Wednesday, 14 January 2009

Forecasts for 2009.

Well, not much happened since I last posted here. Apart from the near total collapse of the entire Western world's banking system and the near fulfillment of 'The Fall of Babylon' from Chapter 18 of the Book of Revelation in the Holy Bible.

Apart from that, pretty uneventful, then.

Everything that happened was predicted long ago on such talk radio shows as, http://www.kereport.con/ and and by Peter Warburton's 1999 book 'Debt & Delusion', aptly subtitled ' Central Bank Follies that Threaten Economic Disaster'. Now all the things that were talked about by these much ignored Austrian school economists have come to fruition and appear on the mainsteam news almost every day. Though of course no-one there would give the predictors of the crisis any credit for their astute observations of the credit excesses of the last decade and the likely consequences.

We have gone from the danger of hyperinflation in early 2008 to the danger of hyperdeflation in late 2008. The Federal Reserve has underwritten about 8 Trillion US$ of non-performing 'assets' in the USA, though that is peanuts compared to the several hundred trillion US$ of derivative contracts outstanding.

With most of the world's investment money in US Treasury bonds and yields and Fed interest rates at or near zero, with a seemingly confortable gap since the last major bank failure, we are now almost perfectly set up for:

1) A collapse in the Credit Default Swap derivative market - a collapse of credit insurance.
2) The collapse of a massive banking institution that was deemed 'too big to fail'.
3) Total systemic banking failure and a halt in world trade along the lines of 'The Fall of Babylon' described in Revelation Chapter 18.
4) The default of the USA and many other countries on their sovereign debt leading to a collapse in public services due to unprecedented government debts and a catastrophic fall in tax revenues.

The above can be summarised as hyper-deflation of the derivatives pyramid - a total and instantaneous deleveraging. See next post.

This could all happen in a single day or even a single hour and no-one will be able to get out of the way. It will come like a thief in the night.

However, if the Fed succeds in stopping this process or event, it will mean that they will have committed hyperinflation to cover all these potential failures, having possibly had to underwrite or monetise all several hundred trillion of derivatives transactions.

Taking $500 Trillion as an estimate of derivatives' notional value, that would mean a 40x increase in money supply (M3 being about $13T - and US GDP being about the same). 4000% inflation guaranteed then, if the Fed succeeds.

So, be prepared, if that is possible.

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