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Death By Debt

Wednesday, June 8, 2011, 9:50 AM

One of the conclusions that I try to coax, lead, and/or nudge people towards is acceptance of the fact that the economy can't be fixed.  By this I mean that the old regime of general economic stability and rising standards of living fueled by excessive credit are a thing of the past.  At least they are for the debt-encrusted developed nations over the short haul -- and, over the long haul, across the entire soon-to-be energy-starved globe.

 

The sooner we can accept that idea and make other plans the better.  To paraphrase a famous saying, Anything that can't be fixed, won't. 

The basis for this view stems from understanding that debt-based money systems operate best when they can grow exponentially forever. Of course, nothing can, which means that even without natural limits, such systems are prone to increasingly chaotic behavior, until the money that undergirds them collapses into utter worthlessness, allowing the cycle to begin anew.

All economic depressions share the same root cause. Too much credit that does not lead to enhanced future cash flows is extended.  In other words, this means lending without regard for the ability of the loan to repay both the principal and interest from enhanced production; money is loaned for consumption, and poor investment decisions are made. Eventually gravity takes over, debts are defaulted upon, no more borrowers can be found, and the system is rather painfully scrubbed clean. It's a very normal and usual process.

When we bring in natural limits, however, (such as is the case for petroleum right now), what emerges is a forcing function that pushes a debt-based, exponential money system over the brink all that much faster and harder. 

But for the moment, let's ignore the imminent energy crisis.  On a pure debt, deficit, and liability basis, the US, much of Europe, and Japan are all well past the point of no return.  No matter what policy tweaks, tax and benefit adjustments, or spending cuts are made -- individually or in combination -- nothing really pencils out to anything that remotely resembles a solution that would allow us to return to business as usual.

At the heart of it all, the developed nations blew themselves a gigantic credit bubble, which fed all kinds of grotesque distortions, of which housing is perhaps the most visible poster child.  However, outsized government budgets and promises, overconsumption of nearly everything imaginable, bloated college tuition costs, and rising prices in healthcare utterly disconnected from economics are other symptoms, too. This report will examine the deficits, debts, and liabilities in such a way as to make the case that there's no possibility of a return of generally rising living standards for most of the developed world.  A new era is upon us.  There's always a slight chance , should some transformative technology come along, like another Internet, or perhaps the equivalent of another Industrial Revolution, but no such catalysts are on the horizon, let alone at the ready.

At the end, we will tie this understanding of the debt predicament to the energy situation raised in my prior report to fully develop the conclusion that we can -- and really should -- seriously entertain the premise that there's just no way for all the debts to be paid back.  There are many implications  to this line of thinking, not the least of which is the risk that the debt-based, fiat money system itself is in danger of failing.

Too Little Debt! (or, Your One Chart That Explains Everything)

[Note: this next section is an excerpt from a recent Martenson Blog entry, so if this seems familiar to any site members, it's because you've seen it before.]

If I were to be given just one chart, by which I had to explain everything about why Bernanke's printed efforts have so far failed to actually cure anything and why I am pessimistic that further efforts will fall short, it is this one:

 

There's a lot going on in this deceptively simple chart so let's take it one step at a time.  First, "Total Credit Market Debt" is everything - financial sector debt, government debt (federal, state, and local), household debt, and corporate debt - and that is the bold red line (data from the Federal Reserve). 

Next, if we start in January 1970 and ask the question, "How long before that debt doubled and then doubled again?" we find that debt has doubled five times in four decades (blue triangles).  

Then if we perform an exponential curve fit (blue line) and round up, we find a nearly perfect fit with a R2 of 0.99.  This means that debt has been growing in a nearly perfect exponential fashion through the 1970's, the 1980's, the 1990's and the 2000's.  In order for the 2010 decade to mirror, match, or in any way resemble the prior four decades, credit market debt will need to double again, from $52 trillion to $104 trillion. 

Finally, note that the most serious departure between the idealized exponential curve fit and the data occurred beginning in 2008, and it has not yet even remotely begun to return to its former trajectory.

This explains everything.

It explains why Bernanke's $2 trillion has not created a spectacular party in anything other than a few select areas (banking, corporate profits), which were positioned to directly benefit from the money.  It explains why things don't feel right, or the same, and why most people are still feeling quite queasy about the state of the economy.  It explains why the massive disconnects between government pensions and promises, all developed and doled out during the prior four decades, cannot be met by current budget realities.

Our entire system of money, and by extension our sense of entitlement and expectations of future growth, were formed during and are utterly dependent on exponential credit growth.   Of course, as you know, money is loaned into existence and is therefore really just the other side of the credit coin.  This is why Bernanke can print a few trillion and not really accomplish all that much, because the main engine of growth expects, requires, and is otherwise dependent on credit doubling over the next decade.

