Here It Comes! (And No, "It" Is Not QE2)
The Market Ticker ® - Commentary on The Capital Markets
Posted 2010-08-10 09:08
by Karl Denninger
in Editorial
Ignore this thread
Here It Comes! (And No, "It" Is Not QE2)
 

Pretty amazing when you see something intelligent out of China - that we, and the rest of the so-called "Western World", refuse to do:

The assets linked to wealth management products provided by trust companies must be shifted onto banks’ balance sheets by the end of 2011, the people said, declining to be identified as the matter isn’t public. Lenders should prepare provisions equal to 150 percent of potential losses, they said.

No more off-balance sheet games in China?  Banks must hold reserves equal to 150% of potential losses?

Gee, how come we don't have that sort of program here?  Oh yeah, that's right - in China the government exerts its authority, in America the banks exert theirs.

The "USA Way" is, of course, backward.  Banks are supposed to exist in the shadow of the law - both the common law that says "thou shalt not defraud people, including investors", but the statutory law that allegedly governs capital ratios, reserves, and honest accounting.

In the US we get none of the above.  The FDIC proves it every Friday, when it seizes banks and shows "expected losses" that are 20, 30, even 40% of alleged "assets" that were declared just day or weeks beforehand.  In other words, we get proof every Friday that the banks are lying about asset valuations - and this proof has been presented to us literally on a weekly basis now for the last two years - but nothing has been done about it.

Then of course there's this:

“But to the extent that they signal the Fed’s concerns and what direction they are, and the Fed’s willingness to take actions given the signal of their concerns, they could have big effects.”

Investors would see new Fed efforts as foreshadowing more dramatic steps to come, including large-scale asset purchases, said Goodfriend, a professor at Carnegie Mellon University’s Tepper School of Business in Pittsburgh. Weaker job gains at U.S. companies since April and a slowdown in growth last quarter are among signs the recovery is stalling, increasing pressure for more Fed easing.

And what would that do?

Interest rates for banks are already at or near zero.  It hasn't "spurred lending", because there's nothing to borrow for.  Too many homeowners are underwater and those that aren't are seeing their friends and neighbors drown in debt and lose their home, car, job - in short - everything.

Businesses refuse to hire, because there's no reason to take the risk.  Consumers are over-levered, which means it is just a matter of time before "funemployment" and similar largess runs out - and when it does, so will the spending.  Hire someone and train them only to throw away the investment?  Why would anyone do that?

States, for their part, blew up their budgets during the bubble years and now are cooked.  Our local school district is a prime example - they're now asking the citizens to approve a 8.3% increase to the sales tax - to fund replacement and repair of aging infrastructure, in some cases things that are 30 or 40 years old.  Four years ago and indeed as recently as last year, when tax revenues were at record highs, why wasn't the money spent then doing this rehabilitation instead of blowing it on things like smart boards, Wii video games and adding staff expense in the form of salary and benefit costs? 

Then there's the Federal Government.  It had spending increases that were multiples of inflation in discretionary programs, and in the 2000s we added Medicare Part D, an entirely-unfunded welfare program that there is absolutely no ability to pay for.

The Fed has nothing it can accomplish that doesn't involve trying to give people incentives to borrow money.  But at times like this, when there is nobody willing and able to borrow, their policy becomes ineffective.

Small business has had it.  They simply don't believe that any of the structural issues are being addressed (they're right) and that instead what The Fed and government are doing is forcing yet more mainlined Credit Heroin into the veins of the economy (they're right on that too.)  The market has responded with a delirious rally since March of 2009 entirely-unsupported by the economic facts - rather, it was the original belief when the "unconventional policy" began that just as in 2002 and 2003 "they could fix it."

But in 2003 Greedscam and Bernanke (who was, if you remember, at The Fed at the time) fixed nothing.  They blew a huge bubble in housing and literally destroyed the wealth of a quarter of the people in this country in order to save their buddies in the banking system who had extended credit to non-viable Internet-based businesses that never had a prayer in hell of being able to operate profitably. 

We cannot excuse, however, the American Public's role.  Remember that one must be both willing and able to borrow.  While the pusher can stand in front of you with a loaded syringe full of credit heroin and beckon you over to his side of the street, you, Joe Sixpack, are the one who must cross the street and allow that needle to go into your arm.

