Jim Grant: “From Bear to Bull” – WSJ 9/19/09

[4plexowner]

International Forecaster
http://news.goldseek.com/InternationalForecaster/1253516400.php

“Apparently, we are just supposed to ignore our tanking dollar, rising unemployment, ever-weakening consumer spending (which only accounts for 70% of our GDP), a moribund real estate market, trillions in losses lying dormant in the zombie bank mark-to-model scam, not to mention all the off-the-books losses in derivatives pawned off on bank customers after Glass-Steagall was repealed as well as a glowing, smoking Quadrillion Dollar Derivative Death Star waiting to go supernova to the tune of tens of trillions in losses that will vaporize the entire world banking system thanks to the total deregulation of OTC derivatives courtesy of the Commodities Futures Modernization Act. Then there are the ongoing multi-trillion dollar money siphons in Iraq and Afghanistan, thousands of banks, including all the “anointed” legacy banks, that are buried in derivatives and about to fail, a bankrupt Social Security System, a totally naked FDIC, a Fed printing trillions of dollars out of thin air, in secret, without any accountability, and future multi-trillion dollar budget deficits being incurred to keep a totally comatose economy on artificial, taxpayer-sponsored life support. If that sounds like the end of a recession to the people on planet earth, then beam us up Scotty, we’re on a planet full of psychopaths suffering from hallucinations and delusions of grandeur. Oh, and Scotty, make sure you remember to beam our gold and silver up with us.”

[Arraya]

http://theburningplatform.com/groups/quinns-daily-dose-of-reality/discussions/game-over-1000-banks-will-fail
Two of the men I respect the most, John Mauldin and Chris Whalen, have put out some frightening numbers. These guys are not perma-bears. They are fact based realists who have been right about the economy and banking system for years. Chris forecasts 1,000 banks will fail before this crisis is over. Only 100 have failed so far. Chris forecasts that total losses will be $500 billion to $800 billion. The FDIC has $10 billion. Now you understand why the FDIC quietly opened a $500 billion line of credit with Treasury earlier this year. Sheila Bair will not openly tell us that 1,000 banks will fail. The implications are that this 60% rally is a fraud. The Depression is just getting going. Anyone who can look at these figures and still think the recession is over is brain dead. If you are heavily invested in the stock market, you are picking up nickels in front of a steamroller.

[Arraya]

http://theburningplatform.com/groups/quinns-daily-dose-of-reality/discussions/game-over-1000-banks-will-fail
Two of the men I respect the most, John Mauldin and Chris Whalen, have put out some frightening numbers. These guys are not perma-bears. They are fact based realists who have been right about the economy and banking system for years. Chris forecasts 1,000 banks will fail before this crisis is over. Only 100 have failed so far. Chris forecasts that total losses will be $500 billion to $800 billion. The FDIC has $10 billion. Now you understand why the FDIC quietly opened a $500 billion line of credit with Treasury earlier this year. Sheila Bair will not openly tell us that 1,000 banks will fail. The implications are that this 60% rally is a fraud. The Depression is just getting going. Anyone who can look at these figures and still think the recession is over is brain dead. If you are heavily invested in the stock market, you are picking up nickels in front of a steamroller.

[Arraya]

http://theburningplatform.com/groups/quinns-daily-dose-of-reality/discussions/game-over-1000-banks-will-fail
Two of the men I respect the most, John Mauldin and Chris Whalen, have put out some frightening numbers. These guys are not perma-bears. They are fact based realists who have been right about the economy and banking system for years. Chris forecasts 1,000 banks will fail before this crisis is over. Only 100 have failed so far. Chris forecasts that total losses will be $500 billion to $800 billion. The FDIC has $10 billion. Now you understand why the FDIC quietly opened a $500 billion line of credit with Treasury earlier this year. Sheila Bair will not openly tell us that 1,000 banks will fail. The implications are that this 60% rally is a fraud. The Depression is just getting going. Anyone who can look at these figures and still think the recession is over is brain dead. If you are heavily invested in the stock market, you are picking up nickels in front of a steamroller.

[Arraya]

http://theburningplatform.com/groups/quinns-daily-dose-of-reality/discussions/game-over-1000-banks-will-fail
Two of the men I respect the most, John Mauldin and Chris Whalen, have put out some frightening numbers. These guys are not perma-bears. They are fact based realists who have been right about the economy and banking system for years. Chris forecasts 1,000 banks will fail before this crisis is over. Only 100 have failed so far. Chris forecasts that total losses will be $500 billion to $800 billion. The FDIC has $10 billion. Now you understand why the FDIC quietly opened a $500 billion line of credit with Treasury earlier this year. Sheila Bair will not openly tell us that 1,000 banks will fail. The implications are that this 60% rally is a fraud. The Depression is just getting going. Anyone who can look at these figures and still think the recession is over is brain dead. If you are heavily invested in the stock market, you are picking up nickels in front of a steamroller.

