The Economy: Dan W- "Welcome to Amity Island"

“I'm glad I live in rural Vermont. I'll tell you why: Because when it all comes crashing down, at least I'll be far enough away from the epicenters of hell that I'll be able to turn off the radio, sit around with my kids, and pretend the whole thing is just a bad dream. Look folks, we've either got to stop these thieves from destroying our world, or we have to get busy planning how we're going to survive the coming economic ice age.

The newest idea- that of creating "bad banks", government institutions that simply buy up everyone's bad assets- signals the beginning of the end. We have moved from the regime of the delusional into the regime of the completely insane. No, not simply insane: Criminally Insane. Ben Bernanke will pursue his White Whale without any care for the lives of his crew, US!

Bernanke's "bad banks" will spend trillions upon trillions of dollars to buy up all of the toxic assets that are secretly housed in the vaults and on the hard drives of the nation's banks. Once all of these institutions have balance sheets that appear healthy, Bernanke and his Friedmanite friends assume that commerce and trading and lending and borrowing will recover and our economy will begin to grow anew. But it won't- unless of course the federal government holds a gun to the heads of everyone involved- banks and citizens alike- and tells us all to lend and borrow and spend, or else. And even then it will take a helluva lot of guns to make even a teeny weeny dent in the situation. But they'll try nonetheless, because saving the system is simply more important to them then are the lives of the millions who will perish during this the most grand coercion in the history of history. It reminds me of the scene in the movie JAWS, in which the mayor of Amity Island forces citizens to swim in shark-infested waters because, if they don't he argues, the economy will suffer. And as we all know, as few legless swimmers and dead kids is a small price to pay for economic growth.

But why, you ask, won't the economy begin to grow once the banks and other financials have their balance sheets cured of the toxicity that currently poisons the corpus? Here's why:

1. A nuclear explosion of global unemployment will leave most folks unable to service any new debt.

2. Tens of trillions of dollars in bailouts will leave the USA with deficits that no amount of taxation could come close to paying off. As such, the plug will eventually be pulled on the American debt machine as countries like China and Japan will refuse to buy up our debt---unless of course we use gunboat diplomacy to compel such action, which would of course be suicidal.

3. These "bad banks" are going to have to spend literally TENS of trillions of dollars to accomplish the goal of buying up all of the toxic assets held by these banks, because for every billion in toilet paper reported by these institutions, there's another 50 billion hidden away from public view. How do I know this, you ask? Well, just take a look at Citi and BofA. How much have we spent to BEGIN the process of saving just two institutions? Let's conservatively say 500 BILLION dollars. Now multiply that number by, we'll say, FIVE (a VERY conservative estimate): Five being the multiplier that accounts for ALL of BofA and Citi's debt. Now multiply THAT number by ONE HUNDRED (again, conservatively), a multiplier that represents the proportion of total debt held by Citi and BofA in relationship to the nation's other financials. The total: Roughly 25 TRILLION dollars. At what point do the "bad banks" (The Government!!) implode under the weight of this debt glacier?

4. Trust in the system is all but dead. The criminals have been exposed, and saving the banks only serves to further entrench the masses in their abject mistrust in the system that brought them this calamity. AND, once civil unrest comes to the streets of the USA, which, if history is any guide, it will- AND, unlike back during the 1930s, cell phone video clips and YouTube will spread the news of riots and repression at light speed- once rioting occurs here in the USA, what does the government do? (Of course more repression, which is the only logical course of action. Repression probably won't restore much trust. Just a hunch.)

5. Nothing is being produced! All that is happening is that debt is being paid off with more debt. ANY goods that might be produced and purchased by the American consumer are still being produced overseas. REAL growth of GNP is not happening. At best, the illusion of growth is being conjured by massive governmental spending and printing.

6. And what about the THEORY that once the economy begins moving again, Ben Bernanke will remove liquidity from the system by raising interest rates and slowing lending and borrowing? Hogwash!! First of all, banks and insurance companies and any and ALL financial institutions will continue to sit on capital in an effort to maintain their own solvency. In the coming regime, the profit motive has been stripped away as banks realize that there is very little to be made on too much risk: better to hold all of the money being provided by the FED- I mean, by the American taxpayer- and maintain a position of relative solvency then risk investment in a fetid lending environment. In addition, the monetary policies currently being proffered by the FED assume- based solely upon theory, not upon the realities on the ground- that eventually the credit crisis will ease because liquidity and "solvency" will resuscitate the system. WRONG AGAIN! Imagine a scenario in which an individual is given a 500 Volt shock every time he engages in economic activity that places him further into debt: credit card debt, mortgage debt, whatever. At some point the guy is going to be like, "screw this!" Well, we're there and then some.

7. Our political and economic leaders live in a bubble, in the ultimate Ivory Tower. They have no idea what our lives are like, how we suffer. And I don't simply mean physically. I mean the angst that we experience because we do not know where our next meal is coming from, or if in fact we'll be able to take our sick children to a doctor, or whether or not the water that we're drinking will make us sick. Our leaders think they understand, but they cannot because they haven't felt the fear that we feel, every day. And so their theories are but the fantasies and intellectual games of the elite. For them it really is just a game. We are the game pieces, and they are the players. And when they lose a game, they can just use new pieces. But what these folks don't get is that we are coming to understand this game. Bad news for the return of "trust" in the system. Time is running out. If Obama goes through with the Rubin-esque "bad bank" ploy, it will be too late. Vermont looks better all the time.”

- Dan W, http://ashizashiz.blogspot.com/