What's Dead (Short Answer: All Of It)

The Market Ticker ^ | 03/05/09 | Karl Denninger

[Oberon]

Just so you have a short list of what's at stake if Washington DC doesn't change policy here and now (which means before the collapse in equities comes, which could start as soon as today, if the indicators I watch have any validity at all. For what its worth, those indicators are painting a picture of the Apocalypse that I simply can't believe, and they're showing it as an imminent event - like perhaps today imminent.)

• All pension funds, private and public, are done. If you are receiving one, you won't be. If you think you will in the future, you won't be. PBGC will fail as well. Pension funds will be forced to start eating their "seed corn" within the next 12 months and once that begins there is no way to recover.
• All annuities will be defaulted to the state insurance protection (if any) on them. The state insurance funds will be bankrupted and unable to be replenished. Essentially, all annuities are toast. Expect zero, be ecstatic if you do better. All insurance companies with material exposure to these obligations will go bankrupt, without exception. Some of these firms are dangerously close to this happening right here and now; the rest will die within the next 6-12 months. If you have other insured interests with these firms, be prepared to pay a LOT more with a new company that can't earn anything off investments, and if you have a claim in process at the time it happens, it won't get paid. The probability of you getting "boned" on any transaction with an insurance company is extremely high - I rate this risk in excess of 90%.
• The FDIC will be unable to cover bank failure obligations. They will attempt to do more of what they're doing now (raising insurance rates and doing special assessments) but will fail; the current path has no chance of success. Congress will backstop them (because they must lest shotguns come out) with disastrous results. In short, FDIC backstops will take precedence even over Social Security and Medicare.
• Government debt costs will ramp. This warning has already been issued and is being ignored by President Obama. When (not if) it happens debt-based Federal Funding will disappear. This leads to....
• Tax receipts are cratering and will continue to. I expect total tax receipts to fall to under $1 trillion within the next 12 months. Combined with the impossibility of continued debt issue (rollover will only remain possible at the short duration Treasury has committed to over the last ten years if they cease new issue) a 66% cut in the Federal Budget will become necessary. This will require a complete repudiation of Social Security, Medicare and Medicaid, a 50% cut in the military budget and a 50% across-the-board cut in all other federal programs. That will likely get close.
• Tax-deferred accounts will be seized to fund rollovers of Treasury debt at essentially zero coupon (interest). If you have a 401k, or what's left of it, or an IRA, consider it locked up in Treasuries; it's not yours any more. Count on this happening - it is essentially a certainty.
• Any firm with debt outstanding is currently presumed dead as the street presumption is that they have lied in some way. Expect at least 20% of the S&P 500 to fail within 12 months as a consequence of the complete and total lockup of all credit markets which The Fed will be unable to unlock or backstop. This will in turn lead to....
• The unemployed will have 5-10 million in direct layoffs added within the next 12 months. Collateral damage (suppliers, customers, etc) will add at least another 5-10 million workers to that, perhaps double that many. U-3 (official unemployment rate) will go beyond 15%, U-6 (broad form) will reach 30%.
• Civil unrest will break out before the end of the year. The Military and Guard will be called up to try to stop it. They won't be able to. Big cities are at risk of becoming a free-fire death zone. If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go "feral"; witness New Orleans after Katrina for how fast, and how bad, it can get.

The good news is that this process will clear The Bezzle out of the system.

The bad news is that you won't have a job, pension, annuity, Social Security, Medicare, Medicaid and, quite possibly, your life.

It really is that bleak folks, and it all goes back to Washington DC being unwilling to lock up the crooks, putting the market in the role it has always played - that of truth-finder, no matter how destructive that process is.

Only immediate action from Washington DC, taking the market's place, can stop this, and as I get ready to hit "send" I see the market rolling over again, now down more than 3% and flashing "crash imminent" warnings. You may be reading this too late for it to matter.

[Oberon]

Even Keynes knew that Keynesian economics couldn't last forever.

[PGalt]

Fascinating. None of this will necessarily lead to violence. “We the people” could send 535 members and the president a letter/telegram/fax/email/text message asking them to resign and hold special elections for all of them. The armed forces could protect us from external enemies.