[Arraya]

http://theburningplatform.com/groups/quinns-daily-dose-of-reality/discussions/game-over-1000-banks-will-fail
Two of the men I respect the most, John Mauldin and Chris Whalen, have put out some frightening numbers. These guys are not perma-bears. They are fact based realists who have been right about the economy and banking system for years. Chris forecasts 1,000 banks will fail before this crisis is over. Only 100 have failed so far. Chris forecasts that total losses will be $500 billion to $800 billion. The FDIC has $10 billion. Now you understand why the FDIC quietly opened a $500 billion line of credit with Treasury earlier this year. Sheila Bair will not openly tell us that 1,000 banks will fail. The implications are that this 60% rally is a fraud. The Depression is just getting going. Anyone who can look at these figures and still think the recession is over is brain dead. If you are heavily invested in the stock market, you are picking up nickels in front of a steamroller.

[4plexowner]

but the nickels are shiny!!!

[4plexowner]

but the nickels are shiny!!!

[4plexowner]

but the nickels are shiny!!!

[4plexowner]

but the nickels are shiny!!!

[4plexowner]

but the nickels are shiny!!!

[davelj]

[quote=Eugene][quote=davelj]
As you know, EconProf, GDP=C+I+G+netX. As we’re paying down the mountain of debt we’ve got, C & I must, by mathematical definition, suffer. And eventually G will suffer too. [/quote]

[quote=Eugene]There’s no law that says that debt can’t be paid off without a significant negative impact on GDP.[/quote]

Technically, in a vacuum, this is correct. However, seeing as total debt in this country is running at 360% of GDP – as compared to a long-term average of half that number – then I’m going to bet on some amount of reversion to the mean. Even if we “just” bring debt down to 250% of GDP – and perhaps this is a sustainable level – then we’ve got a LOT of debt to pay down (and charge off) over the next many years. Consequently, given the level of deleveraging that must occur, I’m pretty comfortable saying that in our current situation we cannot pay off the amount of debt necessary without a significant negative impact on GDP. To believe otherwise, someone will have to convince me that the level of debt we have in this country is anywhere in the ballpark of being sustainable.

[quote=Eugene]Secondly, there’s no law that says that our current level of debt is so unsustainable that it must be paid off ASAP. Including latest stimulus borrowing, federal debt is something like 10 months of GDP, if I’m not mistaken. Many foreign countries are far higher than that.[/quote]

I’m not suggesting that the debt has to be paid back ASAP. Quite to the contrary, I’m suggesting that GDP will be crippled for many years even if we pay it down over decades. Further, federal debt alone isn’t really the problem. The problem is the total debt in the U.S. economy – the sum of federal, state, corporate and consumer debt. This is the figure that’s 360% of GDP in aggregate. And if you look at the historical chart you’ll realize that we’re in completely uncharted territory by a fairly wide margin.

[quote=Eugene]Beyond that, we’re back in the usual efficiency game, where 2%/year growth, give or take, can be expected. [/quote]

I think 2% annually over the next decade is a pipe dream. Although I’d love to be proven wrong. I’d be ecstatic with 1%, meanwhile getting debt-to-GDP down to 250% or so.

[davelj]

[quote=Eugene][quote=davelj]
As you know, EconProf, GDP=C+I+G+netX. As we’re paying down the mountain of debt we’ve got, C & I must, by mathematical definition, suffer. And eventually G will suffer too. [/quote]

[quote=Eugene]There’s no law that says that debt can’t be paid off without a significant negative impact on GDP.[/quote]

Technically, in a vacuum, this is correct. However, seeing as total debt in this country is running at 360% of GDP – as compared to a long-term average of half that number – then I’m going to bet on some amount of reversion to the mean. Even if we “just” bring debt down to 250% of GDP – and perhaps this is a sustainable level – then we’ve got a LOT of debt to pay down (and charge off) over the next many years. Consequently, given the level of deleveraging that must occur, I’m pretty comfortable saying that in our current situation we cannot pay off the amount of debt necessary without a significant negative impact on GDP. To believe otherwise, someone will have to convince me that the level of debt we have in this country is anywhere in the ballpark of being sustainable.

[quote=Eugene]Secondly, there’s no law that says that our current level of debt is so unsustainable that it must be paid off ASAP. Including latest stimulus borrowing, federal debt is something like 10 months of GDP, if I’m not mistaken. Many foreign countries are far higher than that.[/quote]

I’m not suggesting that the debt has to be paid back ASAP. Quite to the contrary, I’m suggesting that GDP will be crippled for many years even if we pay it down over decades. Further, federal debt alone isn’t really the problem. The problem is the total debt in the U.S. economy – the sum of federal, state, corporate and consumer debt. This is the figure that’s 360% of GDP in aggregate. And if you look at the historical chart you’ll realize that we’re in completely uncharted territory by a fairly wide margin.

