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How Far Down The Rabbit Hole Must We Go?
The Market Ticker ^ | March 21, 2010 | Karl Denninger

Posted on 03/22/2010 12:28:05 AM PDT by happygrl

The Truth is that we now require about $5 of debt to generate $1 of GDP.

The Truth is that the reason you were not asked to approve $700 billion to capitalize 10 new banks, thereby creating seven trillion in lending capacity is that the economy cannot soak up that new lending capacity; each dollar of new debt generates almost no aggregate GDP. If this were not true then that would be the logical and effective cure for the 'credit crunch" - if the borrowing capacity and impact on GDP necessary to help existed. They do not.

The Truth is that you were lied to about the purpose of the TARP/EESA, because what you were sold was mathematically impossible. It is supposed to be unlawful to lie to Congress.

As I pointed out at the time, the reason they didn't create that $7 trillion in new credit issuance is that there was no more capacity to take on new debt in the private sector.

They lied about what "had to happen" for stability to be restored.

They lied because the alternative was that their friends - powerful friends - would have to go bankrupt.

But it gets worse.

Bernanke and Paulson, and now Geithner, know that this attempted "reflation" won't - and can't - work. They have put forward this path not because it is the right thing to do, but because the alternative means a lot of people with power and money will go bankrupt and the Government of The United States will have to change how it finances itself, removing the corrupt influences that have been used to "cook" the books - and outcomes - for the last 30 years.

(Excerpt) Read more at market-ticker.denninger.net ...


TOPICS: Business/Economy; Constitution/Conservatism; Editorial; News/Current Events
KEYWORDS: bloggers; constitution; denninger; fairtax; ticker

1 posted on 03/22/2010 12:28:06 AM PDT by happygrl
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To: happygrl
MORE FROM THE ARTICLE:

To halt this process we must take the following actions now:

All direct taxes must be scrapped immediately. This means implementation of something like The Fair Tax. I fully understand the political ramifications of thousands of lobbying firms and individuals losing their ability to game tax code, and why this sort of reform is unpopular with the political class. Politics must give way to mathematics; the government must align its revenue with the promulgation of actual business success as measured by actual consumer final demand. In addition such a change, while radical, would cause an immediate rush into America for the world's business headquarter locations, and with those businesses would come high-paying executive, administrative and manufacturing jobs. This proposal is an actual bill (HR. 25 / S. 296) which means it can be moved and passed. We just need the political will to do so.

ALL government support for insoluble debt must be removed. This means restoring mark-to-market, barring all off-balance-sheet activities and deeming that loans such as HELOCs behind underwater, non-performing firsts be written to recovery value (which in most cases is in fact zero.) I understand that this will expose the existing insolvency of some very large financial institutions. I also understand this is very politically unpopular for obvious reasons. It does not matter; this has to be done.

Banks must be required to hold Capital Reserves equal to 10% of their outstanding assets that are secured and 100% against all unsecured loans. This will cause even more insolvencies, but it will instantly clean up the banking system. Provide a six month time period for all institutions to come into compliance with (2) and (3), with no extensions, and mandate that any firm that does business in the US must comply - no exceptions. Going forward the 10% capitalization level (for secured assets) must be monitored and maintained as a "warning level" and firms must be liquidated at 6%. This will guarantee in the future that the FDIC will never a take a loss on the deposit insurance fund.

Treasury must then use the existing authority under The Constitution to issue non-debt-backed dollars. This does not require new legislative authority - all existing coins are in fact not debt-backed! Treasury can thus issue fiat, non-debt-backed currency under existing authority - it has simply refused to do so! This use should be restricted to funding FDIC pay-out requirements for the firms that become insolvent under this reform process. This issuance - if limited to FDIC payout coverage - will not be inflationary as it will exactly balance the deflationary force of default on the debt caused by those insolvencies.

An expedited, one-time bankruptcy provision must be made available to consumers so they can enter and process against an expedited Chapter 7 liquidation. It is essential that we permit consumers to de-leverage back to sustainable levels. Points #2-4 will insure that banks that fail as a consequence will have their depositors covered.

