Rich, look back 30 years and how many banks and brokerages failed. The reason is leverage. Margin buying coupled with derivatives give leverage 16-25 times the underlying asset. That’s why the stock market is held up to prevent all that leverage working to the downside. Off balance sheet deals are immense (think Enron). Too many investments are made with opm (other peoples money). Banks pay very little interest on cd’s and lend to hedge funds. The banks and hedge fund managers take the vast majority of gains and the people who think they have a safe investment get the crumbs. When things go bad, the people at the banks, brokerage houses and others that take fiat from one side and loan it out simply walk away. The leverage losses are tremendous and the losers can’t pay and the winners want their fiat. The people in the middle can’t cover so they walk away.
If the bailout of 08 didn’t happen, we would be coming out of depression now. The federal government is running under the previous administration budget. 2018 is the make or break year. The coming budget negotiation is going be be pure chaos. Any contraction in the money supply will tank housing again. Rinse and repeat on those mortgage backed securities. Big box stores will take a huge hit and lose more business to amazon . Auto sales will take another big hit. Don’t forget another round of farm foreclosures. Job losses will be the biggest government report lie.
A continuing stream of fiat is required for financial institutions to continue operations. The 08 bailout was done with huge volumes of 30 year bond sales to the federal reserve. Another bailout would cause a dollar collapse. You may be seeing the early stages of the dollar going down. The only saving grace for the dollar is that its compared to other fiat from countries who will suffer the same economic burdens.
Toss health care, food stamps and student loans into the mix and who has the solution? Certainly not those sleazy, pear shaped elected officials in Washington. The only way out of this is a total reset of real resources and assets to a sustainable level. At current levels, we ain’t even close.
You are absolutely correct about business continuing to operate. The good operators with manageable debt will expand and thrive on the bones of their former competitors. My mother tells me (she is still kicking at 98, not so high, but still kicking) that about 25% of the people during the 1930’s did quite well. The trick is to be in that 25%.
rno
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