Yes, the "Fat Cats" on Wall Street, enabled by the criminal class in Washington DC, made it all "easy", while burying the risks and facts (that is, the destruction of your financial life) in the fine print on page 237 of a 2" thick document stack just as in the infamous PSA on predatory lenders that has run on TV for the last several years.  But that doesn't change the fact that you wanted that Escalade and $500,000 house and you willingly participated in the scheme, even though you make $50,000 working in a middle-class job.  Why, we're the greatest nation on earth and every middle class family can afford a $500,000 house and at least one brand-new $50,000 car, right?

Well, no, you can't.  At least not in the long term.  Sure, you can hock your future for a while, if you catch a bubble, and appear to get wealthy off asset price inflation (which the government will dutifully ignore when it computes inflation!) but you won't wind up owning any of these things - the banks owns them all and you will never see a clear title - that is, ownership - for any of it.

Oh sure, Bernanke can cause a short-term rally in the market by mainlining more Credit Heroin into a screaming Junkie.  For a (short) while.  But not that each of his "prescriptions" and "pronouncements" of "extended periods" and similar claptrap has produced smaller and smaller gains over shorter and shorter times, exactly as does the "high" from drug abuse.  Soon the junkie, with sunken eyes and emaciated jowls, comes not looking to feel good, but to avoid feeling bad, and the pusher provides not to provide a "high" but to avoid being killed by an enraged junkie suffering withdrawals.

We're there as a nation folks, and if we don't withdraw we will suffer the next fate.

As a junkie's habit becomes more and more about pain avoidance, he gets closer and closer to the "coffin corner."  That is, the dose required to avoid the pain continues to rise over time (just as it is with these "unconventional" measures and credit "pumping") but there is a physiological point of poisoning.  Should that point of poisoning be reached, of course, the body dies.  As these two points converge the junkie is left with only two options: detox or die.

Bernanke and our financial system are rapidly approaching that point.  He has produced a sharp rally based on false hopes.  We could have used that time to force the banks to remove the bad assets from their balance sheets and sell equity to the markets.  But the banks refused and the government in turn refused to stick its jackbooted foot on their collective necks - a right the government has, since the entire reason that a bank can profit from fractional reserve lending is due to the granting of a privilege by government - a privilege it has every right to condition on ethical and proper behavior.

What Bernanke can't do is create production.  He can only spur people to borrow, and at the point debt saturates in the private economy, he's impotent.

We never left the recession folks, and the graph that I keep showing proves it:

Note that this is the first actual recession since the 1990s.  No, 2000 was not an actual recession - actual private GDP never went materially negative, and as-reported GDP never went negative at all!

This time around as-reported GDP did go negative - by a tiny 2% annualized ratio.  In real terms GDP has been down by an average of more than 10% for the last two years (8% in 2008 and 14% in 2009) but due to the government's outrageous "borrow and spend" binge reported GDP was down a minuscule 2% in 2009 - the only annualized negative rate of change.

That we have seen employment and private activity go straight in the toilet with a mere 2% GDP decline (as reported) and 30% of the equity market value has disappeared tells you exactly how bad things are.  Our markets and economy cannot withstand even a 2% nominal decline in GDP without having a literal heart attack?

The coffin corner is here and "in your face" folks.  We can no longer avoid the necessary detox, and the longer we try, the worse the outcome is going to be.

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User Info Here It Comes! (And No, "It" Is Not QE2) in forum [Market-Ticker]
Ldog
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SPX 400 here we come. Woohooo!!!!!!!!
Throxxofvron
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Quote:
The assets linked to wealth management products provided by trust companies must be shifted onto banks’ balance sheets by the end of 2011, the people said, declining to be identified as the matter isn’t public. Lenders should prepare provisions equal to 150 percent of potential losses, they said.


Rogers and Faber might have called this one right.

