2014 The End of the Beginning

Wednesday, January 8, 2014
By Paul Martin

Darryl Robert Schoon
Wednesday, 8 January 2014

The economic crisis has entered a new stage; and when it ends, the bankers’ world – a paper edifice composed of credit and debt – will be in flames.

In Time of the Vulture: How to Survive the Crisis and Prosper in the Process (2007), I predicted a cataclysmic economic crisis was about to occur. At the time, few believed a severe financial crisis likely. It had been seven years since the 2000 dot.com bubble collapse and signs of recovery were everywhere.

But, in 2006, Bill Bonner in his commentary, Ponzi Economy, explained why a crisis was coming. The US economy, fueled by a two-decade credit boom, had become a “ponzi economy”, a gigantic speculative bubble, about to burst.


…Everybody likes a credit boom. They all believe they have more money. This is the dirty little secret of modern central banking. It only works by stealth and fraud – silently debauching the currency so that people make mistakes.

The businessman believes there is more demand for his products than there really is. The consumer believes he has more purchasing power than he really has. The lender believes the borrower is a better risk than he really is. All these mistaken judgments lead to spending, investing and lending – which look to all the world like a bona-fide boom.

But it is an ersatz boom, a public spectacle, founded on fraud, expanded into farce, and ending ultimately in disaster. Eventually, everyone gets too stretched out on credit.

Then, the bubble finally finds a pin somewhere, and the air wheezes out. That’s the part that no one cares for, because it is when people discover that they’ve made mistakes, that they’ve over-reached, and that they’ve been had.

If, as we believe, we’re at the beginning of the disaster stage, the Fed’s real enemy is not inflation at all; it’s deflation. Typically, a credit contraction shrinks everything down with it. Earnings go down. Consumer spending is reduced. GDP growth falls…or even goes negative. And prices for most financial assets dive.
Bill Bonner, www.dailyreckoning.com, July 10, 2006

The Rest…HERE

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