SurvivalBlog includes plenty of gloom and doom, but I do my best to not be a ranting and raving alarmist. The recent torrential flood of bad economic news, however, has led me to now urge greater preparedness. Don’t quit your job and head for the hills yet, but by all means redouble your efforts to get ready. In my estimation, we are now on a short countdown to economic depression. Back in early 2006, I first warned about derivatives trading [1]. Since June of 2007 [2], I have been warning about the larger implications of CDOs [3]. In January of 2008, I pointed the finger of blame at exotic debt repackaging instruments that are “marked to mystery [4]” and causing the credit market to collapse. Now, these manifold dangers are apparent even the mainstream media. New bank accounting rules go into effect on March 31st, so the Fed is pumping liquidity frantically [5]. This will likely exacerbate the problem. Please take the time to read the two following linked articles about the ongoing collapse of the global credit market:
1. Meltdown Looms Larger as Credit Markets Freeze [6]. Here is a key quote: “As for Bernanke’s Term Securities Lending Facility (TSLF [7]) it is intentionally designed to circumvent the Fed’s mandate to only take top-grade collateral in exchange for loans. No one believes that these triple A mortgage-backed securities are worth more than $.70 on the dollar. In fact, according to a report in Bloomberg News yesterday: “AAA debt fell as low as 61 cents on the dollar after record home foreclosures and a decline to AA may push the value of the debt to 26 cents, according to Credit Suisse Group.”
2. IMF tells states to plan for the worst [8].
Clearly, the global credit collapse is getting much worse, but ominously, it is also now clear that the collapse is just in its early stages. I now have a high level of confidence that the credit collapse will trigger a global economic depression that may be as bad, if not worse than the Great Depression of the 1930s. At this point, it seems almost inevitable. The Federal Reserve lowering interest rates will not prevent it. At best, this will forestall it by a few months. To borrow an old Wall Street aphorism, Ben Bernanke is “pushing on string.” Without financing, the global economic machine is grinding to a halt. Helicopter Ben [9] and his cronies can’t re-start it until after a lot of bad debt has worked its way through the system.
If you’ve been reading SurvivalBlog for several months, then you know what you need to do. And if you have been hesitating, then I strongly suggest that you get busy immediately: and actively prepare. Get the food and other key logistics, get the training, team up with like-minded friends and relatives, and if possible, buy and fully stock a retreat in a lightly-populated region [10]. Get OUT of your dollar-denominated investments and re-invest in practical [11] tangibles that you can barter [11]. Companies with derivatives exposure and hedge funds will be the first to go, followed soon after by a stock market crash. Eventually, even erstwhile “safe” municipal bonds will be wiped out.
In the short term, please follow my advice on preparation for surviving bank runs [12]. The recently-announced bailout of Bear Stearns [13] is indicative of how quickly a bank’s fortunes can turn. Here is a key quote from a recent Financial Times article on the Bear Stearns bailout: “One problem with the credit crunch is that banks’ solvency positions can change overnight. As banks force fire sales of assets to recover their loans from hedge funds, the prices of those assets fall. But as the prices fall, the amount of capital that the banks need rises. Lena Komileva, a Tullett Prebon economist, said: ‘This is what is fueling the vicious cycle. Things can deteriorate very rapidly and banks can reach insolvency almost overnight.'” In my estimation, bank runs are now imminent.
Am I being an alarmist? I don’t think so. Just look at the US Dollar Index [14] and the spot price of gold [15]. Pray hard, folks. There’s a storm coming.