To put this into perspective, a doubling will take us from $52 to $104 trillion, requiring close to $5 trillion in new credit creation each year of that decade.  Nearly three years has passed without any appreciable increase in total credit market debt, which puts us roughly $15 trillion behind the curve.

What will happen when credit cannot grow exponentially?  We already have our answers; it's been the reality for the past three years.  Debts cannot be serviced, the weaker and more highly leveraged participants get clobbered first (Lehman, Greece, Las Vegas housing, etc.), and the dominoes topple from the outside in towards the center.  Money is dumped in, but traction is weak.  What begins as a temporary program of providing liquidity becomes a permanent program of printing money needed in order for the system to merely function.

Debt and Europe

The debt situation in Europe is fairly typical of the developed world and mirrors the debt chart of the US seen above.  There's entirely too much debt, and most of the unserviceable amounts are concentrated in certain spots (i.e., PIIGS), while the amounts owed are concentrated in the German, French, and British banks.

This New York Times graphic did an excellent job of summing everything up:

(Source - click to view larger graphic at source

Here is a slightly less-complicated image that expresses the same dynamic:

 

If everybody owes everybody else, then kicking the can down the road only works if there's more wealth, more growth, and sufficient economic activity down that road to service the past debts. If any one participant drops the baton in the debt relay race, the absurdity of the situation becomes unavoidable and the cause is lost.

When we hold this view, it is abundantly clear that adding more debt along the way only increases the burdens and is therefore ultimately counterproductive, although it does grant the gift of additional time to avoid facing the truth.  

When all of the most indebted countries are stacked up, we see that all but Russia carry a total indebtedness greater than 100% of GDP and that nine are carrying debt levels higher than any that have ever been repaid historically.

(SourceNote: 260% debt-to-GDP is the all time record for repayment, accomplished by England between 1815 and 1900, but required both massive cuts in spending and an industrial revolution. 

Without mincing words, the world does not face a crisis of liquidity, nor a crisis of insufficient debt, but one of entirely too much debt.  That's the entire predicament in three words:  too much debt

More debt is only going to compound the predicament, yet that is what the world's central banks and political structures are busy manufacturing.  More debt.

Of course, debt is only one component of the story; there are also liabilities to consider.  The above chart merely graphs the legally defined debts involved.  If we bother to add back in the liability components, which are pensions, social security and government medical plans, the predicament is seen to be three to six times larger: 

Whereas the prior chart showed all debts incurred by all sectors of each nation, the above chart only displays government debt and liabilities.  For reference, the red bars, above, are the amounts that you read about in the paper when commentators note that the US, for example, still has a debt-to-GDP ratio that is under 100%. It's a comforting tale, but not an accurate description of the situation.

Again, there are no historical examples of any country ever digging itself out from so deep a hole, and yet we find that the entire developed world has bravely pushed itself deep into unknown territory, seemingly without any serious discussions about whether or not this made sense.

Where We Are Now

So here we are, just a few weeks away from the end of the second round of quantitative easing (QE II) , with massive public debts and liabilities having only grown larger instead of shrinking during the Great Recession, everybody in nearly the same boat, and no clear plan for how all the sovereign debts will be funded from current productive cash flows (i.e., existing GDP).

This is why so many commentators, myself included, are convinced that more thin-air money printing is on the way. My thesis, laid out back in early March is that the Fed will stop QE II on schedule and that the financial markets will react exceptionally poorly to this loss of support. Commodities will tank first, then stocks, then bonds; from riskiest and most-leveraged to least.

It is time to face the music; the levels of indebtedness now require permanent support from thin-air money in order to avoid a deflationary collapse. Given this reality, we explore key questions in detail in Part II of this report: Understanding the Endgame:

  • How will the global debt crisis play out?
  • What does a world economy without growth look like?
  • What steps should we, as individuals, need to take in preparation?
  • How can investors safeguard their purchasing power during the coming rout in the finanical markets?

Click here to access Part II of this report (free executive summary; paid enrollment required)  

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97 Comments

cactusclef's picture
cactusclef
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Minor nit

Exactly. Because our money is backed by debt, more and more of it is needed to insure that there is enough to pay back the principal AND interest. That accounts for the exponential growth curve.

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LOL

LOL, I've seen it all now. This is the first of Dr. M's threads that should be banished to the CT folder, not because of the OP, but because of the comments. 

The summertime doldrums are alive and well!

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A. M.
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CT and the death of good information

JAG,

Brother - I couldn't agree more. I don't like flagging the everloving daylights out of all these posts, but more and more, I find that the posts around here aren't touching open and engaging dialog, it's regressing towards conspiratorial or political ramblings that only serve to enliven tensions. Not. Productive.

Deus X,

I'm not laughing, at the proposition, or your weak slight.
You're making assertions, and not backing them. You don't know the difference between a pentagonal star, the Star of David, or a Masonic star, and you're confusing their purpose and potential symbolism.
I'm trying to do you a favor, and save you some face while you've got it by directing you to the appropriate venue.

