Has it finally started????
June 26, 2008
– Comments (6)
Are we finally realizing that our free ride to the ATM credit machine is coming to an end?
Over the past 30 years, Ford and GM have accumlated $500 Billion dollars of debt. About 5% of our national debt. Ford and GM were basically subsidized by our pension system extending ever increasing amounts of credit.
Now it looks like the system is saying no mas at a time when revenues are evaporating. What the hell do you think is going to happen to our auto companies when they can't borrow any more money to make their debt payments?
The same thing happens to people when they can't borrow on their credit cards or home ATM to meet monthly obligations. They default. The lose any equity in their house and start over.
For a company, its stock goes to zero, its debt is restructued, and if viable starts over.
The question now is whether we have entered a period where less and less credit is going to be extended. If so there will be less and less money to spend and more and more business will fail. As more and more business fail more and more jobs will be lost causing spending to decline even further.
At some point the process stops, but the result is a much smaller economy with much less leverage. Many homeowners are wiped out and many equity holders are eliminated and replaced by debt holders.
The above is simply the natural course of an unwinding of a credit bubble when its government chooses restructuring over hyperinflation(rapid inflation occurs when you allow people to borrow as much as they want with little concern for ability to repay...housing is the perfect example).
It appears we are finally waking up and realizing what is going on. Credit is drying up. No more home equity loans. Credit card availability contracting. No more money for commercial real estate projects. Few private equity deals. No more municipal auction rate securities...ect...Many of our companies and municipalities depended on this money to be viable and now its going going gone.
Once people realize this, expect a mad rush to liquidate assets and pay down debt.......it seems like people are finally waking up to the issue......it will be interesting to see what happens when a lot of people try to sell similar things at the same time.................
In the end, many business will be wiped out, many individuals will go bankrupt, and our local and state governments will have to restructure debt as the new lower revenue streams is simply not enough to cover interest payments.
It is not complicated......just the mathematical result of unwinding the largest credit bubble in human history.....and the consequences will be felt worldwide.
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