Edward Charles Ponzi Jr. Looks Ahead

This one is by Edward Charles Ponzi Jr. Regular readers may recall he had a post last year at this time.



-It begins to dawn on people that the idea that the US economy is “fundamentally sound” may be incorrect — as the financial economy tries to deal with the fact that asset prices cannot rise forever — and that increases in monetary aggregates will play out as inflation elsewhere. “Securitization” will be increasingly seen as the equivalent of a bad sausage — grinding a little e-coli into everyone’s meat.

-The Ponzi Scheme of Credit Expansion will BEGIN to unwind — as people realize that inflating assets and then borrowing against them, is not “an economy” — nor is borrowing money from other societies and spending it in their shop. We can say what we want about the size of our “GDP” — but the REAL ECONOMY — the one where somebody actually MAKES SOMETHING is a healthy but too-small part of our whole economic picture.

-While in the 1930s we were not in dire need of imported energy, commodities and finished goods — we are now — and so our economic decline will not pull down prices to levels that everyone can afford. So, even if we do not have a contraction the size of the one in the 1930s — it will be just as tough — as so many essentials will be hard to afford.

– We are at the top of virtually every trend — peak debt, peak asset values, peak oil, peak demographics – peak climate, PEAK EVERYTHING you name it — the Best Case Scenario is still the Perfect Storm.

-The Great Unraveling could be slow or fast — with any recovery having to lift the weight of retiring boomers and old debts that we can’t inflate away. Don’t compare Total Credit Market Debt with GDP – compare it to the size of the Real Economy – and the amount available to service debt. Someone with a $50,000 income and $500,000 in debt does not have all his income to service or repay debt – only what is left after essentials. Likewise Government debt combined with total private debt equals something north of 50 TRILLION. (NOT counting unfounded liabilities of future fiscal “gaps” between projected inflow-outflow. What percentage of the real economy is needed to pay that?

Oh – and about those economic growth predictions used to predict the fiscal gap….

-The amount of growth needed to manage the above debt-loads are not possible – therefore we will need to vaporize that debt – or it will vaporize us – with mass insolvency.

-In time, our current society will be seen as one that ate all the food in fridge, all the food in the pantry, sent out for pizza, maxed out the credit cards and then burned the furniture while proclaiming that we are really very warm and well-fed. Financial historians in the future will say, “what were they thinking?” about our era.

-“Economist” will become the lowest status profession.

-For a time people will understand that you cannot become wealthier by printing more little pieces of colored paper – or the electronic credit version thereof.

-The economy will be the main issue of the 2008 election and the Republicans will do very poorly. Having said that — the Democrats will have no constructive answers or responses. Short-term thinking and a low-pain threshold will prevent any really constructive actions.

-Baby-boomer paper assets will be decimated – and while they may return to older values in nominal dollars – that won’t mean much in purchasing power – as we are not the only ones in the world who want wheat, soy, corn, copper, oil, fish, etc.

-As the economy declines throughout 2008 and 2009 people will try stick it out until things “turn the corner” — but in a sense that will never happen — as Aggregate Americans live beyond their means there will be a PERMANENT reduction of our standard of living. Things may only improve substantially after most of the boomers are dead and we can get out from under the demographic problem.

-I am going to coin two new words here — 2008 will be INVERSIONARY — about asset deflation and monetary debasement – and instead of “inflationary” or “deflationary” — we will have a DISTORTIONARY economy — as monetary expansion tries to battle sinking asset prices.

-*IF* the economy limps along up until the election without a widely recognized recession – the price we will pay will be an environment with inflationary forces prevailing in an overwhelming fashion. Most likely: Inflationary Recession or “Stagflation”.

-The near future will be an interesting time to live – as our society collapses in many ways – we will have to re-invent ourselves and our systems – however all these mistake will be repeated in another 80 years.


“You can’t time a market — but you CAN time an era.” -ECPJ

Happy New Year to all my Bear friends-

Edward Charles Ponzi Jr.
Hooverville Falls
The Republic of Vermont

This one was by Edward Charles Ponzi Jr.

Cactus here… I’ve stated before, I’ll state again… I think the economy will be slower next year than it was during the first three quarters of this year. I wouldn’t be surprised if we have a recession some time next year. The bill is coming due. Of course, its always possible that the Fed will really goose the economy by making money really, really cheap to avoid that fate… but if it does it, it won’t be avoiding that fate, merely postponing it.