Yesterday, we estimated that it would take 19 years for the economy to complete its de-leveraging . It was not a very scientific estimate. But total debt has gone down about $2 trillion over the last 24 months. So, if it continued at that rate, it would take about 19 years to erase the extraordinary amount of debt built up in the bubble years.

Now, along comes the Comstock crowd with roughly the same guess – two decades. They figure that the savings rate will go up to 10% and that the effect of taking that money out of the consumer economy will be to put the US into a long, soft slump – just as we predicted in our first book.

And there’s another reason to expect a very long period of downsizing: that’s just the way economies work. Market cycles are very long. Interest rates went up from the Great Depression all the way to the Reagan Administration. Then, they went down… and may still be going down. Stocks go up and down in cycles that last 30-40 years, peak to peak. The peak in ’29 was followed by another peak in ’66 which was followed by another peak in ’99.

Economic cycles are long too. Consumer debt, compared to disposable income, hit a low in 1945. It went up for the next 62 years. It only peaked out in 2007. If the chart were symmetrical, the process of de-leveraging (getting rid of debt) would show a downtrend until 2069!

And maybe it will.

But there’s no point in looking that far ahead. What we have in front of us is the opening stage of a depression… a market crash followed by a major economic re-adjustment. The new reality is that consumer demand is down… and will stay down for a very long time, at least until debt has reached more manageable proportions. Ken Rogoff says that will take 6-8 years. We say it could take 19 years. There’s about $20 trillion in excess private sector debt to be eliminated. It will take time to get rid of it.

And it will take time to re-jig the world’s economies to the new economic realities.

John Hussman explains…

“The U.S. economy lost a quarter of a million jobs in July. Meanwhile, over 400,000 workers abandoned the labor force (and are therefore no longer counted among the unemployed), which prompted a slight decline in the unemployment rate despite the job losses . In the context of an economy still strained by high levels of consumer debt and still record delinquency and foreclosure rates, labor market conditions are still troublesome. Still, the pace of job losses and new unemployment claims has clearly softened from the pace we observed early in the year.

“If we knew that this was a standard economic downturn, we might conclude that the recent improvements are durable. However, nothing convinces us that this is a standard economic downturn.

“Call me skeptical. But if you look carefully at the economic data that shows improvement, and correct for the impact of government outlays, it is difficult to find anything but continued deterioration in private demand and investment. What we do see is a government that has run what is now a trillion dollar deficit year-to-date, representing some 7% of GDP.

“That sort of tab will undoubtedly buy some amount of Cool-Aid, but it has been something of a disappointment to watch how eagerly investors have guzzled it down. It is not at all clear that short-term, deficit-financed improvement necessarily implies sustained growth in the context of a deleveraging cycle. This is like somebody borrowing money from their Uncle and then celebrating that their income has gone up.

“When market crashes are coupled with changes in the fundamentals that supported the preceding bubble – as we observed in the post-1929 market, the gold market of the 1980’s, and the post-1990 Japanese market, and currently observe in the deflation of the recent debt bubble – they typically do not recover quickly. Indeed, the hallmark of these post-crash markets is the very extended sideways adjustment that they experience, generally for many years. “

*** It’s a real Ouzilly summer… bright sun… long evenings on the veranda… cool nights.

Yesterday, while we were painting in the sun room, we noticed a group of people wandering around the yard. They were taking photos… pointing at things. It was as if a group of tourists had walked in and decided to have a tour. But with them was an old man, bent over … and wearing the blue outfit of a French working man. This was no tourist.

“Mr. Bonner?” a middle-aged woman began the conversation.

She then introduced the group. It turned out that the old man – Mr. Brillaud – had been born on the property 90 years ago. Now, here he was… with his children and grandchildren. She asked if they could have a look around the place.

“Of course,” we replied.

“I was born right up there,” said the old man – pointing to the top floor of the house. “Oh, Mr. Bonner… you’d like to hear the stories this house could tell. I was born in 1919. My father came back from the war in 1920. He worked on the farm until he had a heart attack when he was 55 years old. My grandfather lived here too. He had gone over to the nearby village with a wagonload of gravel… the horse reared up and turned the wagon over. My grandfather was killed.

