Mish keeps getting it exactly right, and I want to point something out that he is saying implicitly, but I think should be made explicit. Keep in mind Mish understands the difference between money and credit, and Mish is versed on the various, mostly tendentious, definitions of money. So first a chart
from Mish's post today:
Now, "All Sectors Credit Market Instruments Liability Levels" the top line is the notional book value of everything being financed. Since all that is being financed it is presumed to have an value higher over time, which can only be true if anything bad happens to the economy at any time.
As to that top blue line, any chance that since interest is paid in real money which is limited, and loans are made in credit which is unlimited, that credit was lent in excess of value so that interest rates could be all the more lucrative. The top line is notional, it is anchored literally to nothing, a value about as reliable as a 2006 home appraisal, at the 60 trillion dollar level.
The green middle line is the risk on the bank books. That does not look so bad in relation to the other top line, but it is a matter of horror if you removed the top line and saw how much exposure that banks have relative to their "money" reserves (and "money" only by the most whimsical definitions). The banks say the blue line is worth their green line, in red line money, otherwise the banks would have lent that credit themselves.
Circa 1982 a buyer from a major department store asked me to invoice at 10% higher than the list price, and he would then pay me our net when the terms came due? Why. Well, bank loans to this major department store were based on inventory book value, so they were inflating the value to cam the bankers. Corporate policy. No thanks, and kinda dumb, as if bankers would not figure it out. That space between the middle line and top line is the same thing taken to the 60 trillion dollar level. When you are dealing in credit, and not money, there is no rational limit to how far out you can go. It will stop at some point, but right now everyone is seeing their numbers in equities etc growing, so the confidence remains. At some point, this bubble too will burst. You cannot understand this unless like Mish and me you know the difference between money and credit.
That space between the top line and the bottom two lines is where your pension is, your savings, you stock market portfolio, and an awesome income stream for banks. They have privatized the income and socialized the risk. All that will go away, sooner rather than later. Want a sense of the quality of people involved in that big space?
Here you go... read the comment sections.
That big space in the graph above is where you have put all of your hopes and dreams and plans. It is not possible, never was, for the promises you have on paper to come out of there, because that space represents a false economy. Wars, light rail, airports for ever, holes in the ground, research on how many angels can dance on the head of a pin, pretend education, religion, medicine, unions, food, housing, clothes, etc. Since the banks have no hand in it, and regulators provide the pretense of control (while being bought and paid for) they cannot and will not pay. And the free market will be blamed, when in fact none of that could happen in a free market, only a State that provides force and fraud to back up the scamsters "contracts" makes all that possible. And please note, those graphs are FED graphs, so when it blows and they say, again, we had no idea, remember in fact they were watching closely the whole time. See anyone enforcing rules already on the books?
When it does blow, the people who now have title to it and find it no longer pays will have no interest (literally) in physical asset underlying the instrument. They will abandon it. This will be a boon to small business when plant and equipment can be had for pennies on the $100. But here is the rub... those speculators now will have title to the plant, so like Detroit today, if anyone starts making any money on anything abandoned, the "owner" will show up to take it all away, like a taxman.
The time is right now to write a 90 day rule that any property abandoned for 90 days can be homesteaded. All wars are about real estate and rents derived therefrom, so let's have land & property redistribution on a perfectly effective and equitable basis. Use it or lose it. Collecting rent ain't "use."
When you understand the problem, you can effect a solution.
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