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DIONYSUS: " Thou hast no knowledge of the life thou art leading; thy very existence is now a mystery to thee. " -from 'The Bacchantes' By Euripides “During times of universal deceit, telling the truth becomes a revolutionary act.” -George Orwell
Mm^^
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Gone, Baby, Gone
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Depressing as heck. I KNOW that you have to chronicle these events, Karl, and I applaud you for doing it. You have new subscribers every day, probably.

Sometimes I feel the way "....my fellow Americans" must have felt watching Viet Nam fire fights on TV every night. It makes you brain numb for some relief. Because I was fighting in the midst of it all, I got to see it all up close and personal, so watching TV would have been a very real pleasure, instead of being one of the players on the field getting hammered every day. Still, I thank you for doing what you do.

For me, though, it's the Bar from now on. My physic can't handle the constant nightmare unfolding, because, yes, we are the players now.

Too bad, so sad, but it is what it is, right?

Too few thinkers know how to think outside the box and prepare, and that's a very good thing you provide for the ones that will listen. The rest are hopeless and a waste of time, IMHO.

I just can't deal with it anymore, as I found a better way for me to live.

See you for drinks, occasionally? I'm buying....

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"I don't take no ****; I don't give no ****. I ain't in the **** business." Stan S**by, Air Force, retired, Special Insertion (get the pilot OUT now!), guy. He's got MY back, guys. Forever...

Genesis
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Sure...

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I don't care if it makes sense -- only if it makes money. -- Me
Bank (n): See scam, fraud and theft. Eat a bankster -- they're low-carb.
What part of "shall not be infringed" was unclear?
Jal
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How many ways can you repeat the same message?
Surely, by now, intelligent, thinking people must have come to the conclusion that gov. and regulators must get involved in the operation of the “FREE MARKET”.

“ ... But the banks refused and the government in turn refused to stick its jackbooted foot on their collective necks - a right the government has ... “

“ ... Our markets and economy cannot withstand even a 2% nominal decline in GDP without having a literal heart attack? ... “

jal
2banana
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hmmmm - Shanghai down 3% last night...
Halfbrite
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Arizona via California
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Thanks for the concise ticker Karl - so true.

While wallowing in sadness the other day about the devastation to our national economy, politics,and our country, out of the blue came a stab of memory of old, wise advice long forgotten: "Live one day at a time".

We can be gone tomorrow, so just enjoy today. Tomorrow isn't guaranteed or "insured for", in fact it never was. I had forgotten that.

Quote:
God hath not promised skies always blue,
Flower strewn pathways all our lives through;
God hath not promised sun without rain,
Joy without sorrow, peace without pain.

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"That which cannot continue, will not continue. Brace for impact!"
Kwl88
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"It" being the "CRASH of our Economy/Stock-Market/Government/Earth/Life" OR maybe ALL of The Above?!?!?! Guess that's a rhetorical question this quarter & 4th quarter....

Maybe "It" being Armageddon followed by The Second Coming to defeat The Anti-Christ known as Obama?
Bagbalm
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"Four years ago and indeed as recently as last year, when tax revenues were at record highs, why wasn't the money spent then doing this rehabilitation instead of blowing it on things like smart boards, Wii video games and adding staff expense in the form of salary and benefit costs? "

Where are the bragging rights in quietly doing your job? You have to show some major flash - bigger and better - to go on to a job paying a few hundred thou' more a year.
Docj
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Meanwhile, Barry O was out at some college yesterday essentially promising that federally subsidized slavery for life - I mean, student loans - were going to rain down from Heaven forever. And the sheeple, of course, all bleated their enthusiastic approval.

All Hail Barry!! All Hail Barry!!

Yeah, I know it's going to suck out loud when it happens, but this gigantic fraud can't come crashing down fast enough to make me happy.

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The preservation of liberty depends upon the intellectual and moral character of the people. As long as knowledge and virtue are diffused generally among the body of a nation it is impossible they should be enslaved. - John Adams
Hogman
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pretty sad when china becomes more transparent than usa
Kwl88
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Docj wrote..
All Hail Barry!! All Hail Barry!!


Obviously a typo - you meant:

All Halle Berry! All Halle Berry! LOL!

