Wednesday, October 1, 2008
FROM THE DAILY RECKONING MONDAY 9/29/08
“We must regulate,” says Dominique Strauss-Kahn, director of the IMF (perhaps forgetting that Fortis was regulated by hundreds of bureaucrats in dozens of different countries....). “The time has come to save capitalism from the capitalists,” writes Luigi Zingales of the University of Chicago. Thank God for the bureaucrats. The economists. The Wall Street pros. Now, they’re going to “rescue” us... But wait a minute... ...wasn’t it the US government that set up Fannie and Freddie with an implied guarantee? ...wasn’t it the SEC that was set up to regulate Wall Street and prohibit the sale of slimy “investments?” ...weren’t these same economists the ones who thought the U.S. financial system was the best in the world...because it was so “dynamic...inventive...and flexible?” ...isn’t it the Fed itself that has been lending money below the inflation rate since 2002? And wasn’t that the major source of “liquidity” that created such a huge credit bubble? ...and wasn’t Hank Paulson the head man at Wall Street’s most go-go firm when all this stuff was going on? Do you remember hearing him warn investors or lawmakers that the whole Vesuvius of hyper-credit was going to blow up? We don’t... Yes, dear reader, as predicted in these pages...we are witnessing an epochal shift – from capitalism to socialism...from markets to politics...from subtle swindle to naked larceny...from white collar grifters to stick-up men...from slick fraud to brute force. And then...who will rescue us from the rescuers? AND THIS... *** Here’s a sobering detail: For the last 15 years, the U.S. money supply has grown about twice as fast as GDP. Federal government liabilities, meanwhile, have grown three times as fast. It now has more financial obligations than assets. It is, effectively, broke. And here is another cup of strong coffee: U.S. debts are now compounding negatively like a Neg Am mortgage, that delightfully fatal confection invented at height of the housing bubble. Some house buyers didn’t even pay enough to cover the interest on their mortgage; the missed interest payments were added to the mortgage itself, causing it to grow automatically. Exponentially. We don’t know what Professor Chris Martenson is a professor of. But he has done the world a favor with his description of what happens when things grow exponentially, rather than arithmetically. Imagine you could make a football stadium watertight, he writes. Then, imagine that you put a magic drop of water in the center...a drop of water that doubles every minute...so that after six minutes or so, you’d have about enough water to fill a thimble. Now how long would it take before the stadium filled, he asks? We’re not going to leave you in suspense. For the first 45 minutes, you can walk around the stadium and barely get your feet wet. But in the next 4 minutes the stadium fills and you drown.