to start with the easiest, italics, just put a right alligator in front followed by an i and a left alligator and in the back do it again but add a slash between the first alligator and the i

(i’d make it simpler but it would ‘take’ and the bones would disappear)

Today, we still have a limited capability but components are fabricated across the globe. Some critical ones have only a single foreign supplier. There is no remaining US-owned nuclear reactor vendor.

The Left has done its best to destroy the US nuclear industry and it has almost completed its work. The US is weaker and poorer because of the political attacks from the radical Left.

The velocity dropped, because the trust level dropped. In the end, the entire banking system is based upon math, and the math is never wrong, and never lies. People occasionally have to relearn that, and sometimes that lesson is painful.

In the story above, the hotel only exists due to the demand from external travelers/businessmen. The prostitute is unable to provide enough business to support the hotel, which is why the hotel needed the Russian gentleman to pay the bill. They basically stole the money from him, and by luck had the money return to them fast enough that they were able to give it back when he asked for it. Theoretically they are out of their interest free debt, but they are no better off than they were before. They have no customers, no cash flow, and no profit. Should they need to purchase meat from their vendor again, they will have to do so purely on credit once again.

When the vendor realizes that fact, he’s going to start hording anything of value. That can be cash, it can be guns and ammo, gold, whatever. He no longer believes that his customary cashflow from the hotel is safe and reliable, and he may need to survive on what he has on hand for an undetermined period of time. The only way to prepare for that is to protect what you have right now, and stop giving anything away.

This trickles down to the butcher, who’s cash flow depends on the vendor selling the meat, which eventually trickles down to the farmer. There’s no cashflow, the velocity of money is zero, because while they may have goods and services of value, they no longer trust that the people they do business with is good for it long term. It doesn’t matter if they have the money now, the threat that they may not in the future is very real, and there is no way that the farmer is going to pass on his produce to someone who can pay now if they can’t pay later and the farmer then would not have those goods that he could survive on if he hadn’t given them away.

That is the picture the banks are looking at. Why should they loan money out to anyone if the likelihood is that even those with the best credit and the least risk would still likely default, though no fault of their own, because everyone else around them does. When the whole structure collapses, everyone falls and everyone gets buried, regardless of who screwed up.

The housing bubble was so bad that it may prove to be impossible to recover from. In some areas, this is definitely true. Housing prices will never recover in places. Ever. As long as those living in them have sufficient cash flow to continue to pay off the debt, continue living in them, and not worry about equity, it doesn’t matter. Unfortunately, nearly everyone doesn’t fit that category. Cash flow for the public at large is decreasing. Those that buy U.S. debt look at us like the hotel management, and wonder why they should bother. At some point in the future, they may decide that they are much better off holding on to what they have, as they don’t think we’ll ever pay off what we owe. As that happens, the interest rates we need to pay on debt that need to be serviced (the average duration of Treasuries right now are less than 4 years, and those need to be payed off or rolled over) and new debt issued will be higher. More of the national budget will go to just paying the interest, and that means that even more has to be borrowed just to keep the current level of spending up, not to mention the new health care, etc.

Taxes go up (which drives spending down, as it cuts into the populace’s cash flow) to make up the difference, which is what Cap and Trade is for. The government has to have more money. It isn’t an option. They have to. California has to have more money.

An increase in taxes hurts the economy, which means that revenue drops from what they expected out of the new taxes, which means either more debt, or more taxes. It becomes self-feeding cycle, moving faster and faster. The only solution is to cut spending as much as possible, and try to pay some of that debt off. This is completely foreign to all current politicians, on both sides of the isle. Without extreme budget cuts, the train wreck is inevitable. The only undetermined factor is the final timing.

What caused all of this? Bubbles. Exactly where it started is hard to point out. Different people have different opinions. By the time we got to the tech stock bubble, and the tech stock collapse, it was apparent things were very bad.

Rather than allow for defaults, a reset, and things to fix themselves, the housing bubble was purposefully inflated.
http://market-ticker.denninger.net/archives/1124-None-Of-This-Was-A-Mistake.html
http://www.nytimes.com/2002/08/02/opinion/dubya-s-double-dip.html

” The basic point is that the recession of 2001 wasn’t a typical postwar slump, brought on when an inflation-fighting Fed raises interest rates and easily ended by a snapback in housing and consumer spending when the Fed brings rates back down again. This was a prewar-style recession, a morning after brought on by irrational exuberance. To fight this recession the Fed needs more than a snapback; it needs soaring household spending to offset moribund business investment. And to do that, as Paul McCulley of Pimco put it, Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble.

