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The Big One
Posted By: Bobby
Date: 9/9/07 at 12:09 a.m. EST
September 8, 2007
Here in California we refer to the next catastrophic earthquake as The Big One--not a modest little 7.0 temblor like Loma Prieta in 1989, but a massive 8.0+ quake like the 1906 event which devastated San Francisco.
The financial Big One hit today. Though the markets are still standing, the apparently modest damage is illusory--deep inside, the supports have broken. Over the next few weeks, we will witness a seemingly sound structure start collapsing under its own weight--the global house of structured debt. Though to the naked eye it seemed to have survived today's modest financial quake, reverberating shock waves will soon bring it down.
Let's start with a chart of the U.S. dollar index. The mainstream media is full of stories about the Federal Reserve cutting rates, but the bigger story--the fall of the dollar below the multi-decade support level of 80--was barely mentioned.
Do you really think throwing more debt into the economy is going to help matters? Note that we now stand on a precipice even higher than the one which brought on the Great Depression. Bernanke is on the record claiming that looser money (more liquidity) would have ended the Great Depression. But if you've lost your shirt gambling, then who will be dumb enough to lend you more money? Even with a pool of limitless funds, no one wants to lend money which will promptly be lost; and responsible people will have no desire to borrow more, regardless of the interest rates.
Please note that interest rates in Japan have been 1% for 15 years--and their "recession" continues apace. So much for the notion that limitless liquidity will end any recession that was caused by too much liquidity and borrowing in the first place.
Did you notice that the economy lost jobs for the first time in four years? Do you reckon that might eventually cause a decline in consumer spending? As Mish has painstakingly described, the employment number is loaded with completely fraudulent "ghost jobs" which the Bureau of Labor Statistics is pleased to assume were created with zero evidence. So the reality is probably 120,000 jobs were lost, not 4,000.
- The Big One
Bobby -- 9/9/07 at 12:09 a.m. EST- Re: The Big One
The Investor -- 9/9/07 at 12:13 a.m. EST
- Re: The Big One
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