Risk of deflationary collapse greater now than in 2007, Janet Tavakoli

Stacy Summary:  We’ve just interviewed Janet Tavakoli for our first episode of The Keiser Report.  If you don’t know her, you should.  She wrote a fantastic book, Dear Mr. Buffett.  Max and I are on our second read of it.  You really must get this book if you want to understand derivatives from one of the foremost experts on it who writes in plain English about how these financial tools became instruments for widespread fraud that then led to financial crisis.   She also gives loads of positive advice and insight.

Here is a summary she provided for MaxKeiser.com on where she thinks we are today two years since the crisis began:

Regarding the outlook, my analysis is grim.  I am not a doomsayer, I follow the cash, and so far, I’ve been correct, and the government has been wrong.  Here’s the situation.  We are at greater risk of a total meltdown due to a deflationary collapse than we were in 2007.  After the greatest Ponzi scheme in the history of the capital markets, we’ve seen history’s greatest fiscal and monetary expansion, but it hasn’t worked.  Debt levels of consumers and business exceed the capacity to repay.

  • Our fundamental financial and economic problems, i.e. overleveraging, lack of transparency, have not been solved.
  • GDP is adjusted for deflation (and inflation when it is relevant). GDP in U.S. is actually 2.1% worse than reported, i.e. nominal GDP is worse.
  • GDP looks better because prices fell more rapidly than income.  But that means a negative wealth effect, and loan payments are made from nominal income, so falling income means more loan defaults in our overleveraged environment, because we never deleveraged.
  • Since 2008, capacity utilization has plummeted; businesses have no pricing power; U.S. lost 6.7 million jobs but numbers are underreported; personal income tax receipts are down 21%; corporate tax receipts are down 58%; U.S. deficit will exceed $1.8 trillion; govt. spending is now 185% of tax receipts; 13% of mortgages are seriously delinquent and/or in foreclosure; huge decrease in personal net worth; 15 million mortgages exceed the home value.  We’re on a massive debt spending spree.
  • Income on all levels is not sufficient to make debt payments.
  • U.S. cannot borrow $2 to $3 trillion more, so we can’t forestall deflationary collapse.
  • 66 comments on “Risk of deflationary collapse greater now than in 2007, Janet Tavakoli
    1. frances snoot says:


    2. frances snoot says:

      What? I’m not packing, no gun folks. Where R Ya?

    3. frances snoot says:

      Although I do got the draw on ya…

    4. [email protected] says:

      @francis snoot: go out and buy her book…read it…If M & S have read this twice…it has to pack a huge wallop…get a better understanding of the financial world…love your reliance on “word play’ yet the fundamentals are so criminal….and yes C. A. Fitts quote about the “crime that pays is the crime that stay” is a good foundation….so begin your re-education of terms and carry on the good deeds

    5. Gordo says:

      A good article by Doug Rushkoff on the mythology of economics.


    6. frances snoot says:

      @[email protected]:
      The systemic collapse will be a result of the same factors that played upon the filthy-dirty system before: capital adequacy directives from basel ii mandates.

      Asking questions is a good start at learning: I think the readers of this blog would do well to begin reading with discernment.

      I take offense to Warren Buffet in principal so I must remain

    7. gonzomarx says:

      Using the UK Freedom of Info Act: courses for new & experienced requesters

    8. gonzomarx says:

      A Mysterious Death for California’s Purported Ponzi Schemer

      another one bites the dust….

    9. gonzomarx says:

      Nation’s Unemployment Outlook Improves Drastically After Fifth Beer

      Thousands Of Abandoned, Foreclosed Homes Threatened By Florida Hurricane

    10. My only question is “When?” Max Keiser keeps saying world bank will devalue the US currency by 50% or so, to cover the crash.

      See Denninger’s article (Sunday yesterday) RE he finally saw the light and deduced the real implications of the October ’08 coup d’etat of the US govt.

      So when’s it come tumbling down, anyone??

    11. gonzomarx says:

      this pretty much somes up my thoughts.

