Guest Post: “The Sequel”: How 2011 Is A Repeat of 2008—Only Bigger, Longer, and Uncut by Bailouts

Submitted by Gonzalo Lira

Guest Post: “The Sequel”: How 2011 Is A Repeat of 2008—Only Bigger, Longer, and Uncut by Bailouts

I might have missed it, but I don’t think anyone has noticed this simple truism:

The structural causes that led to the Global Financial Crisis of 2008 are identical to the structural causes that are leading us to another systemic financial crisis in 2011.

You saw this one already?

The only difference is the kind of debt at the core of the looming crisis: Mortgage-backed securities in 2008, as opposed to European sovereign debt in 2011.

And of course, the debt hole in 2011 is bigger than in 2008—a lot bigger.

That’s why I am confident in predicting we are about to have another Global Financial Crisis—I’m calling it The Sequel: Same movie, same players, same story. Only this time around—like all good sequels—the financial crisis we are about to experience is going to be bigger, longer, and uncut by bailouts.

By the way, that is the key difference between 2008 and 2011: We’re not going to have a Hollywood Ending this time around. The governments of Europe and the United States, as well as their respective central banks, do not have any weapons to fight off this 2011 financial crisis, as they did in 2008, for the simple reason that they used them all up—they’re out of bullets, both monetarily and politically.

So when The Sequel hits the big screen, there won’t be a Big Daddy Government deus ex machina to come save the day in the third act twist. When The Sequel hits, we’re on our own.

Let’s discuss the structural similarities between the original and The Sequel:

In both 2008 and now 2011, you had unpayable debts at the center of a fragile financial system. In 2008, it was mortgage backed securities and collateralized debt obligations—the so-called “toxic assets”. I think we all know that story pretty well.

In 2011, we have European sovereign debt. And just like the toxic assets of 2008, the Euro-bonds might have been rated AAA, but they certainly aren’t blue-chip—they are more like brown-chip: That deep brown color peculiar to fast-sinking dog-turds.

In both 2008 and 2011, these unpayable debts—emitted over many years, accumulating silently and asymptomatically like plaque in the arteries—gave a false sense of prosperity in the years leading up to the respective crises.

In the lead up to 2008, the MBS’s and CDO’s gave the American homeowner a sense that their house was their personal private ATM sitting on their quarter-acre suburban lot. They also were a profit spigot for the financial sector, which bouyed the U.S. GDP growth, leading to a false sense of national prosperity, even as there were signs that the non-financial sector of the economy was diving.

In the lead up to 2011, on the other hand, the sovereign debt of the eurozone countries gave the European citizens a sense that they could afford to buy all the imported goods they could ever want, as well as the sense that their government could afford to pay for all the social welfare programs they were all promised—without having to pay for any of this by way of higher taxes. Hell, that was the entire Labour governments’ platform between 1997 and 2010: Blair and Brown gave the UK a welfare state and low taxes—all paid for with sovereign debt.

In both 2008 and 2011, you have banks exposed to these bad debts both directly and indirectly—and this exposure in 2011 threatens to topple the entire financial structure, just as it almost did in 2008.

In 2008, the financial institutions with direct exposure to the toxic assets—that is, the institutions that actually owned these crap bonds that would never be paid in full—were mostly American banks. Their capitalization depended on how pristine these toxic assets were. As it became increasingly clear that the toxic assets were exactly that—toxic—the banks holding this crap found themselves not only without the capitalization to pass regulatory muster, but in fact found themselves functionally insolvent—hence the suspension of FASB 157, coupled with the injection of $150 billion worth of capital by way of TARP.

In 2011, the financial institutions with direct exposure to toxic assets—in this case, the European sovereign bonds, especially from the PIIGS—are once again banks, this time around mostly European banks: UniCredit, Société Générale, Dexia.

Like 2008, these assets might be rated triple-A, but they’re dog-turds—and they threaten these banks with insolvency, if any of them default. A bankruptcy of any of the aforementioned European banks would have massive consequences for the rest of the global financial construct—it would not be a Europe-only problem, just as the bankruptcy of Lehman was most definitely not an America-only catastrophe.

