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.