      …”this is the paradox of the tea-party movement and other right-wing protests fueled by genuine citizen anger and fear. It is true that the federal government embraces redistributive policies and that middle-class income is seized in order that “someone else benefits.” But so obviously, that “someone else” who is benefiting is not the poor and lower classes — who continue to get poorer as the numbers living below the poverty line expand and the rich-poor grows in the U.S. to unprecedented proportions. The “someone else” that is benefiting from Washington policies are — as usual — the super-rich, the tiny number of huge corporations which literally own and control the Government.”………”These protests, at their leadership level, are little more than Fox-News-generated events. That is notable in itself: it’s extremely unusual (if not unprecedented) for a political movement in the U.S. to be led and galvanized by a “news” media outlet; that’s usually something that happens elsewhere (“opposition television or radio stations” sponsoring street protests in Italy, Venezuela, Rwanda). Fox News and Rush Limbaugh are part of the class that has long controlled and benefited from Washington”


    12. Here’s the link to the Denninger article, “How Far Does The Lawlessness Go?” http://market-ticker.org/archives/1426-How-Far-Does-The-Lawlessness-Go.html

      And here’s my note to Denninger: http://georgemcclure.net/Letters.html

    13. Dante says:

      Janet Tavakoli is sharp as a tack and talks straight.

      Elizabeth Warren is right up there, too!

      Warren was not pleased with his answer regarding why AIG was treated so much more gently than the manufacturing industry, calling Geithner’s answer “distressing.” She also remains concerned that the toxic assets that TARP was supposed to rid the banks of remain on their books a year after the financial crisis began.

      She concluded with three things she would like to see implemented:

      1) a consumer financial protection agency.

      2) regulation of the credit rating agencies.

      3) new laws that protect the system from banks that are “too big to fail.”

      Warren told Ratigan: “Until we have a credible liquidation threat, we don’t have capitalism in America. It just doesn’t work without that.”


    14. Dante says:

      Listen to Janet Tavakoli, Structured Finance at the 2 MINUTE mark in video. Melissa Francis is brain dead and the product of an ivy league education. Since when is telling the truth strong language?

      Restoring Confidence in Banks


    15. Dante says:

      Gary Gensler getting grilled on cspan today by a pretty informed public.

    16. Stephen says:

      Elizabeth Warren is a useful idiot, nothing more.

      Anybody who thinks phoning your “elected officials” matters, is either a moron or a useful idiot for the crooks who have taken over the US Government.

      We have more laws and regulations than you can shake a stick at. Last thing we need is more, which Warren promotes. What is needed, is enforcement of the existing laws and regulations.

      Getting really tired of the Huffington Post BTW.

    17. Mongo says:

      @Dante, YEAH! As said, people are not stupid!

      Funny how he always refered to coming reforms, no obvious answer to anything really.

    18. Dante says:

      Okay Stephen if you say so…she probably would make a great regulator if they gave her some power…she has none.

      She saw this problem coming for a long time.

      I really don’t care if you don’t like HUFFINGTON POST…thats where I found interview.

      Stephen if you have time educated yourself.
      You can start here:

      Scroll down and find……….
      Friday, September 26

      Harvard Discussion on the Real Estate Dimension of the Current Economic Crisis

      DL note: Insurance, credit default notes and other off balance debts may be multiples of the real estate exposure… plus other debts like credit card, student loans, etc.


    19. Dante says:

      Mongo did you see interview on cspan?

    20. Dante says:

      BTW, what would you like her to do? Flash a badge and say your all under arrest?
      I mean who is the fool now?
      Your government has been captured and there is nothing you, me. or she can do to change that.

      Regulation is there…but as you say enforcement is not….and….she’s telling you to complain to your representatives…are you doing that? Are you telling others?

    21. Gordo says:

      Dante, gonzomarx

      Excellent links thanks

    22. Dante says:

      maybe someone is starting to listen ie to enforce the law?..maybe…we’ll see

      Full Text Of Rakoff Order Exposing SEC’s Corruption And Cronyism

    23. Stephen says:


      Go to 6:35 ish

      EW is an intellectual who has minimal real world experience. She is an Idealist who really does not understand how things really work. Telling people to phone their Congressman is one indication of this. 99% of Americans opposed TARP (twice), did that matter? What program is EW concerned with? TARP.

    24. Mongo says:

      Dante, I saw the last 15 minutes of it.

