In the near-term, making massive amounts of liar’s losses loans creates a mathematical guarantee of producing record (albeit fictional) accounting income. (As long as the bubble inflates, the liar’s loans can be refinanced – creating additional fictional income and delaying (but increasing) the eventual loss. The industry saying for this during the S&L debacle was: “a rolling loan gathers no loss.”
Mish’s Global Economic Trend Analysis: Geithner and the NY Fed Accused of Willfully Ignoring Fraud and Covering Up Lehman’s Bad Assets by Senior Regulator
You see, this is what hyperinflation is all about. It is about not only demand collapsing down the pyramid, but the system itself also collapses down a pyramid, from modern monetary theory on down to Austrian monetary theory. What seems antiquated in today’s digital age still lies dormant beneath the surface, just waiting to emerge with a vengeance.
Our culture needed compliant workers, people who would contribute without complaint, and we set out to create as many of them as we could.
And so generations of students turned into generations of cogs—factory workers in search of a sinecure. We were brainwashed into fitting in, and then discovered that the economy wanted people who stood out instead.
When exactly were we brainwashed into believing that the best way to earn a living is to have a job?
via Seth Godin, here [warning: PDF]. And what do I say in response? Truer words are rarely uttered.
If this system is illusory, how has it prospered over centuries? The answer is that for many years governments ran surpluses and at times had no debt at all. Growth was robust providing support to the tax base. Governments had the trust of bond markets to rollover maturing obligations. With some fits and starts, tangible wealth creation outpaced debt creation. And until recently paper money was backed by gold at fixed rates of exchange. Today all four legs of the table – surpluses, growth, trust and gold are gone or damaged.
Los Angeles will run out of cash on May 5, city Controller Wendy Greuel said today in a release in which she requested a $90 million transfer of reserve funds to pay bills.
“The question I have been asked most often during the budget crisis is, ‘When will the city run out of money?” Greuel said in the e-mailed release. “Unfortunately, we finally have the answer.”
Greuel, 48, said in the release that the city might not be able to make payroll. She asked Mayor Antonio Villaraigosa and the City Council to release $90 million from reserve funds to meet what she described as “an urgent cash need.” The controller’s financial reporting division estimated that the city would need $90 million to ensure solvency through the fiscal year that ends June 30, according to Golombek.
If you want to know what life in the Third World is like, just ask Lisa Pack, an administrative assistant who works in the roads and transportation department in Jefferson County, Alabama. Pack got rudely introduced to life in post-crisis America last August, when word came down that she and 1,000 of her fellow public employees would have to take a little unpaid vacation for a while. The county, it turned out, was more than $5 billion in debt — meaning that courthouses, jails and sheriff’s precincts had to be closed so that Wall Street banks could be paid.
As public services in and around Birmingham were stripped to the bone, Pack struggled to support her family on a weekly unemployment check of $260. Nearly a fourth of that went to pay for her health insurance, which the county no longer covered. She also fielded calls from laid-off co-workers who had it even tougher. “I’d be on the phone sometimes until two in the morning,” she says. “I had to talk more than one person out of suicide. For some of the men supporting families, it was so hard — foreclosure, bankruptcy. I’d go to bed at night, and I’d be in tears.”
…but don’t worry about it. The economy is fine.
Two in three Canadians (65%) are losing sleep over their finances, according to the March RBC Canadian Consumer Outlook Index. 27% are “up at night” worrying about their debt loads while 18% fret they won’t have enough money for a comfortable retirement. Another 16% worry about having no emergency fund. 34% were “not confident about any aspect of their financial situation.