I don't want words...I want action!

They've already been awake for a while, IMHO. The big challenge is how to ease themselves into your way of thinking while giving the sheeple the illusion of competence and foresight, which they have never had in this crisis.

I'm slowly coming to the conclusion the banksters have lost their key ally and he will turn against them to save his own political skin. That's what any good Chicago politician would do!

For those who don't swallow the "suddenly-see-the-light" thesis, there was an interesting article about Obama's record low approval ratings and the need for reviving "the sense of crisis".

http://www.bloomberg.com/apps/news?pid=2....

hummm...

Pie in the sky is not your usual M.O. Karl.

words can be mightier than the sword and numbers can be even mightier.

edit
etz: that is an evil thought, and probably too true. Its all political to them.

The Ticker wrote..

Clearing this excess debt means either accepting more than a decade of negative to moribund economic performance and the potential for an outright credit-led collapse at any time or [...]

Does this mean that you no longer consider an outright credit-led collapse as inevitable?

-Uwe-

I never considered it inevitable. The probability has gone way up however.

It's too late and I'm too tired to go digging through what's got to be more than 1000 Tickers now, but I had interpreted at least some of them as implying that the math made such a collapse inevitable.

That's OK. A decade of moribund economic performance is probably preferable to an outright collapse.

-Uwe-

Karl, I am under the inevitable impression too. Clarify?

QE/HFT "Situational inflation" to boost the stock market at the expense of the dollar cannot continue indefinitely because there are only so many shorts that can be squeezed before more shorts come in and the pressure they apply is insurmountable. The only way to stop them is a more-than-covert amount of intervention, and at that point bond buyers do spook (they'll accept a slightly negative return for presumed safety, but not an outright inflationary ****).

I see no way in hell that the government's impending 2010 tax dilemma will be solved in six months. The deficit will go from parabolic to hyperbolic.

Collapse seems inevitable as long as the banks are allowed to mark to fantasy. Impossible however to predict an exact time as to the collapse, but the trend is irrefutable.

Part of the complicity of our government is the fact that they've driven out all industry and jobs, because of the unions, government entitlements and overall spending, so all they have left is taxes on trade (sales taxes, etc.) and garnering interest on debt. We produce debt, that's all we do. There really isn't anything to recover to.

This is a much bigger problem than propped-up banks now, Status.

1) To prevent a hyperbolic federal deficit implosion of the govt. bond market after 2010 tax receipts pound the final nail in the coffin, Congress & Obama must slash spending by a considerably greater percentage than any congress has ever cut in one fiscal year in history, and certainly not within the welfare-state era (so it just won't happen).

2) The Fed, therefore, must continue to buy govt. auction paper at an accelerating rate, with deleterious effect to the dollar. For the moment, this is intentional to boost stock prices (as, being highly fluid, they quickly adjust valuation to changes in the currency). The effect of this, however, is to merely reinforce political recalcitrance to do anything about the looming deficit bomb.

Are there "tricks" up Bernanke's sleeve with which the Fed and the govt. can worm out from under this?

No. So, what's his game-plan, assuming he's not just incredibly incompetent?

IMO, the only theory that makes sense is that the whole shebang is an orchestrated attempt to save a few corrupt banks at the expense of everything else which they already think is going to implode anyway. I.e., they believe the stock and bond markets and the government are all doomed, so they're staving off disaster for one single year in order to loot as much as they can. Apparently, even the Fed itself will be sacrificed (...I haven't figured out how Bernanke saves his own hide from the consequences of that, however).

Bezzle,

Nice, the FY2009 tax receipts are already down 800 Billion with 2 months to go. No surprise guarantees of everything are off balance sheet in the GSEs. Interesting even with TARP etc, FY2009 to date outgo is only up 80 Billion or so.

Not sure how much further the tax receipt run rate has to fall, corporate, estimated and wage tax receipts have all cratered.

Maybe Ben's best case is a 1.2 Trillion a year increase in the bond market for 2010.

The financial markets and the real economy are two separate, although interrelated, things. IMHCO, the waves from the collapses in the financial markets are still resonating through the real economy. And the crux of the "green shoots" versus "green ****s" debate is over what kind of feedback waves from the real economy are about to hit the financial markets.

