Karl Denninger on the Economy - Dec 7, 2008

In 1996 when I first moved to Chicago I was advised by several people that the best Internet Service Provider (ISP) in Chicago was MCSNet. Their CEO Karl Denninger had put together quite a well-run business. I'm guessing that Denninger would've stayed on in the IT industry if it hadn't been for the dotCOM bubble pushing him into cashing out. Now he's independently wealthy and spends most of his days/nights monitoring the global financial markets. I've been reading his BLOG for nearly 20 months now since the stresses felt during the last half of 2006 in the subprime mortgage market caused a lot of firms entrenched in this market to blow up in early 2007. Denninger definitely saw the recession coming and he tried hard to warn the politicians early on about what was coming.

President-Elect Barak Obama at http://change.gov/page/s/yourstory is now requesting that Americans share their experience and ideas on what they'd like the Obama administration to do and where they'd like the country to go. Karl Denninger has put together his ideas at http://market-ticker.org/archives/676-To-Obamas-Transition-Team.html to address this. The image I borrowed from Denninger showing the relationship between debt levels, year and recessions/depressions tell a lot. A recession/depression will continue to get worse as long as debt levels keep rising. Recoveries begin when bad debt gets wiped off the books with clean new starts through bankruptcy.

However the current policies of the Congress/President are likely just worsening the problem as they are encouraging/promoting greater debt burdens. We've all see what a failure the stimulus packages done this year have been. Instead of promoting cleanup/recovery they've been throwing more debt at the problem. As a result the debt levels are still rising. We already have proven programs in place that clean up bad debts. Its called foreclosure, repossession and bankruptcy. Its the way of turning over control of assets/operations under sick management to the management of the creditors and in turn allowing the sick companies to stop spreading their cancer and for sick consumers to get a fresh start. Families and corporations with clean balance sheets are vibrant/progressive and thus help the economy grow.

The only ones who really win through bailouts are special interests that figure out how to fleece/milk the system. That's what has been happening with the 800 billion earmark for Fannie/Freddie and the 700 billion dollar bailout the past few months. And that's what will probably happen with the auto industry bailout, Citigroup bailout and others that are either in progress or being decided upon. The best chance for recovery are to see debt disappear. I hope someday that Congress will decide to start serving the American people instead of the special interests who are lining their pockets.