Is The U.S. Financial System 50 Feet Beyond The Edge Of The Cliff?

One my favorite writers on sustainability/environmental/financial issues, Jim Kunstler (I just finished his latest book, World Made By Hand), has this to say about the similarities between Wile E. Coyote and our financial system:

There’s a particular moment known to all Baby Boomers when Wile E. Coyote, in a rapture of over-reaching, has run past the edge of the mesa and, still licking his chops and rubbing his front paws in anticipation of fricasseed roadrunner, discovers that he is suspended in thin air by nothing more than momentum… Is there anyone in the known universe who thinks that the US financial system is not fifty feet beyond the edge of the mesa of credibility? Nothing will avail now.

…It’s hard to imagine what kind of melodramas were unspooling on the Hamptons lawns this weekend, while everybody else in America was watching Nascar, or plying the aisles of BJs Discount Warehouse for next week’s supply of mesquite-and-guacamole flavored Doritos, or having flames and chains tattooed on their necks, or lost in a haze of valium and methedrine.

What would happen if the US Government acted to bail out these feckless enterprises (and what if they don’t)? Either way, it’s not a pretty picture. If Mr. Bernanke does start shoveling loans into the GSE black hole, he’ll further undermine the soundness of his own outfit and do nothing, really, to repair Fannie and Freddie’s structural problem of having securitized too many loans that will never be paid back. If instead Fannie and Freddie are flat-out taken over entirely by the US government (and remember the Federal Reserve is not the government), then the national debt will roughly double overnight — which will pound the US dollar down a rat-hole.

If you don’t already read his site, I recommend you do so – if only for the entertainment factor. He is a great writer, even if you don’t agree with everything he says. Of course, if you are put off by foul language, you might want to stay away!

Times are getting scary, no? Sure, there are investors who will say to “buy, buy, buy” and on one hand I have to agree. But the other half of my brain says that we are screwed and we are in for difficult times ahead. Just one look at my investments tells me how long this has already been going on and how much money I have already lost. Luckily, I am only 36 years old – if I was near retirement age, I would be panicking. I think things will only get much worse before they get better, unfortunately.

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  1. Steve says:

    I think it is even further out than 50 feet, honestly.