The Economic Headwinds Just Became A Hurricane

TBI ^ | 3-11-2011 | Comstock Partners

[blam]

The Economic Headwinds Just Became A Hurricane

Comstock Partners
Mar. 11, 2011, 7:09 AM

The party is over. The major factors facing the economy and the market that we have been discussing in past comments (please see archives) are coming to a head as the reality of a post-credit crisis economy becomes more and more apparent in the period ahead.
The massive monetary and economic stimulus that saved us from another great depression and led to the current weak economic recovery is now creating more problems than solutions and there is no way out that does not involve some economic pain.

Virtually all of the problems facing the economy today are a result of the massive increase in household debt over the last few decades, particularly the last two. For years we have staved off the problems by keeping interest rates near zero for extended periods of time and using fiscal and monetary policies to pump up housing.
Consumers are overburdened with record debt loads at a time when income is stagnant and house values are dropping. As a result the government has substituted government debt for private debt in the hopes of getting the economy to grow on a self-sustained basis. The problem is that increasing the federal debt much more places the nation in great jeopardy, and we are rapidly reaching the breaking point.

At the risk of oversimplification, modern economies need rising amounts of credit (debt) to grow, and we are faced with problem of reducing debt instead. At best, this means slow growth for years to come interspersed with more frequent recessions. At worst, it means outright collapse into another great depression.

Currently the federal government is facing a deficit of $1.5 trillion while the states

[snip]

[ClearCase_guy]

So, you’re saying that cutting $4B a month will be insufficient?

[sr4402]

More from the Article: "So there you have it. We can continue spending and do nothing and go over the cliff, or we can balance the budget and endure a period of slow growth (if we're lucky) with a resulting reduced living standard for a long time to come." Remember the African-American woman who asked Obama if this was the "new reality". Here we come folks - "beans and franks".

[2001convSVT]

And didn't the PIMCO Bond Fund manager sell all its US bonds saying that he will not buy any more US government bound until the interest rate is increased by 1.5%? If so the U.S. Treasury will have to raise interest rates to sell bonds on the open market, and what will an increase in the cost of lending do to the US/World economy? Hurricane is right.

[blam]

Former Goldman Analyst Charles Nenner: A "Major War" Is Coming At The End Of 2012

[Leisler]

That would result in 50 billion a year. Fedgov is short 1,600 billion a year. So Fedgov would only be 1,550 billion short. This year. And then there is next year, and the year after.

[GOPJ]

Are you saying ‘hopeless’? It’s too late to change?

Hopeless and changeless?

[spokeshave]

stagflation

[Bon mots]

The massive monetary and economic stimulus that saved us from another great depression and led to the current weak economic recovery...

That was all the BS I needed to read...

[screaminsunshine]

Drop in the bucket.

[ClearCase_guy]

Sure. But at the national level, the Democrats are outraged at the thoughts of such draconian cuts, while the GOP is pretty darn pleased with itself for taking such bold steps.

It's like a couple with $30,000 in credit card debt. The Republican wife decides to solve that problem by not going to Starbucks everyday, and the Democrat husband is outraged that their lifestyle is being totally devastated.

[Leisler]

Naw, it just is what it is.

I remember reading Barbra Tuchman’s, ‘The Guns of August’. Were the thought at the time stability of interlocking defense agreements would prevent a European war. Instead it insured it.

Today, via world wide central bank and fiat money printing, we have the same grand thinking.

I get the feeling that the system is collapsing in upon its self and is the agent of its own destruction.

Obama, and company are not the disease. They are the symptom of the disease, like green phlegm is to pneumonia.

Other than that, I’m pretty happy.

[mo]

“..result of the massive increase in household debt over the last few decade”

So Federal debt has NOTHING to do with it?!!

[Pearls Before Swine]

stagfla

Stagflation, if we're lucky. An inflationary depression if we aren't.

[ClearCase_guy]

Spot on.

There was a documentary made a few years ago called "The Commanding Heights" which I found quite compelling. In part, it looked at the global economy of about 1910. Great industrial nations buying and selling goods. Italian marble? Brazilian mahogany? Chinese silk? International trade was king. Through telephones, telegraphs, and the beginnings of radio, global communication was established. The whole thing really felt like a description of the world we live in today.

But they screwed it up. The competition and complex inter-locking agreements guaranteed a world war, and the bloody events of the 20th century all flowed downstream from the events of 1914.

One might argue that with the fall of the Soviet Union, the world finally began to come out of that shadow. And we saw a glorious global economy take off all over again. The internet came along to make communication even better, and goods streamed across all the oceans.

But we (again) built a house of cards, and I think it is all about to collpase all over again.

[Leisler]

Then as is now, world business had done miracles. I’m still not sure how the first WWI started. It just seemed so auto-pilot, and in my opinion destroyed Europe right up to the fall of the wall.

There is no telling for the world, what the increase in wealth, science, material and other progress would exist now if not for two massive wars and a warping cold war, all for near five generations in Europe.

Maybe printing money, which spreads sacrifices to all, isn’t the worst of options.

[ClearCase_guy]

I really see the 20th century as a lost century. Sure we have computers, aircraft, nuclear power, antibiotics, and all kinds of other things, but as you say we might have had a lot more.

I believe that human psychology could be a great field with really good advances. But we went down a road with people like Freud and Kinsey and Foucault and it seems to me that our conception of psychology is no where near what it could be.
Similarly, Bastiat understood economics very well in 1850. Today, because of Marxist ideology, a lot of what people like nobel prize winner Paul Krugman know about economics, simply isn't so.
History, Literature, Art -- these are all cultural areas that have been degraded by cultural Marxism. We've been going down a dead end road for many decades. At some point, the scales will fall from our eyes and we shall have a Renaissance. But I don't think it will happen within my lifetime.

[GOPJ]

... interlocking defense agreements would prevent a European war. Instead it insured it.

Good example - sometimes seems the UN - by stopping normal takeovers of the corrupt and weak by the stronger and better organized - is doing the same thing. Might be unintended consequences to being a 'dictator protection agency'... Same with the dollar... don't know that we know enough about how money works to be messing with it as much as we do...

[familyop]

"And didn't the PIMCO Bond Fund manager sell all its US bonds saying that he will not buy any more US government bound until the interest rate is increased by 1.5%?"

Here's what he really said recently.

"No Way Out" of Debt Trap, Gross Says: U.S. Living Standards Doomed to Fall Yahoo/Finance ^ | 3/9/11 | Stacy Curtin

Excerpt:
“There is really no way out of this trap and this conundrum at this point,” says Gross. From an investment perspective his advice is to stay clear of “bonds in dollar denominated terms” and to be “wary of higher interest rates going forward.”

See? So the Fed will probably buy many more bonds after June and the summer of re-crash.