Credit-Default Swaps - or any other form of derivative - must be forbidden unless exchange-traded with a central clearing and margining counterparty that exposes all information to the market, including bid, offer, size and open interest. That counterparty must be the buyer for all sellers and the seller for all buyers, as is done today by the CFTC and OCC. Those firms that cannot post cash margin against their open, underwater positions must tear them up within 180 days. Speculation is fine - provided you can prove you can clear the trade! Again, any firm that wishes to do business in The United States must comply in all markets, or be barred from our markets. Once again this may produce insolvencies but point #4 will (again) guarantee that all depositor guarantees are covered.

Government is enacting "health care reform" today not to reform health care, not to provide health care, but rather to impose an immediate tax on all Americans to attempt to pull up even harder on the monetary stick.

2 posted on 03/22/2010 12:31:05 AM PDT by happygrl (Continuing to predict that 0bama will resign)
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To: happygrl

You can betcha the idea was to glom onto that revenue right away. It will be p*ssed away, not stored up to prime the elf care system.


3 posted on 03/22/2010 12:32:36 AM PDT by HiTech RedNeck (I am in America but not of America (per bible: am in the world but not of it))
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To: HiTech RedNeck
Denninger has been right on target for this stuff.

He's so over 0bama now.

Until we see the oligarchs doing the perp walk, we haven't settled anything, as far as the crisis goes.

Remember, these guys need their loot for their self esteem.

The meek will inherit the earth.

4 posted on 03/22/2010 12:39:55 AM PDT by happygrl (Continuing to predict that 0bama will resign)
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To: happygrl

Denniger is right.

Too bad no one is listening.


5 posted on 03/22/2010 12:48:17 AM PDT by B-Chan (Catholic. Monarchist. Texan. Any questions?)
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To: HiTech RedNeck

This guy is 100% right but there is no way this administration is going to do this.
It has a completely different goal.

We are broke and we are in a depression.
Most don’t know it yet because unlike the great depression our current economy isn’t based on agriculture so it is taking longer for us to feel the full direct impact.


6 posted on 03/22/2010 1:06:32 AM PDT by Lera
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To: B-Chan

More from article....good stuff here...

.............Government is enacting “health care reform” today not to reform health care, not to provide health care, but rather to impose an immediate tax on all Americans to attempt to pull up even harder on the monetary stick

It won’t work folks. It can’t work. More than 18 months ago I identified the primary failure in the path that was being taken, and why. We have tried it Bernanke, Paulson, Geithner, President Bush and President Obama’s way now for nearly three years, and yet there has been no resolution of the debt problem, no resolution of the housing market and no actual economic growth. Instead we have papered over insolvency and lied about the health of both our banking and economic systems.

Meanwhile the cracks in the dam continue to grow. Greece is not just “one little problem” over in Europe. Behind Greece is Spain, Portugal, Italy, Ireland and even Great Britain. None of these nations have yet taken the actions necessary to resolve the problem, for the same reason we have not - it is politically very difficult to tell the entrenched banking interests “you must eat your own cooking - even if you choke on it.”

We still have time to choose between bad and horrifically awful. We can choose between recognizing the Depression we are already in (private GDP has contracted by more than 10% from the peak, which is the definition of economic Depression) or we can risk Zombieland or Mad Max becoming reality.


7 posted on 03/22/2010 1:19:41 AM PDT by caww
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To: happygrl

8 posted on 03/22/2010 1:25:04 AM PDT by Oceander (The Price of Freedom is Eternal Vigilance -- Thos. Jefferson)
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To: happygrl

They also aren’t letting on that, now with deathcare, they’ll need to implement a VAT to pay for some of it. But even that isn’t going to cover it.

zero and his Chicago thugs are doing what the mob refers to as “busting out” a business. You get an owner of a going concern indebted to you, usually through usurious interest on gambling debts. Then make the business buy a bunch of goods on credit, with the mob selling the goods out the back door for half price while the owner pays full price for it coming in the front door. Then, when the owner can’t get anymore credit and is flat busted, he either torches it or files bankruptcy.

Debt paid.

