Tuesday, April 08, 2008

The Credit Bubble

Government backing of our debt does not substitute for a sound Economic Structure. And it is the current Structure that is incapable of the necessary economic output to satisfy domestic needs and to generate sufficient exports to exchange for our huge appetite for imported goods and energy resources. Today’s “services”-based economy will no longer suffice. Examining today’s job data, one sees that 93,000 “goods producing” jobs were lost in March after dropping 92,000 in February and 69,000 in January. At the same time, Education, Health, Leisure and Hospitality jobs increased 178,000 during the first quarter. Yet it is more obvious than ever that we need to consume less and produce much more.

Back to the “liquidationists.” It is my view that our economy will require a massive reallocation of resources. We will be forced to create much less non-productive (especially mortgage and asset-based) Credit in the Financial Sphere, while producing huge additional quantities of tradable goods in the Economic Sphere. In our expansive “services” sector, there will no choice but to “liquidate” labor and redirect its efforts. Throughout finance, there will be no alternative than to “liquidate” bad debt, labor and insolvent institutions – again in the name of a necessary redirecting of resources. After an unnecessarily protracted boom, there will be scores of enterprises that will prove uneconomic in the new financial and economic backdrop. “Liquidation” will be unavoidable, policymaker hopes and dreams notwithstanding.

From this evening's vantage point, recent extraordinary government measures to “back” U.S. finance appear likely to delay the adjustment process – what I will be referring to as a “depression.” This reprieve, however, comes with a cost. It will ensure significantly greater damage to the core of our monetary system, as well as requiring a more onerous real economy “liquidation” with the inevitable onset of the more serious phase of the unfolding crisis.
Now take a look at the many short reports supporting that
conclusion in that article.