Saturday, May 8, 2010

Was I Dreaming, or Did the Dow Drop a Grand When I Blinked on Thursday?

Again, it's been a while since I've posted. This endless bear market rally with near-zero volatility and low volume has been mesmerizing. Yet, I've maintained a skeptical attitude and about five months ago began buying puts on the S&P500 at 1100. It's taken much longer than expected but perhaps the action this past week is saying the accounting-rule-change-driven relief rally top is finally history.

The 998 point intra-day drop in the Dow over a few minutes, Thursday, is already beginning to fade from public memory ("...move on folks, nuthin' to see, nuthin' to see. Don't try connecting the dots. Nuthin' to with Greece, debt, or anything fundamental. Just a wee omputer-trading glitch.").

Instead of focusing on that singular event, I'm posting another big picture piece on the excessively indebted US and world economic systems. It might appear that I post nothing but bad news, but keep in mind that you receive little but good news from the mainstream media, and my intent is to present information that properly rounds out the picture.

The biggest economic problems in the world today are: debt, debt, and debt. Understand that, and you can begin to understand something of “modern” economics. However, to fully understand the terrible state of the economy today, you also need to understand how the source of practically all money is debt, in the form of bank credit, and the simple facts that we are all made prisoners of this monetary system by the legal tender law and the non-existence of alternative money.

It is not my intent to explain the mechanics of that system here. Suffice it to say that as long as you operate within the system, you being robbed directly by inflation and also by taxation on illusory inflation-profits, and the markets you try to “invest” in to protect your savings and generate real profits over and above inflation are being manipulated and gamed by the big financial players. Even your federal, state, and local governments are being manipulated and gamed by these same players.

The end game comes when the public and governments can absorb no more credit. The mathematics of repayment of principle plus interest then dictate that there shall be outright individual, business, and government failures. This is not even a zero sum game. The mathematics dictates that there shall not just be relative winners and losers, but there shall be failures, bankruptcies, and abject poverty.

These results are not an absolutely necessary part of the human condition but they are absolutely a result of the present less-than-zero-sum monetary system. What would you think of parents having four children and telling them there is enough food for all, but they plan to starve one child to death just to make life a bit more competitive? It's an admittedly gross and imperfect analogy but it's something like that.

Let's survey the past two and a half months to see how this 400-year-old mature monetary system is working out. If at the end of your reading, you still think that you can “play the markets” in stocks or bonds, without understanding banking, credit, and debt, well, good luck. You will need an abundance of it.

The Sovereign Debt Disaster, by Egon von Greyerz, February 23, 2010
Buffet's Partner Says America is Finished, February 23, 2010
Sultans of Swap: Explaining $605 Trillion in Derivatives, by Gordon T. Long, February 24, 2010
Nearly 25% of All Mortgages Are Underwater, by Les Christie, February 24, 2010
Sovereign Debt Follies, “It Has Taught Us Nothing”, by Bob Hoye, February 25, 2010
Bernanke Delivers Blunt Warning on US Debt, by Patrice Hill, February 25, 2010
Massive Bank Failures Due, by Charlotte Cuthbertson, February 25, 2010
California is a Greater Risk than Greece, Warns JP Morgan Chief, by James Quinn, February 26, 2010
A Quick Tour of Hyper Inflation and Its Consequences for America, by John Silveira, March 1, 2010
The Real Cause of Hyperinflation, by Jordan Roy-Byrne, CMT, March 2, 2010
Indonesian Mob Wants Blood After Treasury Secretary Spends a Fortune Bailing Out Banks, by Gus Lubin, March 3, 2010
Signs of the Tmes, by Bob Hoye, March 4, 2010
Unemployment, by Howard S. Katz, March 8, 2010
Why California is Doomed, by Charles Hugh Smith, March 9, 2010
Tedbits 2010 Outlook. When Hope Turns to Fear, Part IV, by Ty Andros, March 12, 2010
Eurozone Could Risk 'Sovereign Debt Explosion', by Ambrose Evans-Pritchard, March 12, 2010
The Complete Guide to Toxic Mortgages and the Housing Situation of California, March 13, 2010
Unemployment (continued), by Howard S. Katz, March 15, 2010
The Spectre of Financial Armageddon – Health Care and Federal Debt in the United States, by Michael E. Chernew, Phd, Katherine Braiker, Phd, and John Hsu, MD, MBA, MSCE, March 17, 2010
The Ruins of Detroit, The Off-Shored Economy, by Paul Craig Roberts, March 17, 2010
Watch the Bond Market, Not Bank Lending or Velocity, Jordan Roy-Byrne, March 19, 2010
In the Shadow of the Castle, by David Galland, March 19, 2010
Healthcare Bill to Cause U.S. Hyperinflation by 2015, March 20, 2010
The Most Important Chart of the Century, by Nathan Martin, March 20, 2010
Debtor Nation, by James Turk, March 22, 2010
U.S. States May be the Next Dominoes to Topple, by Boyd Ermin, March 23, 2010
Tedbits 2010 Outlook, When Hope Turns to Fear, Part V, by Ty Andros, March 26, 2010
It is a pressure cooker waiting to explode! Similar “Recovery” rally as in 1929/1930, March 28, 2010
The Municipal Market, by Rick Bookstaber, April 4, 2010
Sovereign Debt Crisis at “Boiling Point”, Warns Bank for International Settlements, by Ambrose Evans-Pritchard, April 8, 2010
Extend and Pretend: Manufacturing a Minsky Melt-Up!, by Gordon T. Long, April 12, 2010
Extend and Pretend, by John P. Hussman, Phd, April 12, 2010
Yes, 47% of Households Owe No Taxes. Look Closer. By David Leonhardt, April 13, 2010
12 Reasons Why Millions Of Americans Are Incredibly Angry About The State Of The U.S. Economy, by Michael Snyder, April 13, 2010
Extend and Pretend: An Accounting Driven Recovery, by Gordon T Long, April 14, 2010
The Global Economic Crisis: Riots, Rebellion, and Revolution. When Empire Hits Home. By Andrew Gavin Marshall, April 14, 2010
Princely Finance and Taxation (Our Annual Tax Number), by Bob Hoye, Institutional Advisors, Apr 15, 2010
Invisible Leverage, by Howard Hill, April 20, 2010
Second Wave of Financial Crisis, by Jim Bianco, April 21, 2010
Collapse of the Standard of Living in the USA. Studies Reveal Declining Living Standards and Increasing Anger, by Hiram Lee, April 24, 2010
The Feds Hollowing Out of U.S. Banks, Daniel Amerman, CFA, April 29, 2010
John Williams: A Hyper-Inflationary Great Depression Is Coming, April 30, 2010
Greenspan Wanted Housing Bubble Dissent Kept Secret, May 3, 2010
The Mother of All Bubbles. Huge National Debts Could Push Euro Zone into Bankruptcy. May 3, 2010
Violating the No Ponzi Condition, by John P. Hussman, Phd, May 3, 2010
Scary Chart, May 4, 2010
The Canary is Dead, by Greg Hunter, May 7, 2010

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