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Thursday, January 7, 2010

Becoming Aware of the Ponzi

Why am I so bearish and such a permabear? Why would one think the DJIA could collapse back toward 500? (thats FIVE HUNDRED)

I think its really a matter of simple math really.  When one ponders about the debt problems and leverage in this country, any 8th grade math student can quickly come to a logical conclusion: We'll never pay the debt back.

Not only will we not pay the debt back, but we will not be able to keep the massive debt promises (or future obligations).

If anyone ever cared to look, our debt, and hence our markets, went into an exponential climb at about the same time over the last 30 years.  We are still elevated on the markets but as a country, we have not deleveraged the debt.

So the market has shown cracks, but the debt has yet to be destroyed, de-levered or paid back.

This country needs to issue some $2T in bonds this year. Now the Fed is scheming over issuing their own debt on top of this.

It is probably a well-known thought that a 2-3% interest rise will cripple this debt burden at all levels.  And the rates between the 2 and 10 year yields are the widest they have ever been. Even the yield curve resembles a Ponzi.

Yes it is true that the "officials in charge", ala Plunge Protection Team, is frantically trying everything to keep the Ponzi going but there is a fast-approaching breaking point.

Americans have largely ignored the Ponzi scheme known as the modern financial system.  Americans  don't care "as long as they don't (mess with my paycheck)/(take my pension) (don't mess with my 401K) (mess with my medical) etc etc_______________  (fill in the blank with whatever), then I don't care".  But guess what, the pensions are underfunded, the cost of services and goods are going up, health care is being screwed with and, well I can go on and on. Everyone seems to be screwing them at every turn.

So Americans are not in a good mood underneath it all.  And that doesn't bode well for economic activity in the long run.

Things are being revalued.  Housing is still way overpriced. Education is in a bubble. Who can afford even a community college anymore?

"Cheap, affordable housing".
Hey I have an idea you scumbag homebuilders and banksters:  Instead of providing/pushing/building overpriced McMansions on a big sized lot that no one can afford, or a cramped overpriced townhouse/condo/multi-unit piece of crap that are not desirable for a myriad of reasons, how about you build a nice small decent well-built single dwelling of affordable size and energy efficient on a decent plot, yet not packed together like hamsters in screwy curvy streets (hey straight works just fine by me) so you can juice every damn nickel?  And oh yeah, we want to be able to afford to heat and cool them?

Do you think you can swing this bright idea? How about what Americans want now?

Give me some breathing room from my neighbors, yet build me a nice decent modest house. Not big, not tiny and crammed against my neighbor, easy to heat and cool.  Heck, I don't even need a garage.

How about "just right" at a "just right" affordable price?

Dan, is that a crazy idea or what?

But back to the topic....

I think slowly, but surely, we are becoming to be made aware of the Ponzi. When Barney Frank and all, stuff an emergency provision to provide a $4T check for the next fiscal crisis, then those are clues provided to the people.

When California is issuing IOUs, then that is a clue.

When we toss around $100B - $200B like its chump change, when Americans cannot afford a $175/month Comcast bill, thats a clue.

Never before has there been a perfect storm such as we find ourselves in. Budgets are being busted almost everywhere.  The "funny" thing is, we have the entire nation rigged to the Ponzi.

But here is the simple mathematical deal in a nutshell: we leveraged up and at the peaks we made enormous debt promises based on the false leverage giving us the idea that "it will always be this way".

Well, Ponzi's cannot exist forever. Once you put every dime the nation has into the financial system to "make it all work" then you need ever more money. So yes we did that by creating money (debt) and more leverage. And then made more unpayable promises.

But we have done nothing to pay back our debt. The government just replaced the private debt. Its a shell game.

And the other funny thing is that the entire world is caught up in the same trap. The UK will implode just like us.  And for the rest of Europe, you can bet the Euro is doomed once the political ranglings start.

The obvious answer is to pay the debt, destroy what we cannot pay, and break the massive debt promises.

But human nature and politicians, being what they are by nature, will naturally fight tooth and nail the entire way. And they will pass laws that will have the usual unintended consequences because thats what they do best.

Slowly America is becoming aware of the Ponzi and sooner, rather than later, people are going to check out and demand payments.  Yes, they have our money "locked up" in 401ks and what not, but remember Americans are willing to let the politicians do what they want "as long as they don't mess with my ___________ (again fill in the blank).

Well guess what? They have no choice now but to "mess with your__________".  Budgets are busted, and there is no going back to the top of the Ponzi and skimming more from the beast.  It ain't happening.  America can take on no more debt, yet we do anyway in an effort to keep the Ponzi inflated.  Do we have a choice? Of course we do. Yet we will not make those choices voluntarily.

Nature will force our hands as indeed its already happening in budgets all over the country.

So somehow, I think Nature will force all Americans to start asking questions.

And Americans can be lazy. But underneath it all, most that have any money worth caring about will come to the slow realization that all the paradigms ingrained over the last 30 years was just that, a paradigm.

They will become aware of the Ponzi.

I ask any and all of you a simple question. Be honest. who thinks we will EVER pay back the trillions in debt we already owe or be able to meet the debt obligations we have made for the future?

Anyone? Does any American believe it? Did we ever? Then why does his/her brain think thats a functioning system?

Because we have lived with it for "X" years, we think we can live with it for "X" more?

Really? Says who?

Does anyone really think that GM, Fannie, Freddie, AIG, Lehman, WM, Wachovia and oh so many more going bust in less than 12 months time is the final act?

Don't you think those actions were the result of the popping of the Ponzi?

So if we cannot or will not pay the debt or honor the promises, then there will obviously be a big change coming.

The dark pools are scary places. The interest rate swaps are even scarier.

A mere 2% rise will push us down the hill and it won't be reversed. Once the run for the exits occurs and people want to cash out of the Ponzi, first come, first serve is the rule yes?

Oh you can believe P3 is coming.

Because Americans, who ignored the Ponzi through disinformation and lies from their government are now slowly becoming aware of it all. And they are not happy about it.

They were promised a lot after all. A LOT.
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