When the Deal Goes Down, by James Howard Kunstler

James Howard Kunstler’s view of the future is about as optimistic as SLL’s. From Kunstler at kunstler.com:

Who needs Russia when the Tweety-Bird-in-Chief is hacking his own presidency into a global joke? Or at least it might be a joke if the USA weren’t such a menace to international order, and to itself, by the way. Interestingly, the 25th amendment allows for the removal of a president from office on account of incompetence or disability, but not for being an embarrassment to the nation.

They may come after him anyway with the 25th, especially as the financial system unravels later this year, because this time, unlike 2008-9, central bank interventions will not avail to rescue the faltering money system from nine years of previous central bank interventions. All it takes is for the “liquidity” flows to seize up and before you know it, there’s no food in the supermarkets because everything in our just-in-time economy is exquisitely calibrated to the sure expectation of getting paid, and when that goes, it all goes.

Then the question arises: well, can’t you just re-start the liquidity flows? Not when the process requires another abracadabra magic act of summoning X-trillions of dollars out of absolutely nothing when the previous X-trillions created out of absolutely nothing are rushing at warp speed into the black hole of deleveraging because it has been discovered that the “loans” they were based on can never be paid back, not in this universe or any number of universes like it. In a word, they’re worthless.

Deleveraging is the polite term economists give to your net worth rapidly evaporating. Liquidity is the polite term for cash money and things denominated in them that can readily be converted into cash money. The problem with the kind of liquidity-creation solution to deleveraging is that it rapidly leads to money itself becoming worthless.

The preview of coming attractions is currently playing out in Illinois — soon to be joined by Connecticut, California, Kentucky, and many other bankrupt states. Illinois is dead broke. It can’t pay the contractors who fix things like roads and storm drains, and supply food to its prisons. It’s over $200-billion deep in pension obligations that will never be honored. Its Medicaid system is a shambles. It doesn’t even have the cash-on-hand to pay lottery winners (what happened to all the cash paid into the lottery by the suckers who didn’t win, which is supposed to pay off the winners?). The state legislature hasn’t passed a budget in three years.

To continue reading: When the Deal Goes Down

 

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