I have to join the crowd praising this ticker. The explanation was so simple and logical that even I could understand it. It's great how it ties so many disparate phenomena together. I'll be recommending it far and wide.

Well stated Karl. You should write at 2:00 in the morning more often. You have a knack of being able to distill the bull**** to its essential elements, which is the hallmark of a good writer.

You were exactly right to use "financialization". If you had said "finance" almost every reader would blast through the statement and read the familiar word not processing what you meant. Having a different word made them stop and make sure what you really intended to convey and not assume they knew what the familiar word meant.

I remember when credit cards were becoming more common for middle class people. You could not buy groceries with them. People would look at you in horror and say bluntly that using a card for everyday expenses like food was not prudent or reasonable. Now you can use them for such trivial expenses as McDonald's or a morning coffee when you stop for gas.

Indeed I now can go to my local grocery store on a Tuesday and get 10% off for being old, and get a further 5% off for using my credit card. I am almost certain the grocery is not running a 15% margin so the cash customers are subsidizing me because I pay the balance every month on a no fee account. I'd love to know how many people do pay the balance monthly though. I suspect few do so.

I'd bet dollars to donuts some politician will pick up on the student loan issue and run with it the next election. It's one issue that would virtually lock up the youth vote.

The mere concept that you can owe a debt for life seems unconstitutional at it's core.

Best Ticker ever.

If your book is anything like this, it will be a best-seller.

Theox: it is.

Karl, I linked this to a friend and pointed out that you may have actually missed one element. The financialization of the military, or at least military spending. I happen to agree with him.

All the deficit spending by the US Gov has created a false level of demand for military products which in turn has driven up the cost.

Quote:

Ah, I think that $46,300 is average household income

Either way the average mean needs to come down from the March level of $156,100 to about $92,600. And with downturns it usually drops below the median for a short while. Still looks like there still needs to be a significant haircut in prices.

"Next up on The View- best-selling author Karl Denninger!"

That would be epic- I'd pay good money to see that live.

If that's not the Cliff Notes of your book I guess I'll have to buy it. To me most everything you write is a Cliff Notes version of life as we know it. You've got an ability to cut thru the bull**** and drive home a point in 1000 words or less. Do I get an autographed copy while I'm down there next week?

Outstanding piece, Karl. Thank you.

And what are the chances that any of these things actually happen? I'd have to say about zero.

I'm not even sure it'll happen after the crash, since so many will be begging the government to take care of them.

Maybe I'm just pessimistic today.

Excellent Ticker btw. :)

well stated.

...but the odds are the people are too stupid to get it. and for those that do the banksters and their allies wont let you out of the plantation.

Excellent Ticker. I had a feeling you'd get some questions about your use of the term 'financialization' in yesterday's appearance, and this is a clear, concise explanation of the term and its implications.

Along these lines, there was a pretty good explanation of the US 'free market' in the Sunday funnies about 20 years ago:



Of course in today's economy, Calvin would have a bank set up right next door offering $15 dollar "lemonade loans" with a 0% teaser rate, no money down, and generous 5-year terms with a low monthly payment. . .

This is definitely without question the best ticker I've read here.
I often struggle trying to intelligently explain to family members and friends why our country is screwed by staying on its current path.
This does it expertly. Thanks.

Starving - I think the college and health care costs have to happen. Those have to come down to 1980 levels or so. If not we can't go on. We can solve SS. We can solve pension problems. You just gotta work a while longer. But if we don't get health care under control nothing else falls into place. And housing will find a bottom and we'll be OK - it'll do it all on it's own.

I just noticed that the link from the ticker to the publisher's page on KD's new book includes a sample chapter in PDF... http://media.wiley.com/product_data/exce....

It'll clearly be a good read. I'm less clear as to whether, but extremely hopeful based on the excerpt that, it will be a good and compelling enough read to get initially disinterested friends, family and others to pursue it all the way to the last chapter.

TMD: Unfortunately the release date is pretty much the date I will have the books myself, so I can't give you an autographed copy as it won't be out yet ;-)

I don't see any indication that the government is unhappy creating student debt slaves Themortgagedude. Matter of fact, by recently increasing their 20% up to 80% ownership of student loans, I'd say they definitely want those slaves.

