Waxing Credible on a Negative Feedback Loop ~ The Risk Averse Alert

Tuesday, January 04, 2011

Waxing Credible on a Negative Feedback Loop

The incessant banter claiming economic "recovery" is becoming more firmly entrenched does not diminish the fact that, dozens of states and cities are on the brink of default, as indeed are entire nation states. Having for decades thrived on tax revenues increasingly generated from speculation-driven economic activity, all the more threatening is yet another mountain of debt amidst a paradigm that will not soon be restored absent capacity to infinitely inflate private credit markets, such as principally fed yesteryear's massive speculative frenzy facilitated via securities largely anchored to real estate.

Fake financial reform purporting to restore this speculative regime employing a regulatory structure still so hopelessly overwhelmed with TBTF-think as to "see no evil," of course, is an implied sidebar in this "recovery" theme. Yet only suckers believe. With confidence toward many key facets of the core, securities-based financial scheme underpinning the trans-Atlantic economy shattered, weak props are all that remain. These buy time alone while suckers delight in any sign of life from the tail of a dog otherwise choking on debt that, today might bring balance sheet "repair," but this at the risk of tomorrow's fatal heart attack. Gained, then, is time to batten down the hatches, while those who must steal to maintain appearances of solvency still can. Yet truth is no measure of austerity — a pathetically lame, time buying power play — will stabilize a thing, nor can it ever. Rather, such is how collapse is hastened, much as likewise will continue with additional austerity rapidly becoming the global economy's mantra.

So, in light of this consider high hope that, 2011 will be a big year for M&A. Unless this involves a number of large multinationals with plenty of fee love to go around the globe, it's probably a better bet that, whatever M&A is forthcoming in 2011 probably will be more the shotgun variety bound by booty acquired for pennies on the dollar. Surely, too, an austerity-focused backstop might more likely create conditions conducive to business activity driven by the law of the jungle (as well as go some way toward explaining why the hopeless Bank of America was given a free pass just prior to those fake protectors of the American taxpayer taking control of the House of Representatives).

The sweet sound of "recovery" and "fiscal responsibility" might lull a wishful (and financially irrelevant) majority whose delusion is rooted in a former day when the dog whose wagging tail called "economy" could be stuffed with ever more leverage, while at the same time confidence could be made to swell with assurance (Greenspan) that, all added risk was being efficiently mitigated by the market. Trouble is those days are gone. Furthermore, no recovery can occur until every wild delusion about those days still surviving — there are many — finally is swept away. Until then, threatening vulnerabilities such as even now propel the physical economy's relentless breakdown, will converge in their own time and hasten collapse of financial structures whose viability precisely hinges on a reverse outcome.

Soon enough it will be plain that, time bought by a wall of money that in truth is a pittance cannot buy "recovery" in the midst of broadening economic and financial impairment whose increase only further stokes a negative feedback loop the likes of which unchecked leverage famously creates. As they say ... payback is a bitch.

Fast Money
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