Into The Grey Zone The future is always a grey zone, never black and white.

Last night I had a realization about what I am watching happen to the entire global economy. It's a response to a disease (debt) that is acting like a cancer that has metastasized to the entire body. One by one each of the critical organs begins to die, slowing to a crawl, and eventually falling down. Meanwhile, the brain, lacking valid inputs and warped by the disease itself, begins to hallucinate, believing itself to be recovering health when it and everything around it is dying.

GM and Chrysler are now probably dead. Word has leaked that bondholders are facing a proposal that would cost them 75% of their debt value against the two automakers. However, one becomes hard pressed to see how GM could have possibly lost so much value that the bondholders only should get 25% back (at best!) from this situation. Instead, I expect the bondholders, principally JP Morgan Chase, Goldman Sachs, Citigroup, and Morgan Stanley to all simply say "no" and demand their day in court - bankruptcy court. I think that GM knows this is coming too, given that they have already said they expect to miss their June 1 debt payment deadline and that they plan to shut down their plants for 9 weeks over the course of the summer. There are also reports that Michigan's legislators are courting GM to file for bankruptcy in Michigan, since they argue that Michigan will give GM and Chrysler the best possible deal in order to protect remaining UAW jobs. That's the sales pitch anyway but I doubt it will turn out as they expect.

People are also ignoring the impact of this 9 week shutdown for GM this summer. Suppliers will be unable to sell parts and thus unable to pay employees or their own bills. Services in the towns around these suppliers - grocers, barbers, restaurants, shopping malls - will not sell much with so much cutting back in disposable income. Retail bankruptcies are liable to spike this summer, coupled with a spike in unleased retail space which will cause further stresses in the commercial real estate market.

The market is disintegrating before our very eyes. Unemployment is soaring. Purchases are collapsing. We are very close to the edge now in terms of fraying away the social fabric that holds civilization together. We may or may not go there but we're definitely getting close to the edge. The question then becomes "What happens if we do go over the edge?"