Why do I know that a liquidity crisis is coming?

Folks, they try to make things so difficult, these con men.  They try to use big words and fancy ways of saying simple things so that Mark and Patsy won't catch on.  So I am here to net some of these ideas out for those who just want the simple version.  Today I want to explain what a liquidity crisis is, how it happens and what the implications are.

A liquidity crisis is essentially a situation where those who need credit in order to survive cannot find it at a reasonable price in time to make the payouts that they need to make. Without this credit, the deadline passes for any number of types of payments including:
- payroll
- scheduled payments for debt interest and principle
- bank withdrawals by depositors

In a debt based economy, few have any cash on hand and everyone relies on credit in order to make ends meet.  Some of the users of this credit really just have very occasional short term needs that must be met.  Other users of this credit are playing a debt shell game where they continually borrow from one entity in order to make payments to the last entity they borrowed from.  In a properly working and solvent company, one should never need credit in order to run the company.  Debts should be paid from savings but hey, if you limit yourself to those old fashioned ideas then you will get creamed by your competitors who do use debt in order to grow.  So the system basically demands that everyone get infected with the credit scam or they will not be able to compete.

Normally you can find someone to loan money on demand for a reasonable price.  In fact, right now with such low interest rates the price of debt is very reasonable, too reasonable in fact.  But during a liquidity crisis the banks suddenly get fearful that they will not be repaid and they stop loaning money out so easily.  What begins as increased lending standards can quickly escalate into "I'm just not going to lend out more money right now".

This is when we see who is solvent and who is playing a shell game with the debt.  Solvent companies will just say, "well, I guess we don't get to expand this year".  Insolvent ones will quickly default on debt payments, payroll, etc. and have to run for the protection of BK court.

So that is a liquidity crisis and it is also essentially how it happens.  The reason that I know one is coming is because banks in the past were operating under the assumption of the so called Bernanke put.  They probably called it something else in other countries but it was basically the understanding that the central banks would save lenders from their own mistakes by taking the bad debt that they incurred and putting it on the backs of the taxpayers.  This happened in the US and globally back in 2007-2009.

But the political will to play this game is over, finito, and we are seeing it already happen in Europe where Heta Asset Resolution debts would no longer be covered by the Austrian government.  This means that the bond holders would have to eat their rightful losses instead of just sticking the taxpayers with the bill in the name of saving the economy from a crash.

So now that "bail outs" are being replaced with "bail ins", in other words, now the the elitist game of pocketing profits and socializing losses is no longer going to be accepted by the people, loans will dry up.  If those who used to loan the money now have to assume the rightful risks associated with loaning it, they increasingly not loan out money.  The more the credit is restricted, the more the global GDP will fall and the more risky it will become to make loans.  Faced with ever increasing risk, the con men who used to make easy profits by passing all their risk to the taxpayers via the Bernanke put game will loan even less money.  It is a liquidity death spiral.

At some point the governments, who have been too cozy with banks, will start asking them to "take one for the gipper".  Banks might do a little of this but government will know no end to the requests because government needs a growing economy in order to peddle government debt.  At some point it will turn very adversarial between government and banks; government will essentially try to monetize the banks in order to save itself from the wrath of the citizens.  Once the good old boy system is internally warring, this is when the skeletons come tumbling out of the closet.

There will be a liquidity crisis because the whole damned Mammon Money system is completely corrupt.  That is how I know it is coming.