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We ask "where did the credit go" repeatedly as consumer leverage has risen but personal consumption has risen at a slower rate. There is in fact no mystery: production was offshored to China, India and Vietnam (among others) and replaced with lower-wage "service" jobs. We have used credit as a means of masking our falling real standard of living by engaging in serial Ponzi Finance - first with the Internet Bubble and now with the Housing Bubble. But the Internet Bubble was small potatoes compared to the Housing Bubble, and we've run out of "bigger bubbles" we can blow to take the Housing Bubble's place. As defaults mount the facts are exposed whether we want them to be or not: our earnings power has been severely damaged as a whole by the intentional off-shoring of high-quality jobs and the importation of lower-quality (and lower-wage) workers into the US and we have tried to make up for the deficiency through borrowing. But borrowed money has to be paid back - and we can't make the payments.

Damn right, nailed on the head. Id give you a star if I could

The reality of it all is that is was destined to blow up from the very beginning, as it has done before. The only question was when. There are some controls on the time frame, but not the eventual outcome. That has always been a mathematical certainty, so the question is not Is it time to recognize reality?.... A lot of us, for many yrs, have recognized and accepted the certainty of mathematical reality.

The better question now is:.... What is going to replace it ? Place your bets and plan accordingly to your thesis of ___flation...... and good luck on your pick of "De" or "In" when you fill in the blank to complete the above word....

Off subject but Bear, your avatar is ****ing king....

Karl, 3rd chart not clickable. Thanks for all you do!

TJ...Yes....a GOOD day fishing !

Fixed that.

one other thing - wealth has been accumulating at the top more and more over the last 20 yrs, and the more wealth gets accumulated the more credit MUST be used to 'give' money to the lower classes to keep enough money flowing uphill to sustain the system. Usage of debt of course causes even more money to accumulate at the top, and so ever increasing levels of debt are needed to sustain the same economic level over time. The reason we arent out of the woods yet is because NOTHING the government has done has prevented or changed the level of accumulation occuring at the top of the system. They have simply let the lower rungs of society continue to owe money to the upper while trying to keep the upper solvent so they can yet again push more credit down the throats of the borrowers. Obviously it can't work.

Read some Doug Noland at Prudent Bear. We are now in a World wide government finance bubble that is many times larger than the housing bubble. This is the terminal bubble, unless they can stoke an Asian consumption/debt bubble. Bet against them at your peril. These people blow bubbles for a living, and once they get some traction, its to the moon. I don't think stocks are irrational as most people assume. A totally government backed bubble is a speculator's dream come true. Unfortunately they seem to have a little trouble with the dismount, but that's for another day.

All they have done is buy time. If they were buying time to actually try to fix the problem, I could understand some of what they are doing (understand, not accept or agree with).

But they are buying time to....? Yeah, I can't come up with anything. They are trying to cover it up (Gerald Celente says this also), rather than do anything meaningful.

From Wikipedia:

Reality: On a much broader and more subjective level, private experiences, curiosity, inquiry, and the selectivity involved in personal interpretation of events shapes reality as seen by one and only one individual and hence is called phenomenological. While this form of reality might be common to others as well, it could at times also be so unique to oneself as to never be experienced or agreed upon by anyone else. Much of the kind of experience deemed spiritual occurs on this level of reality.

Our government lives in fantasy land, where their own unique view of reality is so distorted from the common citizen it takes a life of its own. This form of reality is user defined and, as they do not experience "your" reality, they can no longer associate with the common citizen's experiences.

How gov. bonds do in deflation?

I moved my retirement out of stocks 2 years ago and has been in money market. I am thinking to move it to gov. bonds. Thanks

Quote:

The cause of these collapses and depressions is mathematics, not political. It can no more be avoided given improper banking and credit policy than can perpetual motion be achieved.

Again, I love the logic its indisputable but I just wonder if the ponzi finance isn't empowered by political influence? Politics influences legislation and regulation of the system, by turning a blind eye to the growing instability it enables the fraud which is necessary to keep the system rolling along.

Of course the eventual outcome is governed by the math, but the boundary conditions can be influenced (elasticity) by exercising political influence. For instance the Fed, by expanding their balance sheets through their various "tools" they can enable the bubbles to grow beyond sustainability, however when conditions indicate immediate danger signs they pull the political card and shift the burden of responsibility from themselves to the public debt, they always have.

It will never be their burden, they can always unload the obligation back onto the public treasury and or print their way out. It shows the true genius of the operation since its inception, the only recourse is to have an educated public dedicated to natural rights and in particular property rights.

This reminds me of a story a friend of mine told me...She is a reporter who was covering a car accident where a guy was pinned between a truck and a car....The guy was talking/acting normally, but the paramedics new the moment they pulled the car off of him he would die instantly...

This market reminds me of this...the moment they pull back the stimulus the economy will nose dive into oblivion..

The securitization market is dead..thus, aggregate demand is dead....

Amazing story in this week's New York Magazine about "apocalyptic financial bloggers", Zero Hedge in particular. No mention of Karl which was too bad, because the Ticker really does the best job IMO of breaking down the irrefutable MATH of the situation we are in.