And that’s just the direct exposure to the 2011 version of toxic assets.

The real danger in 2011 is the indirect exposure—that is, the liabilities that are triggered in the case of a debt default: Just like 2008.

In 2008, it was AIG and other assorted credit default swap sellers that got hit bad, when the toxic assets began to default—we all remember how the very ground we trod rocked as AIG stumbled and everybody had a collective nuclear-meltdown freak-out.

In 2011—you guessed it—it’s worse: We have Bank of America for sure has massive exposure to derivatives on European sovereign and debt, as well as . . . God Knows who else.

Why do I say “God Knows who else”? Because just like in 2008, the derivatives market is so opaque—not to say hermetic—that we are not going to know who’s going to go bust until it actually happens. In 2008, Hank Paulson and the Treasury Department didn’t find out about the AIG hole until the weekend before the company would go bust. Today, in 2011—even with the experience of how potentially deadly ignorance of the derivatives markets can be—there are no mechanisms in place to swiftly and accurately tally who has derivatives exposure to any particular bond or asset.

In other words, Tiny Timmy and Bailout Benny never implemented the one lesson learned from 2008: Make the markets transparent, so that you can see where the crisis is coming from before it falls on top of your head.

Thus they—and we collectively—are flying blind insofar as derivatives written on the European sovereign debt. We only know about BofA’s massive CDS exposure indirectly, through Timothy Geithner’s demand in December 2010 that Ireland not default, because of the massive losses an Irish sovereign default on BofA.

Bernanke and Geithner had the chance to regulate this vital piece of the financial markets—but they didn’t! Instead, they acquiesced to this ridiculous pseudo-“ideology” that we should not regulate the financial markets.

(Parenthetically, and speaking as a hard-core, anti-choice, anti-vegan, pro-gun, pro-red meat Conservative: I am sick and tired of the ignorant assholes who say, “All government regulation is bad! Let the free markets reign!” We have the government regulate various industries and products because it is necessary for our individual and collective safety—or would you rather the government never regulated, say, the water supply, car safety standards, housing standards? Would you prefer it if the FDIC ceased to exist, and your local S&L could go to Vegas and play the roulette wheel with your life savings? Certainly not. Not only do we need government regulation for safety standards, we need regulations to prevent unscrupulous exploiters from gaming the system—think Enron, which should have put paid to any ridiculous notion that “the market knows best”, but obviously hasn’t (or else I wouldn’t be ranting here): The Enronites of the “energy trading desks” exploited the free markets and the lack of government regulation in the so-called “energy markets”, and deliberately created rolling blackouts in California so as to gouge the people of that state for the electricity they already owned and which they should have been getting, but which the Enron bastards were manipulating in order to squeeze them for money. Insofar as the financial markets are concerned, anyone spouting that particular bullshit spiel about the markets knowing best is either a shill for the banks, or a complete and utter imbecile. And a bank shill at least has the excuse of needing to pay the mortgage in exchange for spouting this nonsensical bullshit—the imbecile does not.)

Now, I used to write for the movies—I can tell you the secret to writing a good sequel: Use the exact same elements, the exact same story structure—hell, even use the exact same lines!—but make sure the sequel is bigger: Bigger sets, bigger explosions, bigger stars, bigger everything—a bigger bang for the buck.

2011’s The Sequel is certainly going to deliver that bigger bang—because it’s a lot bigger than 2008: The total sovereign debt of the PIIGS is about €3.1 trillion. That’s 20% of the eurozone’s GDP—just the PIIGS, just those five, forget about France, Belgium and the UK, which if added up easily doubles that €3.1 trillion figure.

Compare that to 2008, when the total toxic assets the Federal Reserve wound up having to buy amounted to about $1.5 trillion—about 11.5% of the U.S.’s 2008 GDP.

In other words, the current situation is over twice what 2008 was—and might wind up being four times the 2008 price tag. And that’s just the nominal value of the toxic debt at the core of the current situation. We have no idea what the total value of the indirect exposure via derivatives is going to add up to.