    25. Dante says:

      Mongo if I see a link I will post..I thought some callers asked some excellent questions…people know whats going on….there at a loss to use that knowledge though to bring ramifications onto the perpetrators of the crimes.

    26. Jack Gregson says:

      I have charts covering the following areas
      Case-Shiller Index
      Housing Market basics
      Homeownership rates
      Negative Equity
      Mortgage Equity Withdrawal
      Mortgage Resets/ recast
      Baby Boomer Demographics
      Tax Receipts
      Federal Reserve
      Bank leverage rates

      None of it matters, they will create a new reality to Shock and Awe America. War with Iran.

    27. Dante says:

      Stephen she is an intellectual who probably can’t conceive of the corruption because she believes in rules. She believes people basically follow the rules. I don’t see that as a flaw…I see that as someone whose core values have not been sabotaged by politics and greed.
      At the same time who puts a lamb to guard a wolves den? Probably the same wolves that love lamb..your outrage should be directed toward your representatives.

    28. Stephen says:

      Former KGB agent explains what useful idiots are…


      EW is the UI in a window-dressing agency with no power. We need to be clear what is going on here. It is a scam. Warren is a UI because she obviously does not understand she is being played like a cheap banjo.

    29. Phil says:

      @Stephen … ” Former KGB agent explains what useful idiots are ”

      Oh Dear … we’re all in trouble here !

      even taxi drivers were eliminated…
      they knew too much …

    30. zmoore says:

      We want Spitzer,
      We Want Spitzer,
      We Want SPITZER.
      Only a man with a big stick and the will (balls) to use it will help.
      I’m tired of limp American idiots where is the lone ranger?

    31. Dante says:

      Stephen I’m not naive… I also don’t get at the truth from an ex kgb guy..but you can’t shoot first and then ask questions..she has integrity and was a proponent of a struggling middle to become poorer class way before this role opened up to her. Maybe they are using her label…but then she would leave (a la Treasury Sec Paul O’Neill) because the reputation means more than the position..we shall see. Do I believe that anyone is any good? Not really…but I don’t have a magic wand to differentiate the good from the bad either…time will tell…if it makes you feel any better…we were ethically challenged way before she showed up on the scene.

    32. Stephen says:


      Never said you were naive. You however claimed I was and told me I needed to get educated.

      Additionally I never said EW lacked integrity. What I said was she is not capable of understanding what she has been recruited into (useful idiot).

      EW unfortunately represents the feelings of many in the general public. That is why she was chosen, to be the voice of the approved little guy. The truth is, the little guys are now marching on DC with pitch forks. Many of us are tired of fake advocates presented by the crooks to appease us.

      The KGB stuff is background for any interested in what is really going on way behind EW and even Tim Geitner, both stooges.

    33. Dante says:

      “Useful idiot” is a pejorative term. I think, as you state, that she was purposely chosen to represent “the people” but knowing her background before the crisis I have a hard time believing she prepared for this position to benefit the opposition. I believe the video would shine some light on your perception of her….she goes head to head with some derivative quant expert on the so called benefits of their products.

    34. Stephen says:

      from wikipedia..Useful idiot-The term is now used more broadly to describe someone who is perceived to be manipulated by a political movement, terrorist group, hostile government, or business, whether or not the group is Communist in nature.

      Warren IMHO is a texbook example of a UI. She is being used by people she can barely hope to even recognize let understand. Many are used by these manipulators. I do not think Dante you understand what a useful idiot is. It does not mean they are dumb or even crooked. They are being manipulated, using their own goodness by evil people-systems. This truth is why so many good people do not enter Politics. Most know what the game is and how they will be used like a paper towel to furhter agendas they are totally opposed to.

      There is far more to this “economic crisis” than simply not enough regulation. That mentality, that diversionary tactic i s central to what is wrong here.

      Mike King can rant till foreever and most will go ya-ya-but… No but, we need to explore where his insights flow from. We need to really wake-up.

    35. Dan II says:

      I suspect if you get EW alone and had a frank conversation, you might discover she could make almost anyone look naive in their understanding of the truth of about markets, banking and regulation. Her demeanor is soft and her approach is not antagonistic, but she is earning respect and people trust her.

      When EW talks, people listen. I like her. My 2 cents.

