Thursday, August 28, 2008

Peak Credit

One could say all that is happening is that all financial institutions in the world don’t really trust each other, and won’t lend to each other. And that an astounding $50 to $100 billion of weekly infusions from the Fed and the ECB is not fixing the situation, and that we are witnessing the final parabolic peak of the world credit bubble that has built up for the 63 years after WW2 ended. That, and the end of the USD and Yen driven credit/asset/finance bubble which ensued from the early 1970’s.

So, before we continue, it might be said that the present development of the credit crisis, from August 07 to now, is Credit Crisis I. And the present state of affairs is that the Fed and the ECB have to infuse a weekly $50-100 billion plus into their respective financial regions merely to prevent a world finance implosion.

I also have noticed that the Credit Crisis I has had a one year periodicity of major new developments, ie that if one major sector had a problem on a given month, that the next year the same sector seems to reinvent a new worse manifestation. So, when the central banks stop this massive weekly lending, what happens? Massive forced deleveraging and probably world financial Armageddon. This would be Credit Crisis II, or Phase II. We will look into Credit Crisis II in a moment.

This is the conclusion we came to here at PrudentSquirrel, trying to ascertain where we are in the big picture on the Credit Crisis now. It is that the Central Banks are desperately trying to stave off Credit Crisis II, and they are losing, and probably knowing this, they will at some point confer together and pick a time to let the credit system implode, and try to weather the stock/financial crashes that will occur at that time. Likely, some currencies can collapse as well, and a great deal of FX (foreign exchange) chaos and restrictions will ensue for several years after the fatal date.

If it is true, as we suspect, that we are at the peak of a credit/financial bubble that started right after WW2 ended, and it is at a parabolic peak and cannot be sustained, then the world’s central banks already know this too. They probably are trying to decide when to let go…They all don’t have to agree, it only will take one major Central Bank to let go, then the others will be forced to follow. Credit Crisis II…A World Financial Armageddon?