When 100 bills are toilet paper, I'll be using what I've stashed away for just such an occasion.
Don't make the assumption that because I am left perplexed by your intent that I'm not aware of what's happening.
No conspiracy needs to be present for these events unfold, and I'm of the opinion that the facts do not support a conspiracy. If you can show otherwise, do so.
If not, don't troll by petty name calling to defend your weak arguments.

Cheers,

Aaron

tictac1's picture
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Just the facts

1.  You cannot have a free market, good or bad, with a fiat money system.

2.  You cannot have a "good" free market without individual morality and accountability.  This goes for the individuals on both sides of production and consumption.

3.  You cannot have morality and ethics without an agreed upon standard by which to judge.

4.  So, where does this standard come from?

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Mark_BC

Mark_BC wrote:

Dogs_In_A_Pile wrote:

I also think it's complete bullshit that the government feels that other people are entitled to what I earn.

I think that depends on how much you make (if you make less than say $60,000 I agree with you). I also think that this debate over who works harder -- union workers versus business entrepreneurs -- and therefore, who "deserves" the money more, depends on how the money is made, and that of course varies widely. Unfortunately I think there is a lot of ideological baggage left behind by the free market worship that has dominated recent capitalist theories (typified in the Austrian school), which purports that no matter how the money is made, as long as it is made in the free market, then it was made legitimately, because ultimately, the free market will sort it all out and things will even out to their maximum efficiency due to the wonderful supply / demand curve (and all of its inherent assumptions which turn out to be highly tenuous). Of course this Austrian approach is overly simplistic and does not in any way acccount for externalties or energy, or the workings of any other biophysical processes underlying how economies actually work, so it's basically false. Therefore, there is indeed a difference between a banker making money by skimming and ripping unsuspecting people off, even if it is done so in the "free market", versus a hypothetical entrepreneur who makes money (in the free market) by devising a new gadget that improves energy efficieny by 40% and therefore he reaps monetary rewards from this as everyone buys his product.

I think it is entirely reasonable (and necessary) to presume that someone who owns billions of dollars of assets should be paying very high taxes to the government so that others can be entitled to a large portion of that wealth. In this day and age there should be no billionaires. They should be taxed back down to reality, regardless how they made that money; otherwise we have the wealth concentration problem, which in the past was addressed by outlawing "usury" (the making of interest off money, which leads to wealth concentration because the more money you have the more money you make). Usury is still banned in Muslim cultures. Economists believe that they have now solved the wealth concentration problem so that the rich can get richer, but at the same time the poor can also get richer by participating in the creation of new wealth, and this new wealth comes from a growing economy. Of course, on a real inflation-adjusted basis, our economies aren't growing, and it seems likely that they never will again ever, on a global scale. Therefore, the littlle guy can't make new wealth from a growing economy, because it isn't growing anymore, but the ultra rich billionaire is still reaping profits from wealth concentration due to the very low tax burdens they pay (thanks to Reagan). So we are back at the age-old problem of usury and wealth concentration, once again! I argue that many of our current problems are also due to this, as well as resource and energy scarcity, and debt buildup. These factors are all coming together at the same tiime.

Despite what most economists believe, that wealth which is held by the billionaire was not produced by him (or her, in the case of Blythe Masters); rather, it was taken from the planet. Yes, taken. Economies do not produce wealth. They actually DESTROY wealth to a significant degree, and then they take and transform the remaining wealth into goods that we find useful, and then we create an economy around these things. Since, as Chris is pointing out, we are nearing the crunch in terms of overall resource scarcity, then that billionaire's wealth is by definition diminishing the wealth-reaping opportunities for the rest of the population, because there are now only so many resources available to go around (as opposed to say 100 years ago when they were basically limitless, when Austrian ideology was being formulated).

But just handing blank checks over to poor people, that money being derived from the wealth taken from taxes from the billionaires, isn't very stimulative for efficient allocation of labour resources, is it? That's verging on communism, and we all know how that works (or, how it doesn't work -- no one has any incentive to work). So then how do we deal with the unavoidable high unemployment resulting from a cessation of economic growth (it takes much less labour to just maintain an economy rather than grow it as well). Are we to have, say, only 30% of the workforce actually working, and then those workers pay taxes to support the rest of the 70% deadbeats because there isn't enough work available? No way, that has NEVER worked in the past and it will never work now! The solution is to reduce the work week to 3 days and the work day to 6 hours. Therefore, the remaining wealth opportunities will still be available to 90% of the workforce, and they will still have an incentive to go work (because there will be no blank checks), and there would not be massive taxes on workers because everyone would be working; taxes would be about what they are now, even less, for the average working person. Couple this with much higher taxes for high earners (the billionaires and multi millionaires), and ban usury, such that wealth concentration doesn't get out of hand, and also ban central banking and fractional reserve banking, and again empower the government to issue its own debt-free interest-free currency, and that's the solution! Oh, and get off oil too.