    36. Dante says:

      I guess your right. I also guess then no one will ever truly represent the people because anyone that makes it to the table will always be owned..I guess too bad for all of us!

    37. Dan II says:

      EW gave a great talk about the decline of the middle class. When women went to work, the family prospered temporarily, but in the long run, families have lost ground and are much more vulnerable with both the husband and wife working. Seems counter intuitive but she lays out the facts and logic to support her thesis.

      Rockefeller supported the women’s movement. Was his support a philanthropic endeavour? You might be surprised that it was not.

    38. Dante says:

      I guess this the only thing left to do:

      Believe it or not there was once a time in America when our government actually cared about the well being of all Americans


    39. Stephen says:

      Oh checking more into EW using google…EW could be the political flip-side of radio-drone Dave Ramsey. She is way over her head leading a Congressional TARP oversight committee. Clearly she was picked because she is on the same side as Obama politically and she can speak to the peasants like the Man want. She is not threatening and looks like ones sister (biological or religious what’s the dif?)

      The whole problem is we are not dealing with people who fly straight. These psychopaths laugh at people like EW. They eat them up for a snack. Go back and watch how even a minor soldier like Tim G treats EW. Says “well you spend your whole life reading this stuff”. Tim G is vermin. I do not understand why he just doesn’t wear his nazi uniform to these events, why hide it any longer?

      We are too far down the rabbithole to be playing patty cake with consumer advocates trying to question Satan’s armymen.

    40. Dante says:

      Stephen what do you want from this lady? She’s not a commando.
      She doesn’t have a helicopter to air drop Geitner and friends into
      the bowels of the Amazon jungle for the natives to ravage them.

      I don’t make it a habit of defending public persona’s but after a while its like your trampling the weak…go after the strong.

    41. Stephen says:

      Not about what EW can or cannot do (which is nothing<<the point), it is about digging deeper into these issues. Why did "they" feel it necessary (99% against is the why) to appoint people to a TARP oversight committee?

      Because this is how these crooks operate. It is all theater. EW has no power beyond excusing her self to go the bathroom. Her committee is bs and has no power to do anything but pacify some of the Public. She, and many others are convinced otherwise.

      These people EW thinks she is overseeing are crooks. Their policies and agendas have led to the deaths of millions of innocents just in the last 5 years. This is not some friggin game of let's rework the crap most of which exists so to make it simple to soak everybody, and post our mindfarts on Huffington Post to look smart.

      This is dead serious.

    42. Brandon Sanks says:

      Inflation not deflation will be the crisis in the future. You can’t print money backed by nothing and based on nothing without creating inflation.

    43. tower of basel says:

      You are wrong gozoMARX and you are still trapped into the old-fashioned left, right dichotomy!

      Left, right turns out to be an illusion, a dream of to-days reality (democrats or republicans are like Pepsi Cola Coca-Cola). It is just us (all together hopefully) against the Banksters elite. The rest is mend to distracted you into meaningless fights: divide et impera

    44. tower of basel says:

      I think that there are 2 million people protesting (probably the number is quite correct, see a previous post of mine) because they are pretty upset what is happening to their lives and what is going on with their country. The US is going down the drain and they, the people, are finding that out.

      They might consider themselves among left-wingers or right-wingers which is not really important. Important is to ask how did this rally occur, who or whom organized it? Do spontaneous rallies exist? Sure FOX tries to say they are right wingers and G. Beck says that they are left-wingers! Important is that for the political status quo these protests are very inconvenient and particular dangers. I find it even amazing that very little people on this blog really do not get the importance of this movement.

