Well, the pootie is out of the reusable canvas grocery store sack now, isn’t it?
Lehman Brothers we knew to be at death’s door and now it’s gone – bankruptcy filing. Surprise, at least to me, comes in the form of the death of Merrill Lynch, sucked up by Bank of America. They were supposed to wait a few more weeks. Washington Mutual gone into the arms of J.P. Morgan, and half a dozen other big name banks about to let go with a bang.
We’ve got a fine lot of dreams here at DailyKos, some were doable, some where just idle fantasy, but the mother of all deflations coupled with declining energy availability and rising global temperatures just slaughtered the lot of them.
The world changed thirteen months ago and what you’re seeing now with the banks has been inevitable; they were trying to push it off until Obama’s term began, but it just couldn’t wait for a variety of reasons.
More below the fold ...
First, I’ll make some statements regarding things that I believe to be true now or that I suspect will come to pass in fairly short order.
• Housing prices are set to drop 80%
• Real unemployment will at least double to 26% and perhaps triple
• The current slow motion credit contraction will accelerate dramatically
• Mexico will fall into disorder
• A proper war, one with high taxes and a draft, will come within the year
• Our next bailouts will be the FDIC as commercial bank failures begin
• The Pension Benefit Guarantee Corporation will also get a bailout
• The specter of a Soviet style collapse will become much more realistic
Housing Prices: We have a massive asset bubble caused by easy credit. The banks that just died did so because they had crap on their balance sheets. Until housing prices are down 80% from the peak and all of that crap is out in the daylight we’re going to continue to have credit constipation. When it clears there will be much less credit to go around – a major contraction of our money supply is happening right now. Ignore the bloviating bloviators prattling about hyperinflation ... that comes later.
When few can afford a house and businesses are closing as credit lines all over get pulled by banks trying to limit their exposure unemployment will soar. The real number now is about 13% and that will double or triple.
When a bank takes a dollar in deposit it will lend out ten – fractional banking. When a bank loses a billion it begins calling in ten billion that it loaned out. Every time you see a bank failure number mentally multiple by ten to get the real effect.
I write about the freight train that is roaring straight at Mexico and a select subset of Kossacks show up to abuse me for being a racist. To them I say Tu madre! The facts speak for themselves – the Cantarell oil field is admittedly in decline and when unemployment spikes here things will happen that will make it much harder for undocumented workers, thusly reducing the remittances they send home. When the government loses 40% of its income and the people do, too, that is a recipe for disaster.
Something is going to happen in the Middle East. We’ve been pouring geopolitical turmoil into the area and the parallels between that part of the world now and the Balkans a century ago are too many to ignore. Pakistan is my pick for a sudden, very dangerous implosion, but this Georgia/Russia thing is nice and juicy, too. My girlfriend and I have four sons between us from eleven to twenty three. This does not please either of us.
The FDIC has $51 billion in assets and there are probably a quarter of the 8,500 insured banks that will die over this credit crunch. They can’t make depositors whole without picking the pockets of everyone. They don’t even dare raise premiums now because the banks are so fragile.
No one and I mean no freakin’ one wants to even think about what will happen with the Pension Benefit Guarantee Corporation. I haven’t seen it in the news but when companies die their pensioners end up getting covered by this quasi-governmental agency. Welfare tomorrow for the working class ... but in fact it will be happening because the wealthy looted pension plans, both in the past and with this current mess of what The Automatic Earth’s Ilargi calls "casino paper".
We just took another giant step towards the Soviet Union style collapse that Dmitry Orlov describes in his book Reinventing Collapse. Yeah, it can happen here, and the likelihood of it just got much higher.
I'm going to post this bare and then come back and properly cite it. Sorry for the confusion but I've been writing on this for about the last six months and I have diaries that back up most of these points with further thinking and supporting external links. In the meantime I'll post the raw list of my finance related diaries in the tip jar.