Classic Liberal Blog

Actually, there's nothing "unseen" about the economic collapse currently taking place. Unless you listen to politicians, government officials and mainstream media talking heads, that is.

After $1 trillion, reality won't conform

WSJ

The U.S. housing market continued to deteriorate in the third quarter as even the most credit-worthy borrowers increasingly fell behind on their mortgages, highlighting the problems policy makers have faced in trying to address the problem.

The regulators said that serious delinquencies, loans that are at least 60 days past due, increased across all loan categories and climbed to 6.2% of the loans in the portfolio during the third quarter. The report said that just 67.7% of option adjustable-rate mortgages were considered current at the end of the third quarter, while 27.9% were either seriously delinquent or in the process of foreclosure.

The most troubling finding was that even borrowers considered "prime," or the least risky, increasingly can't pay their loans. The report said that 3.6% of prime mortgages were more than two months behind on payments, more than double from a year ago.

Things are getting worse folks, not better. Let's take a look at reality ...

Government borrowing will lead to 'Armageddon', 'Collapse of our Capitalistic System', '$5000 per ounce' gold

Financial gurus Henry Blodget, Marc Faber, Peter Schiff and Julian Robertson represent a wide spectrum of political opinion but are unified in their assessment of Democrat spending policies. Unprecedented government borrowing -- in a climate hostile to small business -- is hastening the "collapse" of capitalism.

These suicidal policies represent, as I have believed for some time now, an intentional attack on the backbone of world capitalism.

A second Great Depression is still possible

Over the past year the global economy has experienced a massive contraction, the deepest since the Great Depression of the 1930s. But this spring, economists started talking of “green shoots” of recovery and that optimistic assessment quickly spread to Wall Street. More recently, on the anniversary of the Lehman Brothers crash, Ben Bernanke, Federal Reserve chairman, officially blessed this consensus by declaring the recession is “very likely over”.

The future is fundamentally uncertain, which always makes prediction a rash enterprise. That said there is a good chance the new consensus is wrong. Instead, there are solid grounds for believing the US economy will experience a second dip followed by extended stagnation that will qualify as the second Great Depression. Some indications to this effect are already rolling in with unexpectedly large US job losses in September and the crash in US automobile sales following the end of the “cash-for-clunkers” programme.

As for mainstream economists, their theoretical models were blind-sided by the crisis and only predict recovery because of the assumptions in the models. According to mainstream theory, it is assumed that full employment is a gravity point to which the economy is pulled back.

Empirical econometric models are equally questionable. They too predict gradual recovery but that is driven by patterns of reversion to trends found in past data. The problem, as investment professionals say, is that “past performance is no guide to future performance”.

Jim Rogers and Marc Faber See Disaster Looming, Blame The Fed

Legendary investors Jim Rogers and Marc Faber have similar outlooks on the financial crisis and the efforts of the Federal Reserve to revive the U.S. economy. What do they think of the Fed's quantitative easing policy? In a word, it is a recipe for disaster.

According to Rogers, governments have not addressed the underlying problems which triggered the crisis, but instead have "flooded the world with money." He argues that trying to solve the problem of too much consumption and too much debt with more consumption "defies belief," and will result in epic failure.

Faber's outlook echoes the sentiments of Mr. Rogers. He says, "If we agree that excessive credit and excessive leverage led to the crisis, then what the Federal Reserve is doing is giving a wrong medicine to the patient—they are giving the drug addicts more drug instead of sending them to rehabilitation, which is not good for the economy. So I think that the whole policy will eventually end in another disaster but we don’t know when and many things can happen in between."

Officials and Experts Warn of Crash-Induced Unrest

Numerous high-level officials and experts warn that the economic crisis could lead to unrest world-wide - even in developed countries:

• Today, Moody's warned that future tax rises and spending cuts could trigger social unrest in a range of countries from the developing to the developed world ...
• The U.S. Army War College warned in 2008 November warned in a monograph [click on Policypointers’ pdf link to see the report] titled “Known Unknowns:
  • The military must be prepared, the document warned, for a “violent, strategic dislocation inside the United States,” which could be provoked by “unforeseen economic collapse,” “purposeful domestic resistance,” “pervasive public health emergencies” or “loss of functioning political and legal order.” The “widespread civil violence,” the document said, “would force the defense establishment to reorient priorities in extremis to defend basic domestic order and human security.” “An American government and defense establishment lulled into complacency by a long-secure domestic order would be forced to rapidly divest some or most external security commitments in order to address rapidly expanding human insecurity at home" ...
• Director of National Intelligence Dennis C. Blair said:
  • "The global economic crisis ... already looms as the most serious one in decades, if not in centuries ... Economic crises increase the risk of regime-threatening instability if they are prolonged for a one- or two-year period," said Blair. "And instability can loosen the fragile hold that many developing countries have on law and order, which can spill out in dangerous ways into the international community."***

• Former national security director Zbigniew Brzezinski warned "there’s going to be growing conflict between the classes and if people are unemployed and really hurting, hell, there could be even riots."
• The chairman of the Joint Chiefs of Staff warned the the financial crisis is the highest national security concern for the U.S., and warned that the fallout from the crisis could lead to of "greater instability".

Take this stuff seriously folks. You don't have to get paranoid. You just need to be prepared. We're heading into some very difficult economic (and political) waters.