Manuscripts Don't Burn hasn't posted here lately, as you'll doubtless be aware - but we'd like to post a copy of a fellow blogger, GolemXIV, from the Guardian website today. Thanks, GolemXIV!
"The point is there is nothing of any consequence the gov or the BoE can do about deflation. The deflationary forces are just too amssive.
Just take a look at the next wave appraoching the beach.
Next year, 09, we get the first spike of the next TWO classes of american mortgages to start defaulting. Sub-prime is almost all through by early 09 but Alt-A and the even more toxic Option ARMs will start to make the headlines.
Nearly 4 Million small businesses in the US have Alt-A and of them 1.2 Million are ALREADY 60 day delinquent. As for the ARMs you really don't want to even look.
For those who don't know ARMs are mortgages where for an introductory period you can CHOOSE how much to pay or not pay all the way down to pay nothing. WHat you don't pay gets added on to your mortgage up to 125% of the loan. Then this new HUGE amount gets put on to a MUCH higher rate.
The market expects massive default rates.
This will mean even more massive write downs. This is part of why the banks have been hoarding all the cash we gave them.
So cutting a percentage point or two or messing about with a couple of VAT points really is about as impressive as getting your todger out, thinking you'll piss on that forest fire inferno and show it who's boss."
Manuscripts Don't Burn has been reading GolemXIV's comments attentively throughout this historical crisis. So far, he's been spot on every time. Interesting times...