2008 Financial Crisis, Only the Appetizer

Posted by Ray on September 25, 2009 under Main | Be the First to Comment

This is according to Marc Faber who authors the Gloom, Doom and Boom Report who has, for some time before it happened, was warning of financial collapse. Now, Mr. Faber is a bit of an odd character, a very smart man, but definitely not your average guy and he makes me look like a ray of sunshine. However, one must give credit where credit is due and he was one of the guys who warned of the disastrous monetary policies in the recent past.

Mr. Faber is now saying that what has happened over the recent past is merely a warm up to what will happen in the near future. He cites the fact, correctly so I might add, that nothing has changed and the very same failed leaders who failed us to begin with are still in power and making the “changes” to save the system. Of course, no real changes are being made and the same problems that got us here are still there and, if anything, the problems are now 10 times worse because the government will now be tapped out and unable to bailout the banks when they fail again, and they will.

Case and point, the FDIC is officially broke and actually went to the banks that they are supposed to guarantee for funding. They later said that they were not serious about being bailed out by the private sector, yeah right, but frankly if the debt ceiling is not raised then the FDIC will be unable to borrow against its line of credit at the treasury department. This is a very serious problem and I am torn about this situation. On one hand, I have had enough of the debt because we will never be able to pay it back and are, whether we admit it or not, bankrupt. On the other hand, what’s another trillion dollars? Not only that, we cannot let the people suffer anymore than they have already.

If you think I am full of it about the debt ceiling or the FDIC being virtually bankrupt, go do your own homework, but trust me ignorance is bliss sometimes. Simple mathematics dictates that we cannot print our way out of our problems and government spending is counterproductive as it has to be repaid eventually. If what many are saying is true, i.e. David Rosenberg and company, then many of the jobs last, millions of them, are never coming back and that means we will not regain that tax revenue. One of the only tools we have officially not used yet, but certainly a tool we will ‘officially’ use in the near future, is extremely dangerous for a country that has trade deficits and that is the devaluation of its currency.

As I stated yesterday, currency devaluation has short-term benefits, higher equity prices and profits for multinational companies. However, longer term devaluation of the currency is tough to reverse and leads to higher prices for everyday products like food and energy. Not to mention that if we lose control over the rate of devaluation, which we will, then we will certainly not be the reserve currency any longer. I do not know how big of a deal that will really be, nobody really knows, but I do know it is not good. I do know that those countries that devalued its currency in the past, either intentionally or not, have never regained their official world strength again, look at the UK as a modern example or the Roman Empire as a older example.

Even if we do not devalue our currency the market will if we do not get our deficit under control. Over the past 20 years we have never managed to get our deficits under control even when we had budget surpluses, so I do not have my hopes set real high that our elected officials will get spending under control. I also know that the Fed will certainly not get monetary policy correct since they missed the most obvious credit bubble in the history of credit bubbles. Perhaps this is a master plan of some sort, who knows, but I do know the Mr. Faber is a smart man who made many good calls while our supposed experts missed the extremely obvious.

It is important to note that Mr. Faber’s calls are 5 to 10 years out and not imminent. In fact, even my most dire predictions are not right around the corner and even I realize that the actions taken by the Fed have staved off the major problems for a couple of years. However, what Mr. Faber and I do know is that since nothing has changed and therefore we are doomed to repeat the same fate again, but only worse with the chances of a total collapse being even greater than ever. So go ahead Congress, pass healthcare, hell give us all a billion dollars, what does it matter since we will not pay any of our creditors back anyhow.