The redefinition of the word "asset" is already happening. It's new meaning? Liability!

EWI has good insights in their free videos some times, even if you have to wade through the border line smarmy voice of Bob Stokes to get through them.  The latest one is here and I think it is worth sitting through simply because it is only a couple minutes long and it does help to keep one's eye on the big picture since it sometimes seems the insanity will never stop.  But the insanity will stop, it is already stopping.  The problem is that by the time it is obvious to everyone, the trap is already set and the walls are already falling in.   The signs are all around us for those with eyes to see.  But before I get into some of the specifics, we first have to agree on what we are looking for.

During the left side of the debt Ponzi (it's really a trust Ponzi at its most elemental form...) growth curve, the easy money is used to build unnecessary infrastructure.  This is what the Austrian school calls malinvestment.  New wonders are built because the money is easy to come by.  Nobody had to work in order to create it; it is conjured from thin air.  Its spends like money (which is really a trade between two parties of labor already performed) but it is not money (actual labor). Debt is a promise to pay labor at some time in the future.  It stands that if real labor is used to build something then it was earned and thus proven to be affordable.  Truly affordable things do not suddenly become unaffordable the minute the credit begins to dry up.
 
However, if debt was used to fund the acquisition then the asset might appear to be affordable in real time but when the credit dries up and the deflationary crash takes hold, people's view of what affordable is will change dramatically.  Thus, I suggest that assets which are funded by debt turn into liabilities when the credit collapse begins.

Just because you have control of something doesn't mean it is an asset.  It could in fact quickly turn into a liability.  This will be a big surprise to many people even though it has happened so many times in history.  The $90 million condo flipper mentioned in EWI's video will never sell that property to a greater fool.  He will walk away from it leaving the bank with the loss after ruining his own financials. 

Why would he do this?  Simply because at some point he will realize that he was the patsy in that deal.  He overpaid right at the top because he got caught up in the mood.  The raging torrent of free money seemed like it would never stop and so he didn't consider the danger that the music might stop some day.  As the credit collapse begins to be felt higher and higher up the pyramid scheme, at some point his other businesses will go bad and all he will be left with is the debt associated with that real estate.  But he will also be left with something else: the maintenance costs.

Assets (besides money that is - real money including gold and silver coins) require maintenance.  In the case of real estate, the building is slowly disintegrating due to wear and tear and mother nature.  Also, the greedy city wants constant tribute in the form of real estate taxes.  This is what always happens: the high created by the credit drug blinds people to the maintenance costs of their purchase.  It happens to people, corporations, cities and countries.  What if a city anticipates growth to infinity and puts in massive infrastructure, always funded by debt of course, in order to afford it?   It all eventually ends up like Detroit, the poster child for which is the grand old, now abandoned, train station.

Another more recent example of a major asset that turned into a liability was the chip business at IBM.  You would think such a large business unit would be considered an asset.  But the chart of IBM told me a long time ago that it had reached a Ponzi Peak and I unabashedly wrote about it here, long before there was even a peep that IBM was anything other than True Big Blue.  

• Note: I invite you to go read that post.  It was written in May of 2013 with the specific stated intent (like many posts in this blog) of being "for the benefit of those reading it in 5 years".  In other words, it is very hard to believe that someone who is reporting on the happenings in real time has any real clue more than the next guy because if they were so aware of the true reality (and thus worth listening to), they would know at least the general direction of where things are headed and they would get at least a few of the specifics correct well in advance.  Only by documenting a model-driven view of the future before it happens can I, as a complete nobody on this planet, lay any claim to having anything more than common insight.

And so IBM recently divested itself of its chip business.  You would normally think that this means they would sell it, maybe at break even but probably at a loss.  And of course, if there are no buyers then you can just shut it down, right?  Wrong.  Shutting it down would cost billions in severance, lawsuits, you name it.  So IBM "sold" it to Global Founderies for its true marked to market value of negative $1.5 billion.  I know, it sounds crazy but its true as you can read here.  IBM effectively paid someone to remove the refuse from its balance sheet.  We are going to see a LOT more of this happening in the coming years as the "cash rich" (AKA debt laden) corporations have to divest of "assets" in order to keep from being eaten alive by the maintenance costs.

Such is the nature of the deflationary crash.   It will not be pretty but I assert that it will in fact be honest and fair, unlike the decades of corruption and crap that have led us to the edge of the cliff upon which we now stand.