“My mother was a cook here.” He pointed to the kitchen.

“But it was very different then. There was a whole community around the farm. There were the Cornettes, who lived in the house across the road. And the Desportes, who lived in the house down the lane. Oh… and a few other families too. It took so many people to make the place work.

“And is the old bread oven still there? You know, in that building at the end of the courtyard?”

“Yes… it’s still there,” we told him.

“We used to love that place. It was where we made bread for the whole village. It was always warm. And it smelled so good.

“We had to do everything ourselves. We grew the wheat. Then, we milled it. And then we made bread. And we had chickens for eggs. And cows for milk. And, of course, the vegetable garden. I don’t think we had any money. But it wasn’t a bad life.

“Then, they changed the whole thing in the ‘60s. They put in place a law that said you had to pay the people on a farm… and contribute to their social security. Then, there were too many people on the farm for it to support. So, they all moved away. The only ones left when you got here were the Debonnet family, weren’t they? Francois was still here. And now he’s retired too.

“Oh, and what have you done to the octagon?” he motioned to the building that we transformed into a library/office. We walked over to have a look.

“It used to be for ironing,” he continued. “There was a big brick fireplace in the center. We didn’t have electric irons, you know. Instead, there were heavy irons on top the fireplace. It had an iron top, you see. You’d come in here and there would be irons on the fireplace, getting hot… and usually one of the maids ironing sheets. It kept them pretty busy.

“Of course, it kept us all busy. We didn’t have any 35-hour workweek back then. We worked all the time.”

*** Donovan is coming! Donovan… a handsome young Swiss man… a friend of a friend… did the cooking for us a few years ago. He is widely remembered.

“Isn’t he the one who got that girl in the village pregnant?” asked one of the boys at dinner last night.

“No, he’s the one who took the car and wrecked it. He didn’t have a driving license… ” explained another.

“And I remember when he went out in the evening… he went into town… and then, for some reason, he had to walk back. That’s about a two-hour’s walk. And he was so out-of-it he walked by the house and just kept going… until he finally realized he had gone too far… so he had to walk an hour back. He came into the driveway about 6AM… looked like he had been hit by a truck… ”

“ He made quite an impression on all!” said another source.

“I will never forget Donovan — not to mention the most memorable week of my life! What a thrill it was to sit under the spreading linden tree near the garden wall, reading and sipping on a peach royale whilst millions of bees happily kept to their work above my head. Later, I toured the garden below and helped the Dashing Mr. D. gather gooseberries. One of my fave pics is Chef Donovan at the outdoor grille off the veranda, cooking up the evening’s feast: wild boar steaks. Incredible! And incredibly delicious! My first experience of centuries old art work and architecture in Europe was on our impromptu guided tour of churches in and near Montmorillon on a rainy Monday; Donovan, of course, in the lead with all manner of historical information. And I believe Donovan had a hand in the spectacular midnight fiery pyre display that thrilled and awed us all, and celebrated St. John’s Day if memory serves. Is it exaggerating to claim Donovan the sine qua non on our d’Ouzilly experience?”

Source: Prepare for a Long Period of Downsizing

We don’t usually care much for the Marxist musings of Clinton’s Lilliputian former labor secretary, Robert Reich. But he got it right when he recently commented on how the recovery from this recession will look.

It will not be a V-shaped recovery, nor a U. But an X.

“This economy can’t get back on track, because the track we were on for years […] simply cannot be sustained. The X marks a brand new track – a new economy. What will it look like? Nobody knows. All we know is the current economy can’t ‘recover’ because it can’t go back to where it was before the crash. So instead of asking when the recovery will start, we should be asking when and how the new economy will begin…”

He’s right. Declining median wages and mounting consumer debt is not a model for a sustainable economy. And with 70% of our economy dependent on consumer spending, where is the recovery going to come from?

