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Stall Speed

Monday, December 22, 2008, 4:58 PM

The problem with a deflationary collapse of a credit bubble is that everything that worked for you on the way up works against you on the way down. It's sort of like Judo gone wrong.

  • Where rising levels of credit masked poor business decisions and models, shrinking credit will expose them.
  • Where credit led to more credit, defaults will lead to more defaults.
  • Where optimism fueled the ride up, pessimism will drag it back down.

The difficulty for the Federal Reserve and the Treasury Department (and soon, Obama) is that all the big solutions with the big numbers being thrown at the big problems are insufficient. The stimulus is not reaching the right places – it’s getting stuck in the big institutions.

So even as prodigious amounts of money are being created and applied to “the problem,” the evidence suggests that their efforts are not working down on Main Street.

The reason for this is very simple – it is not possible to solve a crisis of solvency with liquidity. It is not possible to fix a crisis of malinvestment with the purchase of bad debts.

Here’s one example. Take retail store space. On the ride up, malls were developed at a furious pace. By every definition or comparison, the US overbuilt capacity in this sector by a very large amount. Given this, what’s going to happen next when this malinvestment is exposed? Well, we don’t have to wait to find out the opening notes of this symphony.


Daily Digest - Dec 22

Sunday, December 21, 2008, 9:50 PM

I'm trying out a new look to make the summary a little bit easier to read.

  • Bank of Spain chief warns of total financial meltdown
  • The IMF chief warns that 2009 may be even darker
  • Money market funds unable to cope with 0% interest rates
  • Shutdown in Silicon Valley
  • Nationalization of the mortgage sector
  • Protectionist dominoes tumble
  • Questioning the Fed
  • Japan exports plunge
  • Cutting labor costs (without resorting to layoffs).

Daily Digest - Dec 21

Sunday, December 21, 2008, 8:37 AM

Second wave of foreclosures makes prime time news, "How did we get here?", Mortgage fraud allowed to flourish, Americans staying put, Athens still burning, FSN broadcast (juggling dynamite).


Daily Digest - Dec 20

Saturday, December 20, 2008, 8:11 AM

A long and detailed look at the housing crisis, Schiff vs. Krugman, mall vacancies grow, unpaid leave for CA workers, congress gets a raise,  state tax revenues (chart), Biden says economy in worse shape than thought, second half of TARP requested, CSFB pays bonuses using illiquid assets, hedge funds gain access to public money, immigration, and municipal property tax financing.


Albert Bartlett on Growth

Friday, December 19, 2008, 4:33 PM

Albert Barlett is a man I hold in very high esteem.

First, for his ability to speak in clear, concise language, which is the hallmark of someone who has mastered their material.

Second, because he sees the obvious and dares to point it out.  Let me reframe that:  He sees things that are incredibly obvious to others once he points them out.  But because these things are most often "hidden in plain view," they are actually noticed by very few.

His work on growth and population deserves the widest attention possible.

Recently, I had a nice email exchange with Dr. Bartlett, and he closed with this:


Daily Digest - Dec 19

Friday, December 19, 2008, 7:54 AM

Fiat economy,  Fed's attempts lead to refi activity mainly, a bearish interview, Bay area home prices sink, the disorderly bankruptcy option, a huge current account deficit,  personal income (chart), the 'flation battle, where your looted money went.


Mortgage rate blowout - a new bubble in the making?

Thursday, December 18, 2008, 10:45 PM

Between 2002 aand 2005, Alan Greenspan dropped interest rates too low for too long.  This created a property bubble which was really no surprise at all to anybody who follows such matters.

In fact, there are reams of papers written by PhD Fed staffers that explore the unusually tight correlation between real estate and mortgage interest rates. There's really not a lot of mystery as to why this is the case.

To make an extreme example of it (and leaving the principal payments out of it), if you can afford $12,000 per year towards mortgage payments, at 10% interest you'd be able to afford a $120,000 mortgage whereas at a 1% rate of interest you'd be able to afford a $1,200,000 mortgage.


Bill Sharon podcast

Thursday, December 18, 2008, 12:31 PM


I was on Bill Sharon's show "What Needs To Go Right" Thursday, 12/18/08.

You can listen to the recorded podcast by following this link.

Note:  Bill had a few technical difficulties and the podcast really begins at about the 9 minute mark.



Daily Digest - Dec 18

Thursday, December 18, 2008, 8:04 AM

Four scenarios, Peak coal?, Chrysler shuts down for a month, mortgage aid a failure,  federal deficit soars, "helicopter Ben", dollar 'safe haven' status questioned, Citibank computers down, and a list a landlord doesn't want to be on.


New Martenson Report ready

Wednesday, December 17, 2008, 1:44 PM

The Zero Bound

Executive summary: This report looks at the latest move by the Fed to drop interest rates to zero and to print massive amounts of money as part of a quantitative easing effort. It looks at the most recent Fed statement that accompanied the rate decision in some detail and closes with an exploration of what this could mean to the dollar (hint: not good) and our financial future. I offer my view on the dollar, stocks, bonds, gold, and real estate.