Oh No, Not The Truth!


Get this….

There’s always hope that some magic tool would be found,” Ron Florance, managing director of investment strategy for Wells Fargo Private Bank, said in a telephone interview from Phoenix. His firm manages $169 billion. “There’s no sense of any economic recovery on the near-term horizon for Europe. Things could get worse. Investors tend to be optimists. So they are always hoping for something better.”

Oh cut the crap.  Investors are not necessarily optimists.  But salesmen always are, and what you have on “Tout TV” and in the “media” (that makes its money from advertising brokerage and banking services!) are salesmen.

This morning Cramer was having another “mini-meltdown” when Draghi came out and basically said “screw you” to the idea of more intervention “right now.”  Apparently Cramer seems to think that we all ought to bow down before the banksters (again) and hand them more “free credit” (again.)

The market shrugged it off which simply makes Cramer look more of a fool than usual.

Should there be concern over these developments?  Yes.  But there is no recognition here or elsewhere that the problem is overspending compared to taxation, and counterfeiting credit into the economy by private banks.

That’s what led to the mess in the first place and nothing has been done to withdraw that excessive credit — indeed, the distortions to maintain that excessive credit have become extreme as the market would otherwise force it back out all on its own!

How bad is this?  In the United States alone it’s $37 trillion in size, or about 70% of the total credit in the system today! smiley

How did I compute that?  Simple — I added up the “extra” credit between GDP and credit growth in the below chart from 1980 to 2008:

The same sort of problem exists in Europe and is likely at least as large (although I have no way to calibrate the exact size of the credit bubble there.)

The astute reader will note that during the worst of the crash there was some adjustment that was taken.  However, note how small that adjustment was (compared to the size of the problem) and how bad the recession was in terms of employment and GDP, then extrapolate out the rest of the adjustment and the scope of this problem becomes clear.

Nobody over there (or here) is talking about this, of course, and the reason is simple: The rich and powerful in the banking industry made “their money” not through industry and innovation but through fleecing the people via unbridled credit creation, which they controlled!

If that is withdrawn then their “wealth” suddenly disappears from whence it came, and what’s worse is that the pension funds and insurance companies who sold contracts to pay specified amounts of money predicated on this credit creation being able to be maintained suddenly cannot make those payments and collapse.

It would be nice if we could avoid having to take this adjustment but even simple maintenance of the credit system at its present level is insufficient!  The only way those promises can be kept is if the rate of expansion is maintained, and that’s mathematically impossible.

And the longer we wait to take the adjustment the worse the economic impact will be.

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