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alstry (35.87)

When is ENOUGH Fools????

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October 17, 2009 – Comments (12)

We have now reached the point where very few are hiring in America.  Practically every Hospital, Police Department, Fire Deparment, and Government Entity across America is contracting and laying off.  This process known as Concentric Contraction not stop until most of America shuts down unless we restructure debt soon.

As you can see from the following chart:

http://1.bp.blogspot.com/_Of35CqTl9wY/Ss-lEQPWfbI/AAAAAAAAACc/FgOGFHpft0M/s1600-h/Picture3.jpg

Since 2000, at a level never seen in American history, lending drove spending........and spending drove revenues......revenues drove more borrowing.......which drove more spending......until interest rates were increased 17 times and credit was cut off.  As a result, lending slowed and so did spending which in turn slowed revenues.

With slower spending and much lower revenues...businesses are shutting down as they can't meet monthly expenses.  And now, due to evaporating tax receipts, so are hospitals and police departments and fire departments across the nation. 

Mathematically, due to the MASSIVE amount of debt against contracting revenues due to little credit being extended, unless we restructure debt, servicing debt will consume practically all of the cash flow of the nation causing debt to sequentially default until most of our nation shuts down.

Now we are sitting on a debt load (FIFTY TRILLION) that simply can't be paid back with only a few trillion in savings and revenues evaporating. 

What will really be devasting is that this massive amount of accumulated debt is the asset base of our banks, pension funds, insurance companies and mutual funds.  As the debt defaults, so does the net worth of our entire nation constraining lending and spending even further.....

This process of debt defaulting, asset value implosion, and revenues evaporating is defined by Alstrynomics as Zombulation....simply an unsustainable debt burden causes debt to default which causes credit to be constrained and asset values destroyed lowering revenues further causing more debt to default creating an adverse feedback loop until practically everthing shuts down.

What few economists appreciated is how significantly credit extension impacted revenues and the growth of our economy post 9/11 that the chart demonstrates well....and more significant, the devasting impact of cutting off the credit and not replacing it with an alternative source of revenues.

For the past year and a half, I have been obnoxiously documenting Zombulation.  We are now at the point where the process is accelerating where health care, government and public safety is being impacted.  Contraction will really pick up speed going forward as revenues are starting to slow to a trickle where more and more debt can't be serviced and defaults are growing to record levels.

We saw record home foreclosures in Q3, increasing Commercial Real Estate Defaults, and rapidly growing bankruptcies.  We are now entering the critical stage where practically no one is hiring, unemployment is skyrocketing, and the burdens on government are so high that our currency is on the verge of collapse due to an evaporating economy and massive deficits.  If our currency collapses....few are prepared for the consquences.

Instead of raising interest rates on an economy where revenues are evaporating, we should have lowered interest rates on EXISTING debt so that more could service their obligations against a lower revenue stream.  With less debt defaulting, asset prices would be supported and more would be able to spend.

This solution is not hard to apply...it is exactly what we did to the banks and what happened in Japan.  By bailing out the banks and not the private sector....through Zombulation, we have virtually guaranteed the total destruction of our private sector, our economy and our currency.

Based on the current Zombulation policy, in coming weeks, you will see revenues contracting faster, deficits growing larger, more and more businesses shutting down, unemployment skyrocketing, our dollar crashing, oil prices rising, and distress reaching levels never seen in America before.

It is not hard, Zombulation is what happens when you load up a nation with trillions of dollars of debt based on rapid credit extension in a short period of time at low interest rates....and then abruptly raise interest rates and cut off credit without restructuring the debt or creating an alternative source of revenues.  It becomes mathematically impossible to pay back the debt and the nation shuts down due to massive defaults.

You can try, but if you live in America, it will be practically impossible to avoid being Zombulated.  Even if you have money, it will be very likely that the city, county, state, and nation you live in will be broke and need to tax you everything you have to keep society going.

.....remember, if a politician has to choose between your net worth and his salary, guess which one will be chosen....assuming that our currency is not worthless first?????

12 Comments – Post Your Own

#1) On October 17, 2009 at 11:16 PM, prose976 (< 20) wrote:

One thing greatly overlooked by most:

Perhaps the "crash" was bull scat, and the consolidation of business and the cutting of fat from payrolls and government is actually very good for the economy.  Hence, the "recovery" is being justified, but is actually just a return to reality.