From the ongoing financial collapses of individuals and firms, I'd say that those who believe that "the acute phase of the financial crisis" is over, such as economist John Makin, are more full of it than a Christmas turkey. But at least Makin sees the issue, blithe and dry though he may be:

Quote:

While the acute phase of the financial crisis has been truncated by aggressive measures of central banks and governments, and while economic activity in the traded-goods sector has stabilized, the outlook is somewhat uncertain. Coming full circle to the present, the consensus characterization of the real economy, especially in the United States, seems eerily similar to what it was a year ago. Most forecasts call for positive growth during the second half of the year, anticipating a substantial boost from the temporary surge in auto production tied to the federal government's $3 billion subsidy to encourage trading in older cars with poor fuel efficiency for new models. The Fed, having been chastened by the abrupt adverse turn of events during the fall of 2008, has signaled that it will hold rates low for a substantial period of time while maintaining an enlarged balance sheet. The large boost to U.S. disposable income resulting from enhanced tax cuts and transfer programs during the second quarter has ended. During June, the latest month for which data are available, real disposable incomes for U.S. households fell by 1.8 percent, while real consumer spending fell by 0.1 percent.

Going forward, further reductions in spending are both possible and likely. For the balance of 2009, financial markets will continue to rise if the real economy performs as expected and demonstrates that the U.S. recession ended in mid-2009. A tremendous relief from a policy-induced truncation of the financial crisis early in 2009 coupled with the slowdown in the rate of contraction in the U.S. and global economies has already been priced into most financial markets. The risk, however, is that the middle two quarters of 2009 could mark a temporary high point for the U.S. economy as annualized growth rates average a little bit above zero. Following that, flat to negative growth may emerge later in the year or early in 2010.

An acceleration of deflation would be an unnerving development for both central banks and financial markets. Persistently falling prices mean weaker profits and higher real debt burdens. Profits for many U.S. firms increased during the first half of 2009 by virtue of aggressive cost-control measures, which included a sharp reduction in spending on capital equipment and severe cuts in the labor force that, in turn, sharply reduced disposable incomes. Those developments suggest that an adverse feedback loop may be emerging within the real economy in which efforts at cost reduction to increase profits ultimately depress demand growth and, in turn, further harm profits and growth.

The other big question mark going forward concerns the increasingly important role of China in the global economy. We may well get a test of the "decoupling hypothesis," whereby Asia, and particularly China, is said to be able to keep growing even in the absence of growth in the United States, should U.S. growth slow toward the end of the year. While China's massive stimulus program should yield an 8 percent growth rate for China during the 2009 calendar year, sustained growth beyond that will probably require support for global aggregate demand from U.S., European, and Japanese consumers--each of which looks to be in doubt as we approach the autumn.

The global economy is at an important juncture. The story of the year to date has been, first, the substantial power flowing from collapsing markets to a collapsing real economy in the fall of 2008 and a reversal of that process in the spring of 2009. With financial markets likely to be playing a smaller role in determining the path of the real economy, it is prudent to consider how the feedback loop may run from the real economy back to financial markets. If growth resumes on a sustainable basis (as the consensus currently believes), financial markets will rise further, thereby providing additional reinforcement to positive growth in the real economy. Conversely, if aggregate demand fails to pick up and the real economy falters, financial markets will have a difficult time sustaining current levels and may even come to pose further downside risks to global economic activity.

John H. Makin (jmakin@aei.org) is a visiting scholar at AEI.

http://www.aei.org/outlook/100067

I’ll say again; it’s true that there is too much debt in the system but more crucially, its not evenly distributed.

A 40% reduction in debt will not hit everyone the same, it’s a meaningless number. You would be better to talk about the number of people who will have their lifestyle meaningfully changed- for 5 years, 10 years..permanently.

If someone relies on INCREASING debt otherwise his family is homeless- they will be hit even without any actual loss of credit.

The least creditworthy and the over extended were the target recipients of the credit deluge, they will be the hardest hit, and they are sure going to be resentful. It's a small step from "irresponsible with credit" to "irresponsibly destructive".

Your numbers are not wrong, we can all see that.

But plainly, if the situation is to get better, attitudes and behaviours of most people are going to have to change.

The question is, how do we get a positive change in attitudes and behaviours without going into civil unrest?

Whether we like it or not, we are all connected in many ways to the least creditworthy and the overextended.
Hell, some of us are even related to them!

Socialising the debt seems the least effective way of getting changes in attitudes and behaviours.
But a sudden stop may get changes in behaviour you don't want.