So! We’ve seen that we’re structurally at the same place we were in 2008: Unpayable debts held by a fragile financial sector, with massive indirect exposure by way of derivatives that no one has bothered to tally up and regulate.

We have furthermore seen that—like all good sequels—2011 is going to have a bigger bang: We currently have more debts on deck than in 2008, at least twice as much, as a matter of fact.

Question: Why does teasing out these similarities matter?

Answer: Because it will allow us to see what will happen over the months of September and October, when the crisis breaks.

What we’ve seen over the last couple of weeks is not the crisis—or not the crisis, at any rate. We’ve seen Italian and Spanish debt drop, their yields spiking—we’ve seen gold run up to $1,820—we’ve seen the biggest drops in the US equities markets since 2008—

—but these gyrations are not The Sequel. Rather, these last couple of weeks of market gyrations have been the forewarnings—the pre-tremors. Anyone who’s lived in earthquake country knows about them: The little tremors and hiccoughs that precede The Big One.

The Sequel will actually get going once we have our Lehman-like event.

In 2008, the bankruptcy of Lehman Brothers triggered the crash—but it was not the cause of the Global Financial Crisis of 2008: The structural weaknesses were already baked into the situation—the Lehman bankruptcy was just the shove the global financial system needed to fall off the proverbial cliff.

Today, we are waiting for the Lehman-like event. My personal guess is Dexia will be the first to go under, the Lehman-like event that will trigger The Sequel—but that’s just a guess. More likely than not, the Lehman-like event of 2011 will catch us all by surprise—but just like the Lehman bankruptcy, it won’t matter intrinsically: It’ll only matter insofar as it triggers the cascade of panic-default-bankruptcies, etc.

Be that as it may, at my paid site, The Strategic Planning Group, we’ve been discussing what to do, when The Sequel hits. I won’t bother recapitulating what I’ve written there—frankly, it’s too long, and besides, the details are why the SPG Members pay their dues.

The one issue I will discuss here is the notion of a safe haven:

In 2008, when all the stock markets were going south, and all the name-brand banks were teetering, where did everyone park their money? What was the safe haven?

Treasury bonds. In fact, the flight to safety was so massive that Treasuries reached negative yields, when you factored for inflation.

Treasuries are the traditional American safe haven. But what with the recent spate of, er, questionable events (Debt celing conniption fit, anyone?), Treasuries aren’t looking as safe as they used to, nevermind the (cosmetic) S&P downgrade of their Treasuries rating.

But this isn’t an American crisis—this is a European crisis that will have catastrophic consequences in America—but the epicenter will be Europe.

What’s the safe haven in Europe? Gold.

In fact, in Europe, sovereign bonds have never been considered a “safe haven”, for the simple reason that sovereign debt in Europe has countless times suffered haircuts, defaults, outright national bankruptcies.

Since this will be a European sovereign debt crisis that will spread around the globe—but the epicenter of which will of course be in Europe—bankers and asset managers will pull their cash—euros—out of whatever they think is risky, and park it in some safe haven.

These European money men obviously cannot sell their assets and buy US Treasury bonds with those euros that they get. And they certainly won’t plug those euros into European sovereign debt, which is exactly the source of the panic. They won’t even park those euros in German bunds, for fear of contagion.

Therefore, it is reasonable to infer that, if and when there is a Lehman-like event in Europe that triggers The Sequel, the flight to safety will be to gold, which Europeans traditionally see as a financial refuge as surely as Americans consider Treasuries their financial refuge.

Hence in my estimation, gold will rocket on. I would not be surprised if gold crosses $2,000 an ounce when the Lehman-like event happens, and goes on quickly to $2,500 before the end of the year. On my scale of augury, this is head-and-shoulders above a Strong Hunch, just shy of a Fearless Prediction: $2,500 by the New Year’s. After that?

Comments

[CrockettAlmanac.com]

The richest people in the world are those who use the government for their own ends. In 2008 the government did not and could not protect the people from the big banks. The big banks own "our" regulators and legislators and so when crisis struck it was individual hard working Americans who had to bail out the bankers in the US and overseas.