That’s what zero and Rahm, etc, are doing to us. Same MO: They’re indebting us, they’re increasing taxes so we owe them more, then they’re giving our assets to private organizations in the form of loans to get kick backs and favors. In many cases, the private organizations don’t even want the money because they don’t want to get involved in doing business with the government thugs, in the same way they’d be afraid of getting sucked into the mob.


9 posted on 03/22/2010 1:39:49 AM PDT by chilltherats (First, kill all the lawyers (now that they ARE the tyrants).......)
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To: Oceander
Scarily true.

Or, as my son tells me, Fight Club is real.

10 posted on 03/22/2010 1:47:07 AM PDT by happygrl (Continuing to predict that 0bama will resign)
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To: caww
This man is a prophet!

I keep telling everyone in my circle, the worst is yet to come.

11 posted on 03/22/2010 1:49:35 AM PDT by happygrl (Continuing to predict that 0bama will resign)
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To: chilltherats
Oh, I agree with your analysis.

They're setting it up so there will be a Fire Sale on the assets of Amercia, and Soros and others will come in and swoop it up.

0bama already has a stash in an overseas sovereign fund, probably Middle Eastern.

12 posted on 03/22/2010 1:52:56 AM PDT by happygrl (Continuing to predict that 0bama will resign)
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To: happygrl

The Big economic lie has to be perpetuated! The ombamacare dance is a ruse to get to your money and assets in a cinical attempt to float the sinking ship.

At the end of four years there will be no money to support the Ocare deal they want your money now plain and simple. Fact is They are making matters worse and the whole rotten system is going to crash hard.


13 posted on 03/22/2010 1:53:38 AM PDT by timetostand (Ya say ya wanna revolution -- OK!)
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To: happygrl
Here is an interesting map. It shows how much, even with some cuts, states are funding secondary education with money from the Stimulus Bill. Colorado is the highest at 18.1%. California is at 7.8%. That money goes away in the fall. This is a vital part of Obama's base--Educrats and the 18 to 29 demographic (it voted 66% to 33% for Obama). This is just one part of the Democratic coalition that needs the revenue from the Health Care bill and needs it now or there will be layoffs.

Obama only won the over 30 vote by 2% (he lost it among whites). He lost the 65 and over vote 55 to 45. Of course he's going to cut medicare. No accident this bill, which takes half a trillion out of Medicare, funds Pell Grants, student loans, "diversity" education (90 million this year and more each following year) and "historically" black colleges.

14 posted on 03/22/2010 1:58:08 AM PDT by Brugmansian
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To: Brugmansian
Great points, and great map.

In many ways, North Dakota is doing much better than other states.

I had a friend once, who was a weatherman there, and he would announce regularly on the air, that the good thing about a freeze is that it kept the riff raff out.

15 posted on 03/22/2010 2:03:09 AM PDT by happygrl (Continuing to predict that 0bama will resign)
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To: happygrl

Some of the states surprised me. Did you click on the blue box on the left to toggle the results? There are three options. The bottom one is “Changes in general fund spending”. North Dakota is up 32.3%! What is that about? Only 11 states are up and ND is almost twice as high as the Massachusetts.


16 posted on 03/22/2010 2:19:43 AM PDT by Brugmansian
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To: happygrl; waterhill

Bookmarking


17 posted on 03/22/2010 3:49:39 AM PDT by Envisioning (Proud "Right Wing Extremist" per the DHS.......)
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To: happygrl

This is the logical inevitable result of the voting patterns of the American people for more than eighty years.


18 posted on 03/22/2010 3:50:24 AM PDT by Theodore R.
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To: happygrl

Don’t wait for November. 0bama’s fascist state needs a bolt of lightning. Call your broker today.


19 posted on 03/22/2010 3:56:19 AM PDT by 668 - Neighbor of the Beast (STOP the Tyrananny State.)
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To: happygrl

The revolution will come when the private sector tax revenue shrinks to levels that the various governments cannot finance these federal programs and the government is forced to withold payments to those that have their hand out. Watch the sparks fly at that point. And....my friends government bankruptcy is right around the corner!!!


20 posted on 03/22/2010 4:14:55 AM PDT by JLAGRAYFOX
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To: JLAGRAYFOX
And....my friends government bankruptcy is right around the corner!!!