The article was rather dismissive of the bloggers, as shown by the last paragraph:

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Wall Street is about speculation, and Wall Street blogs are no different. At this point, Zero Hedge has staked everything on a doomsday scenario, a takedown of the old order, “a deleveraging at every level of modern society.” Even as the market has improved, the economy has shown glimmers of stability, and many of his fellow bears have capitulated, Ivandjiiski has clung ever more tightly to his convictions. The manipulation of the market will eventually fail, he believes, and the pyramid scheme will be exposed for all to see. But it better happen soon or Zero Hedge may lose its mojo. The higher the Dow Jones climbs, the more righteous he necessarily becomes: Every hopeful data point a fraud, every bull a conspirator. There’s an old Wall Street term for this, for when you hold firm to your belief in defiance of the market—fighting the tape. It’s considered inadvisable, but that’s what Ivandjiiski is doing, convinced that he is destined to win.

Be interested to get Karl's take... the crazy thing to me is that anyone who does not swallow the recovery story is labeled a doomer or a crank. The only argument seems to be "the market's going up, so things MUST be getting better".

Full NY Mag article:
http://nymag.com/guides/money/2009/59457....

lol Stoverny, they are even calling it an Insurgency.

I'll do a Ticker on that in a while...... looks like we got a nice little selloff here...

Let me just add that the value of any debt based monetary system is that there is actual counter party risk (best term I could come up with). Or in other words the debt is only so good that it will be paid in capital at some point in time.

The Fed ultimately has no counter party risk in monetary terms since they can issue currency, i.e. their power is political and the risk they have is political since that is the base of their power, that and the "value" of the dollar for the interconnected commercial lending facilities. Thus we see the nature of the bailouts, if the Fed had just monetized all the losses the value of the bailouts would have been marginalized, they needed some public debt issuance along with the direct monetization to give some semblance of "value" to the bailouts, i.e. public debt that would ultimately be paid by the taxpayers.

They can never monetize all the debt for the value of the currency which they issue is based on some part of actual debt or the whole system would colllapse. So if they need some real debt to go along with their monetization, the debt level will increase necessitating further monetization and partial debt issuance to "ground" the monetization and you have a black hole spiral.

Just had to respond in part to Throxxofvron's post in another thread.

/rant off

The counterparty risk is essentially ending the government as we know it.

When will the government and the MSM stop lying about housing?

"The Standard & Poor's/Case-Shiller home price index of 20 major cities released Tuesday rose 1.2 percent from June."

The calculations for the data has to be horribly screwed up - foreclosure rates/sales, shadow inventory (where many of the houses are rotting away), banks delaying foreclosing, tax credits which help inflate prices, FHA and other entities continuing to sell houses to people who will almost certainly default, Option ARMS and Alt-A's blowing up, 30% of owners are under water and essentially can't sell, less demand since more people are becoming unemployed or wages/hours cut, tightening credit, the Fed buying the crap mortages and holding them, etc.

Less than 10% of US households make over $100K per year. Just who is going to buy (and not default on) all the houses valued over $300K?

The S&P /Case-Shiller Home-Price Index of home price gains, or declines, is determined by using the repeat sales prices of the same homes sold within each Metropolitan market (aka "repeat sales pricing technique", or the actual sales price history of the same home).

When I see crappy old 500 sq ft houses in CA still being listed for $500K+ (10 times what they were bought for 10 years ago) I get very, very skeptical about any of the housing data presented by anyone. Common sense tells you that houses in many areas are still horribly overpriced.

I just don't see how housing could possibly be improving in any way. Housing is a disaster and will continue to be a mess for years.

Thank you Karl for shining a light on reality.

The bigger issue is the fact that as a whole society we became nothing but consumer driven. We spent the last 30 years setting ourselves up for a collapse.
You can't build a functioning economy on borrowed money, especially when you ****ed that borrowed money away on granite counter tops, Starbucks coffee and a new car every year.

I will take minor definitional exception to a single sentence in the Ticker - we technically haven't reached the limit of debt service until 100 cents of every dollar of Federal revenue is used for debt service. Until then, they can kick the can - we're at 18 cents on the dollar for debt service. In the 80s, it was $0.32 and nothing happened.

Randy - so long as the government guarantees, it's always AAA until it isn't... But when it isn't, it's over.

Status - greenbacks will hold value so long as there are debts to pay with them.

WileY Bernankee - Super Genius

Would love to see what economic mathematical modeling the IMF and US fed are using.
Would be interesting to see how far their models are from what's really going on.

One has to wonder because they seem like the economy was getting out of control last year. Wonder how much they rely on it. Reminds me of Thomas Edison asking about finding the volume of a container. Using the mathematical method vs using a liquid to fill a container.

I've never posted before anywhere, ever. I got hooked on Market Ticker after hearing Karl's wisdom a number of times on Ron Smith's WBAL radio show in Baltimore. I also admit as a small business owner and mechanical engineer, that I have not been very well educated in economic matters, well until now. My answer to the question is this. The time to recognize reality is very F'n neigh. Most of my customers are funded by US government grants. They are overwhelmingly liberal and any suggestion that things are not honkey dorey are resoundingly scoffed at and dismissed, but I live reality every day. My shop is located in a two year old business park that is maybe 20% occupied. The equipment repair shop next to me has resorted to repairing honey dipper trucks to stay solvent. I can smell the state of the economy and it ain't pretty. My wife and I see all that we have worked for over the past 25 years being slowly eroded. We have no personal debt and a few assets and for now our business is steady. We’re the ones getting screwed the worse (well with the exception of our 6 year old), because we’ve always played by the rules. We’re livid that our so called leaders have taken us to the edge of this abyss. I attended the tea party in Annapolis, MD and DC. I write my congressman and senators frequently. I turn everyone I can onto the Ticker, but I just get the bad feeling my friends and relatives aren’t going to recognize reality until its way too late. Anyway, thanks Karl for the hard work. I hope the message is sinking in…