    45. You can read chapter 10 of Janet Tavakoli’s book here:

      not bad…
      I think I’ll pick it up when I’m done with Mr. Mandelbrot…

    46. [email protected] says:

      @Francis snoot: so true..”basel II reserves” Just heard a brief NPR radio report and it mentioned that 5 % is the amount that the new regs will require banks to hold as cash reserves.WOW!!! that’s wonderful…and will they still leverage the remaining 95% @ 30:1???? Who are they kidding….all the repairs/reforms are more hogwash than ever…I always thought cash reserves were in the 8-10 % bracket…..People…prepare….these insiders are collecting more fees than ever, generating worthless regs to cover up the crime scene….eventually so many of the numbers won’t compute to any sense of reality that even a first grader will decipher the mess we are in….I firmly believe the insolvency of the USA and other countries can’t be hidden forever…China has made a brilliant move by permitting their companies to not honor the derivatives on their corporate books; this is a result of the US SEC failure to eliminate this unscrupulous financial funny paper here….In absentia the Chinese have cast their vote against the continuing presence of derivatives so that they don’t get caught in the trap of another $1.5 quadrillion of said financial paper products on their own soil…The Western TBTF banking cartel is a monolithic menace to humanity…a scurge that must be stopped, by more than the trillions spent on the Al-Qaeda hiding in every cave…We might find an alternative world to co-exist with them, but IMHO they will not leave any of us alone…the true financial terrorists will seek us out as unlawfuls….in that ..yes francis snoot…we dissent individually or en mass….I once described myself as a solopcistic nehilist….the conditions today are more relevant today to describe one’s self with that philosophical monicker once again..

    47. nic meredith says:

      We are in deflation measured in precious metals and we are in inflation of Fiat debt. so called money. You cant measure anything correctly with Fiat unless youre good at sums!

    48. Mike King says:

      Get with the program….derivatives were instruments created for the purpose of insuring the collapse of the global economy by the entity controlling all aspects of the money supply.

      The derivatives did not “lead” to the crisis. They were MADE to instill crisis. For more than a decade, preparation for the deliberate global economic collapse is for the agenda and singular focused goal of exponentially expanding their powers over the money supply by establishing and controlling a global currency.
      This crisis is not about the USA, its money or citizens. It is ALL about the expansion of power…… period. They have no alliance to the US dollar and United States. The dollar and US are tools of which they have systematically acquired through years and years and years of using every fraudulent, non fraudulent, covert and non covert means available with the complete partner and cooperation of the elite gov of the USA.

      The entity consists of nothing more than complete and utter criminals to the highest degree of criminality ! Derivates were created by them for purpose……… purpose to collapse.
      Derivatives were instantly labeled as “financial time bombs” upon first arrival by the economic community; that is because they were created by the entity to be exactly that, GLOBAL financial time bombs. They are of nuclear explosion proficiency. Derivatives are equal to over a hundred trillion dollars and they were designed as being the “insurance policy” for the entity to succeed in collapsing the global financial system. There is NO WAY the entity was not aware of the inevitable future destruction these instruments would cause to banks and investors of the world with regards to their future plan on implementing global financial collapse. Derivates were deliberate. Derivates will guarantee the collapse of the global financial system for the entity for their agenda to establish a world currency through the financial aftermath of global meltdown.

    49. frances snoot says:

      @[email protected];
      I laughed after I thought about it. I was at the OK corral and you put a cap in my *ss. But, you are right to set Snooty to reading. I just hate economics.

    50. frances snoot says:

      Dissent can talk the form of silence as well. Just a thought from me to me.

    51. PervySage says:

      ‘# U.S. cannot borrow $2 to $3 trillion more, so we can’t forestall deflationary collapse’

      This argument is BS. The U.S. doesn’t have to borrow anything. They can simply rape J6P for it. What is to stop them? Ethics? Bwahahahahah….

    52. A'lan says:

      “U.S cannot borrow $2 to $3 trillion more, so we can’t forestall deflationary collapse…”

      bernanke still has his printing press, inflation still has its seductiveness, nuff said.

    53. dan valley says:

      The only course is to cut off the federal govt completely…..then systematically replacing it with constitutional libertarian athiests anarcho capitalists…..yes there wil be blood but in the end we will control our own futures…..not likely to happen I know.
      I went back for a visit to the states and the stores are still full of zombies……While walking down the candy isle at a pharmacy you will see someone loading up on m&ms while they wait for thier diabetic meds…..and everyone is still using credit cards.
      Most of these people are jobless…why are they not home planting a garden and eating tuna sandwiches? I hate to say it but the writings on the wall and one way or another the population needs thinning….the nanny state has to end. It promotes the idiocracy we now wallow in…put forth by mealy-mouthed politicians and corporate douchebags.

    54. Chalcedonite says:


      constitutional libertarian athiests? Give me a break!