Mark -

Some interesting thoughts in your post - I'm still digesting.

I didn't want to elaborate too much, but now that the thread has been yanked all over Hell's half acre, what's yet another direction going to matter?

What I meant in particular by my statement is that historically (my 49+ years anyway), "the government" has implemented some programs at my expense that provide very little beneficial return to me.  The only benefit has been to the particular political party that is driving the programs.  I make no distinction between the Republicans or the Democrats here - they both suck.  For me, there's not a whole lot of difference between Democrats, who generally create "social safety net" entitlement programs and build a nanny state mentality under the auspices of making things better when in fact all they are doing is catering to a voter base to keep them in office.  The Republicans do the same thing except they enact legislation that favors the corporatocracy - and in doing so, pass the cost of such laws/programs etc. on to the middle class.

In the end, whether wealth is taken from the middle class and redistributed - downward and diluted by Democrats, or upward and concentrated by the Republicans - makes no difference.  The end state sucks.

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Dogs_In_A_Pile wrote: In the

Dogs_In_A_Pile wrote:

In the end, whether wealth is taken from the middle class and redistributed - downward and diluted by Democrats, or upward and concentrated by the Republicans - makes no difference.  The end state sucks.

It always seems to be the middle class that gets ripped off. I certainly can't endorse China in many ways, but economically they have an inherent advantage over us, even if they do abuse human rights. China tends to do things because they are smart and productive. In the US now, we act like abused addicts and fall for every new scheme that the two major parties promise us. In the end, really no one is better off because of all the uncertainty involved. Handing checks to poor people probably feels great for a time, but it doesn't always incentivize learning new skills or increasing productivity. Handing out big breaks to big companies certainly has helped them lately, but they apparently still have have a desire to outsource and squeeze their workers. And they are more obsessed with lobbying than ever before. Lobbying is an "economic bad" - it does nothing to help the real economy but simply keeps the game rigged.

I've never really been a fan of taking money people earned and redistributing, but I do have to say that when I hear the extreme degree of wealth concentration in this country it is apparent that something isn't right. This is not the way a truly free market would distribute wealth and it is not the way that a purely socialistic state would distribute wealth - if either of these ideals existed. What we have is essentially a government / corporate oligarchy. And since so many of the leaders are using the revolving door, there is a blurred distinction between the two. Special interests groups that funnel money downward do not have financial or legal power but have power in the sense that they can inspire voters more readily than corporations can. So they are certainly able to feast as well. By the way, the middle class is picking up the tab on this one.

The sad thing is that we are pretty much left with some basic problems that nearly everyone agrees are not getting solved. For most people any reasonable solution would be better than nothing at all.

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Great!

So if the effective rate was less than 91.7%, say 70%, than the proud patriotic millionaires & billionaires oughta be even MORE inclined to pay it and get the economy rolling!

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> I also think it's complete

> I also think it's complete bullshit that the government feels that other people are entitled to what I earn.

So you earned in a bubble? No help from the taxpayer-supplied infrastructure? You didn't use the roads, you didn't use the fresh air that gov't regulations caused, you didn't use the sewer systems, you didn't use the relatively bribe-free business climate that the gov't provides here?

LOL

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3-day week idea

Your idea of a 3-day week is perfectly sound. It is part of the reason the German economy is humming right now - they went to 4-day work weeks after re-unification.

Now Germany is so strong economically they are supporting 3 or 4 countries. On that theme, remember that China is supporting us. I guess China still has nice altruistic socialism as a system.

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Read it again.......slowly.

ProudCorporateTool wrote:
> I also think it's complete bullshit that the government feels that other people are entitled to what I earn. So you earned in a bubble? No help from the taxpayer-supplied infrastructure? You didn't use the roads, you didn't use the fresh air that gov't regulations caused, you didn't use the sewer systems, you didn't use the relatively bribe-free business climate that the gov't provides here? LOL

Tool -

I think I made details of that particular statement clear in post #55. 

One more time........people, not programs, neither in totality either way.  See post #55 for details.

Welcome to the site BTW.  Have you watched Crash Course yet?

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i'm quietly bothered that

i'm quietly bothered that the little ones in this household might have to be outa reading distance when i open a thread.

robie (father,farmer,husband,optometrist)

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Damnthematrix
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Have I missed something?

robie robinson wrote:

i'm quietly bothered that the little ones in this household might have to be outa reading distance when i open a thread.

robie (father,farmer,husband,optometrist)

Have I missed something?

