Denninger has a great article today, it fits nicely too.
Japan inching closer.
What people like Cramer are missing:
Deflation.
From Bloomberg:
Ten-year yields will probably drop to as low as 1.5 percent over the next two years, Mizuho Asset’s Takei said.
The only way that happens is if The United States is gripped by a bone-crushing deflationary spiral.
It can happen. It probably will happen, despite The Fed’s attempts to stop it, because in fact The Fed has done all the wrong things to stop it over the last ten years, and once you try to use bubble economics to get out of another bubble you have sealed your fate.
See, debt deflation cannot be avoided once you blow asset bubbles supported by debt – it simply can’t. That cycle must end and when it does you wind up with the debt service sucking all the oxygen out of room and prohibiting growth. Once that condition asserts itself asset prices collapse and defaults go parabolic.
Put simply:
Once you start borrowing to pay current costs and interest – that is, you start “rolling forward” debt such that the amount outstanding increases as a percentage faster than GDP increases and this “rolling forward” shows up in asset prices, you are doomed to a deflationary credit collapse.
The longer you let it go on (or try to force it to go on) the worse the collapse will be.
This is mathematically certain – it is no more subject to avoidance than is the fact that you cannot “get” energy – you can store it, transform it or use it but each and every transformation will lose some of what you started with.
Likewise, once debt is taken on there are only two alternatives: PAY IT DOWN OR DEFAULT IT.
We have tried to “cheat death” for too long. Greenspan tried to avoid this deflationary collapse in 2001. He bought us how long? Seven years? Sounds good, right, except that the previous attempt was after 1987, and lasted 13 years, and this latest try required a bubble several times larger than the previous one!
Such is the nature of exponents.
Unfortunately in order to “blow a new bubble” to take the place of housing you’d have to find something that was $10 trillion in size or more.
Denninger a year ago was sometimes viewed as a radical thinker. Now he has been shown to be probably the most accurate predictor of whats coming, IMHO.
His audit the Fed call seemed like “never gonna happen” rhetoric a year ago. Not in this country. But, now we have Ron Paul actaully gaining a little traction:
————— A plan to open up the Federal Reserve to congressional audits received enough support in the House of Representatives this week to guarantee that it will receive a full hearing by lawmakers. Congressman Ron Paul (R-TX) has been the driving force behind H.R. 1207, the Federal Reserve Transparency Act, which would give the Government Accountability Office (GAO) authority to examine the Fed’s books and report to Congress on the performance of the national bank.
The bill now has 222 co-sponsors, most of whom are Republicans, but 52 of whom are Democrats, and it was a Democrat, Ohio Congressman Dennis Kucinich, who provided the 218th co-sponsorship for H.R. 1207 that allowed it to move out of committee and be debated on the House floor http://www.allgov.com/ViewNews/Ron_Pauls_Audit_the_Fed_Bill_to_be_Debated_in_the_House_90615
