The Price of Everything and the Value of Nothing

Oscar Wilde, The Picture of Dorian Gray

There is a current set of delusions that is powerful and dangerous: that monetary
debasement can be infinitely pursued without consequences; that the financial system is
now solid and sound; that the low volatility and high prices of stocks, high-end real
estate and bonds are real; that bonds are a safe haven; and that large financial
institutions which get into trouble in the future can be unwound in a much safer way than
they could be in 2008."
-Paul Singer
We had the not necessarily storm of the century in San Francisco. The following day, I
went to the local gas station to top off the fuel for one of our vehicles. I noticed that the
credit card system was down. The attendant said it was a satellite thing.
Suddenly, it became clear to me. A small glimpse of how quickly things can and
probably will spiral out of control. Once one realizes the incredible lack of redundancy
that supports payment systems and the flow of credit - the shock of just in time modern
society sets in.
Whether imposed by authority or by accident, a true banking holiday would make the
value of necessities skyrocket in price relative to the sudden supply shortage.
If people don't have cash, no fuel gets pumped. No fuel deliveries crash the pumping
stations. One by one - in a real life daisy chain - thousands of low margin cash-or-credit
churning businesses shut down; each one a small domino in a closely knit system of
distribution.
There is no use predicting when these nodes will break down. The warning signs are all
around us.
According to the Boston Consulting Group, between household, corporate and
government debt, the developed world has $20 trillion in debt over and above
the sustainable threshold by the definition of "stable" debt to GDP of 180%.
$20 trillion is more than the worlds largest economy. And no, that does not include
ongoing and future social obligations to the tune of many many more trillions.
There is no way to eliminate the excess.
All attempts have failed thus far. All of them will. We are living through the mother of all
poisonous interventions a truly barbarous and destructive implementation of policy and in a supposedly civilized society.
And where is collective policy? Call it a Global Coordinated Debt Restructuring.
In other words, a self-imposed jubilee is being crafted. Self imposed by the banks and
for the banks - in the name of the people.

Because this big write down is going to cost something. Its going to need some sort of
collateral to save the banks and to prevent collapse.
For the moment, we are paralyzed by analysis. We are caught up in the interpretation of
the toxic entrails of modern finance while reality smolders below.
Constant analysis of a false reality is like the wake of a boat that is driving the boat.
Mesmerized by the wake, but headed for an ice berg. Just a temporary impression
soon to fade if you look back far enough. Unaware of the direction we are headed.
We cant do anything to stop it only prepare for the likely outcome.
One of the chief consultants of the BCG author, Daniel Stetler put it this way recently:
"You have to think about a huge tower of debt on shaky foundations where central banks
pump concrete in the foundations in an emergency effort to avoid the building from
collapsing and at the same time builders are adding additional floors on top".
"Today central banks give money to institutions, which are not solvent, against doubtful
collateral for zero interest. This is not capitalism."
"It is the explicit goal of central banks to avoid the tower of debt to crash. Therefore, they
do everything to make money cheap and allow more speculation and even higher asset
values. It is consistent with their thinking of the past 30 years. Unfortunately, the debt
levels are too high now and their instruments do not work anymore as good. They might
bring up financial assets but they cannot revive the real economy."
"In my view [Piketty] overlook the fact that only growing debt levels make it possible to
have such a growth in measured wealth. Summing up, Piketty looks at symptoms
wealth and not on causes debt."
"We need to limit credit growth and make it tax-attractive to invest in the real economy
not in financial speculation. This will happen automatically if we return to normal interest
rates. The key point is that we as societies should reduce consumption which includes
social welfare and rather invest more in the future."
"We all are in a Ponzi world right now. Hoping to be bailed out by the next person. The
problem is that demographics alone have to tell us that there are fewer people entering
the scheme then leaving. More people get out than in. Which means, by definition, that
the scheme is at an end. The Minsky moment is the crash. Like all crashes it is easier to
explain it afterwards than to time it before. But I think it is obvious that the endgame is
near."
More than three years ago the BCG suggested that a one-time 30% tax on financial
assets would be needed to put banks back into solvency. The low hanging fruit will be
picked first.
Because rather than go door to door looking for actual physical items, of which very few
actually exist, they will make it easy by handling the transfer gently, electronically.

The initial sound will probably be muffled. But the effect will be destructive on a
geometric scale as it unfolds and infiltrates every crevice of civilization.
Nowadays people know the price of everything and the value of nothing.
Oscar Wilde, The Picture of Dorian Gray
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