[JamesP81]

Civil unrest will break out before the end of the year. The Military and Guard will be called up to try to stop it. They won't be able to. Big cities are at risk of becoming a free-fire death zone. If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go "feral"; witness New Orleans after Katrina for how fast, and how bad, it can get.

Where else? Those damned vultures had better not show up on my doorstep. They're the kind that voted in the government that's trying to get this crap started and I'll be dipped head first in pig s**t before I let them physically overrun my neighborhood, home, and town. It's bad enough they're taking my income and are soon going to take my savings. My home they shall not have.

[Oberon]

Fascinating. None of this will necessarily lead to violence.

Well, Denninger could be completely out to lunch, too, and none of it will happen at all. I'm sure he hopes that's the case.

But if his prediction comes to pass, I don't think "special elections" would do anything meaningful in any event.

[hiredhand]

As much as I always hate to, I think this deserves a CW-II ping.

[PGalt]

Perhaps, but in the unlikely event that some of it does...it certainly does not hurt to OFFER peaceful solutions.

[Age of Reason]

Using government bailouts to stop this, is like hammering nails into rotting wood to keep a house from falling down.

[Oberon]

Perhaps, but in the unlikely event that some of it does...it certainly does not hurt to OFFER peaceful solutions.

I'm with you... but in order to have a peaceful solution, your proposed action must be both peaceful... and a solution.

[perfect_rovian_storm]

Peaceful solution: They go quietly.

[PGalt]

:) good point. Have the new candidates answer direct questions about philosophy, freedom, individual rights, capitalism.

[Faith65]

bookmark

[B-Chan]

I’m with you, friend. The minute I think Aunt Katrina is coming to town I intend to get the wife and kids to safety (our relatives live in a farm town where Diversity is, um, not considered a Strength) — but I’m staying at Chez Chan with my friend Mr. Mossberg. The old dome may be a bit shabby, but it’s kept the rain off me and mine faithfully for lo these many years, and it’s mine. I’ll be damned if I’ll let Lootie have it without a fight.

Let’s hope it doesn’t come to that. God forbid I should ever have to point a weapon at another human being, but in defense of my life and my property I will — without hesitation.

[RobRoy]

I am not a gun nut. I have one SKS I bought when I thought Clinton was gonna take away gun rights. I have shot about 20 rounds through it.

Day before yesterday, I got this:

for two reasons, both timing related. It is one of those few times I actually put my money where my mouth is. And when you are not into guns, forking over $400 for a shotgun in times like this is not something one does lightly, especially when they know that, if it ever comes to actually USING the danged thing, the best thing to hope for is that the other guy balks.

Jesus told the disciples to buy a sword.

This is my sword. I pray I never have to use it.

[lucky american]

When “We the people” try to remove 535 members and the Pres, do you really believe faxes and e-mails will do it?
Don't you think Obama will call for martial law? If I wanted to stay in power that is what I would do.
If there is anybody out there that still believes this man is not intentionally trying to collapse this country I believe they are from another planet. If he wants to CREATE PANIC he's doing a great job.

[RobRoy]

Dow now at 6,600.

If this does not come back today, friday and the weekend could get interesting.

I’ll pick up a hundred or so rounds for that remington on my way home for work. The first 25 may not be enough, especially since I need to practice shooting the danged thing...

[blam]

bfl

[Travis McGee]

CW2 Ping

"Civil unrest will break out before the end of the year. The Military and Guard will be called up to try to stop it. They won't be able to. Big cities are at risk of becoming a free-fire death zone. If you live in one, figure out how you can get out and live somewhere else if you detect signs that yours is starting to go "feral"; witness New Orleans after Katrina for how fast, and how bad, it can get."

[VirginiaMom]

***

[Malsua]

Sounds like that guy...somebodyorother North who was predicting we were going back to buggies prior to y2k.

It’s never as bad as the worst predictions nor as good as the best. It’s always somewhere in the middle. This post can be classified as a “worst”

[thefactor]

ha. funny. i was forwarded this exact article this morning by a captain on my job.

this captain took all of the money that he could out of his retirement fund and put it in long term, low risk investments...in 2005!

he also sold his house in 2005 and has been renting ever since. so he's a very smart guy.