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death by debt

It will take nothing less than another war time like effort from the citizens of this country. This is war and we have all been drafted for an open ended tour of duty. We may not sacrifice like our troops do every day, but suffer we will. Grand schemes, social engineering and reelection pressures have put our backs against the wall. The tea party is the baby boomer generation's version of an anti war protest. These folks resent being drafted into an immoral and unnecessary war to save America from a self inflicted wound. It has come down to participate or perish.

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Turmel: Printing money fights Inflation Shift B

cmartenson: One of the conclusions that I try to coax, lead, and/or nudge people towards is acceptance of the fact that the economy can't be fixed.
Jct: Can't be fixed by people who are taken in by the Big Lie of Economics hiding that printing money fights inflation Shift B.

CM: "debt-based money systems operate best when they can grow exponentially forever."
Jct: LETS is a debt-based system that doesn't grow, it's interest that makes debt grow exponentially.

CM: "Too much credit"
Jct: Is what people who think we have inflation Shift A, too much money chasing the goods when it's the same money chasing less goods, inflation shift B.

CM: "the ability of the loan to repay both the principal and interest from enhanced production"
Jct: Sure you can pay your principal with the principal you received but banks won't accept enhanced production in payment of your usury. Can't pay P+I when we all only got P. Musical chairs. Someone must fail and be foreclosed. If it's really Shift B inflation, printing paychecks fights inflation. Just find "Big Lie of Economics" or "Shift B inflation"

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China = better?

Mike Pilat wrote:

It always seems to be the middle class that gets ripped off. I certainly can't endorse China in many ways, but economically they have an inherent advantage over us, even if they do abuse human rights. China tends to do things because they are smart and productive.

I wouldn't be so sure about that...

Gail Tverberg: Observations based on my Trip to China

Quote:

The various Chinese leaders spoke in response to what I had to say. I was struck by how much they sounded like US leaders. To them, peak oil was not a major concern, although one of them did agree that some of what I was saying seemed to make sense. One thought that natural gas would save the day. Climate change seemed to be a bigger concern than peak oil. At least one of them seemed to think that by raising interest rates, they could solve the problem of rising food and energy prices. It occurred to me that the United States tried the higher-interest rate approach back in the 2004-2006 period, and those higher rates contributed to the 2006 and subsequent crash in home prices, but I didn’t think to mention it at the time.

Globalization, dude, globalization... we all think the same, we're all lemmings! Sad, but true

Quote:

We were told the national bird is the (construction) crane.

ROTFLOL Laughing

Samuel

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rhare wrote: So which is

rhare wrote:

So which is more wishful thinking:

  1. People will look our for their own well being.
  2. A person (or small group of people) given power over others will act in a benign fashion.

Yes, and 7 billion people looking out for their own well being, unregulated, will consume the planet to death. Regarding Point No. 2, since we both agree that our (current) governments have no intention of acting benignly towards us, why do you assume that a small group of oil company and bank CEO's with extreme amounts of power over everyone else (and who were not elected and have zero accountability to anyone) will somehow behave any better than politicians, when their prime directive in life is to make money? And when they control the politicians?

rhare wrote:

First, show me a free market in the last 100 years?  In the US and most (all?) of the world are central banks manipulating money supplies via set interest rates, printing, etc.  Also, we continuously add laws and new regulation in this country by the 10's of thousands of pages per year.  Exactly how is this a free market.

I don't disagree, unless those laws and regulations are enacted to legitimately protect the environment or your neighbour.

rhare wrote:

So, if you have a sound money, then when you save to buy things or to invest you are much more likely to be careful with it, because you could lose it if you make a poor choice.  That is the individual will be careful with what they do with their property since they might lose their hard earned savings.

I totally agree. It's about personal responsibility, not only to yourself, but to everyone else and to the environment. Government bailouts do not promote this.

rhare wrote:

Compare that to what we have with fiat currencies.  You can save all you want, but when money is freely printed and handed out to the politically connected banks and individuals, their is no one looking out for how the money is spent.  It's free after all, so you do silly things like lend it to everyone to build houses.  After all you can't lose because their is always more free money available.  It's this moral hazard created by fiat money that is the basis of the problems we see today.

I totally agree, except that it's not the fact that it is fiat currency that all these problems arise, rather it is because that fiat currency is issued by private banks as debt, and it is done so on a fractional reserve basis, and because that monetary system revolves around interest, which creates a requirement for perpetual growth. If the government issued its own fiat currency, debt free and interest free, those problems would go away.

rhare wrote:

If we had a limited government, that is a small government with limited power and not taxing the populace or printing money to hand out to the favored few, would we have lobbyists?  The idea is for the power to be with the people, not the government because of the abuse.  This is again a place where you are attacking the symptom instead of the root cause.   Large government with lots of programs, regulations, etc result in the corruption we see today.  Any time you give a person power over others you will see that power abused.

