Entering the Write-Down

In previous articles, the first three major phases introduced the transition civilization is undergoing. We are now coming to the end of the first phase, “The Great Unraveling.” In this article we explore in more detail the current phase, “The Great Reconciliation” as it gets underway. As I originally described several years ago, there was […]

In previous articles, the first three major phases introduced the transition civilization is undergoing. We are now coming to the end of the first phase, “The Great Unraveling.” In this article we explore in more detail the current phase, “The Great Reconciliation” as it gets underway.

As I originally described several years ago, there was three main phases leading up to the shift coming in global civilization. Those three phases were identified as the; 1) Great Unraveling, 2) Great Reconciliation (or, if you prefer-Liquidation) and, 3) Grand Restructuring. Traveling through those phases was the central economic event ultimately some have labeled akin to “The Greater Depression.”

I don’t happen to believe that title really fits with what is happening and will ultimately be discarded in favor of a more descriptive term. Eventually, the transition in civilization being experienced now will be seen as something in a completely different category of event than the one implied by the name “Greater Depression.” The transition underway is much more fundamental, broader and deeper than that. It also contains many more elements than the world experienced from the “Great Depression” of the 30s and 40s and the Wars that followed in its wake right up to the fall of the Berlin Wall in 1988.

In any case it is, or should be, apparent that we are coming to the end of the first phase, the “Great Unraveling.” With roots decades in the making, the Unraveling began in 2006-07 with the housing bubble-burst and subsequent “financial crisis” in 2007-09. The completion of that phase has been delayed by all the economic intervention created by the US government and Federal Reserve/Central Banking system. Variously known as TARP, Stimulus, Bail-outs, Quantitative Easing and all the other forms of credit expansion and deficit spending, each thrown on the table in turn trying to hold up the house of cards as long as possible.

We are now seeing the last desperate throes of the first phase. The Government and the establishment Parties are already starting to move to what my friend Larry and I always called the “5 minute design increment” period. When building large scale systems, flawed designs that have to be fixed to keep them from collapsing during implementation and operation start being patched as they go by bandaids and quick fixes. If the 5-minute design increment doesn’t address the fundamental design flaw(s) (which they never do, because the “Powers-That-Be” think them up every 5-minutes) then final collapse is still inevitable, only it will likely be a much, much larger failure.

Those delay tactics indicated above have almost run their course, exhausted almost all options and have shown to be useless. The next phase will begin to take hold because; the books have to be reconciled and the bad/non-performing debt written off as unrecoverable, while liquidating any recoverable assets into some form of currency. Or, the creditors may allow themselves to be talked into taking some other form of debt instruments. In either case, it is most assured that entering this phase has given US and Eurozone creditors and credit managers many sleepless nights already.

This is where the “jumping from moss hummock to moss hummock,” in the global swamp becomes the norm in all asset markets. It should be most obvious the recent + 5-7% market swings in just about every sector of the financials, equities, and commodities is the primary evidence for this behavior. Speculators and Investors of all types are starting to jump from one to the next on a weekly basis, in the search for safety and profits. Or, at minimum, wealth protection. Note recently how the dollar index is rising toward 80 again. The euro is taking a beating. These cycles may repeat, each one shorter than the last.

As each financial and other ‘asset’ class crashes (or soars), in order, there will be no further observable effect from attempts to blow dollars into the system out of the gigantic Fed air compressor. Save one effect: Inflation. Up until that point inflation, whether 3% or 15%, has been held relatively in check. However, in the next phase inflation begins to blossom on wings of electrons.

At a point certain (undefined in time other than “relatively soon”), there’s showers of dollars everywhere and no one wants to take them anymore (what could they ever hope to get back for them in the future-except at ten times the price?). So, the write-down and reconciliation gets underway in earnest. It should proceed like any large, corporate bankruptcy except for a twist. There’s national sovereignty involved. So each G7 country in their order of power is going to get a differing deal as to what the write-down will entail. Fifty Cents on the dollar? Ten cents? The creditors in the G-20 and elsewhere will get their deal based on their order of economic and military power.

One can damn well bet the U.S. will keep the military as close to fully functional, as long as possible, in order to get the best deal from the creditors in the write-down. WE’RE not spending more on militarism and ‘defense’ than the next 23 countries combined for nothin’, ya know! The creditors will not be happy.

After all this foo-foorah goes on for a time we still approach the end. In the end everyone will reach the last two mossy hummocks in the middle of the swamp; Treasuries and the Federal Reserve Note. All the other sovereign bonds and debt will prove to be way-point hummocks through the swamp. That’s the day the global economic regime will realize it’s all out of hummocks to jump to in the financial and debt markets. And the Write-down phase is coming to a close. Now where to? The Dollar/Treasury hummock is still sinking and there’s no going back because all those hummocks have sunk back into the swamp already. The alligators are having a field day with all the fools left standing on those hummocks.

Ah, wait! There’s one more mound to jump to, only it looks like it’s made of solid rock (or in this case, metal). The only problem is that the rock is not that big as everyone starts to jump onboard with all their bags of rotten-to-the-core fiat currency to escape the gators in the swamp. That rock is going to become one expensive piece of real estate real quick. New players will start paying others any sum they name to jump off the rock again so the few can stay. Only the sums will be worthless by then. As the price of the key metals goes through the roof, other effects are generated.

The overflow will go into other physical assets and commodities sending, all soaring far beyond anything seen thus far. Massive inflation begins around the world as all players realize the cash they have will soon be reduced to it’s intrinsic value–nothing.

Too late, sorry Charlie! The “Dire Straits” (“money for nuthin’ and chicks for free”) Economy is coming to an end. The Grand Restructuring is about to begin.