[quote=Eugene]Beyond that, we’re back in the usual efficiency game, where 2%/year growth, give or take, can be expected. [/quote]

I think 2% annually over the next decade is a pipe dream. Although I’d love to be proven wrong. I’d be ecstatic with 1%, meanwhile getting debt-to-GDP down to 250% or so.

[davelj]

[quote=Eugene][quote=davelj]
As you know, EconProf, GDP=C+I+G+netX. As we’re paying down the mountain of debt we’ve got, C & I must, by mathematical definition, suffer. And eventually G will suffer too. [/quote]

[quote=Eugene]There’s no law that says that debt can’t be paid off without a significant negative impact on GDP.[/quote]

Technically, in a vacuum, this is correct. However, seeing as total debt in this country is running at 360% of GDP – as compared to a long-term average of half that number – then I’m going to bet on some amount of reversion to the mean. Even if we “just” bring debt down to 250% of GDP – and perhaps this is a sustainable level – then we’ve got a LOT of debt to pay down (and charge off) over the next many years. Consequently, given the level of deleveraging that must occur, I’m pretty comfortable saying that in our current situation we cannot pay off the amount of debt necessary without a significant negative impact on GDP. To believe otherwise, someone will have to convince me that the level of debt we have in this country is anywhere in the ballpark of being sustainable.

[quote=Eugene]Secondly, there’s no law that says that our current level of debt is so unsustainable that it must be paid off ASAP. Including latest stimulus borrowing, federal debt is something like 10 months of GDP, if I’m not mistaken. Many foreign countries are far higher than that.[/quote]

I’m not suggesting that the debt has to be paid back ASAP. Quite to the contrary, I’m suggesting that GDP will be crippled for many years even if we pay it down over decades. Further, federal debt alone isn’t really the problem. The problem is the total debt in the U.S. economy – the sum of federal, state, corporate and consumer debt. This is the figure that’s 360% of GDP in aggregate. And if you look at the historical chart you’ll realize that we’re in completely uncharted territory by a fairly wide margin.

[quote=Eugene]Beyond that, we’re back in the usual efficiency game, where 2%/year growth, give or take, can be expected. [/quote]

I think 2% annually over the next decade is a pipe dream. Although I’d love to be proven wrong. I’d be ecstatic with 1%, meanwhile getting debt-to-GDP down to 250% or so.

[davelj]

[quote=Eugene][quote=davelj]
As you know, EconProf, GDP=C+I+G+netX. As we’re paying down the mountain of debt we’ve got, C & I must, by mathematical definition, suffer. And eventually G will suffer too. [/quote]

[quote=Eugene]There’s no law that says that debt can’t be paid off without a significant negative impact on GDP.[/quote]

Technically, in a vacuum, this is correct. However, seeing as total debt in this country is running at 360% of GDP – as compared to a long-term average of half that number – then I’m going to bet on some amount of reversion to the mean. Even if we “just” bring debt down to 250% of GDP – and perhaps this is a sustainable level – then we’ve got a LOT of debt to pay down (and charge off) over the next many years. Consequently, given the level of deleveraging that must occur, I’m pretty comfortable saying that in our current situation we cannot pay off the amount of debt necessary without a significant negative impact on GDP. To believe otherwise, someone will have to convince me that the level of debt we have in this country is anywhere in the ballpark of being sustainable.

[quote=Eugene]Secondly, there’s no law that says that our current level of debt is so unsustainable that it must be paid off ASAP. Including latest stimulus borrowing, federal debt is something like 10 months of GDP, if I’m not mistaken. Many foreign countries are far higher than that.[/quote]

I’m not suggesting that the debt has to be paid back ASAP. Quite to the contrary, I’m suggesting that GDP will be crippled for many years even if we pay it down over decades. Further, federal debt alone isn’t really the problem. The problem is the total debt in the U.S. economy – the sum of federal, state, corporate and consumer debt. This is the figure that’s 360% of GDP in aggregate. And if you look at the historical chart you’ll realize that we’re in completely uncharted territory by a fairly wide margin.

[quote=Eugene]Beyond that, we’re back in the usual efficiency game, where 2%/year growth, give or take, can be expected. [/quote]

I think 2% annually over the next decade is a pipe dream. Although I’d love to be proven wrong. I’d be ecstatic with 1%, meanwhile getting debt-to-GDP down to 250% or so.

[Author]

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