The market is about where it should be, perhaps.

Maybe we're exactly where we should really be...even with the unemployment levels as high as they are.  While many may wish this wasn't true, and that we should really be at Dow 6000 or less, with the dollar going down in value, interest rates in the toilet and gold bubbling, a much better place to put your "money" is into something - a real asset that actually does something for you personally or for other people in your state, country or across the globe.

The market does not reflect the economy, but instead it reflect economics of the market ecosystem.  Efficient companies are worth more than inefficient companies inherently.

Here's an example of how people have looked at the market in the past.

The market was lean an mean for many years.  Then it became bloated, as did spending by the companies that composed the market.  But that bloating was recognized as valuable, because those companies were displaying "prosperous" window dressing in the form of buying more than was needed, hiring more than were needed, stocking more than was needed, paying more dividends than made sense, etc.

Smart companies have taken the opportunity to "get fit" over the last year or two.  This has made them more valuable, especially because they are still able to meet demand, innovate and also because the world is not shrinking, which gives them even more opportunity.  Conversely, current business competition IS shrinking, thus giving greater market share to the standing, more efficient companies who made it out alive.

The market companies are leveraging the long tail (read about it in Wikipedia).  There is a lower common denominator.  If you can't sell a $100 item to 100 people then sell a $10 item to 1,000 people.  With technology, it can be done, and is being done.  That's why Tech has led this thing.

I think we're fairly valued and may spend a long while between Dow 9000 and 12000, but it is very likely we could even push past our beginning 14000 because of the new value companies are bringing, not in jobs but in solid, upward trending revenues that has been enabled by the global technology revolution.

Fool on! 

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#2) On October 17, 2009 at 11:21 PM, alstry (35.87) wrote:

Once you understand the math implications of Zombulation and Concentric Contraction...we will not come close to leveling out until we exceed well OVER 50% unemployment and likely collapse of our currency.

In the mean time we will keep bailing out the banks while they get to profit through credit default swaps and other dertivivive plays as most of America shuts down.....after all, banks can't make money lending anymore....most of the loans are defaulting and there are few projects qualifed to borrow against these days.

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#3) On October 17, 2009 at 11:43 PM, alstry (35.87) wrote:

In case you thought Zombulation was only impacting America.

BERLIN - GERMAN steelmaker ThyssenKrupp will cut up to 20,000 more jobs in the next fiscal year after already eliminating 12,000 positions due to the financial crisis, a report said on Saturday.

At this point, we have still barely started to restructure debt.  It is a financial crisis because fewer and fewer can service debt against lower and lower revenues so more and more debt is defaulting.

Guess what happens to debt when those 20K workers can't find another job and /or service their loans?

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#4) On October 18, 2009 at 12:11 AM, alstry (35.87) wrote:

Zombulation is JUST BEGINNING!!!!

Bossier City will lay off 88 city employees by the end of the year -- the large majority in the police and fire departments -- in a move to close a $6.5 million deficit in next year's city budget, Mayor Lo Walker said today.

eBay to lay off up to five dozen employees

Too Much Debt...Too Little Revenues...A Toxic Combination.

50% unemployment is the BEST we can hope for unless we restructure debt.......but you think we will ever get there before something we could have NEVER foreseen happens????

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#5) On October 18, 2009 at 12:14 AM, prose976 (< 20) wrote:

One thing greatly overlooked by most:

Perhaps the "crash" was bull scat, and the consolidation of business and the cutting of fat from payrolls and government is actually very good for the economy.  Hence, the "recovery" is being justified, but is actually just a return to reality.

The market is about where it should be, perhaps.

Maybe we're exactly where we should really be...even with the unemployment levels as high as they are.  While many may wish this wasn't true, and that we should really be at Dow 6000 or less, with the dollar going down in value, interest rates in the toilet and gold bubbling, a much better place to put your "money" is into something - a real asset that actually does something for you personally or for other people in your state, country or across the globe.

The market does not reflect the economy, but instead it reflect economics of the market ecosystem.  Efficient companies are worth more than inefficient companies inherently.

Here's an example of how people have looked at the market in the past.

