Grasping at the Last Few Threads of Fabric from a Debt Based Economy

Hello all loyal readers, as well as anyone else that stops by. Last week was a very difficult time. It is hard sometimes to try and get back into your routine after losing anybody in your life. Everything can seem unimportant. But alas, we all must go on. I enjoy posting my ideas and thoughts on the economic issues facing us today, so back at it!

Last Week Wrap-up
There was a ton of action last week, and I cannot possibly recount it all here. Technical levels were breached. Talking heads finally were exposed as silly as they were changing their tunes almost daily from "the worst is over" to "second half recovery is a bust". The best full on wrap of the major issues going on right now can be found at Mish's site, this article in particular:
http://globaleconomicanalysis.blogspot.com/2008/06/deflationary-hurricanes-to-hit-us-and.html

Yes, I am on board with Mish in the Deflation camp. His logic is sound and the evidence overwhelming. While oil, gold, and other commodities may rise even higher in price, the definition of deflation is a collapse of credit. That is exactly where we are going.

Indymac Bank Will Win the Dead Pool
In the last poll Indymac Bank (IMB) got two votes for most likely to go bye bye. One of those votes was mine, so there is one other genius out there that voted. The structural issues facing IMB are too serious to overcome. It is now endgame time. Can the FED prop up IMB? It is doubtful with most of their balance sheet already gone. Can some kind of merger be forced? Maybe, but what entity can take on IMB? JP Morgan is already looking pretty smug about their Bear Stearns gift, and Bank of America is going to have to litigate lawsuits for years over CFC. Who is left?

Perhaps the FED may have learned their lesson and will allow a terrible bank to go bust. This bears watching to see how the situation is handled. IMB will not be the last to go, so how the close out is done will be of value information wise.

Grasping at the Last Few Threads of Fabric from a Debt Based Economy
It has long been a central theorem here at Economic Disconnect that last summer the FED, the banks, the home builders, and the entire financial system tried to take a deep breathe and hold it as long as possible in a vain attempt to ride out a collapsing real estate debacle. I can kind of understand. The major players are well aware how ridiculous 80% of the mortgages written over the past 3 years are, they know how bad things will get now that prices are not rising. rather than attack the issue at the roots, everyone tried to pretend a miraculous 2nd half recovery would somehow, someway reignite the housing bubble.

Well, time is up. The FED is empty this summer. IMB is going down, and many others are not far behind. The stock market seems to finally caught a clue and is trending down. Home foreclosures are still accelerating. You know the drill. So what does this mean?

This summer will be a season of many firsts. Creative bank closures. Deleveraging of monoline useless insurance. Massive bank losses. Even more bone head moves by the US Congress.

There are still some out there that think continuing on in the same way that got us here is the answer. Even Robert Shiller, an early housing bubble caller, feels that stimulus plans should just be a perpetual thing to keep demand for junk artificially high. The US financial system is near a crisis because too many people felt they were entitled to live like a celebrity. For some time credit was easy enough to make a stab at it. Now too many are so deep in debt, there cannot be any reasonable expectation of debt payback. Exhaustion has finally been reached by the consumer.

And this will hurt. It will hurt everyone. Nobody likes a mess. I am not happy about what is going on. But the process must happen. It was delayed after the 2000 market bust, and now there is nothing to replace home equity. Nothing. What we need are grown ups that will steer the country through this mess and back to sustainable growth based on solid fundamentals. I have no idea where those people are going to come from, but rest assured none of them are in positions of power today!

I am looking for post ideas and topics as I settle back into writing, so leave a suggestion if interested.

Have a good night.