In a free market no one could steal $16 trillion from the American people in one fell swoop. Ninety-nine percent of Americans were against the bailouts so in a free market there would have been no bailout. The people simply would not have handed their cash to the banks.

If regulations are intended to protect the weak from the strong why do they always end up helping the rich take even more from the poor?

[reader2010]

Jim Puplava examined Bernanke's past papers and belives he'got more bullets. 

http://www.financialsense.com/financial-sense-newshour/big-picture/2011/08/13/02/jim-puplava-rob-bernard/ben-bernankes-tool-kit

[Coldfire]

What's the downside?

[High Plains Drifter]

blast from the past. why i supported al gorelioni...........ha ha ha ha

http://www.politico.com/news/stories/0811/61428.html

let's see him explain that one...........ha ha ha ha

[Michelle]

Lack of liquidity will cause all assets to plunge due to forced selling, saw it happen in the pm markets in 2008. This time may be different if the dollar and the euro become near worthless and need to be replaced, then holding either would be a bad deal. Seems like one needs to hold both physical pm as a hedge and cash for buying opportunities, it's too early yet to be certain how far this will go.

[WonderDawg]

The voice of reason. Glad to see someone else who doesn't know exactly what's going to happen. I have my vision of where I THINK things are going, but if I could see the future I'd retire on my lottery winnings.

[Kanonfodder]

I somewhat disagree with the government needing to regulate segment.  If government didn't regulate, you would be using more local institutions instead of megacorps.  You can see what the local guys are doing and go give them a piece of your mind, or withdraw your funds.  With the megacorps, you are just numbers.  Government is there to enforce the contract.  If someone goes to Vegas with the money and loses, then they punish that person/institution.

It is always about the scale of things.  Why try and keep a leviathan functioning with complex inputs, when it would be much easier to break it down into several smaller individual components, or little r republics if you like Mike Church.

[cranky-old-geezer]

08 was a finacial collapse in every sense.  Mountains of debt that went sour plus mountains of derivatives that went sour brought the financial system down. 

Crash was narrowly avoided by injecting trillions of dollars into failed insolvent institutions and going to fairytale accounting where sour debt is viewed as sweet debt.

But those mountains of sour debt are still there and those mountains of sour derivatives are still there, and they've grown bigger now. 

So we lurch from one financial collapse to the next financial collapse as those mountains of sour debt and sour derivatives grow ever larger, bringing the next collapse sooner.

And the response will be the same, print more money and bail 'em out again.

This can go on till the currency collapses.  That's when it stops. 

But it's also when the economy stops and America stops.

Prepare accordingly.

[I am Jobe]

(Un)happy Birthday, Fiat Money

http://mises.org/daily/5543/Unhappy-Birthday-Fiat-Money

[Gunther]

The whole piece is quite a bit too broad and at the same time lacks reserarch and imagination.

For example, in Germany it is fairly easy to buy gold bullion while in Italy it is almost impossible.

Should Germans buy big time gold and silver bullion that could blow up American banks that are naked short gold and silver. Rob Kirby looked at derivative positions published bt thr OCC and found a total short position for silver of a few years total minig output. If somebody asks for delivery of that metal an epic short squeeze might be the most optimistic scenario with force majeure declared as another possibility.

The effects of CDS come to mind too; remember that it was the Jeethner who blocked debt forgiveness for Eireland?

[anynonmous]

ZH was of course way out ahead on this but it is nice to see that Lib Left Politico had this article

Ron Paul remains media poison

http://www.politico.com/news/stories/0811/61412.html

[monopoly]

Well, this post woke every one up. Luv it. We here, are ready. And so far so good.

[topcallingtroll]

You can always count on an eminent collapse article to spark interest.

However collapsaholics need to seek out disconfirmatory evidence. We "muddle through a soft depression" types need to seek disconfirmatory evidence also.

When we only read evidence that supports our viewpoint then we are at risk of confirmation bias and groupthink.

[sherryw]

Touche.

