http://www.financialsense.com/contributors/jim-willie/crisis-redux-road-to-perdition

The upcoming S&P500 stock plunge will serve a purpose, perhaps a planned purpose. It will permit the USGovt to announce with expedience a resumed Quantitative Easing in order to prevent an economic collapse. Renewed stimulus and accommodation will be rendered a snap, easy as pie, with no political obstacles. Deficits be damned, will be the battle cry!!

The Gulf of Mexico disaster will soon spread like an oil-soaked wildfire of economic destruction down South, which could easily affect the supply chain with grain delivery up the Mississippi River. Barges with oil-soaked hulls will not be permitted up the river. In fact, electricity power generating stations along the coast are at risk of shutdown, due to the likelihood of oil entering the water intake valves. The great majority of US states are at the end of their rope with budget shortfalls and federal negligence, certain to result in broad layoffs, even dismissal of police and teachers and garbage collectors. These three groups of workers are commonly viewed as most critical. If police vanish, then chaos erupts. If teachers vanish, ignorance prevails along with idle youngsters on the streets. If garbage piles up, then the rotten Third World finances will feature matching bookends of rotten Third World debris, garbage, and putrid refuse piles. If only festering rancid bonds produced an odor, they would stink.

Mega-trend comparisons offer further strong warnings, reflecting powerful changes compared to autumn 2008. They pertain to the USGovt debt picture with horrendous $1.5 trillion annual back-to-back deficits. They pertain to the monthly $200 to $300 billion federal debt issuance that has become a standard billboard feature, along with newfound scrutiny toward the USTreasury complex. They pertain to the new reality of the 10-year USTreasury yield (TNX) that used to be hovering around 4.0% level but is now under the 3.0% red light level. They pertain to the US housing market set for a surprising sinkhole event, since supply is not only rising, but is hidden, while demand is falling, absent the tax credit stimulus. A nasty shock event from liquidity drought is coming right around the corner. First sight will be the SPX in a heavily publicized tumble. It will scare whatever wits remain among the compromised USCongress for sure. The plunge will scare the wits out of the US public again.

Four other mega-trend factors hover with a nasty specter. 1) The nation of Mexico is in the midst of a failed state breakdown into pure chaos. 2) The Gulf of Mexico is fast turning into a kill zone, both ecologically and economically, whose impact will be powerful and soon. 3) The European Bank Bailout with its $1 trillion in aid fixed absolutely nothing across the Atlantic, but did send a few $100 billion into USTreasurys, with no tangible lift to the USEconomy. 4) Refusal to permit big financial firms to fail acts like a cancer, whose 20 months of progression since autumn 2008 has taken a hidden but deadly toll.

The US money supply shows incredibly ugly powerful declines in circulating money. Contrast this graph to that of the broad money supply, which counts funds stuck in the bank vaults and stuck in the USFed itself, ensuring no usage for lending capital. Broad money supply is skyrocketing, as money velocity is careening downward. The Leading Economic Indicators all look miserable and ominous. None of these many factors were showing such dire signals 20 months ago (maybe LEI was). Anyone who believes the USFed and its lackey runners working in the USGovt will not reverse course and begin Quantitative Easing Round #2 are just plain simpletons, tails on the dogs of policy whiplash. A confirmation signal comes from the sub-3% long bond among USTreasurys. Recoveries coincide with the long bond yield rising, not falling. This contradiction of recovery claims escapes most economists, hacks entrenched.

As the USEconomy falters in the second half already underway, instead of recovering, the USGovt will soon announce the expedience of a resumed Quantitative Easing in order to prevent an economic collapse. The USGovt will also soon work toward a massive economic stimulus plan in almost emergency atmosphere, which might actually contain some stimulus, unlike the last farcical display of political avoidance. The states will send governors to WashingtonDC directly into the snake pit.