Economy Meltdown: The Virus is Spreading — Remedy=TRUTH

The bottom line is that the Federal reserve is fast becoming irrelevant for reasons described below (and foecasted by Alan Greenspan in 1996), proprietary currencies already out number fiat currencies worldwide, and a return to local government chartered bank currencies and other trusted issuers is probably the only way we can restore order to the markets. Holding onto the current assumptions and policies is like holding onto the railing of the Titanic.

It is becoming apparent that two things are true about derivatives and their current pernicious effect (actual and perceived) on the financial markets and world economies: (1) the true total of derivatives held in the marketplace actually approaches $500 trillion and (2) all $500 trillion of them are suspect now because of the unconscionable actions of a few people who used their creativity with as much concern for consequences as a three year old playing with matches.

Let’s put this in some perspective. The pendulum is swinging too far, as it always does. Yet it is pretty obvious that it has not even hit the half way point in its swing. Debt securities of all types are going to get hammered, credit is going to dry up, and equities are going to take a massive hit, along with the U.S. dollar. Eventually the market will reach some plateau (I wouldn’t call it equilibrium) and there will be a realignment of power, privilege and values.

Just using the most obvious indicators it is clear that the first order of business is to keep people in thier homes, immune from foeclosure at all costs regardless of who is to blame. The way to do that is for all players to realize that they have a dog in this hunt and that lower returns and some write-offs are better than complete write-offs and an economic depression.

The second order of business is to take on regulatory actions in the U.S. and abroad that over time will re-assert the appearance and reality of a fairly fair marketplace. Monetary policy — loosening credit, is not going to help the lenders who are already out of balance in their capital accounts.

Restoring the nomimal value of loans, even at lower levels and lower interest rates will soften the blow that we all see coming now. The only way to do that is to forget punishing anyone, and use the channels in place to restore order to the real estate, debt markets and equty markets.

The patchwork attempted every night by senior economic players in government and Wall Street cannot work except in spurts. It should be abandoned in favor of policies and regulation that reflect more concern for the integrity of the marketplace, the welfare of the constituents, and the return of honor, character and truth.

The truth is that there is not enough money in the world to bail out anyone in the current situation. It is obvious that central monetary policies are worrisome at best. It is equally obvious that power is trending back toward the states from the Federal government that is paralyzed by competing well-paid lobbyists. There is another obvious observation: power, control, and value is trending fast to other monetary centers and currencies other than the U.S. dollar.

We are now in the same place on an even trading field, as everyone else. This means our dollar must be backed by real value, real productivity, and a real economy that runs independent of impulse purchasing by buyers going deeper and deeper into debt.

What does this mean for the U.S. Citizen? Start with safety. The number of homes at risk is now around 7 million. This presents the prospect of over 20 million people displaced, seeking, finding or not finding alternative housing. The total humer of hosueholds at risk for debts other than mortgages appears to be over 35 million, which means that there are over 100 million people whose next meal is in doubt. Social “unrest” is a certainty unless an entirely new mindset is adopted by those who purport to be leaders.

For people with money, there are options that must be considered immediately. Holding U.S. dollars or assets that can only be valued in U.S. dollar denominations, presents a far greater risk than holding even a bad investment in some other currency. Diversification has never been more important because of the uncertainties. But the probability of a U.S. dollar recovery of any meaningful proportion is dim at best. Holding non-U.S. dollar denominated assets is probably the best route even if it means taking some losses now. But remember that real esatate can be sold for any currency. It will decline another 20% or more in many places but it will also recover.

Inflation is starting to take on a hockey stick trajectory if you look at a basket of goods purchased by the bottom 2/3 of the population.  The divide between those who have investments and can take protective measures outside U.S. currency, and those who do not have that luxury will be ever widening.  The average working stiff is going to continue to get paid in U.S. dollars that are worth less and less each month, while the number of dollars he or she receives remains constant.

My radical suggestion is that states and state banks go back to issuing proprietary currency. Deals should be made with holders of precious metals and financail isnitutions to give credibility and integrity to the new currencies and a new common exchange medium other than the U.S. dollar should emerge as the balancing mechanism.

Here is a little secret for you: most of the governors sitting on the Federal Reserve Open Market committee are well aware of the probability that new currencies will emerge.

Here is another secret, the use of derivatives has created “money” in volumes far in excess of all the fiat currencies in the world — so we have alrady gone private with currency when nobody was watching.

The Federal Reserve has been reduced to an inefficient bookkeeper when the transactions happen to flow through as ACH and wire transfers.

The state governments are on the right track — taking matters into their own hands. They should get support of the people — if they do not adopt the corporatocracy rules of Washington. In some states it is too late.  But we can always hope…..

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