Get Ready for a Nice Ride

While the financial talking heads in the mainstream media, are calling the end of the recession, it is getting quite obvious that we are just getting started with Great Depression II.

This “uptick” in economic activity is merely blip, helped in large part by the Cash for SuckersClunkers program.

Deleveraging is under way, and it is going to be the mother of all cycles.

6 thoughts on “Get Ready for a Nice Ride

  1. i tried to read what he wrote, but it is very technical. can you interpret for those of us who know more about art (or kids or …) than business?! THANKS!

  2. Do you ever read Karl Denninger, Amir? He had this one a few days ago.

    Well? We live in a society that is begging on its knees for judgment. Not that I look forward to it.

  3. @Ame
    It’s kind of like this: if you live a certain lifestyle–that requires you to continuously acquire debt–then you can only maintain that lifestyle by acquiring more debt.

    Trouble is, as you acquire more debt, your service requirements for that debt–interest payments–also increase.

    When you reach the point at which (a) lenders won’t give you any more money, and/or (b) you find that you cannot make the interest payments on the debt, you will find yourself at a time of reckoning.

    If someone hands you a load of cash to “bail you out”, that will only exacerbate the problem. Why? If lenders still won’t give you the cash, you will burn through that money very fast, and you will quickly run out of rope.

    When that happens, then all lending has ceased and incoming cash flow is insufficient to maintain the lifestyle.

    End-result: deleveraging. That often comes in the form of paying down debt, defaulting on debt, foreclosures, chargeoffs, even bankruptcy. But the end-result is this: debts are getting reduced and the standard of living is taking a hit.

    How does this translate to the larger economy?

    The GDP is being propped up by consumption and the accrual of debt. that helps keep industry afloat. If credit dried up today, most business would go tits-up within a week. Job losses would be extraordinarily widespread. Wages and prices would drop dramatically.

    It would be a very nasty recession, a Depression-sized event even.

    Government will try every trick in the book–from more bailouts to simply printing money–to stave off the inevitable. Trouble is, when China stops buying dollars, we will be at our final point of reckoning.

    The deleveraging will be ugly.

  4. Amir, you will never be accused of being an optimist :).

    Real world economics can never fully be reduced to simple equations on a piece of paper. Your constant doomsday predictions always leave out two major factors: Human ingenuity and his desire to make money. Sure the economy is worse than it was a few years ago (I still wouldn’t call it a bad economy compared to the economies of most countries in the world), and yes there are indicators that it may get worse. But to say we are headed for an economic nuclear fall out is stretching it a bit.

    Creativity and Ambition can (and has) worked us out of most economic situations.

    Not to mention divine providence. Since all governments are under God’s authority and all work is from God, our Hope is in God’s hands, and one thing God has shown me through the years, is things never end up being as bad as my mind and flesh imagine they will be.

    Not to say we shouldn’t make sound financial personal decisions, zero debt, save more than you spend, etc. especially during hard times, But don’t dig that fall out shelter just yet. We are a long way from total melt down. And there is no problem too big that prayer, hard work, and registered voters can’t solve.

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