One more point. Financialization and the asset inflation it caused created a false prosperity. It is true that some players in real estate became wealthy flipping properties. But broadly, folks responded to asset inflation as prosperity. That house they bought at $200,000 in 1995 was now worth $500,000. So, many took out 2nds to improve the house, but also to buy new cars, vacations, big screen TVs etc. In effect, leverage beget more leverage. Isn't financialization wonderful!? And a tad more truth - in the 70s a journeyman carpenter might make $10/hr. By 2004 they might make up to $30. Thus, financialization helped drive inflation, but that's another lecture. Great job Gen, great job.

It has to happen. I value education as much as the next guy and I may get divorced over this but I will not spend a quarter million dollars to send each child to college and I will not let them go into debt. They are 8 and 6 and on $150,000 earnings for me and mrsmortgage it would be very tough to save that much before college and even harder to justify spending it. Looks like community college and state schools for the mortgagekids and it'll still cost half that. This can't go on when upper middle class people like myself who have a modest mortgage and no car payments wonder if they can save enough to send two kids to a "reasonably" priced state school. They've nearly squeezed the last skittle out of that unicorn.

Not arguing that it has to happen, just arguing that it will voluntarily happen. There is no way possible for me to send my kids to college in the current system, none.

The money simply isn't there, and like you I refuse to allow them to go into debt.

Even convenience use of credit cards has an effect on the cost of goods, because the credit card issuer takes their fee out of the merchant's charges. That has to be passed through on the price eventually, at least to some extent.

I've been thanked by merchants at gas stations for paying cash.

The turning point for me was when grocery stores started accepting credit cards. I remember thinking that the margins on grocery stores are not much larger than the credit card fee, so how was this going to be a good thing for the consumer? We got convenience, but at a price.

I know of a couple of people that are planning on filing bankruptcy due to their debt load and the attorneys show them how they can keep living on their credit cards until fully maxed out. The system is so broken that we need a complete washout like discussed in the ticker.
I wonder what the average amount of credit is available to most middle class Americans. We know that they are wildly in debt and they have been brainwashed into believing that a zero percentage CC is an invitation to go on a spending spree.
If banks were actually required to show all this free credit floating aroundon their books as a high risk asset rather then using Bernanke accounting, a lot of this would end.
The student loan debt is the real crisis. These kids are brainwashed into believing any kind of college degree will support them in the work force. The college scam will eventually take down our society unless they can discharge these debts in bankruptcy and this will force the banks to be more careful about handing out fee cash to anyone with a pulse........

Do people really understand?

A simple example.
What if you had $100,000?
If you could get 2% per year in a saving account you would get $2,000 per year or $166.67 per month.

Here is a better way.
Get a steady stream of income from other people?
Here is how its done.

Lend someone $100,000 at 5% interest amortized over 30 years.
That will mean $533.70/month.
Repeat the loan, (leverage), 10 times and your monthly income will be $5,337.

You could sweeten the deal by asking for an extra $20,000 for giving them the privilege of doing business with you. Just think about it.
By sweetening and repeating 10 time you would have an extra $200,000 in your pocket, (double what you started out with), and you would get $5,337 coming in every month.
Even better, you would have an initial start up cash of $300,000 which would mean that if you used leverage of 10 you could lend out $3,000,000. But you only lent out $1,000,000. Therefore, your actual leverage would be less than 3.34.

There is a bit of paper work that you must do.

You must get a promissory note from each person that they will give you $533.70/month.
You must also get an asset worth more than $120,000 assigned to you if they do not pay their $533.70/month.

There is one fly in the ointment.

There are people that are already doing this very thing for a living.
To protect their cash flow they have gotten the gov. to imposed regulations and laws to prevent you from competing with them and thereby reducing their very lucrative cash flow business.

Now you know why there is an expression, “Friendly banker”.

The "revolt" is simple ... EVERYONE, STOP BORROWING AND LENDING MONEY.

JAL