Cutemloose: Err um, the least creditworthy saw their "lifestyles meaningfully changed" in the form of the unearned prosperity they enjoyed during the bubble years. Now those lifestyles are reverting to the mean: destitution.

They can call me a hard-ass if they want. But I'll only loan my box cutters to my relatives, for them to cut windows in their new homes, if they put down a quart of Mad Dog as collateral.

Fed Hoeing's speech
www.kc.frb.org/speechbio/hoenigpdf/hoenigKBA.08.06.09.pdf

jst- totally agree.

Lets just be clear what the reset could mean if it is just seen as "just deserts" (a punishment or reward that is considered to be what the recipient deserved)-WIK.

I feel this could result in "Cutting off the nose to spite the face".

"Cutting off the nose to spite the face" is an expression used to describe a needlessly self-destructive over-reaction to a problem: "Don't cut off your nose to spite your face" is a warning against acting out of pique, or against pursuing revenge in a way that would damage oneself more than the source of one's anger. -WIK

What I mean is that they've blown the cash.. you aint getting it back. They have nothing (they are negative). They are not going to "balance the books".

A 40% average reduction in debt spreads the credit problem over the whole population. But the responsible ones are not the problem. The solution must target the irresponsible (lenders, borrowers, regulators and voters).

But we gotta be smart enough to make sure that the way forward promotes civil behaviour rather than undermines it.

Enforce the law and reflect on the laws to see if they need improving would be a good start.

I guess truth is, even this would cause instant reset.
Sheesh..and I was trying to be positive!
I don't see a good ending.

How about just doing whatever we need to so that we postpone the reset till anytime later?
Comes a point where it don’t matter much how badly we are killed.

Depending on which side of the bed I get up on, every day my feelings range from Cutemloose's go-cautious approach and Jstanley01's more emotional response.

I truly haven't figured out how I feel about what our future holds.

Could civil unrest somehow be an impetus for needed change, or would it merely be an end unto itself and send society spiraling?

Do we need to see Jamie Dimon hanging upside-down from a lamppost on Wall Street before the banksters get the message?

Or do we take the what-the-hell approach and keep kicking the can farther down the road? After all, our gov't and markets have irretrievably lost any semblance of integrity or ethics, and in the long run we're all dead anyway?

Like I said, for now, it depends which side of the bed I get up on.

Cutemloose: Okay, I think I see what you're getting at better. Here's my take:

People want short-term solutions that don't involve pain so badly, that they will almost always choose them -- even when they know in their heart-of-hearts that they're bogus -- over long-term solutions that do involve some pain.

This always produces situations in which there are NO SOLUTIONS POSSIBLE.

Of course a blanket statement like "no solutions possible" has to be qualified. In that, from the perspective of the planet as a whole, earth has the option available of deleting its experiment with the human species and its particular foibles. And seeing what it can make out of ****roaches and whatever else, between now and the heat death of the universe.

Jstanley01,

I respectfully disagree in that IMHO, there's always a solution. The solution may have a cost that is unacceptable, ity may be dihonst or unethical, but there's always a solution, a way out, a way to win. At Harvard Busines School they teach that the solution need not be honest or ethical, as long as it pays off. Read "Why be Honest if Honesty Doesn't Pay" by Amar Bhide and Howard H. Stevenson, Harvard Business Review, September-October 1990 and "How The Might Fall and Why Some Companies Never Give In" by Jim Collins, ISBN 978-0-97-732641-9.

BTW, the rumor I hear is that to hit all who took loans recklessly the solution is very simple. Remove the deduction of loan interest in federal and state taxes, unless you can prove it's an business investment for which you are an active (read: daily) participant.

Nuke,

that rumor has been rumbling for years...at least as it relates to mortgage interest. I suspect you know what that does to real estate valuations indeed the collateral of many banks. For this reason, I can't imagine Conmen removing such a deduction.

Though I am curious if your source is a C level type.

The Fed has to inflate with debt because debt is what gives the dollar value. Without debt denominated in dollars, no one really needs dollars.

So in effect, the Fed does not want to solve the debt problem. It needs to keep the world indebted, keep the demand for little pieces of paper high by civil contracts written with dollars as the denomination.

If the Fed prints too much money, and solves the problem too well, it means the end of the Fed and the end of the dollar.

Treasury defaulting. What does that imply?