Peak credit is right ahead of us.

Trees, as they say, don't grow to the sky.  Not even bamboo.   Not even Redwoods.  They can seem like they are going to, but only for a period of time and only to childish eyes.  The global economy is rapidly approaching a major turning point.  I don't know if it will be a mania collapse or if this is just wave 5 of 1 coming to an end, but by around 2016 I expect a major change of the global credit markets to be sinking in (pun intended).

Everyone knows that the global economic fundamentals are crap.  Despite what the con men in every country say, things are getting worse every quarter.  They paint a happy but desperate face on it in order to exude confidence but I'm sure the leaders all go to bed at night wondering if they will wake up to a screaming mob the next day that wants to kill them.  This is not hyperbole.  It's literally happening all over the world right now.  Some extremists are even openly threatening the president and now congress too in a way I have never seen tolerated before.  There is a reason that it is being tolerated.  The establishment is weak and it doesn't need yet another public battlefront opening up.  It can ill afford another Waco.  Worse yet, having witnessed Waco themselves, perhaps the extremists are better prepared than before.  Going after this guy could start a massive revolution for all anyone knows.

I've gone over the details too many times to do it again here and now but the entire world is a debt Ponzi and all Ponzis collapse at some point.  The big question is "when".  It has gone on so long now that it seems like it will never change, right?  But the solution to Ponzi growth, as they say, is more Ponzi growth.  Not if it will collapse, but when and how badly the next time.

The following chart has my simple Elliott wave model of the US debt bubble (total consumer credit).  As you can see, the curve has gone exponential.  Exponents and finances do not mix.  Exponents can only be achieved via leverage and leverage must some day be unwound.

This chart is very, very compelling.  I give it a 90% odds of playing out as shown and that is best case. In other words, it depicts a pullback to only the prior 4th, not a full on mania meltdown.  I'll reassess the chart after it peaks at red 5 (some time before 2016 and perhaps in response to the massive ouster of life sucking liberals from our government and a mass installation of Rand Paul style conservatives).

Here are the main features I like about it:

• It shows perfect parallelism between waves 1-3 and 2-4.
• It shows perfect alternation between waves 2 and 4.  Wave 2 was a sideways correction leaving wave 4 to be a vee style corrections.
• Wave 3 was longer than wave 1.  An extended 3rd wave likely means that the 5th wave will not be extended.  In other words, 5th should be about the same strength as wave 1.  I measured wave 1 and copied the scale up top so that it would be clear just how close we are to a major, major, historical credit collapse.
• In other words, this wave formation is perfect Elliott.

The collapse could be a simple a-b-c back to the prior 4th wave.  That is how I showed it above.  At that point, it would be free to head up for another huge credit spike 3rd wave.

But it could just as easily collapse completely and in fact end up lower than where it started.  As in a return a to the really difficult credit of the 1950s where you would almost end up scraping the face of Lincoln off the dollar bill as you dragged the money out of the hands of a glassy eyed banker.

Think that's impossible?  Think again.  If the stock market of what used to be the world's 2nd largest economy can have a mania chart then anything can.

And now I'll get a little Prechter-ish on you.  Namely, that the collapse of fractional reserve banking is going to come with social changes.  Or maybe that social changes will collapse fractional reserve banking.  Chicken and egg.

Without making any morality judgements, I simply observe that for decades now, the socialist liberals have had a great run on the back of an expanding money supply (credit more than anything).   The availability of easy money changes the way people think and operate.  They focus less on work, forget about conservative values and begin thinking that life owes them a living.   Politicians, being experts at reading this mood, pander to it in order to win popularity contests known as elections.  

As a friend recently told me a couple of times (and I agree), “people get bored” and it leads them down unnatural paths.  At some point they try to make unnatural appear normal and for a period of time it appears as if they are succeeding.  But conservatism never dies, it just goes into remission when under attack.  When it comes back it will do so with surprising speed and power IMO. The pendulum always eventually swings back the other way.  Why?  Because liberalism (a slant toward consumption) consumes the stored reserves of the herd and conservatism (a slant toward production) replaces them. Yin and Yang if you will.

It’s amazing what things finally mark the change in herd direction, and this duck dynasty thing is just the kind of whacko “who’d a thunk it” catalyst that it has historically taken to define (or perhaps just mark) the turning points.  1 million people all decided to do the same thing?  Without being herded into it?  That is a sure sign of awakening and the liberal powers that be should be afraid of it because if the herd is self-organizing then it doesn’t need the help of an otherwise useless elite overseer class.  Maybe this is not going to be the pivotal (or only) event but I think it’s one worth watching. 

I like to define triggers.  If A+E backs down on their support to LGBT and keeps the show going with "Gay Basher Phil" on board at the demand of 1 million people who can easily boycott the channel then  I will consider it a significant milestone in starting the pendulum swinging back the other way.

Once the pendulum starts swinging back towards “50s mentality”, normal working people are going to be less politically correct and they will care less about what the herd thinks of them  The herd will move away from "everything is OK, everything is grey" to "there is a such a thing as right and wrong".  They will be more vocal about it and not just “take it” quietly anymore.  The herd will also care less about uplifting the weak and infirmed as if they were honored heroes of society and it will put more focus on the strong and the powerful (AKA the producers).   

You’ll know the die is fully cast when they start getting rid of most of the handicap parking spots.  The 90s explosion of making everything "accessible" at great cost to businesses is my poster child for forcing producers to work twice as hard in order to support the the weaker members of the herd.  Not that I think there should be no support for the weak.  But I think that is the role of the church, not the vote buying corrupt state.  The state doesn't really care about the weak.  It does care about controlling the hard workers.

When the great fractional reserve credit scam collapses, the herd is going to make a dramatic transition from being a flock of sheeple into looking more like a pack of wolves.   Patsies that are so common today will become as rare as hen's teeth.  Strange as it might be to say, I expect the police state to be getting whacked along with socialism as the fraudulent money supply continues to face increasingly existential threats.   Sheeple put up with jackbooted cops.  Wolves won’t. Fraudulent money printing and Ponzi Pension Promises support an expanding bureaucratic police state.  Conservative work-for-what-you-get society will purge these excesses not by desire but rather by necessity.

Unfortunately, we will probably swing too far into conservatism.  It always seems like someone is trying to impose their will on us libertarians.