SurvivalBlog reader H. in Quebec asked me to summarize my view of the current economic situation, and asked what is coming next. In essence, the recession will likely turn into depression that may last for decades. What is ahead? This is what I wrote in early 2008: “The current financial instability is just the beginning. Before this is over, the debt crisis will start an avalanche that will bankrupt countless individual investors, institutional stockholders, hedge funds, stock trading companies, municipalities, banks, S&Ls, and insurance companies. Since the magic money tap will be turned off, both residential and commercial real estate may decline–absent overall consumer inflation–by as much as 70%. Stock markets will collapse, and economies will be plunged into prolonged depression. On and on it will go, as the trillions of dollars worth of bad debts that have been winding up for the past two decades are gradually “unwound.” This unwinding will be an incredibly painful and protracted process that is punctuated by some massive layoffs, strikes, and social unrest. Dan Ackroyd said it best: “Real wrath-of-God type stuff.” I suspect that the debt avalanche will destroy entire currencies and possibly bring down governments. (We should remember that the Asian financial crisis of 1997 led to the ouster of the 30+ year Suharto regime in Indonesia.) My only hope is that one of the institutions that is replaced is the private banking cartel called the Federal Reserve. Inevitably, we need to replace fractional reserve banking with proper warehouse banking, and replace the fiat currencies with ones that are freely redeemable for precious metals.”
Reader Jonathan C. highlighted this article: Bond New Issues Shut as Bank Default Swaps Rise. Jonathan’s comments: “Since the current GDP growth is dependent on non-sustainable government spending , the only hope for real economic expansion must be the private sector. However, as this article shows, corporations are unable to fund their businesses through bonds and with the increased volatility in the equity markets they will also have trouble increasing capital through equity sales. In terms of small businesses that don’t have the option of public equity sales, a bank lending freeze all but guarantees a contraction in the small business sector which constitutes around 50% of U.S. employment and 80% of new job growth.”
JP Morgan Cazenove: UK must sell bailed-out banks to save AAA rating. (Thanks to G.G. for the link.)
More Friday Follies: Three more banks bite the dust. (Perhaps bank sign painting businesses will be the shining stars of the nascent depression.)
G.G. sent us this: Gold Is an Inflation-Proof Deflation Hedge
Items from The Economatrix:
10 Companies Back From the Brink
Trade Group Says Service Sector Grows in May
Fed Boss Pushes Loans for Sound Small Businesses