Debt Addiction and More Bad Financial News

Gary North reports:

The economic fools in high places who approved the subprime loans that are now going bad did not see what was coming until July, 2007. These fools committed their firms and their clients to debt packages that were toxic. They did not understand their credit portfolios any more than the subprime borrowers understood the adjustable rate loan contracts that they signed.

Governments and central banks are now bailing out the dim-witted bankers to the tune of billions of low-interest loans and direct funding. Governments are also offering band aids – or proposals for band aids – to postpone the debtors' day of reckoning. But politicians know whose bread must be buttered: the multinational bankers' bread. They will be bailed out. The home owners, busted, will return from whence they came: the land of the renters.

No one really cares. They don't care that large banks are too big to fail. They don't care that small home owners are too small to be worth saving. As long as the government intervenes to keep the debt structure alive, voters don't care whose money gets used to do the bailing.

We are addicted to debt. But as the addiction grows, it becomes too big not to fail. It will fail. The question is: In what way? Outright default or mass inflation? I predict mass inflation.

But not yet. Not this year. The downward pressure of the contracting housing sector and autos will keep downward pressure on prices.

The drip, drip, drip of bad economic news will eventually break the average mutual fund investor's will to resist this downward pressure.

"Sell!"

"To whom? At what price?"

No word yet from the National Association of Realtors on this one.