In But I Thought It Was Just A “Panic” Karl Denninger discusses how the lies, temporary fixes and fiscal misconduct of our government and the Fed will eventually cause a complete breakdown of the financial system as we know it (emphasis mine):
How long can it continue?
Only until the Asian nations recognize that the consumer can’t “come back” to former levels of consumption, as they’re tapped out. This in turn means they must develop internal consumptive markets for their products, and that in turn means the end of buying our debt as a means of sterilizing their export flows.
When, not if, that happens then entire exponential fraud game comes apart with extreme violence.
We have been given a gift – a six month (up to now) to couple-of-year (maybe) time frame in which to recognize the truth, break up these behemoth organizations, force the bad debt into the open, default it, make depositors whole and in doing so place our economy on a trajectory where debt-to-gdp will shrink to a sustainable level.
If we fail to do so before the rope runs out – and it will – our economy will collapse. The Federal Government will be forced to contract spending to what it can raise via taxes in the current economic climate – about half of what it spends now. Given our budget and where we spend money, this means a near-complete repudiation of Social Security and Medicare, a 50% or more cut to the military budget, and an elimination of all other federal programs. Unemployment will rocket to north of 25%. Our “just in time” economy will break down and there will be widespread, perhaps even critical, shortages of necessities – food and fuel.
For the “preppers” out there, this entire article from Karl Denninger is worthy of a read, as is pretty much every article over at Mr. Denninger’s Market Ticker. Many Most don’t believe it can happen, but it has happened before, and it will happen again. The private and public debt in this country is so high at this point, that it will be impossible for us to pay off. It’s simple mathematics. I have a feeling that the Chinese know this already and are just trying to pull us along for a little while longer while they unload as many US Dollar based assets they can before a complete meltdown in our currency occurs.
While Mr. Denninger still has faith that Congress may come to its’ senses or that a politician or politicians will stand up and lead the way, I have none. Congress has been bought and paid for and could care less what happens to the little guy on the street. In this blogger’s opinion, SHTF is imminent – so plan accordingly.
For a basic breakdown of how this will end, scroll to the very top of this web site and read the quote from Ludwig Von Mises in the main header.
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As the stock market and gold price have continued to move higher and higher, beyond any reasonable expectation, my sense of foreboding has risen to the point where it is off the scale now. I share your opinion about the SHTF moment approaching.
I think deep down, this is why I’ve, for the first time in my life, purchased firearms over the past year. Maybe I’m nuts (well, probably), but if the S really does HTF, I guess I’ll be happy I did.
That being said, although I completely understand (believe it or not) Denninger’s fears, I don’t understand why yields on T-bonds have been kept in check.
It’s my understand that in QE the Fed buys some of the bonds…thus acting as another buyer…which keeps the yields low. OK…
…but everyone knows that they have been (or were?) doing it…which we all know is essentially the equivalent of printing money.
…and yet the Treasury seems to keep finding buyers – including China, right?
So, is the fear that at some point – virtually instantaneously – China is going to just give us the middle finger?
…or will we see it coming? That is, will they ease off gradually?
What will be the sign(s) that Denninger’s fears are being realized??
“So, is the fear that at some point – virtually instantaneously – China is going to just give us the middle finger?
…or will we see it coming? That is, will they ease off gradually?”
Rick, great questions here — I am asking myself the same thing.
Project Mayhem, a contributor over at Zero Hedge recently posted some comments about how he saw this playing out (can’t find the link.. it was one of the bazillion comments over at ZH)..
He suggested that at some point in the near future (his timeline is by the end of the year) we will see the equities collapse. During the collapse, more money will shift into cash and bonds. He did not specifically mention gold during this phase of the shift. Essentially, money around the world will flee to safety in these assets. On some level, in my opinion, this is happening right now… Equities markets are still up, but big money seems to be moving in to US Treasuries lately, as well.
Then, he indicated capital will seek its final crisis shelter in gold, so it will shift out of cash and Treasuries into PMs.
Great plan — i subscribe to this idea pretty much completely and have written several emails to friends describing just this scenario.
That 2nd phase, the one where capital flees to gold, is the one we should probably be concerned with. What will be the trigger for the flight from cash/US Treasuries to gold?
There can really be only one trigger, as Martin Armstrong has pointed out: A loss in confidence in the public sector.
I do think that the loss in confidence will be progressively built up over time. In that context, my view is that the Chinese/Japanese/et.al. will slow down their purchases of our debt. If I am not mistaken, they are kind of slowing down right now.  I think any move by the Chinese to offload US debt en masse will lead to serious problems with the USD, and the Chinese probably don’t want that to happen right now — they aren’t ready yet. they are trying to offload that debt right now via purchases of natural resource companies, gold and even non-US denominated debt instruments.
Eventually, there will be some event (Bank Collapse 2.0, geopolitical catastrophe, riots, etc.) that might be the catalyst for a final pull out. But, I don’t think they can pull out all at once and come out winners, at least not right now or anytime soon.
Rather than an overnight collapse type event, in my opinion, it will be kind of a waterfall event, where one day, all of a sudden, we’ll realize that the SHTF a while back and we weren’t paying attention — and we’ll be near 3rd world status.
It is hard for me to visualize a non-overnight type collapse, because it plays out not over weeks or months, but years. Looking back at a graph 100 years from now, it will be obvious, just like looking back at the 1930’s right now… I regularly ask myself, “how did they not see this coming in 1930?” …. they thought the economy had recovered and all was well, just like the majority of the population now. It’s not until well after the event is over that we are able to look at it and say ‘Eureka!’
So, on that note, I’d say Denninger’s fears are being realized right now!
If we pretend like we are 30 years in the future and look at the current charts, from 2000 – 2009, i think it is obvious the shit is in the process of hitting the fan. Denninger’s charts on consumer/govt debt, spending, credit availability, etc. prove it!
So, what it all boils down to is that the S is hitting the fan as we speak, though the severity is not as high right now as one may be looking for. Kind of like a pot of boiling water… right now, it’s those little bubbles, where you can still stick your finger in it but can’t leave it in for more than a second or two without feeling pain… but in a few minutes, if you stick your finger in there, it’ll hurt like a sunnovabitch almost instantly and have longer lasting effects of blisters and pain for days to come.
So, even though the water ain’t boiling over yet, it’s obvious that it is getting hotter and hotter. (shitty analogy? I dunno. but it’s all i could come up with on a moment’s notice).
just some thoughts.
Your partner in nutz,
Mac