If we had limited government with little power then there would be nothing holding back the lobbyists! Even fewer politicians to buy off! And all those programs and regulations you disparage as being corrupt ... I haven't seen any corruption there at those low levels, at least from my perspective in Canada and a little while in California. From my experience, government workers work hard for little pay, and do things that are abolutely necessary to protect the environment and the vulnerable. My experience may not be representative of all government bureaucracies of course, and certainly not at all representative of the current US federal government, because it has trillions of dollars to spend to "stimulate" the economy!!! We all know how that turns out, right? It's a disaster waiting to happen. That's Keynesian economics for you.

rhare wrote:

Really?

  • Centrally managed money system.
  • Government managed healthcare - ~60% of all healthcare is paid by government.
  • Centrally controlled education system.

I would say we are much closer to a socialist system than we are a true free market.  Name one thing in your life not currently regulated/legislated by some government entity in the US?

  • That centrally managed money system is managed by private bankers for their own benefit. That is the antithesis of socialism. All the money currently being printed up and  thrown around is the bankers' last ditch attempt to keep the ponzi scheme going for as long as possible by keeping liquidity up, it has nothing to do with socialism.
  • Government managed healthcare is the norm in the developed world, and they are all cheaper than the US's pseudo-privatized, psuedo-socialized hybrid system. But I could delve deeper into this and argue that the US health care system is so ridiculously expensive because the US populace (and Canada too) has become addicted to junk food and that's why everyone is sick and needs medical care. Everyone is addicted to junk food because the fast food and soft drink corporations spend lots of money trying to get kids hooked, for life. It's a good investment on their part ... long term profit-wise. Externalize the costs onto taxpayers (who pay for the medical system) and privatize the profits. That ain't socialism.
  • Every country has a centrally controlled education system, what's wrong with that?

rhare wrote:

Do you not understand that regulated means NOT FREE?

Do you not understand that truly free markets are delicate things, and are easy prey for big bullies to move in and take them over, so then they aren't free anymore? I am not interested in free market ideology. It doesn't work. Corrupt entities do not bankrupt their way out of the system as the fairy tales say; they become central bankers and politicians and prevent their bankruptcies through money printing.

rhare wrote:

True, which is why you don't want governments mandating what is used as money. You want that to be free as well.  Any participants in a transaction should be free to choose their own exchange medium.  That way when you have a medium being abused, participants can choose something else.  Gold and Silver (or other metals) make a good system because they meet the criteria of money (see the crash course) - but the primary reason is because they cannot be created out of thin air.

Totally agree, except for the first sentence. That's why I'm a proponent of freegold and freesilver. People should be able to choose whatever medium they want to use as money. However, using physical gold and silver for everyday transactions isn't practical and that's why there should also be a parallel fiat currency issued by the government for that purpose (if people chooose to use it). The government would pay for its expenditures with its fiat currency (NOT issued by bankers), and taxpayers would be forced to pay their taxes back in that currency, and everything in between is up to individuals to come to their own decisions about how they deal with money. That fiat currency does not need to have any backing at all to function as currency, the point is that it's not based on debt, it does not recieve interest, and does not require perpetual growth to function. Therefore, it can't be turned into a ponzi scheme (unless we let our guard down and allow bankers to regain control of the issuance of money).

rhare wrote:

The reason we have fascism is because we allow the government to make those type of decisions.  When you concentrate power over others it always ends badly.

But the government is (should be) us!!!! If our government is a corrupt fascist dictatorship, we need a revolution to kick them out! That's what we'll be getting!

rhare wrote:

Resource depletion is a serious issue directly related to population.  I don't believe any governmental system will stop or repair damage done because of overpopulation. That includes any redistributive system which are only a band-aid for the short term.  After all, what difference does it make if you overfish and share the profits, the fish are still gone.  However, your fish example is a good because it shows what happens when governments interfere. Did you know most governments provide huge subsidies that encourage over fishing?  Without those subsidies much of the damage we see could not occur because fish would be too expensive to exploit when the fisheries become less productive.

Good point, thanks for that link. But private ownership of fishing rights doesn't seem to work very well either in my experience. The best example seems to be the Scandinavian system where a "board" manages fish stocks and quotas, and that board is made up of different representatives from all the fishermen and interest groups, as well as government.

rhare wrote:

So now is the time more than ever we need to end the manipulations that are hiding the true costs.  That includes money, subsidies, legislation etc which hide the true costs from investors and consumers.  We need a free market to allocate dwindling resources to where they are most desired.  Central planing also has the unfortunate side effect of limiting the number of ideas that will be tried, where as a free market may result in completely new and different approaches to the problems we face.  I trust a few billion people trying many combinations to find something that works than a handful of bureaucrats.

