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| While You Were Sleeping |
| 2015-07-07 |
| On the morning after a financial collapse things will look almost exactly as when you went to sleep. The elm tree and mailbox will stand where they were, the scene will appear unchanged all the way to the horizon. On the Day After the outward world is unchanged. What will have altered beyond all recognition are the invisible claims on that physical world. The homely mailbox, for example, may no longer be yours, nor the land on which the elm tree is growing. It could have reassigned while you were sleeping. If one can imagine the world in terms of a balance sheet, the immediate post-crash world assets start unchanged. It's the liabilities which have been rearranged. The write down process will not be uniform. In the bubble world there are more claims on assets than can be satisfied. In the pre-crash world this is unnoticed. As in the game of Musical Chairs, it is not obvious till the music stops. Only when the tune is interrupted, in the post-crash world, does the audience will see there is one chair short. Politicians and unscrupulous politicians are in the profession of overselling capacity, but ensuring they always have the chair. Politicians for example, promise the same taxpayer dollar several times over to different constituencies. And it goes along swimmingly as long as they can kick the can down the road. For example Obamacare was created to save Medicaid from bankruptcy. Now Medicaid expansion is used to prove Obamacare is working. Obamacare was funded by reductions from Medicare. Now the Medicare "doc fix" shortfall will be funded by obtaining "savings" from Obamacare. It's circular process where the same dollar moves from chair to chair. Banks operate on the same principle. Banks lend out more than the deposit dollar. They can do this sustainably for as long as the extra chairs can be provided by the real rate of interest. An extra chair will be created in the future, but only as many as the actual rate of growth will provide. But sometimes people get greedy and overpromise returns. Then if everyone with a claim on a chair came to the bank and demanded a stool, there would be a shortage of stools. This is called a bank run. In that case the system relies for its continued viability on keeping the music playing. Once the needle is lifted from the record, forcing the players to scramble for a seat, it will be obvious that somebody will have to be kicked out of the game. On the day after a crash the most important question is: who gets the chair when the music stops? Ben Stell and Dinah Walker, writing in the Council of Foreign Relations blog explain how the French got the Italians and Spaniards to hold the bag through the simple device of turning French exposure in Greece into someone elses', a process called "mutualization" |
| Posted by:g(r)omgoru |
| #4 This is why John. China bubble popping and going global. Almost every economy in the world has a bubble, in debt and not healthy. Greece could be the needle that pops the global balloon and the global economy collapses. |
| Posted by: DarthVader 2015-07-07 11:57 |
| #3 Bingo, JQC |
| Posted by: g(r)omgoru 2015-07-07 10:48 |
| #2 The Greece economy makes up 2% of the economy and population of the European Union. So why the stock market jitters unless this is an omen for other countries in the Euro Union--an ultimately the U.S.? |
| Posted by: JohnQC 2015-07-07 10:11 |
| #1 Teaching point found at the closing: Unfortunately we still live in a world governed by ancient 19th century Marxian ideas, where politicians regard information as infinitely corruptible, in a world where lies are not only common, but the stuff of power, the very sinews or privilege. A financial crisis occurs when information goes so far out of whack with the physical world the music has to stop, and those without a chair must be booted off. What a financial crisis does is bring an awakening world face to face with its own falsehoods. Suddenly they are in the nightmare world. But it’s a not a new world at all. Only the one the players had been constructing all along. Emphasis in the last sentence, my own. |
| Posted by: Besoeker 2015-07-07 09:40 |