Mish recently made 3 posts which I think continue to support my long standing thesis that the entire world is caught up in a debt Ponzi that is fueled by fiat currency and fractional reserve banking. The first one points out that Australia is already rolling over hard. Their real estate market is tanking as it was an even bigger bubble relative to their GDP than the US real estate bubble was. The Aussie real estate bubble took longer to peak that that of the US. However, since the US is a bigger economic flywheel than Australia and since the US controls the global money supply, the Aussie collapse is likely to play out a lot quicker than the US collapse.
The Aussie dollar is still relatively strong coming out the back end of the great China-driven commodity bubble that fueled their real estate bubble (strong commodity earnings gave people the ridiculous idea that the new revenue stream could never end and so they used it to justify buying houses far beyond what was reasonable relative to their incomes...). The Aussie dollar is going to plummet both in terms of gold and in terms of the US dollar. The US dollar is eventually toast as well but since its value is only measured relative to other fiat currencies, it will do relatively better until the end of the crisis (at which time all fiat currencies will probably not be worth much relative to commodities). That could take many years to play out though, and I actually expect a commodity crash to occur first (over the next 2-3 years) as China begins to sell off some of its stockpiled commodities in order to offset its collapsing exports.
The second story comes to us from Japan where Mish points out with caution that Japan's Current Account turns negative for the first time in 30 years. People would buy Japan's debt because they thought it was an exporting nation, by means of said exports, would generate enough extra cash to pay off its debt eventually. I always knew this was bull pucky and wrote about it long ago in posts like this and this. The second link of the prior sentence tells Japan's real problem: they are great manufacturers but their manufacturing capacity was borrowed, not earned. They borrowed huge amounts of money in order to make more stuff than they themselves could consume.
This tactic is just a small variation of the age old vendor finance scam in which a manufacturer can only "sell" its goods to its customers by carrying the debt required to buy them. By doing this, the manufacturing elite get to book "profits" even though all they really did was give stuff away in exchange for debt that will never be repaid. Everyone thinks Toyota Motors is a great company but I know that they built it all on debt as part of the great debt Ponzi and thus there is a 100% chance that they will eventually be nationalized by Japan (massive GM style bail out) or go BK. I doubt Japan will allow it to go under because of all the jobs that will be lost which is why I think nationalization is what will occur.
The interesting part will happen when Japan itself can no longer get any loans because it is already badly underwater in sovereign debt. None of this is going to end well, folks. It can't because the math of the debt Ponzi will not allow it to end well. Japan recently fell from #2 global economy to the #3 position when China moved into the #2 slot. Now that Japan is no longer a net exporter, what possible story can there be to convince others to buy its debt? There is none IMO. Japan has ridiculous levels of debt and declining demographics. That's like mixing drugs and alcohol from an economic standpoint. In layman's terms, sayonara, Japan, at least economically.
Today's third evidentiary piece was a toss up between the coming economic demise of California and Spain declaring a 2-year moratorium on evictions. I'll choose to pick on Spain this time simply because its fate is much more obvious today than California's coming collapse. In case you have not been paying attention, Spain is in the midst of a severe depression. It is, in fact, worse than the Great Depression for them right now. Overall unemployment is > 25% and unemployment among Spanish youth is well over 50%. Aditionally, Spain is having increasing trouble (and expense) trying to finance its deficit and its debt rollovers on maturing bonds. Unfortunately, this is happening at a time when Spain hasn't even been kicked out of the EU yet even though that will certainly happen before the worst is over for them. In other words, Spain ain't seen bad yet, but its coming.
What drove Spain into this mess was largely a credit-induced real estate bubble of historic magnitude and by that I mean one for the record books. So, with Spain teetering on the edge with its real estate crashing, the ridiculous bureaucrats put another stake in the heart of those trying to hang onto their rental properties by making it legal to stiff them on the monthly rent without any landlord recourse. It now makes zero sense for anyone there to pay any rent. Instead, they can either save money or buy other things in the economy. How long will landlords be able to last if they are not receiving rent? Heck, even those who own the properties outright are at risk of going under if they cannot pay the property taxes because nobody is paying rent. Then the Spanish government will nationalize the failing banks and eventually inflate away all the debt but not until bankrupting even the most honest real estate entrepreneurs. After much finger pointing and infighting and drama, some bank will end up with all the real estate when the economy is reset and the people who worked all those years to afford it up until now will get completely screwed. What a scam.
Like I have written before, holding even income producing properties with positive cash flow through this crisis is not a sure bet. Realtors tell investors "well people have to live somewhere". But where these realtors and their cliches be if the US government plays a similar game here in the US as the Spanish government did with their eviction moratorium? Where will these investors be when the government declares them to be "rich" and thus susceptible to some form of wealth taxation? After all, isn't that what an eviction moratorium really is? Isn't it a statement that poor people should get something for nothing and that "rich" people have the ability to pay (via the gift of free rent)?
That's exactly what it is, folks. It's government "spreading the money around". It's vote buying using the money of the productive class to buy the votes of the less capable (and thus less fortunate) section of the population. In other words, is a freaking scam. Let me tell you who will do best is all of this: those who own physical gold instead of investments. Those who are saving money instead of trying to use their money to make money. For these people are taking no risk of wealth redistribution like real estate holders are. And nobody can know how much hidden wealth they have so no wealth tax can be assessed. When the collapse is complete, these people will still have buying power and they will be buying good assets at ridiculously distressed prices because so few others will have any money to bid against them.
I've written many times that it will get so bad around the world that people will begin to believe they have nothing to lose. It will cause them to do desperate things. What drove this recent eviction moratorium in Spain was the suicide of someone who was about to get evicted. I hate to say it but most people will probably start killing politicians and bankers instead of or at least before they kill themselves. The elite have every right to be shared $hitless when the desperate people finally turn on those who caused this global collapse with all of their shameless money games.
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