The markets are now entering a new phase of deterioration as reality swamps the near-heroic efforts of the central planners to prop, cajole, and rumor-lift the financial markets into something, anything that might inspire confidence and at least appear healthy.
I say 'near heroic' instead of simply 'heroic' because there is nothing at all heroic about trying to produce prosperity without producing anything besides words and electronic credit. It has never worked before and is not going to work this time.
The entire strategy of the world's central bankers can be distilled to the phrase "delay and pray."
Well, things have been forestalled, but the praying has not worked, as the world economies failed to re-enter the type of robust growth required to support all prior debts plus enable the necessary continuation of additional credit accumulation.
That's the whole story right there. The economy, as currently configured, runs well if and only if credit (debt) is constantly expanding at an exponential clip. As that dynamic stalls, you get exactly what the world has been gripped in during the past three years. The next act in this play is where stall turns into fall.
What nobody knows, but everybody is concerned about, is what happens as an exponentially tuned and highly leveraged banking system enters that 'fall' stage.
Well, I really think we don't have to wonder anymore, as Greece is already there and Spain is entering that same territory. There is no recovery from that condition through the portal of austerity. That just exacerbates the credit shortfalls that are so destabilizing, if not systemically fatal.
Of course, there would have to be a day of reckoning where all those years and decades of living beyond one's means would have to be undone. Austerity is exactly the means to correct that situation. The tension exists because austerity is also exactly the same thing that will utterly destroy the banking system.
Does the idea of relying on a system that either behaves or implodes depending on whether the condition of exponential growth is satisfied sound ridiculous? It does to me.
But it's the one we have, and the process of unwinding that system will be with us for a very long time. So what do we do today and tomorrow to best position us for that reality?
by former_user 