I agree with much of what you are saying but your thinking is polarized. I am not a leftist central planner. If you read through what I say it should be obvious that I am advocating maximizing individual freedoms for people who want to work for it, but not allowing that freedom to get out of hand so that it impinges on other peoples' freedoms. In a world of rapidly diminishing resources, we all have to be more considerate and less greedy. Unfortunately, many of us (who unfortunately tend to be the same people who become billionaires and wield lots of power) don't feel the same way, and therefore this morality of sharing should be "centrally planned" into them.

rhare wrote:

Are you trying to tell me we don't have enough things to be done in this country that everyone who wanted to work could?  I look around and see crumbling streets, bridges, and other infrastructure.  I do not know of a single business that doesn't have more work than they can do.  This is yet another problem created by government manipulation.  In this case it's minimum wage laws and welfare programs that limit the hiring that can be done by artificially restricting the number of jobs available or providing incentive not to work.  After all, if you can collect unemployment benefits that pay more than you can make, why work?

I totally agree, that's exactly what I'm saying. Is it not totally ridiculous that over the last 15 years during the housing boom, workers spent their time building new freeways to new housing developments that weren't needed, while existing yet necessary infrastructure was crumbling? That's what I meant when I said that our ponzi scheme monetary system allocates resources towards making our economies bigger (new and unnecessary  freeways) at the expense of making the economy better (maintaining existing freeways). And one other point, it is not the government per se that created this problem, it was the Federal Reserve via interest rate manipulation, a private bank that controls your money and your government.

rhare wrote:

Not sure how you figure out that the wealthy don't pay taxes.  Since the top 3% pay nearly 50% of all taxes, exactly how is that paying very little?

Because they earn so much. Here in BC, our local billionaire, Jimmi Pattison, could probably pay for our provincial budget if he was taxed more heavily. And I don't buy the argument that his wealth has enabled so many new projects to go ahead that otherwise wouldn't have, and therefore he "deserves" to have billions of dollars. His wealth came from BC citizens and consumers, it's all the same pool of money.

rhare wrote:

Don't get me wrong, I believe we have system that benefits the wealthy and that's what I would like to see changed, but as long as we have government doling out favors and limiting choices, we will continue to see the wealthy benefit.

I don't disagree, and that's why we should be fighting the oil and other industries which control the government and prevent alternative technologies from coming to market that would improve your life, save you money, and promote further innovations.

http://green.autoblog.com/2011/05/19/senate-votes-down-bill-to-end-oil-c...

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No corruption in Canada?

Mark_BC wrote:

If we had limited government with little power then there would be nothing holding back the lobbyists! Even fewer politicians to buy off! And all those programs and regulations you disparage as being corrupt ... I haven't seen any corruption there at those low levels, at least from my perspective in Canada and a little while in California. From my experience, government workers work hard for little pay, and do things that are abolutely necessary to protect the environment and the vulnerable

Oh really? How do you call this:

Muskrat Math

Quote:

No, it is far more likely that we will have to try and sell that power on the open US market. The problem with that is Hydro Quebec is already there and selling to them at roughly 6 cents per kwh. Take the 25 cents or so it will cost to produce this power, and then sell it for 6 cents. That leaves us a loss of 19 cents per kwh.  That would be bad if it were only a small excess of power being sold, but as shown earlier it looks to be all the Lower Churchill power.That would leave the Province and Nalcor with a staggering $931 million dollar loss year after year - for 35 years!

Don't know about you, but this sounds eerily like those ten dollars a brick for a school you’re making in the south of Argentina that Ferfal's talking about...

Samuel

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Focus: Location, location, location

Presumably, everyone opting to read and post here is in general agreement with Chris' theses re: peak oil & the relative likelihood of increasing inflation or even hyperinflation/currency collapse despite the obvious deflationary factors. Even if one accepts his premises and suggestions re: financial preps (e.g. precious metals) and practical preps (eg. purchasing desired items that may increase in price and or decrease in supply) the operative question remains: Where does one opt to brace for/live in/thrive in the future we anticipate? (i.e. Stay put, move within or outside or one's country). 

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System Corrupt Agreed!

How will the lenders be repaid if the borrowers decline to repay them enmasse. After all, if you think aout it, the wealthy have acquired the majority of their wealth off of the backs of those who have been influenced to borrow. How then can they charge them for the fruits of their labors which have been withheld all the while?

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Before We Hijack This Thread...

indecisive1 wrote:

Presumably, everyone opting to read and post here is in general agreement with Chris' theses re: peak oil & the relative likelihood of increasing inflation or even hyperinflation/currency collapse despite the obvious deflationary factors. Even if one accepts his premises and suggestions re: financial preps (e.g. precious metals) and practical preps (eg. purchasing desired items that may increase in price and or decrease in supply) the operative question remains: Where does one opt to brace for/live in/thrive in the future we anticipate? (i.e. Stay put, move within or outside or one's country). 

Indecisive1

I suggest you use the Google Custom Search box in the upper right corner of many pages on this site, using a few key phrases. I believe you will find at least one thread about location, relocation, country or land considerations, etc. That will be a better launching point than this comment section devoted to Dr. Martenson's "Death By Debt" article.

