End game for the "investment" banks

Reuters recently reported on a "surprise" loss at JP Morgan of $2 billion. Well, the exact amount and the exact timing might be a surprise but the fact that the massive losses will come and that nobody will see them coming has been predicted in these blog pages for many moons. In fact, it is not a surprise at all but rather a mathematical certainty. The "investment" (can you really call them that?) banks made all their money on high leverage by gaming the credit system. Without the ever-expanding use of credit and without ever more people depositing ever larger sums of money for them to use as reserves against their leveraged bets the banks could never have grown to the monster size they are today. As the credit recedes (and it certainly is doing so globally) and as boomers leave the workforce and start withdrawing from their 401k accounts instead of contributing more, there is no choice but for the aggregate profits of the investment banks to crash and burn. Such is the nature of a debt Ponzi.

The fact that the curve of the Ponzi was exponential in nature on the way up means that it will also collapse at some point in like fashion. Whenever you hear someone with 30 years of finance experience say "we never saw it coming" you can bet that leveraged gambling in the debt Ponzi was the cause. I've written on many occasions that the former rock stars of finance that emerged during the creation of the Ponzi will eventually be left in shame. Names like Greenspan, Jamie Dimon (Demon?), Lloyd "doing God's work" Blankfein, Paul "Nobel Prize" Krugman, Ben "Helicopter" Bernanke and of course Warren "raise my taxes" Buffett will ALL be dragged through the mud big time before the collapse of the fraudulent fiat currency/credit scam collapse plays out.

Here's the minimum of what we can expect to see going forward:

· The european banking system eventually collapses as all of the PIIGS eventually break down into economic depressions. Riots become the norm as countries struggle with the fact that everything they believed to be true about their economic system is discovered to be a lie. Their pensions are worthless. Their bank accounts are worthless. Politicians and bankers are chased in the streets by angry mobs with pitchforks. Lawsuits and jail time for con men occur as the ruling elite sacrifice some of their own in order to appease the public outcry for blood.

· People finally lose their fear of bank collapses and pressure to stop bailing banks makes it politically unacceptable to throw more money at them. As a result many well-known banks around the world collapse, have to be nationalized, etc. The bigger the bank, the more likely it is to be in big trouble. Why? Because they got big by using big leverage in an expanding debt Ponzi. Use of leverage in an expanding money supply (can't tell money from debt in a system of fiat currency and fractional reserve lending) is a sure winner. But it is also the kiss of death once the debt Ponzi peaks and begins to revert to the norm. That is happening right here, right now on a global scale.

· Reduction in quality of service of everything. People who find out their pensions are worthless are likely to seek revenge. Expect theft in the mail system and reduction in service quality such as water and electricity delivery to the home, even cable and Internet service. Providers who have been living off of debt will have to either charge what it really costs or cut corners to cut costs. Raising rates in a never ending recession (or worse) is impossible. So they will cut corners. Smart people will see it coming and take steps to ensure that they have essential things like clean water and required electricity (i.e. for the meat freezer, etc.) when the outages/quality reductions become commonplace.

· Tax collection will go into high gear as governments struggle to maintain their Ponzi-enabled size even though the Ponzi is collapsing. Expect the people to start spending increasing amounts of their time caring about the running of the country whereas in the past nobody cared because it seemed that someone else was handling it well enough.

· Expect increasing shortages of products in growing areas of the country as the US eventually loses the ability to borrow $1.5 trillion per year just to get by. Note: this borrowing is not being done to fix the decaying roads and bridges, etc. It is just being consumed in daily living, supporting able bodied people who have figured out how to scrape by on monthly government "safety net" (aka vote-buying) payments, manipulating our interest rates to be low so that housing prices stay too high so that banks can claim they are solvent when in fact they were bankrupt long ago.

All of these things are essentially assured by the math associated with the collapse of the debt Ponzi. Of course it could also get far worse depending on the mood of the herd. The magnitude of the collapse is already assured. What is not known is how quickly it will play out. The faster the return to the mean, the more dramatic the consequences. A very rapid transition could include the rise of the police state/fascism, martial law, complete collapse of the banking system with hyperinflation (following a massive deflationary depression, of course), widespread rioting and even regional or global war. These things are more than possible given how badly many people will end up having gotten screwed by their own ignorance as con men in government and at the banks took advantage of that ignorance to rip them off.

No matter what happens, keep in mind that all of this is part of the healing process. A credit addict must go through withdrawal just as a heroin addict must go through withdrawal.  The process is very much the same.  Signs of the drug addict’s healing include things like:

·         pushing back from further doses of drugs

·         actually listening to and appreciating the people that love them and who have been trying to guide them and tell them the truth the whole time even when the influence of the drug made them not want to listen.

As for pushing back, well, we’ll have to see if Bernanke the credit pusher shoves QE3 down our throats or if the people’s voices have grown loud enough to make him fear for his own life if he does it.

What about signs that people are beginning to listen to truth tellers whose formerly unpopular but 30 year unwavering message of honesty about the scam being pushed by the credit pushers?  To answer that for yourself, just keep an eye on Ron Paul rallies and his growing number of delegates and the fact that he is starting to win some important states in the contest for Republican candidate nominee to go up against socialist Obama later this year.  People are waking up all over the place as the good times fade into the rear view mirror.  They increasingly understand that the Ponzi is in collapse and that all of the mainstream candidates are bought and paid for by one special interest group or another.  They increasingly realize that Ron Paul is not "whacky" or "quirky" but rather a true Jeffersonian statesman and that he is the only honest presidential candidate since Eisenhower and JFK.  Ron Paul's message is one of financial truth (no matter how unpleasant), the rule of constitutional law, personal freedom and privacy, limited government and of course honest money.  Political change is a given in the US over the coming years.  It is up to we the people to make sure that it goes in the right direction for us.