation that everyone is now talking about "trading" instead of "investing"....meaning the group-think is concentrating on the quick buck instead of the long term trends.

Me?  I'm doing what I've always done:  Make my plans, move on with life, and deal with whatever the world throws at me.  Good, bad, or rotten, my intent is to make it through the next 50-100 years or so and have as few regrets as possible.

 

 

*"hoar"  Couldn't make myself write the actual word, but couldn't come up with any other word that carried the same effect...so I settled for a homynym....so sue me.

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