Subprime Isn’t The Real Problem

Everyday is yet another ‘subprime’ revelation from this or that company. A writedown, they call it. I wish I could do a writedown when I can’t pay bills. But whatever. There is this peculiar notion floating around that the subprime/predatory lending fiasco is why the Fed has printed on the order of half a trillion bucks (500 billion) in the past 7 months or so.

This is BS designed to keep folks from asking pertinent questions about economic fundamentals that are going to be the real reason the economy tanks. And it is going to tank big time. Not a recession but a depression. I don’t say this with nihilistic glee. I could very well lose my job, have to do something illegal and end up in jail or prison over this economy wreckage by the billionaires. So it isn’t funny on that level. But I am glad to see that the US will probably decrease in power and be less able to kill black and brown people the world over. A good thing that I’ll perform an imaginary toast to even if I end up in the tank at some point.

But the economy. The fundamentals are fucked. The US does very little manufacturing compared to its consumption. So basic trading parameters are way out of whack. Economists try to mask this by talking about productivity in a vague sense instead of production in the material sense. But you can only talk for so long. The debt collector on the other line eventually hangs up and sends goons to collect on the stuff you can’t pay for. This is happening. The price of oil is rising and the US doesn’t have the economic or military power projecting capability to do shit about it. And oil is gasoline which is used to get most folks back and forth to work everyday, gas is used to push 18 wheelers across the country with TVs, fruit, veggies and thousands of other things in them. All delivered with gas that will soon be, in the words of the Atlanta greats, “Sky High!” Oil that is used to make plastics used to make, well, fuck. Everything. Oil that is used to make the polyester, rayon and dacron in our clothes. Oil is $110/barrel and they can only hide the cost adjustment in finished products for so long. Severe turbulence is coming.

But the reason. The reason. That’s what we are being lied to about. We are told that the reason this happened was because of bad mortgages. Not so. Look at the amount of money the Fed is dumping into the economy supposedly to cover losses from these bad mortgages. About 500 billion since August of last year. There haven’t been anywhere near that much in losses from mortgages. People float fake numbers about how much in mortgage losses are out there by quoting the total value of all the houses potentially caught up in this. Think about how that doesn’t make sense. If you don’t pay your car payment, they take the car. It doesn’t mean that they are out the total value of your car. They resell it they make even more money. Even if they can’t resell some of the houses, they certainly aren’t out this much money. The real deal with all of this isn’t the value of homes. It is the trading that was done after these mortgages were securitized (another word for ponzi scheme) and the other thing none of the economists are discussing, derivatives. Warren Buffet called derivatives “financial weapons of mass destruction”. The combined global economy, that’s all countries and all wealth, is like 45 trillion bucks in value. The global derivatives market is more than 500 trillion. Please slow down here and understand what these numbers mean. The derivatives market is more than 10 times the combined economies of every country on the planet. Derivatives are what is causing the havoc, derivatives are why the Fed is pumping 200 billion/month that they tell us about! Derivatives are these complex financial instruments that are essentially bets turning the global economy into an even bigger casino that it has been in the past (a tough feat).

Subprime was only the catalyst for the inevitable crash that derivatives had to cause. And the terrible economic fundamentals (no manufacturing) are the things that will keep the US billionaires from rebounding. But derivatives are the bomb that will do the destruction.

Here is a video describing what derivatives are. Eye opening stuff.

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