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]

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”

I think I agree, but it's certainly worth discussing. If you read back through the Market Ticker blog, Denninger's entries make sense to me. He's talking about the fundamentals of the economy and the regulatory environment, which are not fooled by political rhetoric. If investors think their money is at risk to an unacceptable degree, they will take their money out of the market. It's that simple, and that's precisely the dynamic we've been seeing.

[PGalt]

HEAR! HEAR!

[Centurion2000]

None of this will necessarily lead to violence.

Are you kidding? Pensions lost? People will be beyond furious.

[Centurion2000]

Jesus told the disciples to buy a sword.
This is my sword. I pray I never have to use it.

Amen to that. But we stand ready to use it if necessary.

[PGalt]

Perhaps not. I see it as an offer of a peaceful solution. Nothing more. I’m a peaceful kind of guy on the one hand...

[IYAS9YAS]

but I’m staying at Chez Chan with my friend Mr. Mossberg.

Mr. Mossberg is a personable chap. I know him, as well.

[PGalt]

Are you kidding? Pensions lost? People will be beyond furious.

Not kidding. Just offering a peaceful scenario in the event that everything starts to crumble. Get rid of the anti-truth, anti-freedom, anti-life socialists and their enablers and the market turns around, prosperity abounds, and the greatest economy in world history rights itself.

[IYAS9YAS]

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

I hear ya. I picked up a Mossberg 500 12-guage pump at Wally World a short while back. It was listed at $207.00 retail. Great deal as far as I'm concerned. For $90, I can get the 18.5" barrel.

[Grampa Dave]

Travis, what was the brand of pistol you recently recommended and caliber.

Every place I saved that data is no longer around.

Thanks

Dave

[alarm rider]

Bump for later reading.

[RobRoy]

>>I’m a peaceful kind of guy on the one hand...<<

Kinda like this bird. An olive branch in the one hand...

[RobRoy]

I was looking at this and the Mossberg. I am in the liberal Seattle area. The Wally worlds here don’t sell guns. Just ammo.

I got the remington over the Mossberg 500 because it was the one that was on sale - $349. I did some internet research first of course...

[andy58-in-nh]

I am a gun nut (so to speak) and I highly recommend it. I've got a Winchester 1300 Defender as well, and a supply of both bird and buckshot. Pray to never fire any weapon in anger; be prepared to do so nevertheless.

[IYAS9YAS]

Do the ones outside Seattle sell guns?

The one closest to me only sells ammo, but the one we used to shop at sells long guns. I don't know of any Walmarts that sell handguns anywhere around here (NM).

[DirtyHarryY2K]

Thanks for the ping. People who don't think this could happen and and escalate to violent ugly situation SHTF are living with head in sand. Prepare for worst hope for best.

[RobRoy]

Dunno. Big five has pretty good prices so I just went there.

[central_va]

The Kommunity Reinvestment Act and little ole Akorn caused all of this. UFB. The tiniest amount of socialism is deadly.

[central_va]

Try to be a heavily armed, highly trained pacifist.

[JamesP81]

And it's quite a fine sword, at that. Take comfort in the fact that most goblins will balk when faced with it.

But perhaps even more importantly, you can feed yourself quite well with it. Hopefully they won't, but things could come to that point. If it gets to where a your money is worth nothing, you might be burning the bills for heat and eating whatever can be hunted or gathered.