What’s the “take home” message for investors in all this? As Jon says, “Watch your stops. And learn how to trade the markets safely. With just a small portion of your portfolio you can add to your overall returns and reduce your risk.”

When consumer debt is high, the only way to increase consumer spending is by (a) increasing the consumers’ take home pay or (b) forgiving a portion of consumer debt (which isn’t even guaranteed to prevent a default on that debt).

This year alone, over 2.9 million Americans have lost their jobs. So expecting a better paying job is out of the question. The government is already searching for ways to increase taxes, so we doubt consumers will get any significant tax cuts. And considering Team Obama is so keen to protect the banks, chances are they aren’t going to be pardoning consumer debt.

Let’s be frank. Consumers aren’t making more money this recession. And what money they do have will be spent to pay off their debt. That means discount retailers – the ones that sell everyday items for cheap – will lead the retail sector for some time to come. One of the best is Dollar Tree, Inc. (NASDAQ: DLTR).

Total American consumer debt stands at $2.564 trillion. It had gone down three months in a row before expanding by $1.8 billion in January.

The consumer credit report comes out today and demand for credit is expected to resume its fall. Total debt is expected to decline by $1.5 billion in February.

Consumers are certainly feeling the pinch. Equifax reported last month that…

• Total personal bankruptcy filings rose 25 percent in January from a year ago
• Almost 40 percent of homeowners with subprime credit scores of 619 or lower were 30 days or more behind on their loans
• The number of credit cards fell by 30 million since the July 2008 peak to 408 million in January.
• 18.8 percent more auto loans were 60 days behind on their payments compared to the January before.

Despite all these headwinds, a small uptick in big ticket orders recently may indicate that lower interest rates on mortgage loans are loosening up consumers’ wallets.

I’m looking for the February consumer credit report to beat expectations. But consumers aren’t out of the woods. As long as home prices continue to decline and the economy continues to lose over 600,000 jobs a month, consumers will be reluctant to spend on credit.

Source: Consumers Are Still Playing Defense

Obama as Prime Mover will have to turn the chaos in America’s housing and mortgage market into harmonious order. Then He has to single-handedly leap a tall legacy of toxic assets in a single bound, freeing up banks to lend by buying all of their dodgy assets.

It’s a big ask. But if anyone can do it, He can. Especially when He’s got America’s credit rating to abuse!

Reordering the financial universe is not cheap. It takes a lot of energy and a lot of matter in the form of new U.S. dollars. Reuters reports that, “Goldman Sachs estimated that it would take on the order of $4 trillion to buy troubled mortgage and consumer debt. That number could shrink if the program were limited to only certain loans or banks, but it could also grow if other asset classes such as commercial real estate loans were included.”

How much is $4 trillion? “At $4 trillion, that would be the equivalent of nearly 1/3 of U.S. gross domestic product. If the government had to fund that amount by issuing additional debt, it would intensify investor concerns about massive supply scaring off demand.”

Yes. You can imagine the world’s main owners of dollar-denominated reserve assets (China, Japan, the Petro states) would be intensely concerned about a $4 trillion increase in dollar denominated debt. But wait a tick…

It’s one thing to say you might need to float as much as $4 trillion in debt to fund your bad bank. It’s another thing to sell that debt? Who will buy it? Even these days, $4 trillion is a lot of capital to loan. Maybe that number has been floated to make a smaller number, say $2 trillion, look small by comparison.

Good news everyone! The Bad Bank is going to cost us half as much as we thought!

If the ‘big bang’ goes off this week, what will it mean for Planet U.S. Dollar? Or Planet Gold? Well, as our friend Steve Belmont in Chicago reported on Friday, gold is moving toward a day of reckoning after trading in a range for the last ten months. It will either break out much higher, Steve says, or buckle. We’ll be watching.

Did you notice the obnoxious change in political rhetoric this weekend? You knew Barrack Obama was going to give it to Wall Street, calling executives “shameful” for getting bonuses while their firms received TARP money. Remember, by the way, the TARP money was forced on some firms in an effort to boost confidence in the overall plan.

