Hyperinflation-The Next Shoe To Drop

[James Griffin]

There are two more blows coming to the US economy which combined will dwarf the sub-prime debacle.

Usually I dig things out on my own, this time I had help. As a member of the Association of Certified Fraud Examiners, and Bar of Texas, I can access the discussions in the ACFE and the State Section of Consumer Law which give a heads up on what is coming.

The usual estimate of loss on the sub-prime is around 905 billion.

The coming attractions

1. Defaulted consumer credit

2. Alt A mortgages.

Defaulted consumer credit- With years of granting easy credit to people who were not really credit worthy, and then passing laws making these debts NOT able to be discharged by bankruptcy, the scene is set for yet another disaster. Companies like Sears have been losing money from their brick and mortar for years. Their only profit center, bringing in commercial paper from easy term (no payment for 12 months etc) FICO challenged individuals and factoring that paper to third party collectors. When that collaspes even more blue chip defaults, conservatively estimated at 915 billion.

Alt A mortgages- the loans between prime and sub-prime. These are loans made to individuals and small businesses which would qualify for prime except they couldn't quite come up with documentation. Example self employment income, or not documenting the collateral in startups. As a further ripple effect through the economy, combined with unheralded outright fraud, this market will collapse. Estimated short fall, conservatively over twice the sub-prime, or 2 trillion or better.

They are not the only landmines left but they are a couple of the most imminent.

So the government has a classical Morton's fork. Allow large scale collapse of much of the marketplace or print worthless money to throw at the problem, causing unbridled inflation.

Correct management could head off a worldwide multi-year depression, but the steps being taken will make the situation worse not better.

I am all for a stimulus plan. Creating jobs to rebuild infrastructure is actually a great idea. However, in the current plans real stimuli are buried under mounds of pork barreling and insane expansion of pure welfare programs. Both of which will add to further weakening of the economy.