Derivatives and Bubblenomics

Warren Brussee's book "The Great Depression of Debt" is a must read. In it he outlines our path to the second great depression and how we used debt keep GDP positive. One of the points he makes in the book is how people borrowed against their home equity value and spent the money. The thinking was that they could just sell the house and pay off their debts one day. The stock and housing crashes have eliminated their ability to pay off those debts and we are not stuck in the Great Depression of Debt.

The banks treated derivatives in the same way but the problem is much much larger. We are talking in the realm of 700 trillion, or over 10 times the worlds GDP. The banks paid out huge bonuses, made risky investments and other things for many years because they were able to borrow against their derivatives holdings sometimes at a rate of 33 to 1 or more. We can thank our current treasury secretary for that ratio as he helped get rid of the 12:1 limit for investment banks and hedge funds. They blew the money on the market and are now left with the garbage. Except its more garbage and anyone on earth can deal with. We have thrown about 10 trillion at the problem, only 690 to go. After watching the news lately I am firmly back in the collapse camp. The unraveling of our economy is coming at a blistering pace, Starbucks announced 300 more store closing translating into 6k jobs.

I spoke with a friend who works in make-up at Dillards. She said some of the major brands haven’t sold anything in 3 days. Anything! They are not getting inventory. She expects her job to be gone by the end of the summer.

Obama’s stimulus is a complete failure. Its pretty much a democratic agenda wish list and includes very little for job creation and infrastructure, maybe 10% tops. I think we are on our way to collapse and I think the government is in that camp as well. HR 645…sounds like they want to be ready. Add in a pinch of peak oil and this starts to get a little scary. Time to get all boy scout on you...be prepared. Food, Water, defense, planning. You will need it.