Friday, May 02, 2008

The system is now out of control

Recently I seem to be an annexe for Karl Denninger's blog, but that's the way it is. Here he figures that public and private debt in the US are so massive that with an average 8% interest rate, debt servicing is now equivalent to 22.4% of GDP. He thinks the system must soon explode and those holding cash will be safest.

11 comments:

Anonymous said...

The Bold experiment continues on, and once again as many times past, Karl,has succinctly articulated the underlying cause (unservicable debt loads on a national and global scale) and Karl is now ranged in on the effect (impending corporate insolvency).

As Karl rightly calculates, the problem as recently as pre 9/11 was still within the solvable parameters of a debt payment/entitlement reduction structure. No More - the money is spent- the goods are used - the debt is "bad" and the only equity left for servicing is the combined Shareholder equity of corporate America. Reduction of shareholder equity combined with low growth yield Dr. Michael Porter's "stuck in the middle" illness. "Firms stuck in the middle are guaranteed to experience low profitability." We all know there are only two outcomes for sustained low profitability on the corporate scene - either bought out or bankrupt. Keep up the good work, Karl, there is evidence they are starting to listen.

John East said...

Oo-er, this is one of the more chilling predictions of the future, but don't worry it will never happen.

I watched a documentary an hour ago which said that the Atlantic conveyor is rapidly shutting down, and we will all freeze to death before the money runs out.

Semaj Mahgih said...

Maybe you could say: "But there you are."

SACKERSON said...

That is almost comforting, John. At least I could feel that it was not my fault and beyond my power to take any meaningful action. At the moment I feel like John Cleese as the headmaster in "Clockwise": "It's not the despair... it's the hope..."

jmb said...

Well I'm not complaining because I live on this continent, overshadowed by the huge economy next door.

Yes, cash. A little easier said than done. I have had some of my stocks for so long the capital gains tax bill would be huge! I just hope and pray that the clever people will stave off the reckoning somehow.

SACKERSON said...

I think the clever people will look after themselves. The rest will be apathetic now, and whinge later. Perhaps Woody Guthrie's grandson Abe can start working on the songs now.

John East said...

"I think the clever people will look after themselves. The rest will be apathetic now, and whinge later...."

True, but the apathetic whingers will then vote for politicians who promise to make the clever people pay for the mess.

dearieme said...

Cash? Of course. But cash dollars/pounds, or cash krugerrands?

SACKERSON said...

John: the politicians are the clever people. The promises will not be performed.

DM: GOK (G-- only knows). I think Denninger means cash rather than the options and futures many of his American readers play with. Marc Faber thinks that in a significant deflation, even commodities will fall in price - gold currently has gone below $856/oz. And really, disaster is pretending it hasn't struck - the FTSE has its head and shoulders back over the 6,000 firing-step, the Dow over 13,000. The Bulls are laughing at the Cassandras.

CityUnslicker said...

cash is trash as I have said before. Dollars and pounds are not going to help when there is a bout of inflation.

If you insist on cash then swiss francs and yen are your answer. The overvalued euro will tumble in time.

Perhaps only dirhams are the future...

SACKERSON said...

Ah, but do we get deflation first? I am intrigued by the gold dinar. The Swiss got rid of a lot of their gold, though - is the Swiss Franc really that strong? Will Switzerland, the sane eye in the mad mask of the EU, shut?