The Crash is past. Comes now Inflation.

[Demeter]

http://discuss.epluribusmedia.net/node/961

Seems to me a lot of people don’t realize the worst financial crash since 1929 has already occurred. I suppose they are waiting for a big explosive fireball and a lot of noise like in a Hollywood movie, or for the nightly news on their wide-screen televisions to show pictures of desperate bankers and brokers splattered on the sidewalks in front of 60-story temples of finance.

This diary is my humble little attempt to let these people know that the crash has already happened. It began in August. I guess they didn’t notice, but a number of financial markets have already collapsed. First, of course, there was the derivatives based on sub-prime mortgages. That seems to be about where the common consciousness stops. But before U.S. Secretary Treasury Hank Paulson and Federal Reserve Chairman Ben Bernanke (a.k.a., Captain Carnage) even lifted a finger to try and sort out the sub-prime mortgage mess, they first had to deal with the collapse of the market for Structured Investment Vehicles. Since these two crises began last summer many other financial markets have also collapsed: corporate junk bonds, asset-backed commercial paper, municipal bonds. This last was saved just last week by New York State Insurance Commissioner Dinallo basically forcing Moodys, S&P and Fitch to give AAA ratings to the monolines insurers. All these markets have pretty much ceased functioning, with not even the banks that created some of this stuff willing to buy their own product. Financial institutions have also been disappearing, especially a number of hedge funds, the most recent being this past week: Peloton, a London-based hedge fund specializing in asset-backed bonds.



So, this is it. The financial system has crashed. Now we're finally seeing the Republican's cherished "trickle down" theories begin to work – and with a vengeance- as the damage spreads into the real economy. The basic mechanism for this is the contraction of credit, which is cutting off funds for real economic activity. Goldman Sachs and others estimate that the financial crash has contracted lending by about $2 trillion--and our economy is $15 trillion in GDP. Banks and other institutions are simply unwilling to lend. Here’s the results we know of so far:



Credit for auto loans is also drying up. A friend of mine applied for an auto loan at Wachovia, and was told they were not making loans. I thought it might be racism, so I called a different branch myself and was advised that if I wanted to buy a car my best option was to take out a line of credit on my home equity. Poof! There goes the auto industry, and all its supplying industries like steel, glass, plastic, machine tools, and so on.

As a wag on European Tribune noted a month or two ago, now we have peak credit to add to our worries over peak oil.

READ THE WHOLE ARTICLE COMPLETE WITH EXCELLENT GRAPHS. THEN WEEP.

[NMDemDist2]

1. I knew that

finally someone's admitting it

:scared:

[lapfog_1]

2. The crash is not over... this is a slow moving crash.

It will be at least another year before the full extent of the "correction" is realized. Housing prices have to decline by 30 to 40 percent first. And the credit crunch has just started. Better lock up any cash you want access to now (well, it's probably too late now). If you have a line of credit on your house... use it today if you can. Borrow against it and buy gold.

I'm serious.

[Warpy]

7. Easily, since bad housing paper will be resetting through 2009

We won't know the real extent of the thievery driving this particular mess for many years down the road, long after new regulation has been put into place and most of the thieves have moved on to greener pastures where there are no extradition treaties.

I don't think gold is the answer. It's a thief magnet, it only follows inflation and deflation curves, it produces no income, and it rarely brings its true value in a deep crisis.

The best bet is to be as far out of debt as possible. People will find that servicing credit card debt, especially, will start getting very expensive in the coming few years.

A lot of people out there who have been flying high on plastic are suddenly going to find out their net worth is in negative numbers and living within their means is going to become quite a challenge.

The credit bar is closing, cutoff time is here.

[truedelphi]

10. Are you aware that during our last big crash, 1929 to 1941

The government made it mandatory for everyone to surrender their gold.

And gold still had some value - as the borders remained more fluid - in the thirties, you could get it and out without having your luggage X rayed.

otherwise I would support what you are saying.

[lapfog_1]

11. Oh yes, I am well aware of it.

could happen again... sure. I don't rate it as highly likely... mostly because we no longer have a gold backed currency in this country.

However, our currency is at great risk right now... inflation could easily change to hyper inflation... should China dump the Tbills they own because they no longer care to support our governments spending habits. More likely they redeem their Tbills to buy up our grain supply and other raw materials like steel. The not talked about story right now is that the world is running a wheat deficit (the world consumes more wheat every year than it produces). The stored grain supply is running low... when it runs out, well...

I would say land is a good place to be... but not this cycle. Stock and bonds... no. Foreign currency... that could be a good bet but you have to be careful. Commodities... only if you like to gamble. Precious metals... I hope I'm betting right on this.

[truedelphi]

12. Here's another question - how does the average investor

Know that the gold they buy really is gold.

The average person could tell whether something was gold plated or not - but how would an average guy or gal know whether the gold they buy really is what they are paying for?

And it seems to me that it would be rather pricey to have to continually analyze your purchase.

[lapfog_1]

13. The average investor does not buy gold for DELIVERY

much like you don't buy pork bellies or something and expect a meat wagon in your driveway.

