Shoes dropping and ponzi schemes as far as the eye can see

A simplistic but we believe quite accurate perspective of how we got here was through a massive credit expansion over the last 25 years to support consumption that could not be afforded otherwise. According to the latest Fed Flow of Fund report, US Debt outstanding is over $50 trillion or about 350% of GDP. Private sector credit market debt to GDP has gone from 120% throughout most of the 90s to over 170% in 2008. Of course none of these figures include accruals for future Medicare and Social Security liabilities (after all the US is not required to report according to GAAP) nor the deficits currently budgeted for the next several years. A lot of focus was on the perceived healthy growth statistics all around (GDP, asset prices, household net worth, etc.) with very little regard to the liability side of the ledger (ponzi scheme # 1).

Stress Test et al. Deja vu…

I keep telling my partners here (in San Francisco) that I grew up in what used to be considered a banana republic that used all kinds of funny logic to justify the most amazing “heterodox” economic plans (i.e.; economic plans that address everything but the key issue of pretty much any financial issue: don’t spend more than you make), I know what a banana republic looks like, how it behaves and the stories their leaders tell. I feel fairly comfortable in saying that I find myself currently living in one (I won’t even exaggerate for effect and admit that I actually live in California, lest you think I’m mistakenly including Sub-Saharan Africa in the definition of “banana republic”). It’s like déjà vu.