The problem with "the outcome" is that it is going to destroy the FSA folks - the brunt of this damage is going to go directly up the chute of the lower income American. Those in the middle class or below, especially those over 50 including retirees, are finished unless the idiocy stops here and now.
That's the dollar and assuming it closes here or below it will have decisively taken out of the 2009 lows.
Below here lies just one more level - the last one. The all-time lows from 2008, just before it all went to hell in the markets.
They knew what was coming in 2008 and decided to pull liquidity. I've documented that; it was visible in the overnight liquidity markets and the NY Fed's own published data.
Bernanke is now boxed in and so is Congress and Obama. If they do not pull system liquidity back and force the dollar higher commodities will continue to ramp. You saw what happened to gasoline last time in 2008, right? It's happening again:
The problem with fuel doing this is that oil is in everything. It's in food, it's in plastics, it's in everything you buy and use. Tires, car dashboards, packaging and of course transport. It's an unavoidable cost and is insanely regressive, hurting the poor and working middle class the most.
Or how about corn? You don't need to eat, do you?
In 2007 and early 2008 I counseled forcing the banks to eat their cooking, even if it destroyed them. That would have both permanently stopped the ramp and at the same time cleared the debt. This was deemed politically impossible and so instead we did bailouts. The stock market fell apart but found its footing when the Congress gave permission to the banks to lie about asset valuations via getting rid of mark-to-market accounting.
But we didn't solve anything. Instead, we shifted that credit guarantee to the United States government and away from the banks themselves. The damage was given to all of us in the form of roughly $4 trillion in additional debt over the last three years - debt that we will now have to either pay off or default upon. What's worse is that the $4 trillion didn't actually buy toxic assets or remove them - instead it papered over the damage by handing out "free money' to people but the rotting dead fish in the form of those assets remains on the books.
So now we furiously continue to spend more than we make at the government level, since the Federal Government is the only entity left that can do so; everyone else's credit has been cut off since they can't pay. The consumer has stopped being stupid, except for our youth who are being goaded into student loans they will never be able to pay back.
S&P has correctly come to the conclusion that if we don't stop this right now - with full implementation before 2013 - we will not be able to pay at all. We will reach the tipping point, in their calculations, where interest is paid upon interest and the total debt grows even if you stop the deficit spending before that time.
Plans to stop in 30 or 40 years are not credible. That's what S&P said, if you read their release. They also noted that both student loans and the Fannie and Freddie hidden liabilities remain in the system and remain toxic. S&P hit on exactly the points I've been making now in The Ticker for four years.
So what are we to do? We sit in the same place we sat in the early part of 2008. Having come off a crazy market rally in 2007, we had a nasty drop. Then, we saw a huge rally and people, including Bernanke, said it was all going to be ok.
Was it?
Where is The Fed going to get its bullets from this time? Where's the government going to find more ways to spend even more money? Sure, they can "print" or "borrow" (really QE) more, but doing so simply drives down the dollar further and starves all the people under the median household income, which incidentally is about half the population.
We're not headed for Greece folks - we're headed for Egypt.
Enjoy the "rally" today, such as it is and for however long it lasts. The entire move today is simple currency devaluation and is the expected outcome. But while you're trading in and out and making money on the ramp, consider this: How much is a burned-to-the-ground company's headquarters - or government - worth?
If you think it can't happen here, you're wrong. It not only can, it has in the past - and if we don't cut the crap pretty much right now, it will again.
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