We normally try to keep a reserved, ironic, and sceptical air when reading the statements of politicians. Most of them are not worth taking seriously. But every once in a while, you get the scent of something so noxious and dangerous that you have to put aside humour and call it what is. Today is one of those days.

Now, the populist shame game is to be expected. That’s not a big deal. What’s more alarming is the bilge and claptrap spilling from Kevin Rudd’s gob and what it may mean for your ability to preserve and create wealth in the coming years.

In The Monthly, Rudd plants a Neo-Marxist flag in the ground of the current debate with the kind of jargon-laden elitist preening that makes academic critics of the free market (who’ve never spent a day in the business world creating value) so nauseating.

Specifically, Rudd writes that, “The time has come, off the back of the current crisis, to proclaim that the great neo-liberal experiment of the past 30 years has failed, that the emperor has no clothes. Neo-liberalism, and the free-market fundamentalism it has produced, has been revealed as little more than personal greed dressed up as an economic philosophy.”

Why not proclaim, since he is apparently in the position to make such proclamations, that the experiment in paper money and the deliberate policy of inflation it implies is theft? It is bureaucratic lust for power and authority disguised as monetary policy? It’s also, at its heart, the belief that one or a few people in government know better than you how you should lead your life.

Leave it to Rudd and the resurgent global Left to use the present crisis as an occasion to expand their political ideology of government power and wealth confiscation. Despite the fall of the Berlin Wall in 1989, Marxism never really went away. It ensconced itself in Western universities and colleges, and in the careerism of the political class, which believes it is entitled to govern by virtue of its intellectual superiority and the moral justness of its anti-market position.

Their strategy, as always, is to control the rhetorical high ground by framing the discussion in populist terms and making an enemy of “greedy capitalists.” Don’t get us wrong. There are plenty of greedy capitalists to go around, or to go to jail. In fact, many more of them would be going out of business if the government would quit propping them up with taxpayer money. This generation of corporate executives shares plenty of blame for playing fast and loose with the corporations they were supposed to be stewards of. They over-levered, over-speculated, and over-paid themselves.

But Rudd is an ignoramus of the lowest order to say that current events somehow negate the last thirty years of globalisation, or three hundred years of economic growth and the division of labour. Tens of millions have been lifted out of poverty. Hundreds of millions have more economic and political freedom than ever before.

These results can only be the product of a system in which risk taking entrepreneurs have access to capital and savings, allocated through competitive markets where firms that deliver real value to consumers thrive and those that don’t fail. That system has worked for 300 years of Western history to create wealth, choice, and opportunity.

Shame on Kevin Rudd for calling that “market fundamentalism”, as if belief in the institutions that create wealth and liberty is akin to the same kind of religious fundamentalism that permits suicide bombing. If there is a more offensive use of rhetoric to equate two vastly different things, we haven’t seen it.

But the Neo-Marxists are back on the march. And they are probably coming for your wages and pension sometime soon. Make no mistake about it. 2009 is the year the Neo-Marxists have been waiting for.

It is their chance to undo all the perceived evils of Thatcher and Reagan. There would be plenty of those to undo, of course, not least the idea that deficit spending is morally permissible. But the real push by the Neo-Marxists is to use the present occasion to expand the scope and reach of government power into your private life, so they can tell you what to do, what to watch, what to eat, what car to drive, and ultimately, what to think or say.

This will be disguised as better more “parental” regulation to achieve more equality and social justice. But behind the false populist outrage and the elevated language of idealism, it’s just another push for government elites to expand their ability to compel you to live the life they think you should lead.

The simple regulatory response to all this is to reduce the amount of leverage available to financial players. Reduce margin lending in shares. Let bankers get back to making prudent loans in the housing market based on what a buyer can actually repay, rather than letting the government subsidise subprime lending because it’s politically desirable.

There are other sensible regulatory responses to the mess. But they will be discarded in favour of grandiose and over-reaching plans to redesign the entire world in some utopian image. A “big bang”? Really. Does that mean they’re going to blow things up and call it a “fix?”