........maybe a little laughter will help as the entire world goes to #@$%#@!$%!
Docj
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Heh - I remember during a world series between the Yankees and the Braves (96 maybe?) when David Justice was still with Atlanta the Bronx Cheer was something like "Hal-le Ber-ry! (clap... clap... clap-clap-clap)". I think the next year Justice got traded to the Bronx and, shockingly, the jeering stopped. Immediately

Sports fans are funny that way.

Important to have a sense of humor as we slide into the abyss, though. So thanks!

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The preservation of liberty depends upon the intellectual and moral character of the people. As long as knowledge and virtue are diffused generally among the body of a nation it is impossible they should be enslaved. - John Adams
Bigsapper
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Quote:
Meanwhile, Barry O was out at some college yesterday essentially promising that federally subsidized slavery for life - I mean, student loans - were going to rain down from Heaven forever. And the sheeple, of course, all bleated their enthusiastic approval.


That was at the university of Texas. In Austin, aka, San Francisco-On-The-Brazos.
Kwl88
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Austin, TX "Keep it Weird" - gotta love that city motto!

I go to Austin on about an annual basis to see family - and it doesn't feel like San Francisco, yet - THANK YOU GOD! Here's hoping it will stay MORE like TEXAS and less like the Liberal Fascist Mecca! At least they realize liberalism IS WEIRD unlike in Cali!

Reason: last sentence
Statusquojoe
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Land of the fees Home of the slaves.
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KD wrote..
States, for their part, blew up their budgets during the bubble years and now are cooked. Our local school district is a prime example - they're now asking the citizens to approve a 8.3% increase to the sales tax - to fund replacement and repair of aging infrastructure, in some cases things that are 30 or 40 years old. Four years ago and indeed as recently as last year, when tax revenues were at record highs, why wasn't the money spent then doing this rehabilitation instead of blowing it on things like smart boards, Wii video games and adding staff expense in the form of salary and benefit costs?


I had been following infrastructure reports since I began my career in civil engineering in the early '90s. First it was surface water impounding structures. Most of the earthen dam structures were built in the 50's through the early 70's with 40-50 yr design lives. As anything in engineering the design life is an estimate, given proper maintenance and repair which a vast majority of these structures did not receive.

Then I moved on to water and sewer infrastructure in particular GIS technologies for field assets and inventories such as the proposed GASB inventorying using regulatory depreciation techniques based on geospatial technologies. These regulations were basically trashed by idiot .gov representatives who felt too much pressure from local and private utility providers who claimed the inventory assessments were too much of a cost burden to accomplish.

The American Society of Civil Engineers has been saying for several years that it will take on the order of $2 trillion a year for 4-5 years to bring our nations infrastructure up to an average grade of serviceability of "C" from current "F" and "D" levels. I wondered with all this data available to .gov agencies why they didn't appropriate the funds to begin the reconstruction of our nation's infrastructure?

But the ongoing wars since 2001 have been considered more of an economic boom in this country, we blew billions in destroying and then reconstructing infrastructure in Iraq instead of our own country. Now, the banks and aggregated financial "services" are also considered critical utility infrastructure so they are receiving the lions share of the public treasury, but what utility do they really provide in comparison to water, sewer and roadway infrastructure?

Even if we could somehow pull out of this depression, how would we afford some $10 trillion for capital improvements for our nation's infrastructure? And that cost would surely double as soon as programs were funded due to speculation and an immediate increase in material and labor, just another potential bubble for aggregated wealth to capitalize upon through backdoor cronyism. We are in a serious hole in this country, and if we survive it will take decades to get out of this mess our representatives have dug for us all for the enrichment of corporate cronies.

/rantoff

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There are so many rules no one knows which rules to follow. The only sure rule is more rules will follow. SQJ.
Smacktle
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I have to agree that this ship can't sink soon enough or do what it's going to do so I can swim to shore. If I knew where the shore was I'd go ahead and jump now!

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The faults of the burglar are the qualities of the financier.
- George Bernard Shaw
Murf
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Excellent overview ticker. At the heart of it, the SEC, FDIC, Congress and Executive are colluding on a criminal enterprise whose primary victims are future generations of Americans. This should be called what it is: treason.