      I vote for families!

    55. Chalcedonite says:

      Family should have control over their children, education, property, inheritance, welfare… not the state. If this were the case it wouldn’t matter who replaced whom.

    56. Mike Hunt says:

      Stacy and Max– love the blog and “On the Edge” interviews! Keep up the good work– insightful and entertaining!

      Tavakoli has been getting a fair amount of coverage lately; almost unavoidable to see or hear. She is “interesting” and to be sexist, not bad looking. She seems to fall into the category of colorful critic with one, two or several “phrase that pays” incendiary quotes. She seems to love ripping assholes of the prominent, which is quite fine in my book. I really can’t believe she does any business on Wall Street, she takes every opportunity to attack investment bankers and their firms. My guess is she is grossly jealous of their $$$$$ success— remember, she was once one of them. She clearly someone that got sidelined and had to find an alternative career. Much to her credit, her technical books are excellent and the Buffett book does great job of explaining what happened and why.

      Ah, to my point. Tavakoli, and certainly a multitude of others, are quite able in their criticism but woefully short in offering up solutions. Tavakoli is obviously a smart person with a lot of hate of Wall Street and those that have “won” (money being the only measure). She observes and criticizes but offers no solutions; at least based on my reading of her Buffett book, observing multiple CNBC-type interviews and a rather long interview by Brian Lamb (she has a link on her website). When given the chance or asked what should be done she almost goes dead-air; her answers are off point and wander. I think she shoots her load, so to speak, breaking bad. She seems so full of bile that she can’t see straight and offer any solutions for getting out of this mess. She seems to be just a critic, not a thought leader. Thought leadership implies taking risk.

      One other related point. Tavakoli seems to worship on her knees in front of Warren Buffett; enough with the word picture. Mr. Buffett, kindly gent that he is portrayed as, is also at the epicenter of the problems Tavakoli takes issue with. BH has a substantial ownership in one of the rating agencies (Moodys I believe) that was clearly drawn to the dark side. I don’t quite know how Tavakoli rationalizes her Warren worship with the reality that Warren has been a significant player, the type that she seems to hate.

    57. dan valley says:

      Give me a break!!! Chalcedonite

      If we had anarco-capitalism then there wouldnt be any govt. and you would have to be self reliant.

      The transition would need some govt for a short time so better it be a libertarian one.

    58. stacyherbert says:

      @Mike – Jealous of what? Fraud? Bizarre accusation really as there is zero evidence for your charge. Her entire book is about admiration for a guy who has made BILLIONS UPON BILLIONS in a way that didn’t rely on bogus accounts and dangerous leverage.

    59. Chalcedonite says:

      @ Dan
      You really believe that? I don’t. People are easily corrupted…even the best of them. There are some very few exceptions.

      There must be a court system…. There must be provision for children, education, property, inheritance, welfare. … There must be provision for worship. These powers must be in the proper hands for the regeneration of the entire creation. Call me nuts.

      Power must be checked no matter who you give it to.

    60. Nope-Bias-Is-Inflation says:

      You’re right, U.S. cannot borrow $2 to $3 trillion more so then WILL PRINT IT, like they’ve been doing for 30 years, and this combined with unemployment and debt burden will trigger a heatwave of STAGFLATION, not deflation.

    61. dan valley says:

      The only function of govt should be one of enforcement of contracts and property rights. You said…”Family should have control over their children, education, property, inheritance, welfare… not the state. If this were the case it wouldn’t matter who replaced whom.” now you say….”There must be a court system…. There must be provision for children, education, property, inheritance, welfare. … There must be provision for worship. These powers must be in the proper hands for the regeneration of the entire creation. Call me nuts.”…….You cant have it both ways.

    62. Stephen says:

      I think Mike Hunt is correct. Janet T is in favor of the very thing which almost collapsed the US economy, Mark-to-Market Accounting. She is not even close to being in favor of legitimate markets and trading, quite the opposite.

      I think she has an axe to grind or is clueless.

    63. Stephen says:


      Discussion with Former FDIC Chairman William Isaac and Janet Tavakoli

    64. dan valley says:

      Stephen…she is a flip-flopper…issac was dead-on….is he still alive?

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