Judging by Mr. Greenspan’s remarkably cheerful recent testimony, he still thinks he can pull that off. But the Fed chairman’s crystal ball has been cloudy lately; remember how he urged Congress to cut taxes to head off the risk of excessive budget surpluses? And a sober look at recent data is not encouraging.

…

Bear in mind also that government officials have a stake in accentuating the positive. The administration needs a recovery because, with deficits exploding, the only way it can justify that tax cut is by pretending that it was just what the economy needed. Mr. Greenspan needs one to avoid awkward questions about his own role in creating the stock market bubble.”

The housing bubble was created to fix the economy, rather than letting it fail and reset. Housing prices became extremely inflated. People took out new, refinanced, loans and home equity lines of credit, because their existing houses were valued at so much more than what they paid for.

Every refinance that took out more money than what the owners originally paid for, in essense, basically allowed the owners to sell themselves the house again at a much higher price.

This can work to an advantage, especially if you do something useful with that money. But most people bought plasma screen TVs, a new Hummer, maybe a boat, or whatever. They bought stuff, most of it imported. 70% of the U.S. economy is consumption. It was driven by the bubbles.

Our affluence was an illusion we sold ourselves, as we sold ourselves what we already “owned” at exorbitant prices. At some point, we have to service that debt or pay it off. When the initial money runs out (it has), the music stops. There aren’t even close to enough chairs for people to sit in. People start seeing the bubble for what it was, and realize they need to hold on to what they can. The trust in the system is gone.

The government, rather than admit defeat, apologize for their screwups, take their lumps, and watch us all suffer for a few years as we start to work our way out of this mess, are instead trying to blow another bubble to save themselves. They are blowing the government bubble. There are no more bubbles to be blown after this. This is the last bubble. When this bubble collapses (if it ever gets fully inflated) it will be devastating. It’ll make the Great Depression look like a tiny dip.

This can be prevented. We need to stop spending. Government needs to cut their budgets in half, and then half again. We need cheap, cheap, cheap energy. Cheap energy would lower a lot of costs, allowing us to service the debt easier, and get rid of it. Nuclear is the only way to go right now. Green energy, wind energy, solar energy, is currently too expensive and only exacerbates the problem. We’d be better off with just oil from our own supplies (ANWR, the Gulf, and anywhere we can get it).

Cheap energy leads to cheap food and lower cost of living, which allows us to service the debt. We have to actually make stuff again, not just consume. We have to all live within our means. Its gonna suck, its gonna be painful. But we’ll all survive. If we continue on the road we are on, we may not all survive. As it is, we’re looking at a shrink in the GDP of ~20%. If we try this bubble, it’ll be worse.

There was the surprising drop in the velocity of money last year. The Fed and TARP tried to counterbalance that drop with a flood of money.

The story about the hotel shows the velocity issue well. With no ready cash, there is no velocity and no economic activity. Friedman’s analysis of the Great Depression pointed to the Fed REDUCING the supply of money in response to the stock market crash. With less supply, the velocity slows as people hoard their cash. One repeatedly hears stories about there being NO MONEY.

This time around, the Fed responded by pushing money into the system.

So why did the velocity drop so suddenly? Supposedly, the housing defaults took all the equity out of certain commercial paper marketers and they had to stop their trading activities. Someone else may be able to elaborate.

Actually, Whiskey, I suspect Obama’s plan is much simpler than that: After he serves two terms (assuming that he gets that far), his wife, Michelle, will run for President. The Obama/Acorn machine, assisted by the likes of the New Black Panther Party and the Nation of Islam, will clear the primary path for Michelle. This way, the Obamas can rule for 16 years between them. Keith Ellison and Jesse Jackson Jr. will have been groomed as replacements beyond the Obama terms, and will likely have been VPs under one or the other of the Obamas.

Excellent analysis!

I can add that the carbon cap ‘n trade scheme doesn’t make more energy either. As you note, it will be like borrowing to buy a flat screen TV or other non-productive asset.

The wind mills and solar panels they want to encourage are ultimately a waste of resources and have marginal, at best, energy return on energy invested (EROEI). That’s why they are touted as “job creators” but jobs are a surrogute for energy investment. Hence the FEWEST jobs an energy source creates is the best metric. By that measure, nuclear power is our best option and we’ve got a dozen that are shovel-ready NOW.

As to mortgages, why not make them 100 year terms? That’s just about interest only. That would provide some relief in cash flow for the owners.

mongoose/31; We must remember, BTW, that Obama is just a figure head in all of this –just for fun, keep an eye out for all the symbols and logos that use a sunburst graphic. The disc with a rim of flames. yeah, i know –it’s nertz. but….