[RiverRoad]

So how much do you think we are going to have to ante up to help out our dear friends in Europe after they crash?  This of course will be presented as being in our "national interest".  Conveniently, our QE2 ended in June....  We used to call those nobless oblige handouts "foreign aid" and publically breakout the numbers by country, then the government got cute and started washing foreign aid through the IMF.  Remember those first banks to go to our "window" with our crash?  Well, here come the rest of them.

[choorles]

STOP! WHAT IS MONEY? The money that the world uses today is created by private banks lending non-existent money called credit. This credit has never, does not and will never exist, except in theory on computer screens. People die and they starve all because they do not have enough digits on a computer screen. All of this credit, created by the private banks, is owed back to those same banks, plus interest. By design, there is never enough credit in circulation to pay back all the principal plus interest on the loans outstanding, which is why the concept of bankruptcy is built into the system.

Using the simple system above, banksters are given the ability to manipulate the world’s economies into ‘boom and bust’ cycles. In essence, the only difference between a boom and a bust is the amount of credit in circulation, or rather, the net amount of numbers on people’s computer screens. Initially, banksters create a boom by increasing the supply of credit in the economy. During this boom period, individuals and businesses are encouraged to take on more debt as they are more confident of increasing their income in the future. All this extra credit in the system leads to more activity, which in turn creates more confidence in the system, with many getting into more debt. This boom is akin to a fishing trawler, the bankster throws out a credit line and waits, once the bait has been taken the bankster begins to wind in the credit by taking credit out of circulation, it’s gone. The economy then moves into a slump or recession, simply because there are not enough units of credit in circulation. The banksters are then able to trawl from people the wealth that does exist, in exchange for money that never existed in the first place.

http://silverrevolucion.wordpress.com/2011/08/14/money-banksters-and-aug...

www.silverrevolucion.com

[choorles]

Money is being removed from circulation.

What we are likely to see from banksters in response to all this, is a ‘smoke and mirrors’ campaign to allow them to hand out more money to their bankster friends. Since European liquidity is clearly the focus of banksters at the moment, the Fed will remain silent as the European Central Bank (“ECB”) and the Bank of England (“BOE”) expand their balance sheets. As ‘shit hits the fan (SHTF)’ the American banksters will focus everyone’s attention firmly on Europe. Once the US markets have deflated enough for the Bernank to declare deflation to be a huge risk, the Fed will be given the go ahead to launch QE3.

The popular belief amongst financial analysts is that the Bernank will announce the Fed’s intentions for QE3 at Jackson Hole on August 26, 2011. As central bankers appear to like being very predictable, a JHole announcement of the Bernank’s intentions to print is very possible. I would speculate that, in order for the Bernank to gather support for QE3, we would need to see markets deflate a long way from here until the announcement. Unlike the announcement of “QE2” in August of 2010, QE3 will only be instituted amongst a panic to which we haven’t seen since the first round of monetary printing in 2008.

Remember, it’s just a ride…

http://silverrevolucion.wordpress.com/2011/08/14/money-banksters-and-aug...

The monetary revolution will not be televised. You need ¡SilverRevolución!

 Help us follow the paradigm shift towards a decentralized monetary system.

www.silverrevolucion.com

[Coldfire]

Unless you're a sovereign or a bank, why worry? The Sequel is a fascinating train wreck, but hardly changes the life of anyone who is not a taxfeeder. The sky is falling? I don't think so. Not for most of us. In fact there is reason for cheer. Perhaps this time around, the institutions that so truly and richly deserve to die will die along with the shared collective delusions that made them possible. Godspeed.

[Shirley Wilfahrt]

This thread makes my starfish tingle....

[Hulk]

You are right on the edge. Your starfish needs more suction...

[PulauHantu29]

Does this "Bigger, Longer...."Blah Blah Blah mean Wall Street CEOs may not get another record high $150 Billion in Bonus Money?

I suspect most Americans don;t mind tightening their belt but when they see the Gubberment handing out Billions...no, Trillions ot Bank CEOs it becomes....unpalatable.

[I am Jobe]

Rebound in Global Equities Sending Dangerous and Misleading Message

http://www.dailyfx.com/forex/fundamental/daily_briefing/daily_pieces/opening_comment/2011/08/15/Opening_Comment.html

[I am Jobe]

Tyler,

Can this be posted?

