2008 redux part 2

2008 REDUX part 2

Yesterday I took the three biggest current trends pointing at dropping consumption and falling income.  Auto loan and college loan delinquencies and decently performing companies closing stores.  I was watching a You Tubers ( sorry, I forget who ) video as they talked about these car loans and they made a very good point.  Nobody gives up their car.  For Americans, because they didn’t, don’t or won’t listen to me, a car is viewed as a necessity ( it is not, until they make life decisions then making it so, but I’ll stop there hoping you now feel bad ).

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Literally, almost no one can work without a car.  A car is how you earn money to pay for the car, but as a bonus you can usually also pay rent with that.  And, if all else fails, you can live out of your car.  So, his point was, no one voluntarily gives up their car.  The car payment is THE first thing that gets paid at the end of the month.  If millions of people are one month away ( or sooner ) from the car being repossessed, what does that tell you about the economy? 

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The figure is seven million, by the way.  And remember, they are saying that there are now three times the number of delinquencies as in 2008.  On student loans, 6 out of 19 are having an issue ( not the same as a car repo.  They won’t just let you walk away. But it does point to all those entering the work force unable to adequately service the loan ).  Let us return-just for a short while, I promise-to those store closings.  I do NOT want to hear about Amazon.

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Amazon is 5% of the retail sales in this country.  FIVE.  While impressive, and while I welcome our Bezos Overlords, how can you say that a mail order company is forcing all the retail stores to close when they constitute 90% of sales?  The other five percent are retail store online sales ( ordering from Wal-Mart or Home Despot’s web site ).  I keep hearing this BS, even from certain Arctic Tundra dudes who shall remain nameless.  Too busy cutting crap with Silky Saws-he should have been reading my drivel.  I’ve covered this before.

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If you cannot blame Amazon, who can you blame?  The guys collecting rent, ten years of EVERYONE borrowing way too much money, and once again, HELLO!!!!, decreasing consumer purchasing power.  But I won’t put myself in a self-reinforcing feedback loop on that one.  What I’d like to ponder next is the actual repeat of 2008 when failing loans imploded the banks, the financial sector and almost the world.  When Bush uttered the only true words of his eight years in office, “this suckers going down”.  The one moment of brilliance in his entire life ( unless, you know, it was written for him ).

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What caused the 2008 financial meltdown?  Well, at heart, global Peak Oil.  Because if you’ll remember my frantic yet ignored hence fruitless point, energy GROWTH is what our economy needs to function.  That wasn’t even my point, but Peak Prosperity dudes.  And since he is Optimistic Ollie you should all simply just LOVE him.  Me, I was just worried about no oil.  But just Not More oil is all it took to crash the system.  But one step removed from energy, failing loans are what caused the 2008 fiasco.  And what is it exactly that is happening now?

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Failing loans.  This isn’t like the Latin bank sector failures decades ago, when our banks had to write off some of their sovereign debt and loan them some more money just to pay on the reduced amount until they recovered.  Because, derivatives.  When the global economy is one hundred some odd trillion, and you have over one quadrillion in unsecured derivatives, AND banks routinely have assets in the single digits on those derivatives bets, it only takes a small failure rate on loans to crash the entire system.  The mortgage meltdown was caused by cascading failures from just a few institutions.

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The cascading part is what makes derivatives so scary.  You place a bet on a bet that the third bet on the second bet from the first bet is covered by the second bet, yet none of the bets are covered by assets but rather other bets that the first bet is a covered bet.  To revisit history for some titillating viewing, recall that derivatives were behind the 1988 stock market crash, the Orange County California financial shenanigans, George Soro’s rapine of the pound Sterling, the Asian Contagion, the Russian Default and last but not least, 2008.

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What isn’t scary is that they all happened.  The worst part is they keep happening and each time it gets much worse and less controllable.  We are still inflating the money supply a decade after Goldman Sacks decided to implode the world currency for a few extra multi-million in executive bonuses, a far more deadly con game than Enron ever dreamed of ( the Enron fallout is still with us, just awaiting a Chinese hacker to crash the electric grid.  And yes, I know Goldman wasn’t the cause of the crash-but they are still the fabled Vampire Squid ).

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( The Rolling Stone article by Matt Taibbi where he wrote that infamous label is here.  He probably explains derivatives much better than I do.  There is also the movie “The Big Short”, if you don’t want to read the book.  Unfortunately it isn’t free on Amazon Prime anymore )

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With a home, in the mortgage meltdown, most of the assets were recovered and turned into rentals.  Between that and the government bail-outs, both the official TARP and the under the table up to eighteen trillion dollar global liquidity dump by the Federal Reserve, the banks are still as profitable as ever.  Yet, they have doubled down on derivatives bets from the 2008 meltdown, only learning how profitable it was, not how dangerous it is.  The fact that they are playing the fool Maria Antoinette, taunting the peasants, occurs to none of them.  It is all about the hookers and blow.

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Note that I very much doubt that this financial meltdown will mirror our last.  Look at how long the attention of the Cassandra’s has been focused on Deutsche Bank or the Italian Imminent Collapse, almost as if we are being mislead.  Misdirected.  I think that bad loans will trigger the derivatives meltdown.  BUT!  The banks just might already have all those government backing already.  We could get hyperinflation instead.  A LOT of things could unfold differently than last time.  As they say, history only rhymes.  The underlying problems should be the tinder, again, but most likely we will once again be blindsided in the details.

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None of the above really matters, if you accept and prep for the following.  1) you WILL be unemployed, eventually.  2) you WILL lose everything in paper assets.  3) this sucker IS going down.  And, 4) prepare yesterday because tomorrow might be the last day before the collapse.  Never ever think you can time this thing, or predict details.  Be ready, already.  Then you can enjoy the popcorn and the show.

( .Y. )

( today's related Amazon link click here )

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