Financial Collapse – Round 2 Preview

| January 15, 2009

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If you have been reading this blog and some other greats, you are probably aware that although the press would like you to think “the worst is behind us”, we are only looking at the end of the first phase of the collapse.

2008 saw the beginning of the massive deflationary cycle that kicked off with a spike in oil prices, and then the rapid collapse of the credit markets. Urgent intervention by world government kept things from taking their natural course; preventing the physics of the situation from destroying all the mal-investment and fraud that is rotting within the opaque complexity that is the global economic system.

That intervention via TARP, the AIG bailout, the Fannie Mae bailout, the Freddie Mac bailout and all the others destroyed a good chunk of this country’s future prosperity largely to make sure that the super-rich had time to get out of some of the more insane investments.

Believe it or not, less than 3 months later most of that money is gone already, as witnessed by Bank of America suggesting that they needed more.

This means we are edging ever close to the second, more violent phase of the correction for the excesses of the past 20+ years. If you were paying attention you have hopefully built up a good cash cushion in some place safe and easy to access, and you are learning to live life happily while spending substantially less.

As one friend who is eagerly looking for work before the last of his savings runs out put it: “You were right, everything you said has happened”. “Not everything”, I told him, “Half or more is still out there waiting to take place”.

We are likely to see some amazing events in 2009, and I am not referring to the inauguration of the first black man as president. Calling the kick off is near impossible, but you are going to see several of the big banks die a bloody death this year, possibly including Bank of America and Citibank, along with a few other of the top tier cash centers. We are going to see whole countries follow Iceland into insolvency as the economic cancer that is still raging through the system pushes to find some path to ground.

We will see massive intervention by the US Congress and president, by the federal reserve, and by foreign countries eager to do something, anything to keep what must happen from happening.

Some things to keep in mind as you see it all start to crumble this year

  • This was never about sub-prime loans. It was always about a massive debt bubble that could never be sustained
  • What happens is best accelerated rather than delayed. The longer we push it back the more it will hurt
  • Until the imbalance is destroyed, taking with it bad investments, companies who bet wrong on so many gambles and many people’s fortunes, the pain will continue
  • This destruction will wreck people’s lives forever, but they will in fact sew the seeds for our next golden age. I for one would rather pass through the fire now and work on rebuilding prosperity sooner rather than later.
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Category: Business, Credit Backlash, Economics, Main, Recession Watch

About the Author ()

Bruce Henderson is a former Marine who focuses custom data mining and visualization technologies on the economy and other disasters.

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