Stop Worrying About the Financial Crisis

When will the de-leveraging bust resume?

When we stop worrying about it.

This afternoon, we realized that deep down, our feelings had changed: we had stopped worrying about a resumption of the bear market.

Not that we’ve stopped thinking about it. We think about it every day. And we’re sure it’s coming. But we have stopped worrying. No matter what we think, we feel that somehow this will work out okay…we’ll be all right. We’ll stumble along…

Thinking and worrying are two very different things.

Thinking is purely superficial. It’s the worrying that counts. When you’re worried about a financial crisis, you sell out your risky positions and hunker down with cash. When you’re not worried, you’re happy to float along… You’ll change course when the danger becomes more imminent, you tell yourself.

But don’t forget:

This is a Great Correction. It began almost exactly three years ago, when New Century Financial – the second largest subprime mortgage company in the US – filed for bankruptcy. It will continue until debt levels in the private sector have worked themselves down to more reasonable levels.

How long will that take? Maybe 5 years. Maybe 20.

Meanwhile, you can’t expect much from this economy. Businesses are not going to add jobs. Consumers are not going to shop.

Is that all there is to it? No, there’s a lot more. That’s why it’s a Great Correction and not just an ordinary run-of-the-mill correction.

…there’s the correction of the huge the expansion of credit

…there’s also the correction of the stock market

…and the correction of the real estate bubble

…and the correction of the world economy and its dollar-based monetary system

Here’s what to expect:

…US stocks will begin falling again

…foreclosures, already running at twice their normal level, will increase

…bankruptcies, now at record levels, will go up too

…bonds will eventually collapse (but may turn out to be decent investments for a while longer…as the de-leveraging continues)

…the dollar too could go up when the crisis feeling returns; over the longer run it will be dangerous to hold it

…China will go through a financial crisis (potentially ‘Dubai times 1,000.’ As Jim Chanos puts it)

…states, cities, and entire countries will declare bankruptcy…

Those things don’t seem like threats to you? Well, they don’t feel like threats to us either. But that’s what makes them so dangerous…

…we’ve stopped worrying about them.

Bill Bonner
for The Daily Reckoning