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The money has already been lost. Someone has to book it.
Ramthebulls
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Queens, NY
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I'm trying to detect just what sort of message Karl and/or the advertisers on the blog are sending by running an advertisement for a drug/alcohol treatment facility next to this ticker. smiley

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Umbrage is like love. No matter how much someone takes, there's always more for you to give.
Mannfm11
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The whole thing is a crock of crap KD. I don't believe 20% of what is put out any more. In 1981 and 1982, they pounded and pounded how bad the recession was, day after day. Obama shows up on the scenes and a recovery is assumed. CNBS was reporting what the upper class thought and I believe 85% of those making over $100,000 thought we were in a recession and 80% of those over $250,000. These are the people counting the coins, only a few involved in spinning the news. The problem is that the under 40 crowd has so effectively been brainwashed to the point they think the government runs things.

The American and European banking systems are the biggest frauds ever launched on mankind. The only difference between them and the Chinese banking system is in China they don't have any kind of internationally tradable paper and I believe, for the most part, if they follow the government dictates and the management doesn't steal (I don't think they have white collar prisons in China, only white collar firing squads), the banks are bailed out on an ongoing basis. Central banks and deposit insurance have provided the best of cover for massive fraud and excessive debt. Bank charters are nothing more than "Titles of Nobility", granted by states to a few. Sure one could own stock in a bank, but they would be at the mercy of the thieves that control the banks.

Americans better get to know what the writers of the constitution meant when they put various things in it or we are going to have our lives and rights defined by a group that doesn't have our best interest at heart. What we get when power is centralized at the top is massive fraud and privilege for a few. We get very little action for the people and we have our rights and limitations defined by a group of 9 experts, generally educated in 2 schools, Yale and Harvard. Strange that we should be at the mercy of an executive that is a managerial idiot and most likely a totalitarian socialist and 9 judges who were not taught the law, but influenced by a handful of law professors, who for the most part believe in making up the law as they go on.

Our Constitution doesn't grant rights, it provides prohibitions on government. Read the 4th and 5th amendments and ask yourself how much of those are in force? Think of Martha Stewart, who went to jail because she didn't tell them something. It was probably none of their business. We have some kind of right to privacy so you can get an abortion if you are a woman and I would venture no one can force you to testify if it ever happened, yet they will try Barry Bonds on the question of whether he was doing steroids or not, not for doing steroids, but for not admitting to it. They seize property, require under threat of penalty the filing of all kinds of forms, including income tax and government takes property repeatly, not for legitimate government, but to pass on to the benefit of others, not only the poor, but the rich as well.

In the 100 years between the War of 1812 and World War I, the US went from a wilderness to the most powerful country in the world. The war of 1812 was in part a war to separate commerce in the US from enterprises endowed by HMS the queen or King. It took 25 years to get rid of the second Bank of the US. Andrew Jackson played a part in both events, in fact the leading part. Evidently history today is Jackson stole the money from the second bank and put it in pet banks and the US became a third rate power as a result. The truth was, despite a bank created depression and the Civil War and not much of a standing army most of the time, the US became the power of the world and the cradle of innovation. Enter the corporatists and the central bank and the next 100 years have seen us reduced to a society that is clueless and broke.

Now people are waking up. We have a Tea Party that is going to play a huge role in what goes on ahead. It is being painted as a bunch of dim witted religious fanatics and gun nuts, but I beg to differ. Groups like this are the only places I have seen even a smattering of people who understood the limitations of government and the rule of law. Their opponents make up law to suit them as they go along and have no center, thus we have a spinning, wobbling country as a result. 99% of the people that have a clue about this debt crisis belong in such groups, as the mainstream appears to be clueless and doesn't understand the problem. Their own brainwashing is passed down to as many of us as they can infect, that their ideas will prevail and government will fix it with our money, not theirs.

I was a casual participant in some of the early movements of what they call anti-government constitutionalists and other nut cases in the 1990's. There are a lot of rabbit holes and smoke issues out there, but this was the first place I was exposed to people who actually knew something about law and money. The smoke issues, the black helicopters, the concentration camps, the conspiracy theories and some of the scams, like common law courts basically blocked so many people from what one really needed to know. After reading 99 books that went through the same line of Templars, Illuminatis and others, I realized those books had little to add, but I did realize a couple of things.

