Tuesday, 1 July 2008

:: Debt Rattle - Red flags and black holes... and deflation.

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73. Debt Rattle - Red flags and black holes

6/30/08 The folks at The Automatic Earth, have already posted some articles for today. Here is ilargi's comment at the beginning...

Ilargi: Over the weekend, we’ve seen multiple sources list the growing number of reports that warn of crashes and collapses to come. These reports, from RBS, Barclay’s, Fortis and others, are nothing new for those of you who follow The Automatic Earth on a daily basis. We have posted these and many other warnings for a long time.

Today, yet another grim picture is painted by the Bank for International Settlements, the central banks’ bankers. And more such warnings will be forthcoming. As we have always said, the economic downfall that is now starting to shape up for real, is inevitable. You can not "invent", out of the blue, trillion after trillion dollars of credit, and expect all of it to be accepted as any kind of "real" capital or money forever into the future.

It is not going to happen; it has to come down. The game is over. We already know the outcome. It’s just a matter of seeing HOW we will get to where we must go. What we’ve seen so far amounts to nothing more than a fart in a hurricane, if you will excuse my French. This entire economy of ours is faith-based, it's a religion whose priests dress assets in leveraged emperor's clothes.

The amount of deluded credit, still perceived by most people as having true value, that will soon vanish into the black hole of nothingness, from which not a penny will ever be seen again, is stunning in sheer quantity. The $3 trillion lost so far in the US housing market is but a tiny percentage of what will be going going gone.

The recent reports, and the increasing attention they are generating in the main media, are waking up increasing numbers of people these days. I’m afraid for most it will be too late to do much about their situations. The warnings now come from the players themselves, those who stand to lose their own shirts and shorts and socks and sweaters. That in itself is an extra warning, a giant blood red flag; it indicates that we are indeed fast approaching the edge of the cliff.

Note: I find it interesting to see people starting to understand that we are entering the mother of all deflations, and all the talk of inflation is not worth the paper it’s printed on. As US home prices plunge, homes become more expensive to buy. Think about that one.

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