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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Roads End who wrote (35535)	8/18/2005 4:40:22 PM
From: mishedlo	Respond to of 116555

From Heinz to Androcles: note: the most important thing about the grey, or underground economy, is that without it, Western civilization would already have collapsed. the size of the grey economy in Europe is estimated at between 25-40%, depending on the country. it's wealth creation that's bypassing leviathan - it would not be profitable if it were taxed, or rather, would not exist at all. but even including the underground economy's size in estimates, the system remains enormously top-heavy in the direction of finance (i.e. the part of the economy where phantom 'wealth' is created via inflation, which damages the rest) and has a very small base of actual wealth creation supporting that credit monster. it only works as long as confidence that the credit expansion will continue unobstructed remains very high. as soon as something shatters this confidence (and it won't take much, imo) , the financial system's essential feature - namely its insolvency - could be exposed in a hurry. that happened in Russia and Argentina. the fractional reserves banking system is unable to survive a true confidence crisis, because it is de facto insolvent (i.e., it can not possibly pay all, or even a large percentage, of its depositors). ever since we went 'full fiat' with the elimination of the last vestiges of the gold standard in the early 70's, it has all deteriorated into one big con game. that it will end in a financial and economic catastrophe is to me an absolute certainty. the question is not if, but when. but i also agree with you that that doesn't mean we'll be 'wiped off the map' - the economy will recover again after the proper equilibrium is found. only right now, we are so far away from that equilibrium that the way from here to there will be perceived as an utter catastrophe when it happens.