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The discreet dash for the exits

December 21, 2011 4 comments

We are in the midst of a depression / debt deflation, but one unlike anything beforehand. This is truly global. Truly interconnected, and truly uber-leveraged.

No bank is safe, no asset is safe. No currency is safe and no country is safe.

The pyramid scheme is collapsing under its own weight. Yet the twin vortices of inflation and deflation are disorientating us all. Disguising the underlying tensions and masking the future collapse.

The real economy is unable to supply productive capacity growth. We are hitting the buffers in terms of efficiency gain and real economic growth.

With the extortionate rise in money, debt, assets and derivatives we have deluded ourselves into thinking this reflects the true potential of future productive capacity. But that cannot be realised in the real world. The monetary assets actually represent negative inventory (belief that one holds a permanent claim on something tangible in the future – a long term call option as it were).

As energy declines, then real productive capacity is likely to fall too, which means that there will be less REAL assets for consumption to go around. The longer we continue to try and prop up the fictitious leverage, the longer the divergence between ever rising expectations and yet declining real capacity.

Deposits have been rehypothecated, mortagages have been rehypothecated. The nation’s Gold has been too, and in a very real sense our whole economy has.

The amount of claims far exceed the real assets to back them. It is nothing but naked leverage; the only thing holding up our fabricated sense of wealth and international power. Leverage that lurks in the shadow (banking system) until the claims start coming in. So how does this get settled? Are all claims on assets devalued equally, or do only a select few get to keep their claims whilst the rest of us get our fingers burned?

This excellent post on Golem-XIV so graphically highlights both that the claims are coming in (and so the leverage is collapsing behind the scenes), but also that the pyramid builders are making their exit and blocking the rest of us from escaping. They don’t want to get trampled as everyone dashes for the exits.