Unstable Stability
A decree backed by a promise backed by a lie backed by a fraud - a closer look at modern fiat currencies
Bill Bonner
The gist of the ‘stable’ coin concept is that you ‘link’ or ‘back’ one thing with another thing – like a parent guaranteeing his child’s first auto-loan. Alas, as we saw yesterday, promises were made to be broken.
Putting this in perspective, we are at the beginning of a debt deflation. The Fed is AWOL. And Mr. Market is running the show. He’s marking down and writing off debts that can’t be paid – most prominently those of zombie businesses and crypto finance companies. He’s also discounting the collateral value of stocks, bonds, and soon we predict, real estate too.
Bloomberg reports on the housing situation:
A housing correction will reach from “coast to coast” in the US, but it will fall short of a crash, according to Mark Zandi, chief economist at Moody’s Analytics.
With the Federal Reserve introducing the biggest increase in interest rates in years to combat rising inflation, home prices will likely fall in the housing markets that are most “juiced,” says Zandi. Regions with signs of significant speculation, namely in the Southeast or Mountain West, can expect the pendulum to swing back. Cities and states due for a correction include Phoenix and Tucson in Arizona, the Carolinas, northeast Florida, and above all, Boise — “the most overvalued market in the country,” per Moody’s analysis.
Going Bust
In the short run, this deflation is focused on asset prices. But the fall in housing prices will bridge it over to consumer prices too. And not in a good way. As prices fall, more and more ‘credits’ will drop below the value of their ‘debits.’ A business will only be worth, say, $1 million… but will have $2 million in debts. Households will be ‘upside down’ and lose their homes. Businesses will go into Chapter 7 or Chapter 11.
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