THAT is the beauty of it.

I feel so much like Francisco d'Anconia. I fully get it. The rage and the desire to see it all destroyed rather than fund and prop up the looters. I can not wait to see it all crash down and I hope to do whatever I can to hasten that collapse.

21 posted on 03/22/2010 4:17:56 AM PDT by riri (Resistance-It's the New Black)
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To: happygrl

"we go until they don't move anymore"

22 posted on 03/22/2010 4:20:10 AM PDT by Doogle (USAF.68-73..8th TFW Ubon Thailand..never store a threat you should have eliminated)
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To: happygrl
Our fate is sealed. No one, neither the DNC nor the GOP, will do the hard thing.

We will either break apart, become an Empire, or fall like Argentina.

23 posted on 03/22/2010 4:35:32 AM PDT by redgolum ("God is dead" -- Nietzsche. "Nietzsche is dead" -- God.)
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To: JLAGRAYFOX; All

“Watch the sparks fly at that point. And....my friends government bankruptcy is right around the corner!”

I’m doing my part - upped my tax exemptions to the highest I could by law. Directed more pre-tax dollars into my health care slush fund and 401K at work; ANYWHERE you can stash pre-tax cash will help.

I suggest everyone else do the same. Read a tax table (Fed and/or state.) See how much they expect to steal from you this year...then double down, live as far below your means as you can, pay off any debt that you have, stash cash, silver, gold and lead. Barter for what you need when you can. Plant a garden, or enlarge the one you already have.

I started doing this years ago; my family has the means to weather this storm.

Starve the Beast! :)


24 posted on 03/22/2010 4:52:36 AM PDT by Diana in Wisconsin (Save the Earth. It's the only planet with Chocolate.)
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To: happygrl

MSNBC and CNN were obviously full of joy last night.

This makes me ill

http://www.cbsnews.com/video/watch/?id=6320924n&tag=related;photovideo


25 posted on 03/22/2010 5:49:05 AM PDT by Dubya-M-DeesWent2SyriaStupid!
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To: redgolum

State’s Rights is an immediate part of the answer. The taxes that are mandated would be stopped by individual states declaring that their residents are not subject to them. Throughout the New Deal there were 10th Amendment challenges that the Supreme Court denied on precedent rather than the Constitution. So the point is, get the challenges going on state level, stop the taxes NOW and turn off the spigot. Just like the states that have no income tax have no withholding of money for an income tax. So check the map and get to those states, then drive the truck right into the heart of these oligarchs.


26 posted on 03/22/2010 6:16:03 AM PDT by John S Mosby (Sic Semper Tyrannis)
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To: Diana in Wisconsin

Good points. The Grasshoppers are coming for the Ants lifetime savings of grain. Which in the story, meant the Ants had to fund a mercenary army to destroy the Grasshoppers.


27 posted on 03/22/2010 6:22:07 AM PDT by John S Mosby (Sic Semper Tyrannis)
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To: timetostand
The ombamacare dance is a ruse to get to your money and assets in a cinical attempt to float the sinking ship.

More like putting four more torpedos into the Yorktown as she's rolling over for the last time.

28 posted on 03/22/2010 6:49:02 AM PDT by DuncanWaring (The Lord uses the good ones; the bad ones use the Lord.)
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To: happygrl

Don’t go down the hole. Pour in gas and light it and wait for the kaboom

That’s the way to exterminate yellow jackets. It should work for a rabbit hole as well.


29 posted on 03/22/2010 6:56:05 AM PDT by bert (K.E. N.P. +12 . Ostracize Democrats. There can be no Democrat friends.)
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To: happygrl

Bookmark.


30 posted on 03/22/2010 10:53:08 AM PDT by geologist (The only answer to the troubles of this life is Jesus. A decision we all must make.)
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To: John S Mosby

adding to this the importance of who our judges are now...who expects to leave...and how will Obama’s new appointments affect and weigh the SCOTUS...and how long the republicans can keep them dangling out there.


31 posted on 03/22/2010 11:23:43 AM PDT by caww
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