What we’re getting at is that it’s going to be a tremendous challenge to withstand this push in the next few years, mostly because it will have so much popular support from people with no brains who believe in fine sounding speeches and appreciate getting tax rebates/credits/handouts from the government. The first battle in the war on wealth creation is wealth redistribution, whether you like it or not.

It would be more honest if the Left just came out and said something like, “The last ten years have been a huge wealth transfer from the middle class to Wall Street and from the developing world to the developed world. We’re going to try and reverse all that now because we know it’s our best shot in the last thirty years to get some back. So here we come! Open your wallet and shut your mouth!”

Neo-liberalism isn’t the culprit in all this. What does that word even mean? Isn’t Rudd using it because it sounds like Neo-Conservatism? And everyone knows that Neo-conservatism is evil, therefore Neo-Liberalism must be evil too!

The real evil of the last thirty years is the vast expansion of credit in the world that changed personal and corporate incentives. The plunge in the cost of capital-encouraged by governments and Central Banks-set of an orgy of bad risk taking, quietly condoned by regulators and politicians who all benefitted in some way from housing/commodity/trade booms.

But now the credit cycle has turned. The Credit Depression is upon us. And Comrades Rudd and Obama will try and use it for the next great push in the Neo-Marxist dream, one world government with one world currency. More on that tomorrow!

Source: Marxism Marches On

Good day… And a Wonderful Wednesday to you! We received more rain yesterday, and the spotting of a twister less than five miles from our office! I’m beginning to feel as though we should be gathering up the animals in twos. The old saying, “right as rain” is losing favor on the list of things I say!

Yesterday, I left you with the thought that the London traders had been buying dollars since they arrived back from their three-day Holiday weekend. The U.S. traders did the same… And I believe profit taking was the order of the day. Unfortunately though, it left the euro (EUR) down one-cent on the day.

The data for the U.S. yesterday wasn’t anything that would lead one to buy dollars, but that’s the game that people play now, every night and every day now… So, let’s go to the tape on the data and be finished with that!

First off, the Case/Shiller Home Prices data showed more rot on the housing vine, as their 20-city home price index fell 14.4%y/y in March – a new record low in data back to 2001. Las Vegas led the way (-25.9%), with Miami a close second (-24.6%).

You can’t tell me the housing meltdown has “bottomed” – not with data like this! And… You can’t tell me that consumers are not being just beaten around the head and shoulders daily with gas prices, food prices, falling house prices, and debt up to their eyeballs!

Speaking of consumer debt… I’ll bet a dollar to a Krispy Kreme that the next big shoe to drop will be the “maxed out” credit cards that consumers have been busy running up, since their “ATM” (house) has closed. I’m not wishing this to come true, folks… I’m simply talking about what I see happening. Sure hope I’m wrong about that one, because credit card debt is the absolute worst thing to have hanging over your head!

OK… Down from the soapbox, and back to the data… The U.S. Conference Board’s consumer confidence fell more than expected in May from 62.8 to 57.2. This is a new low for the data since October 1992, and a depth surpassed only during and just after the depths of recessions since 1970. Need more data that spells “recession”?

Speaking of a recession… A reader sent me a note yesterday saying he was surprised that I didn’t mention that George Soros and Warren Buffett were both “Pfennig readers”, since both were quoted in Europe Saturday as saying that the United States is in a recession, and both said it will be long and deep.

Alrighty then! Hey! My friends down under sent me a note that said they fully expect the Reserve Bank of Australia (RBA) to increase interest rates 50 BPS before year-end. That’s two 25’s… With the first coming in August. Basically, I agree totally, and think these rate hikes will grease the tracks to parity for the Aussie dollar (AUD).

The news didn’t help the Aussie dollar yesterday though, as it looks as though the selling of the Big Dog (euro) affected all the little dogs, even down under!

