Contraction must take place

Economic conditions will be sub-par perhaps for a decade or more as a result of the great credit unwind. For the past 20 plus years consumers spent most or more than their income by taking on extraordinary levels of debt. As Karl Denninger writes today:

We have blown several trillion dollars in a futile attempt to stave off the contraction in debt outstanding and GDP that must come. The contraction is still coming, but the several trillion we wasted in an ill-advised attempt to prevent the inevitable is all gone.

Make sure you thank Bernanke, Geithner, Obama, and of course Paulson and Bush.

Attempts to avoid the necessary adjustments are futile. They only ensure that the US ends up with a lost decade or two like Japan. That is if we are lucky, and the bottom does not drop out. At this point, debt levels exceed the levels where they can be comfortably serviced and contraction must take place.