Not a joke: Obama administration mulling “Department of Jobs” http://www.therightscoop.com/not-a-joke-obama-administration-mulling-dep...

[roccman]

a minor but important distinction...

what is occuring and what will occur is NOT a crisis (implying a fix at some point in the future)

we are in a predicament wrapped tightly around a dilemma.

get right in the head about the notion that there is no happy chapter and from here on out things gets progressively worse - faster.

enjoy the kill off

[frank888]

I think that we do not need more government intervention / regulation we just need that a simple principle be enforced. Ie. the principle of responsability !

Let the Too Big to fail collapse now, not later.

Even if its painfull, a lesson will have been taught.

I do not agree at all with the Rubini and alike for whom it is not the time now...to downgrade the US or to let the too Big to fail...fail ! It will never be the right time if you listen to them ! Now the economy is too fragile and if something improve the past will be quickly forgotten to start again the same mistakes but only bigger ! look at 2008 !

Of course the the TBTF will not fail ( now ) because the politicians are paid by the TBTF !

[thunderchief]

When is always a guess in my book.  I agree with everything except when.  This could grind on well into 2012, or may be a blow by blow decline where we wake up in 20 years and everything is just crappy.  No fireworks, just a crappier world.  I see that with EU policy.  It's fixed, it's broken, Fixed again, broke again, on and on and on never ending.

[Flatchestynerdette]

That's my question. I too agree. How long can the paper mache hold everything together? I keep thinking that Germany will hold the damn line but everytime shortstop Sarkozy goes to Merkel, he's mesmerizing her because the people of Germany sure don't want this and if she'd listen to them, instead of Napoleon, we'd finally start to the process. What has this little french thug got on her that every 2 days he goes into an emergency mtg with her and comes out with another deal that is making a pan-european bond a sure thing with Germany as the underpin? Is she eating something at these mtgs that's making her underestimate her support at home to NOT do this deal? Does she still feel German guilt for the last war? WHAT IS IT? Because once Sarkoleon gets his wish - a pan-european bond with German backing, the traders are going to gut Germany as its the pillar that europe is balanced on. Merkel - SAVE YOURSELF AND YOUR PEOPLE. If she holds firm, we have the start of "when". If she caves to Sarkoleon, we have a new layer, new macro entity, that everyone will attack, then they'll put a barrier to short selling, bps will jump on the new pan-european bond (how do you even price this?) and more fake money will be printed holding off the day of reckoning.

So is it America that topples first and not Europe?

I......just.....don't......know......when or the trigger since they keep propping up everything and with mirrors make things seem eh, ok.

Look at the damn unemployment numbers. obviously faked. yet, how do you get to the real? and CPI? whoever took out 'volatile food and energy' components need to taken out and tried as enemies of the state. Oh, sure the official CPI is at 3% or less.........my ass.

Will it be when the states start going broke and declaring bankruptcy?

I.....just..........don't..........know..........when

[thunderchief]

This is Hyper-True with the gold and silver markets.  You will not see a realistic price until the Paper market is blown out of the water, full default in London or New York.  This won't happen as long as "it's a cash settlement or we default and you get nothing market". 

Silver cannot reach a fair ratio to gold as long as the comex has some in their vaults and gets cash settlements.  The silver market is so obscene that I can see a day when the Comex has one million ounces always.  Always available, but never for delivery.  So the paper mache game can go on longer that people think.

[Dr. Acula]

>Look at the damn unemployment numbers. obviously faked. yet, how do you get to the real

http://www.shadowstats.com/alternate_data/unemployment-charts

For the money supply,

http://mises.org/content/nofed/chart.aspx?series=TMS

[donpaulo]

methinks Mr Lira's position appears to be approaching that of Michelle Foss who debated this exact scenario.

Systemic collapse resulting in ...

concern

panic

despair

deflation

a credit crunch

gold and cash rule the roost

all key compenents to a Kondratiev winter

as espoused by the automatic earth

[chump666]

German GDP crunched, there goes the Merkel/Sarkozy ''Germany' should bailout everyone meeting.  Sell on.

from wires:

*Germany's 2Q GDP rose 0.1% on quarter, compared with a 0.4% gain expected.