I’m going to step up on the soapbox again here folks… So if you don’t want to subject yourself to more “Chuck’s views” then skip ahead. OK… If you’re reading this, then that means you’re ready… So, here goes… I was reading stories on the Internet last night and seeing how bloggers and writers are ripping the oil companies. Hmmmm… I guess the “rippers” don’t realize that the guys that head the oil companies don’t own them! The oil companies are owned by pension funds – you, me, and the guy down the street that cuts his grass with his shirt off! We even had some dolt representative from California mention “nationalization” for the oil companies. Of course, she called it “socialism”… Doltness showing there, folks… I shake my head in disbelief.

OK, I’m back now… I have more to say on the subject, but I had better stop there!

In the overnight markets of Asia and London, we haven’t really seen much movement to follow on yesterday’s selling, which is why I believe it was profit taking. Most of the “Big Boys” were out on Friday and Monday… So when they came back and saw the levels, they said, “By Joe, let’s take a profit or two”!

The only currency to see more slippage was the Japanese yen (JPY), with a little slippage from Swiss francs (CHF), as stocks were back en vogue yesterday, and thus the carry trades were back at work.

And the yen’s losses weren’t just against the dollar. Yen is losing lots of ground to the euro again. The losses to the euro had stopped for a while, but they are back!

So… The bad earnings reports of the past 10 days are swept under the rug, eh? Let’s go buy stocks again, the coast is clear! UGH!

Gold saw an end to its rally yesterday too, with a $14 sell off… UGH! The gold sell off also coincided with a big drop in oil price the past few days. Of course, the oil price sell off is the only “welcome” price drop! Oil has dropped from $135 last week to $127 this week… I guess maybe someone in the oil biz got the memo that U.S. drivers are putting the brakes on and not driving so much. Who can? Not with gas prices around $4!

OK, I know that those that own Prius cars can, but you are a very low minority of drivers…

In Germany this morning, we’ve seen some data that should keep rates right where they are if not eventually push them higher. I’m talking about inflation data. Five of the six German regions have reported higher inflation this morning – which points to an increase of 0.06% month-on-month. The consensus was for an increase of 0.04%, so this upside surprise reverses the sharp fall we saw in April. I knew that the April number was questionable.

Norway’s Norges Bank is expected to leave rates unchanged this morning… However, with oil prices being what they are, I expect the Norges Bank to revisit the rate hike table this summer… And that thought should underpin the krone (NOK).

Fed Head Fisher, one of the two dissenting votes of the last rate cut, will speak today. He will speak on “inflation and debt”. This ought to be interesting folks.

Today, we’ll see the color of the U.S. April durable goods, which is not expected to be a “warm and fuzzy for the economy” data print. The forecast is for a decline of -1.5%… But, hear me now and listen to me later… If the print is really this bad, the media will sweep it under the rug, or spin it to sound like good times at Ridgemont High!

So… There you have it! The currencies are drifting about, and are waiting for new signs to give them direction. With that, we’ll head to the Big Finish.

From Addison Wiggin at Agora Publishing, writing about the Strategic Investment newsletter, I gather that I am in for many, many sleepless nights, waking up screaming in terror, as he says that there are at least 5 “super-shocks” a-coming in the next 12 months, which will create the “coming stock market apocalypse.”

Yikes! For example, right off the bat, he says that there’s “a complete crash in commercial property”, and then there’s the burden of $2.54 trillion in consumer credit debt, which is made startlingly horrifying when he explains that credit card debt alone is already bigger than the amount of money locked up in the subprime loan debacle!

“And remember,” he says, “on credit card debt, you’re talking interest rates three-five times higher”! Yikes! He’s right!

Immediately, my hand flew to my wrist to check for a pulse, as this is the kind of thing that I am sure will kill me one of these days, with just a glimpse of the sheer horror of the economic catastrophe that awaits a pathetic, low-I.Q. nation that thinks that they can painlessly borrow and inflate their way out of any debt, no matter how much.

And speaking of debt, as I recall, total consumer debt is now something like 350% of GDP, twice as high at the height just before the Great Depression, which means a total consumer debt of about $53 trillion in a $15 trillion economy, which comes to a debt of about $530,000 for each and every one of the 100 million workers in the whole country whose job is not a government job! Hahahaha!