One thing I realized was the more intelligent were talking about money and debt and I understood some of this stuff. I heard a guy talk on a tape that was done about 1997 and what he said was they know it is going to implode, there is "no mathematical solution", I understood. I had been trying to figure out how these Universal Life insurance programs in the early 1990's would make $2000 a year for 30 years into a massive amount of money one could draw on for the next 30 and I couldn't make financial or numerical sense out of that. I had also played with exponential financial factors, which I understood because I do have a degree in finance. It was clear to me that once we ran out of collateral, the gig was up.

The other thing I learned was there was a basis of and in law and the various laws and court cases and to actually read the cites. There is nothing more boring and at the same time more fascinating than a law library. I also found out there is a difference between the terms Lawful and Legal. Note, the old Federal Reserve currency used the term Lawful money, while the current notes use the term Legal Tender. We call it fiat, but fiat means by decree. Thus they could make it legal for frogs to fly, but they couldn't make a flying frog, which is what the Fed is trying to do now.

Lastly, conspiracy or not, I read enough background to realize Wilson pulled some crap that put the US on a slippery slope and FDR pulled some more crap. The whole matter was 180 degrees from the propaganda I had heard all my life. Between the 2, it was hard to beat Wilson. How could you beat the Fed, the income tax, prohibition and participation in a world war that probably preventing the solving of problems that caused the war in the first place, all in about 5 years? Through all of this, I realized we were watching a stage show in government. Though I had voted in every election since I was 18, once I realized they were setting Bush Jr up to be president by running him for governor of Texas, I quit participating. Not that I didn't like Bush, but because I realized I was watching a stage show. 8 years later my suspicions were proven correct.

The point of all of this is, one can't understand this crap unless they are willing to take time to cut through all the crap and be willing to throw out what they think they know. There is no such thing as a free lunch and no such thing as a model that will defeat compound math. All there is out there are fictions, like Greenscam and Bernanke will fix it, that we can spend enough money to get out of this or that if we can hide this off balance sheet, our other exponential growth models will make it go away. These are absolute laws, not rules.

The other thing is that unless one can find their way to see there are laws, they can't understand any of this crap. They are left with the situation of being thrown around in the breeze and to some extent cannot even hope to develop any character, because the only choice is to run to their side of the boat until the boat tips, rather than realize that despite the current trouble, it might not be a good idea to blow up the world to save it. Isn't that pretty much what Biden said when he claimed we needed to spend a lot of money to keep from going broke? Instead of a solution, we get another shot of dope.

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
End_the_bubbles
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Genesis wrote..
As these two points converge the junkie is left with only two options: detox or die.


They've already chosen DEATH. That's been made abundantly clear......

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In the long run even the most despotic governments with all their brutality and cruelty are no match for ideas. Eventually the ideology that has won the support of the majority will prevail and cut the ground from under the tyrant's feet and rise in rebellion to overthrow their masters.
Mannfm11
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DFW, Tx
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Big Sapper, you and I are in the same city. Drop me a PM. Also, Austin isn't on the Brazos, it is on the Colorado.

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Poorslob
Posts: 76
Incept: 2010-03-04


Banned
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"Live one day at a time"


That's exactly how the pushers want the junkies to react. Strange that a Christian would buy into it.

Life is best lived exactly in the opposite way.

Sure , you MAY only have today , but that's not the way to plan or live.

That way is the law of the jungle.

The real shock is going to come when the 20-30% that still buy into the Obama is Anti-christ crapola wake up after he is out and find out that anyone that gets to that position is the anti-christ.

Hell if any of them from kennedy on would have been seen for what they really were and stopped we would have been much better off.

The sheep were too happy with the faux victory over this or that to see they were hollowing out their own country. It was very clear to those who were not into the koolaid and msm victory dances.

Now , it's really too far gone, it's just a matter of where the bottom is.


Ramthebulls
Posts: 10860
Incept: 2007-09-24
Gold A True American Patriot!
Queens, NY
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There's two Colorado Rivers? Weird. Would it have killed them to call one of them the Red River or something slightly different?

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Umbrage is like love. No matter how much someone takes, there's always more for you to give.
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