[chump666]

bunds are bid, Dax will be neg. 

[chump666]

That's it on German GDP being dreadfull, Europe is done.  Ready for that extreme volatlity again my freinds.  Till then

[honestann]

You talk about disaster.  What disaster.  We must have a huge collapse or the world economy will be forever screwed.  The sleaze-bag predator-scumbag masters of the universe who get $250,000,000 per year to completely destroy everything honest and good must become unemployed.  That can only happen when the predator-corporations they run go bankrupt.  And they must go bankrupts and vanish.  Their assets must be sold to viable companies that are not being run as the personal totalitarian dictatorship for the benefit of top executives, but for all shareholders.  And only in the circumstances can their debts be liquidated, as they must for economic growth to return (assuming the government gets the hell out of the way too, which is asking too much, unfortunately).

So yes, please bring on the collapse.  And please let it be bigger and badder than anything anyone can imagine, because we need to completely clean house on every predatory scumbag and every predatory fictitious entity on earth, most certainly including the federal government of the USSA, which needs to go the way of the USSR, and simply vanish.

[iNull]

Fuckin' A Ann. Couldn't agree more.

[FoieGras]

Oh wait it's Gonzalo "Government published CPI will hit 10% in 2011" Lira. Time to update the forecast?

[dolly madison]

or would you rather the government never regulated, say, the water supply, car safety standards, housing standards?

Well, actually, I would like it if the government would never have regulated housing standards because I don't really need the government to make sure my house is safe, and the house that I live in now is older than the housing standards and is plenty safe, but the rest of that list sounds good to have.

[Monedas]

Socialism slips on the same banana peel every day ! You don't have to wait three years to catch them in their folly ! Monedas 2011 Charlie Chaplin's Communist Comedy World Tour    http://trololololololololololo.com/

[deflator]

While our economic model is unsustainable and will inevitably crash, it will not be 2011. Europe still has the out of rolling all those sovreign debt bombs into one giant Euro bomb, I mean bond. While Europe and the Euro has many problems, it will be the U.S. and the dollar that ultimately fails. I think Europe and Asia will form some type of an alliance where European debt eventually gets backstopped by China.

 Europe will be the trigger that ends U.S. dollar hegemony but not like anything you have written here. European per capita energy consumption is much lower than in the U.S. so the path of least resistance for global growth would be for consumption to drop in the U.S. to allow for a continuation of economic growth in emerging markets. Growth in daily sustainable energy distribution isn't sufficient to allow for a continuation of growth in EM's and maintain the status quo in developed countries so there has to be a concomitant drop in consumption in developed countries alongside EM growth.

[Always Positive]

Honestann - 'Yep'.  But understand won't be happy times for you, me, any. London X1000,000

(I don't say a lot but what I do say tends to happen. Six months to d'big one, I say)

[honestann]

Bring it on!

I have so "been there, done that" in so many ways.  My life has been all about [hopefully and usually] getting a long term benefit, and bearing with all the time, effort, expenses and pain required to achieve the desired ends.

I totally agree and understand that a monster collapse will be dangerous even for most people who are totally prepared, and worse for others.

But this must happen, or earth will become a permanent slave planet utter ruled by the techno-predators-that-be.  The misery of the collapse will be infintesimal compared to the misery and waste of the long term future of mankind if no collapse happens.  Of that I am certain.

[DrunkenMonkey]

It all sounds like scene from a western. The insolvent banks face off against the insolvent countries on the main street at high noon.

Will they shoot each other (and make the undertaker happy) or will they put their heads together and work out their problems together (i.e. write off a percentage of sovereign debt in return for access to unlimited funds from the various central banks discount windows) ?

[mkkby]

Hey Gonzo Lira, where's your hyperinflation?  One would think with a record as shrill and incorrect as yours, you'd have a little less arrogance about your 100% predictions.

Stagflation for decades is most likely, but doesn't make exciting headlines.