The market was lean an mean for many years.  Then it became bloated, as did spending by the companies that composed the market.  But that bloating was recognized as valuable, because those companies were displaying "prosperous" window dressing in the form of buying more than was needed, hiring more than were needed, stocking more than was needed, paying more dividends than made sense, etc.

Smart companies have taken the opportunity to "get fit" over the last year or two.  This has made them more valuable, especially because they are still able to meet demand, innovate and also because the world is not shrinking, which gives them even more opportunity.  Conversely, current business competition IS shrinking, thus giving greater market share to the standing, more efficient companies who made it out alive.

The market companies are leveraging the long tail (read about it in Wikipedia).  There is a lower common denominator.  If you can't sell a $100 item to 100 people then sell a $10 item to 1,000 people.  With technology, it can be done, and is being done.  That's why Tech has led this thing.

I think we're fairly valued and may spend a long while between Dow 9000 and 12000, but it is very likely we could even push past our beginning 14000 because of the new value companies are bringing, not in jobs but in solid, upward trending revenues that has been enabled by the global technology revolution.

Fool on! 

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#6) On October 18, 2009 at 12:29 AM, checklist34 (99.72) wrote:

i like pie.  especially apple or strawberry pie made by my mom.  pie is tasty and eaten with a fork.

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#7) On October 18, 2009 at 12:56 AM, alstry (35.87) wrote:

THE QUESTION IS WHETHER WE WILL BE FORCED TO GO TO WAR BEFORE OUR CURRENCY COLLAPSES DUE TO  MASSIVE DEFICITS FROM TOO MANY UNEMPLOYED AND TOO FEW PAYING TAXES

WYETH MERGER

The merger will create the largest pharmaceutical corporation on earth, with more diversified health care offerings and more solid finances. However, it will also lead to the elimination of some 19,000 jobs, or 15% of the companies' combined workforce. Details of the cuts will begin to emerge over the next month.

THE CUTS KEEP COMING WHEN YOU CUT OFF CREDIT TO A CREDIT DEPENDENT ECONOMY

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#8) On October 18, 2009 at 1:11 AM, oshiri (< 20) wrote:

Al . . .

      The ones paying the current bill have weighed in:

Under the headline: U.S debt dilemma, no better solution?

http://news.xinhuanet.com/english/2009-10/17/content_12258023.htm

By Xinhua Writers Liu Lina, Liu Hong

    Basically, as the former Treasury Secretary Robert Robin put it, there are only two ways to solve the deficit problem: to increase income on one hand, and cut spending on the other. The Obama Administration, at least at this moment, seems unwilling to take serious actions on either.

     Xinhua is the official news agency of the Chinese government. They can't write this sh*t if its not sanctioned by the highest officials in the Party. And as one can clearly see, they are now quite openly questioning President Obama's policies.

     When your largest creditor says your not taking things seriously, HOUSTON, WE HAVE A PROBLEM!

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#9) On October 18, 2009 at 1:29 AM, oshiri (< 20) wrote:

Oh, and Checklister . . . you forgot your "pie in the sky" favorite . . .FRUITCAKE!

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#10) On October 18, 2009 at 7:31 AM, FreeMarkets (97.33) wrote:

Alstry - you wrote "Instead of raising interest rates on an economy where revenues are evaporating, we should have lowered interest rates on EXISTING debt so that more could service their obligations against a lower revenue stream."

Are you saying you think the gov't should have forcibly rewritten contracts?  Please clarify.

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#11) On October 18, 2009 at 9:29 AM, jddubya (< 20) wrote:

Quick reminder Al... http://caps.fool.com/Blogs/ViewPost.aspx?bpid=240107&t=01002130057764754273

#8) On August 07, 2009 at 2:05 PM, alstry (99.24) wrote:
prose976,

We have not hit 9.09.

I have pretty much said my peace.

We have about 50 days left.

Going forward I will substantially reduce my blogging as this post pretty much sums things up.

If by the end of September, MOAP never matierializes, Alstry will dematerialize into cyber ether.

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#12) On October 18, 2009 at 10:10 AM, alstry (35.87) wrote:

FreeM,

No, simply payoff Existing Debt with new debt created by a government sponsord bank at much lower rates.

Very similar to how government calls old bonds by refinancing them with new bonds.

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