And this does not even include any of the $9.2 trillion in principal-and-interest government debt that the non-government worker has to pay for, or any money towards the estimated $60 trillion of accrued liabilities of the Medicare and Social Security programs, or the $3 trillion in federal government spending that is going to take place this freaking year, or the $2 trillion spent by the states this year!

And who in the hell is going to pay, for instance, the interest/profits on a reported staggering, stunning, stupefying glut of $164 trillion in derivatives that are in the banks?

My Freaking Mogambo Head (FMH) actually aches from trying to conceive of So, So, So, So Damned Much Money (SSSSDMM) in the aggregate, so much that America’s 100 million private-sector, non-government workers cannot possibly even pay the interest on it all, which they haven’t been doing for years, anyway, which explains why total debt everywhere, like Old Man River, just keeps rolling along, like a snowball rolling downhill, getting bigger and bigger, which is such a strange mix of metaphors that I realize that I am completely confused and frightened.

To try and get me back to reality, you helpfully ask, “Just how much is that, relatively?” With no facts or figures at hand, I say merely that it is more than I could make in a zillion, zillion lifetimes, for one thing, mostly because I am lazy and I am apparently not worth much as an employee, which could explain why I am always getting fired, and yet it is paradoxically approximately how much money my family wants to spend per freaking month, or so it seems, and when the credit card bills come in the mail, I predictably yell and scream, and make threats, and throw things, but nothing ever changes! And the next month there are MORE charges on the credit card for their stupid visits to the stupid dentist, or their stupid prescription medications, like money grows on trees around here!

Mr. Wiggin wisely decides not to get into the middle of a domestic squabble about money, and says merely that $2.48 trillion is “more than China makes in a year. It’s more than the entire United Kingdom’s GDP. And more than the GDPs of Italy, France, Canada, Spain, Brazil, or Russia.”

As interesting as that is, he notes with a mocking tone that seems jarringly at odds with the horror of it, “Only they’re making that money. We just owe it.” Hahahaha! That’s right!

But to show you that Mr. Wiggin does not just sit around all day thinking of clever, mocking things to say about the utter insanity of it all, he then shows us that not all art is painted with a brush, as he says, “Here’s a picture for you: If the market today falls as fast and as far as it did in 1987, you’ll see more than 3,000 points erased from the Dow alone. In a single day.” Yikes!

And as terrifying as that is, according to Mr. Mortgage at mrmortgage.typepad.com/blog/, who has been looking at the same spreadsheets at the NewYorkFed.org site, 89% of all Alt-A mortgages (a market that is a step above the subprime market and is 50% bigger than the subprime market) are now underwater, meaning that the owners owe more than the house is worth! Wow! 89% of people with above-subprime mortgages owe more than the house is worth! And looking at my watch to get the correct time, by this time it’s probably all of them that are upside down!

And how do we know this? Well, if you are like me, you take the easy way of finding out by letting Mr. Mortgage do all of the work! And sure enough, he obligingly looks at the Loan-To-Value ratio, essentially comparing what the house is worth on the open market, versus what is owned on the old eyesore that needs paint and somebody to get up off of his Big Fat Mogambo Butt (BFMB) and mow the damn yard.

But stripped of the esthetics of the appearance of the lawn, this ratio is combined into the “Average Combined LTV of Purchases,” which is helpfully explained in all capital letters, and in parentheses, “(NEGATIVE EQUITY)”, just so you don’t miss the significance.

This seems a good time to mention that you should be selling your house and buying gold with all your money, and if the kids have to miss a few meals or if they have to sleep in the car because I cannot afford an apartment big enough for all of us but it is perfectly cozy enough for me, that is the price you are willing to pay. You will thank yourself later!

P.S. To get The Daily Reckoning sent directly to your inbox, sign up for our free email newsletter, or if you prefer to use RSS, subscribe to the Daily Reckoning RSS feed.

Editor’s Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter – an avocational exercise to heap disrespect on those who desperately deserve it.

The Mogambo Guru is quoted frequently in Barron’s, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page.