The Gathering Economic Storm

July 24, 2023

by Karl Denninger Market-Ticker.org

You may think “all is well” or at least “all is reasonably ok”.

You’re wrong.

Just as in early 2007 it was clear that we were staring down a monster problem and whistling past the economic graveyard, we are once again doing the same thing. In early 2007 I called out the fact that WaMu was paying dividends out of money they didn’t actually have; it was a (legal) accounting fiction created by negative amortization loans that made it appear they had “value” that didn’t really exist. Of course it could have been ok in that case because perhaps people could have eventually paid all they owed at an ever-increasing rate, but to believe that you had to believe that infinite re-finance activity at ever-lower costs was going to continue forever, because either that had to stop and people had to pay on what they owed (in which case the “value” stopped going up and earnings stopped happening), it must continue (to keep the trend going) or there was soon going to be a crash.

The latter happened.