Tuesday, October 6, 2009

Same Old Same Old But More So

The debt monster continues to mutate, as commented upon by Mish in Japanese Moratorium Will Postpone Collection of Principal and Interest on Consumer and Business Loans:

It's important to remember that no matter how nutty things have gotten during this credit bust, even nuttier solutions are waiting in the wings.

The Japanese Minister of Finance has proven that in spades by proposing a debt moratorium to individuals as well as firms. The moratorium would postpone repayment of principal and interest on loans, in an effort to spur more bank lending.

Please consider Kamei Says Moratorium Won’t Increase Japan Bad Loans.

I won't confuse this post further by quoting from the linked Bloomberg.com article; please go to Mish's site to read on or click on the link here.

What is happening is tragic. The financialization of the world has proceeded in ridiculous ways. There is no disclosure to the owners (stockholders) of the complex financial companies as to what these companies own and owe. All is gambling. Rather than deal with matters of equity, the U. S., U. K. and Japanese governments all just want to increase the debt load. Write it off later? No biggie.

It is no surprise that gold has surged to a nominal all-time high. That this occurred relatively quietly is bullish.

In the meantime there is no leadership on virtually anything from the White House.

It is believed here that gold prices will trend higher as other parts of the globe that did not go wild on credit and derivatives resume a normal functioning of their economies. The two major countries that did are the U. S. and the U. K. Each country is undergoing "quantitative easing" (or "qualitative easing") AKA money-printing to allow their Treasuries to issue more and more debt for less and less productive purposes.

Note that this debt is NOT the same as true money-printing a la Zimbabwe. These are interest-bearing securities. They can crowd out other players from the debt markets and can be associated with a decline in the general price level. In any case, they reflect a sick financial system. Whether the sick financial system stems from or is caused by a sick general economy, or whether the two co-evolved, I have no opinion.

Most asset classes remain in some reasonable balance, which is why Jim Rogers recently reiterated that he has no short positions. The momentum and the political-economic trends are with physical commodities, as the regulatory forbearance being shown in Japan and the return of bubble era home lending standards in the U. S. exemplify.

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