Back to Doom & Gloom

November 30, 2008

Hope you all had a nice holiday weekend… now back to regularly-scheduled programming…

Very interesting blog post by Charles Hugh Smith here, discussing the impending recession/depression/whatever that’s coming our way.   The slow death of the FIRE economy like a slow-motion tragedy of sorts, and it has yet to truly affect many American households.

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Happy Thanksgiving

November 27, 2008

No ‘doom & gloom’ today… plenty of time for that coming months.

Today I’d just like to wish everyone in America (and elsewhere) a Happy Thanksgiving.  Hopefully you’ll be able to spend some time today with the important people in your life and reflect on what you can be thankful for in your life.  That’s what I’ll be doing today… along with drinking some good beer and watching some football later today.

Some Quick Math

November 25, 2008


Citi Will Not be the Last Bank Bailed Out…

November 24, 2008

More bailouts for large banks, and more burden put on taxpayers… Happy Thanksgiving!

The government has guaranteed around $300 of bad debt in Citibank and has also given them $20 billion in a direct capital injection.  And, from the sounds of it, this will not be the last bailout of this sort.  From the linked article:

Citi and the US government made it clear that the Citi arrangement would be extended to other banks that pose risk to financial system stability, if need be. That is why the arrangement included broad swathes of Citi’s assets but was not tailor-made to suit Citi alone.

Anyone else think the other major banks aren’t going to line up, hands held out, asking for similar treatment?   This is particularly interesting coming right after Congress showed some spine and told the Detroit auto makers to get a valid plan in hand before coming back to ask for funding.  If there were any doubts about what the pecking order is with regards to who gets money from DC, this should help clear things up.

Looking at the largess being handed out right now, I can’t wait to see what kind of stimulus package will be delivered to Obama when he takes office in January.  Anything south of a trillion dollars or so won’t be seen as game-changing I’m thinking.

Why Rioting in China is a Risk

November 23, 2008

This quote says it all:

“The whole area is under curfew,” a local official who declined to be identified said. “Any groups of more than three people will be beaten without mercy.”

Not arrested, not detained… just beaten.

Any thoughts that China will be immune for the economic flu that is infecting the rest of the world should be put to rest.  The Chinese have some advantages, but they have a number of disadvantages as well.   There are rumors out there that Chinese electrical usage is dropping fast, which indicates less economic activity.    A bad retail holiday in the states could be an unhappy new year in Asia.

Why Obama Won’t Worry About the Deficit Next Year

November 18, 2008

We’re already screwed.

Why the Credit Crunch Matters

November 17, 2008

I just added London Banker to the blogroll…

This is an excellent summary of why the global credit crunch will sooner or later unleash havoc if the powers that be cannot get it under control again.

If cargo trade stops, a whole lot of supply chain disruption starts. If the ore doesn’t go to the refinery, there is no plate steel. If the plate steel doesn’t get shipped, there is nothing to fabricate into components. If there are no components, there is nothing to assemble in the factory. If the factory closes the assembly line, there are no finished goods. If there are no finished goods, there is nothing to restock the shelves of the shops. If there is nothing in the shops, the consumers don’t buy. If the consumers don’t buy, there is no Christmas.

Everyone along the supply chain should worry about their jobs. Many will lose their jobs sooner rather than later.

If cargo trade stops, the wheat doesn’t get exported. If the wheat doesn’t get exported, the mill has nothing to grind into flour. If there is no flour, the bakeries and food processors can’t produce bread and pasta and other foods. If there are no foods shipped from the bakeries and factories, there are no foods in the shops. If there are no foods in the shops, people go hungry. If people go hungry their children go hungry. When children go hungry, people riot and governments fall.

Everyone along the supply chain should worry about their children going hungry.

When that happens, everyone in governments should worry about the riots.

Fiat currency is attractive to governments because it is based on nothing other than goodwill and a firm belief that it is worth something more than a scrap of paper or bytes in a database.   If need be the supply can be expanded more or less at will, and it can be contracted again for a variety of reasons.    This ability to create cash out of thin air becomes addictive to large governments, as our burgeoning national, state and local government debt loads can attest to.

The dark side of the ease with which we create money is that it is a debt that needs to be paid sooner or later.   Greed causes men and states to issue more & more money.   Creditors start to wonder how likely they are to be repaid, and how much those funds would be worth.  Trust erodes, credit dries up, and the system starts to experience stress.   As London Banker points out, this is a somewhat abstract concept when it revolves around Wall Street gaining or losing a certain number of points on any given day.  It becomes a lot more concrete when you start wondering how you’re going to feed your family or pay the mortgage.

President-Elect Obama appears to be signalling that he’s preparing to flood the monetary system with liquidity if necessary to jump-start the economy again, much like FDR did back in the 1930’s.   Whether that would work or not is a matter for discussion.  I personally have my doubts, but I’m no expert when it comes to such things.

Some commentators are already starting to call a bottom for the market.  I think it’s way to early for that, personally.   Maybe I’ll ask Santa for some 50-pound bags of rice…