TOTAL MELTDOWN SOON???
On Friday, UBS finally marked down municipal debt. Canada is finally accepting commercial paper defaults and mark downs. Residential mortgage defaults have reached historic levels. Commercial RE defaults are rising rapidly, espeically condo loans. Consumer revolver default is also reaching new highs. Many classes of debt in America are under stress. Debt is over a $40 trillion dollar asset class with counterparty obligations and supported by collateral or income.
Against the above, asset values are crashing and ncomes are evaporating. BANK DEPOSITS ARE FLYING OUT THE DOOR as people and business spend down their savings or pay off debt. Banks loan at 10X to 1 so when a dollar goes out in can impact $10 worth of loans.
So have we have finally arrrived to the day many of us saw were coming?
Outstanding debt is now much higher than the assets covering it. Income streams are not enough to cover the debt payments and NOW INCOME STREAMS ARE FALLING!!!!!!!!
This time it is not just one segment of the economy, or one geographical region, it pretty much covers the whole playing field. Banks, Real Estate, Municipalities, Individuals ect......
WHAT HAPPENS WHEN THERE IS TOO MUCH DEBT AND NOT ENOUGH INCOME TO COVER THE OBLIGATION? TO THROW FUEL TO THE FIRE, INCOMES ARE DECLINING (AT ALL LEVELS-GOVERNMENT, CORPORATE, AND INDIVIDUAL) AND ASSET VALUES ARE CRASHING AT THE SAME TIME!!!!!!!!!!!!!!!!!!!!!!!!!
NOT ENOUGH ASSETS TO COVER THE DEBT AND NOT ENOUGH INCOME TO SERVICE THE DEBT? BASICALLY MANY SEGMENTS OF THE ECONOMY ARE BANKRUPT!!!!!!!!!!
And things are deteriorating rapidly as credit contracts, incomes decline further and assets continue to implode. WE are all subprime because the system is BANKRUPT.
In the past, the system always had enough income to service the debt because we were a growing economy at the productive level. In the past seven years, the catalyst for growth was DEBT!!!!!! Productivity was shipped overseas as we started servicing each other....it you know what I mean. We would like to believe that exports can make up the difference but relatively it is like bailing out the titanic with a spoon. Asia has most of the exports and they are beginning to service each other.
Once you tap yourself out, that is pretty much the end of the road. Savings are being depleted and incomes are evaporating rapidly.
Many segments of the economy are CURRENTLY tapped out. Municipalities, States, Real Estate, Individuals, Banks, and Brokerage Firms. Even Health Care is getting squeezed.
You think concealing a few hundred billion dollars in defaulted debt is going to solve a $40+ trillion dollar issue?
We were able to service the above debt because we extended more debt. The problem is not about defaulted debt, THE PROBLEM IS MUCH BIGGER. It is about how do we service the debt without new debt to cover it? Remember, incomes are declining!!!!!!!!!!!!!!!!!
Think about where we are today and where things will be in just 90 days as our prune shrivels into a raisin. Sorta like taking a penny a day and doubling it. The head of the NY Fed decribes the problem like trying to unscramble an egg. If you live in a city, put your money in a bank or maintain insurance, or own any assets, you will likely be affected.