Is An All Out Collapse Avoidable?
The following is from Chris Martensen’s interview of ZeroHedge.com founder Tyler Durden. This question and answer is fascinating.
Having written so much about what’s wrong with our current economic/financial/political system, what specific actions do you think need to be undertaken to fix things? Is an all-out collapse avoidable?
This is a question that we ask ourselves every day, and no matter how we spin it, we fail to see how an unwind to a previous “restore point” to borrow a computer analogy, is possible at this very late stage in the global Ponzi scheme. We tend to simplify the world: When everything else is stripped, the only two things that matter are a)where is the money coming from? and b) where is it going? And never in the history of the world have so many assets created so little cash flow. To a big extent, this is due to the fact that a bulk of asset purchases in the past three decades have been due not to asset turnover, but as a result of cheap credit resulting from an explosion of credit money through the quadrillion dollar derivative boom. As a result, most incremental dollars go not to organic business growth and economic output, but to satisfying what has become the biggest debt burden in the history of the world, whereby the labor and intellectual output of most goes to fund the living standards of a very few.
Indicatively, when looking at total exchange and OTC traded derivatives, which eventually are converted into some form of credit money, the total tally at last check is just over $1.3 quadrillion. This is about 20 times the total economic output in the world each year. It becomes very clear why the current status quo is unsustainable absent a major global corporate and sovereign liability restructuring: In the bankruptcy business, this process is known as “growing into your balance sheet.” Yet the main reason why the kleptocratic elite has been so opposed to this act is because no debt impairment is possible without eliminating the equity tranche below it. And in an ironic twist in which the Fed supports both the debt and equity markets, there is now about $13 trillion in equity capitalization in the US, which is backed by debt that for all intents and purposes needs to be impaired.
As a result, unless stakeholders in the liabilities of corporate America realize that the assets that collateralize these liabilities are woefully insufficient and come to a compromise in which either they alone or in combination with the creditors come to a consensual “restructuring” of the underlying claims, there is no other possible outcome than a free-fall bankruptcy. However, this will not be some Chapter 7 filed in the bankruptcy court of Southern District of New York. This will be the end of the current financial system. This is also what some consider a “deflationary death spiral.” And yes, no matter how much paper the Fed prints, this outcome is inevitable: All the Fed does through money printing is dilute the claims on both sides of the ledger. The best the Fed could then hope for to counteract the deflationary outcome is to generate hyperinflation through a collapse in the reserve currency (i.e., the Zimbabwe outcome). And since this is far more palatable to the Fed, we believe that one way or another, whether by fire or ice (to paraphrase Robert Frost), the existing, very unstable financial system will reach a point when the global systematic reset is inevitable.