You buy gold by purchasing gold certificates from a reputable gold trading company OR you buy stock in a gold mining company (the value of which is often pegged to their known and proven ore reserves).

Of course, you could go down to the local pawn shop and buy some but I wouldn't recommend it.

I have purchased gold coins in the past, again from a reputable company. But only pay for the value of the metal in the coin, not "Franklin Mint" inflated prices for collectables... I was able to sell my coins, again at market rate minus a handling commission, without any problem.

[truedelphi]

20. Thanks for the info. n/t

[zonmoy]

21. things are going to get a lot worse.

what is the current worlds population. 8 billion. think of that dropping through famine and disease to 8 million.

[peacetheonlyway]

3. thanks demeter

add to this the 7Trillion deficit and the sagging american dollar. means
that american 401K portfolios are going to shrink overnight (especially when 7 countries abandon the dollar for buying oil)
and add to this the baby boomers needing healthcare you have a perfect storm:

old people with retirement funds cut in half and needing healthcare in an environ where medicaid is over spent / over stretched.

you have a crisis the likes of which makes the depression (people standing in line for food) look like a birthday party.

i predict by 2010 theere will be full scale revolution of the citizens trying to get their government to represent them again.

[Hydra]

4. K&R for later reading

I've been screaming at the top of my lungs that were are in DEEP SHIT due to the people in control of our money, but most people don't want to believe it.

[Virginia Dare]

5. We're still free falling..

I don't think we've quite crashed yet, but that's coming.

[zonmoy]

22. we aren't even falling yet. we are just teetering on the cliff

just beginning to go over.

[Demeter]

6. Twenty Minutes to the Greatest Page

If only it were GOOD news! On the other hand, if the worst happens, and greedy pigs are slaughtered in the street, maybe it will be good news after all, from an historical perspective...

[slipslidingaway]

8. Thanks, looks like a good site. n/t

[QuicklyLoving]

9. The stimulus package is not enough

The question is, what to do to alleviate the problem. Economists have argued that more had to be included in the bipartisan stimulus package approved by congress; but Republicans strong-armed some Democrats into passing a not-good-enough bill.
Key parts such as extension of unemployment benefits and food stamps were left out thanks to the Republicans.

[twiceshy]

15. What to do?

The problems we face are so systemic and overwhelming, I'm not sure people can even grasp the scale of the problem. The "powers that be" starting with Nixon and extending through Carter, Reagan, Bush I, Clinton, and Bush II have sytematically hollowed out our economy and left us with the bill. I remember as a kid every small town had it's manufacturing some in old mills and some in more modern buildings (we used to buy cigarettes out of the vending machine at the Corning Glass Plant). It's so sad that we replaced the making of things with stupid services and a mountain of paper promises that will never be repaid.

[Warpy]

14. Cross posting this in the economics forum

It's too important to allow to sink here.

[Baby Snooks]

16. The banks are insolvent

Were it not for the Federal Reserve continuing to lend money to the banks, the banks would have collapsed. They are insolvent.

Eventually some will collapse despite the infusion of capital that the banks merely use to "balance the books" with. And eventually the stock market will crash. That is just reality that the American people just simply don't want to accept. Despite the indications every day in this country that the inevitable has already happened. Some are merely managing to survive it better than others.

The "naysayers" have no concept of reality. They send the maids to the grocery store. They send the drivers to the gas station. The credit card and utility bills are sent directly to the accountant. Life is good. Out of sight, out of mind. Until the accountant calls at some point and tells them the maid has to go and the driver has to go and that they need to start turning off the lights when they're not in the room. And that is happening.

And the other reality the American people don't want to accept is the reality of peak oil. There is plenty of oil. According to the industry itself, that is not necessarily the case. There may be plenty of oil. At $200 a barrel. And then $250 a barrel. And that is coming. As major fields in Mexico and elsewhere begin to deplete, OPEC will make up the difference. And charge even more per barrel. We are now basically at the averaged price of $100 a barrel. It will fluctuate. And then begin to go even higher. It will not go lower. Despite everyone demanding that Congress act. Congress has no control over OPEC. And we simply are not "energy independent" in this country. And haven't been for a long time.

Next time you're at a gas station, notice the price of diesel. Commercial interests pay less. But are still paying much more than a year ago. And as they pay more, the cost of goods goes up. Which we see every day in the grocery store. Unless the driver takes the maid to the grocery store and the credit card bill is sent to the accountant.

[balantz]

17. That's the way this poverty-level individual is seeing the "crash".

Every day there is another item at the grocery store that is 25, 50 cents, or a dollar more. Soon I will be cooking beans for me and my kid. Serious. I hope the government surplus beans will still be available in the years to come.

[bpeale]

18. what people refuse to acknowledge is

that this will affect everyone regardless of their circumstances and it will make the great depression seem like a tea party by comparison. it will eventually come to this ... if you don't work you won't be eating. when this ship of state goes down, we all go down with it. it's not that the poor will go down because of course we are at the bottom already, but that the rich will be down WITH the poor. we're all on this planet together & one can't go down without all going down.

[katty]

19. crash will wind out over a year-by 1stQ 2009 we'll be in

full swing and heavy fallout. If you haven't already downsized (or have been forced to)if you can, do more.