VERY SOON.....are we ALL Madoff Clients????
Bernie Madoff ran a Ponzi scheme. The assets and values on the statements he sent to clients were illusory, but perceived to be real by those that received them. The checks kept coming until money stopped flowing into his firm. His clients slept like babies at night thinking they had millions, tens of millions, and hundreds of millions of dollars working with the man that paid like clockwork.......until the clock stopped one morning......and their lives turned upside down.
If you think about it....are most Americans really in a very different position than Bernie Madoff's clients??? The vast majority of assets making up the wealth in America is DEBT!!!! Yes debt.
Municipal Bonds, Corporate Bonds, Mortgage Securities, Securitized Credit Card portfolios, Securitized Auto Loans, and trillions and trillions worth of deritives based on that debt. If you put it in perspective, the total value of the stock market is likely $10 Trillion dollars, but the total value of debt exceeds $50 trillion....and much more if you factor derivitives.
The vast majority of assets in banks, pensions funds, and many retirement plans is debt. As long as the money keeps flowing in, the debt is serviced and everyone is happy.....just like Bernie Madoff's clients. Not only that, much of value of equity is a derivitive of debt....like the value of houses and many corporations (with lots of debt on their balance sheet). If the debt is impaired, many companys' equity is WORTHLESS.
At the end of the day, even currency is DEBT. If you look at a dollar, it is a Federal Reserve NOTE......a DEBT instrument. DEBT IS MONEY. It spends just like money because it is money. DEBT should be counted as part of the money supply just like deposits.....
If you think about, just about everything we value is either debt or derived from debt in some way or another. All is good if the debt is being serviced. Just like all of Bernie's clients, we are happy as long as we get our checks every month and we are told that our value is holdin....but if the music stops.......
Here is the PROBLEM:
Fewer and fewer people, families, businesses, and state and local governments can afford to continue to service their debt. DEBT is DEFAULTING at an accellerating rate causing the value of the majority of the assets in America to IMPLODE!!!!
Real Estate is the most visible to all of us...but so is the value of the debt itself.....and for us CAPs players...equity values are priced derivitively to the value of debt.......but sometimes our statements show a much higher value than reality would normally dictate.
If you think about it.....the vast majority of American's wealth is centered in Real Estate, Business Equity, and Debt holdings.........and our savings is backed by DEBT.
AS DEBT GOES.....so does the value of just about everything in AMERICA......
As stated in an earlier blog....debt was often serviced by borrowing more money creating even more DEBT adding to the asset base of the nation......and then our wise bankers levered up 10X, 20X, and 30X to expand debt even more and to keep servicing the existing debt while giving themselves HUGE bonuses.......this was hyperinflation of DEBT!!!!!!!!
During this period we all looked at our statements and everyone was happy is it kept getting bigger and bigger every month as TMF and others were screaming BUY BUY BUY and chastising Alstry saying he was too Doom and Gloom and his blog offered little investment value.
You think Alstry felt a bit like Markopolous when he tried to warn the SEC about Madoff and was rebuffed?????
Well we are just waking up right now. Jon Stewert did a pretty good job getting the ball rolling......and my what a long ways to roll it has............
Things are not stabilizing....they are getting worse....A LOT WORSE!!!!!! as more and more debt continues to default destroying value in BANKS, PENSION FUNDS, RETIREMENT PLANS, HOUSING, and STOCK EQUITY we will become more acutely aware just like Mr. Madoff's clients.
If you think you are OK because you have savings......don't forget to look at that money.....IT IS DEBT......and if few are paying taxes.....what do you think the government is going to be able to exhange it for......more debt???????? How much will that debt be worth??????
Remember, the day before the Madoff scandel broke out......his clients perceived they were RICH!!!!!!! The day after they were broke.
Look at your own net worth.....how much of it is based directly or indirectly on DEBT.......and if debt is defaulting at an accellerating rate......in the end.....will any of us really be in a much different position than Bernie Madoff's clients??????
And for those of you that think we can inflate our way out of it.....that is just creating more debt......isn't that what got us here in the first place????.........yes my friends, we are all just waking up that the last ten years or so was one big PONZI scheme.....we are all just like Mr. Madoff's clients.........now it is only a matter of time before we are told.