Sunday, July 18, 2010

Er, uh... it seems the world is coming to an end... whatever.

We are witnessing (how) a peak in a parabolic finance/asset/stock bubble of world proportions, is going to pan out. I think the entire credit crisis can be looked at from that perspective. We are merely witnessing the relentless unwinding of the biggest financial bubble in history. And, ominously, this particular bubble has grown from the end of WW2 to the present. That is one HUGE economic bubble, and this one envelops the entire world. This is not just a bubble in one country's economy. We are talking about the deleveraging of the greatest economic/finance bubble in history. Once the level of leverage reached 60 to 1, it becomes impossible to stay ahead of the deleveraging, even for central banks. The implications are staggering. Every major economy in the world is involved. The outcomes of deleveraging this monster bubble, represented by the green oval, will be what I term Credit Crisis II. At 60 to 1 leverage, a loss of 1 to 2% wipes out the capital. Christopher Laird
David Seaton's News Links
These days the zeitgeist is rich with "end of the world" scenarios. The one I have quoted above is one of the milder ones: in it the waters are not going to rise or oil peak, in it sentient life on our planet is not directly threatened, we simply have to "deleverage", that is to say, pay back all the money we owe... all of us... simultaneously.

If I understand even a tiny bit of its implications, it would seem that most, if not all, of the wealth of our world is fictitious and that right now we are, every man jack of us, everywhere in the world, more or less in the position of a holder of Confederate currency and bonds on the eve of Appomattox.

Here is another quote from "gold bug", Mr. Laird:
Cross linkages reveal that it is virtually impossible, even with bailouts, to purge the ever growing $500 billion and counting losses of capital from the banking/financial system. The latest numbers being speculated on are the losses will be over $1 trillion (IMF) and $2 trillion or more (Roubini).

Now, maybe $2 trillion doesn't sound like a lot compared to the entire world economy. The trouble is, that capital is leveraged anywhere from 10 to 50 times by the financial system. Fannie and Freddie have 60 to 1 leverage.

Losing $2 trillion of capital will totally wipe out the entire world financial system for a decade because of the leverage at 60 to 1. Basically, unless those losses can be purged in some way, it has to be earned back over a period of years/decades. That essentially cripples the entire world financial system.
If all this is so and it plays out as Laird prophesies, it will mean levels of universal, simultaneous social unrest such as has never been seen in all history and will require massive government intervention and the nationalization of practically everything to keep people eating and maintain the basic infrastructure of civilized life... socialism, you might call it.. the question will be, if it is going to be coordinated internationally by the G-20, the EU, IMF and the WTO or will it be "national socialism", with all the baggage those two words carry. Whatever the remedies employed, we would be looking at a situation every bit as game changing, more so probably, than the collapse of the Soviet Union.

Raptured or ruptured?

Experience tells us that it probably wont be as bad as Laird paints, although experience is an all too faulty guide to totally new situations.

But, until the sky finally falls, the sheer proliferation of "Chicken Little" wannabes like Christopher Laird seems significant in itself... The ice is melting, the cows are farting, the oil is peaking, Jesus is in the green room, Obama is a communist, take your pick.

Me, while waiting for civilization to collapse, for the trumpets to sound, I think I'm going to chill out with a Spanish summer classic called "tinto de verano", which is basically one to one chilled red wine with iced Seven-Up.

Very nice stuff on a sweltering summer night, taken in good company, watching the world go by, sitting in a sidewalk cafe. DS

1 comment:

stunted said...

You lucky dog....I'd give my eye teeth to have a sidewalk cafe to watch the human parade from. It's what I miss most about Paris, along with the friends I'd share the table with.