Still, we continue to lie….
This morning Spain’s 10y yields went back up over 7%, the so-called “Maginot line” beyond which they allegedly cannot finance themselves.
Still, we continue to BS ourselves, both here and in Europe.
The simple fact of the matter is that nobody is willing to have an honest conversation — not on government and its size, not on our own personal finances, not on our standards of living and not on our own culpability for the mess that we find ourselves in.
There’s nothing complicated about any of the economic mess we find ourselves in. The arm-waving obfuscation by the mainstream media and politicians is intentional; they know damn well that both the cause and cure are simple, but political correctness prevents the truth from being told.
It is simply this — we spent 30 years lying to ourselves about “growth” being something that we’re entitled to finance with more and more borrowing rather than through actual economic surplus — that is, via advances in technology and human effort.
It really is as simple as this chart:
During the 2004-2007 period there were several quarters where one trillion dollars per quarter were borrowed in excess of new production. There was no three month period where less than $500 billion was borrowed. This is well over 10% of the economy!
When this ponzi collapsed the government stepped in and borrowed the same 10% of the economy and spent it to replace that which you were borrowing privately.
Nobody — not here and not in Europe — has stood up and said “we can’t do that any more, we built industry and businesses based on unsustainable practices, we are living beyond our means and we have to eat our peas.”
Until we do there is not only no solution but the damage that we must accept in order to restore sanity and balance will grow worse by the day. The more we believe that people can simply stop looking for work and go on “disability”, the more we play with ZIRP and eviscerate interest income (including for Social Security and Medicare “trust funds”, along with pensions both public and private), the more the government at all levels borrows money to prop up insolvent financial institutions and excuses serious frauds against the public, whether in mortgages or LIBOR, the closer we come to the point where the owners of capital simply throw up their hands and say “screw you!”
How far are we from this sort of event? A 2008-style (but much worse!) collapse in confidence, lending, borrowing and economic activity where governments are powerless to intervene as they have exhausted their own borrowing capacity.
It’s impossible to know for sure, but there are some reasonable assumptions we can work with. We know where the corners are. We know, for example, that ZIRP, the Fed’s “zero interest” policy, will cause the Social Security “trust fund” to run out of money more than a decade earlier than previously projected if it is maintained — meaning by the end of this decade!
Pension funds? Same deal, whether they’re admitting it or not.
And the market never waits for you to hit the wall, just as it has not in Spain. It always anticipates, and given Washington’s refusal to deal with this problem front-and-center, the presumption is that loss of confidence will happen sooner rather than later.
The fuse is much shorter than it appears.
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