Hard Core Doom Porn

Hard Core Doom Porn by Robert Gore – Straight Line Logic

It will be a crash like we’ve never seen before.

SLL has been accused of trafficking in “doom porn.” Guilty as charged. If you don’t like doom porn, don’t read this article, it’s hard core. If you prefer feel good and heartwarming, there are plenty of Wall Street research reports and mainstream media stories about the economy available. Enjoy!

In 1971, President Nixon closed the “gold window,” which allowed foreign governments to exchange their dollars for gold. This severed the last link between any government and central bank-created debt and the real economy. Debt could be conjured at whim, and governments and central banks have done so for the last 46 years.

Not surprisingly, credit creation without restraint has papered the globe with the greatest pile of debt mankind has ever amassed, measured in nominal terms or relative to the underlying economy. A measure of how extraordinary this situation is: most people regard it as normal, if they think of it all. Debt is a first mover, a financial constant. Any exigency small or large can be met from an unlimited credit pool that will always be with us. How to rebuild Houston, Florida, and Puerto Rico? No problem, borrow.

Although fiat credit creation by governments and central banks is unconnected to the real economy, its effects are not. Their debt becomes an asset within the financial system. Through fractional reserve banking, securitization, and derivatives it become the basis for a multiplication of the original debt. That multiplication is many times the multiplier (the reciprocal of the reserve requirement) taught in introductory macroeconomics classes whereby the debt is contained within the banking system.

Nominal global debt is reckoned at between $225 and $250 trillion, or about three times global GDP. Financial, debt-supported derivatives (financial instruments whose prices are derived from the prices of other financial instruments) are estimated at anywhere from $500 trillion to $1 quadrillion notational, or six to twelve times global GDP.

Overpriced houses did not cause the last financial crisis and almost bring down the world’s financial system, securitized packages of mortgages and their associated derivatives did. The Panglossian view of derivatives is that most of them can be netted out against offsetting derivatives, thus actual exposures are far less that notational amounts. The real world view is they can only be netted out as long as all counterparties remain solvent. As we learned in 2009, that is not always a correct assumption.

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Robert Gore

Robert Gore was born in 1958 in Livermore, California. He grew up in Los Alamos, New Mexico, where both his parents worked for the Los Alamos National Laboratory. His undergraduate education was at UCLA. He graduated in 1980 summa cum laude and Phi Beta Kappa with a double major in economics and political science. He completed the JD/MBA program at UC Berkeley in 1984. He held part-time jobs throughout undergraduate and graduate school. He passed the bar exam and is an inactive member of the California Bar Association. Mr. Gore’s career in finance began in 1984 with a bank in San Francisco, trading municipal bonds. In 1985, he went to a Wall Street firm’s west coast municipal bond office in Los Angeles as a bond trader. He developed its block and institutional sales capabilities and after four years was promoted to manager of the region.