Poet

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Fair enough.

Fair enough.

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You want more jobs . . . here's a way - What's Fair is Fair!

ASSUMPTIONS OF TECHNOLOGY
Technology may increase worker productivity, but because workers can do more with technology, technology actually reduces the need for workers to accomplish the same task. What was done by hand is done by machine. What took hours to hand-enter takes second to do now. But the primary fruits of productivity boosts do not belong to the workers. They belong to the owners of the technology."

"All of economic history has taught us that. Which is why we see the extremes of income inequality that we do today, and so many people out of work. Sure, GDP and productivity per capita rises, but most of it accrues to those at the to

You want more jobs . . . here's a way.

We should try to remove all of the economic penalties (taxes) from labor. In other cases we raise taxes on things that we think are socially destructive (cigarettes and alcohol) and we remove taxes from things we think a good for society (churches and charitable organizations.) Jobs are good for society but we tax them heavily.

If a person does work, they pay several taxes. If a machine does the work it pays none. When a machine does the work of 10 people then it could be taxed at the same amount that 10 people would have paid. That would be fair . . . right? With this system I don’t think we would be lacking for jobs.   The payroll taxes could be lowered to a tiny fraction of what they are now.  The portion of the payroll taxes that an employer pays for hiring people could be lowered significantly.  

A person working and paying taxes . . . good. A machine working and paying no taxes . . . not so good.

Just a thought . . . nothing is going to change as the rich elite like it this way . . . keeping the workers down.

acomfort

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An Alternative to Capitalism (which we need here in the USA)
Several decades ago, Margaret Thatcher claimed: "There is no alternative". She was referring to capitalism. Today, this negative attitude still persists.
 
I would like to offer an alternative to capitalism for the American people to consider. Please click on the following link. It will take you to an essay titled: "Home of the Brave?" which was published by the Athenaeum Library of Philosophy:
 
http://evans-experientialism.freewebspace.com/steinsvold.htm
 
John Steinsvold
 
I think the person who takes a job in order to live - that is to say, for the money - has turned himself into a slave.

--Joseph Campbell

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John Steinsvold

John Steinsvold wrote:
Several decades ago, Margaret Thatcher claimed: "There is no alternative". She was referring to capitalism. Today, this negative attitude still persists.
 
I would like to offer an alternative to capitalism for the American people to consider. Please click on the following link. It will take you to an essay titled: "Home of the Brave?" which was published by the Athenaeum Library of Philosophy:
 
http://evans-experientialism.freewebspace.com/steinsvold.htm
 
John Steinsvold
 
I think the person who takes a job in order to live - that is to say, for the money - has turned himself into a slave.

--Joseph Campbell

This issue has been debated here up, down, inside out, ad nauseum.  I'd be very interested in one real world example where this situation has worked over a protracted period of time.  So far, no one has cited such an example.

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Michael Ferguson wrote: Your

Michael Ferguson wrote:

Your graph on the total U.S. Credit Market Debt is impressive.  However, I'm not sure that it is very informative.  What is relevant is not the growth in the absolute debt, but rather how does this debt compare as a percent to GDP?  During the period from 1970 to 2006, you show the total debt increasing 16X and during that time GDP increased ~13X.  In other words, debt to income increased some, but not dramatically.

Take a closer look.  There were 5 doublings of debt, not four between 1970 and 2006.  So debt increased by a factor of 32 from about 1.5 to about 50 trillion, while GDP only increased by a factor or 13.  So Debt over GDP is about 2.5 time larger than in 1970.  And that doesn't include all of the GDP "enhancing" shenanigans that have been put in place since then.

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The Slight Chance: EcoCommerce

I will go with the little hope you provide:

There's always a slight chance , should some transformative technology come along, like another Internet, or perhaps the equivalent of another Industrial Revolution, but no such catalysts are on the horizon, let alone at the ready.

The next transformative dimension of the economy is "EcoCommerce".  Much of the ecological outputs are positive externalities of our economy with a total worth in trillions of dollars.  The corporate world, lead by food processors, is seeking a process to account for these externalities via a framework they call "shared value". (Porter, M. HBR Jan 2011).  In my book, EcoCommerce 101: Adding an ecological dimension to the economy, I referred to it as 'shared responsibility".  It connects value to land management to improve the natural capital of the economy.  It will allow corporate dollars to flow to improve this capital and provide some glimmer of production and capital improvement over the next couple of decades.  Since the agro-ecosystem provides 90% of the world's food, it is essential that this economic capital is shored up first.  Reviews and info at www.ecocommerce101.com.

Thanks for the blunt insight.  We will continue to find our future leaders are not elected, as the governance of our ecology and economy shifts toward private enterprises.  Thanks for being one.

Tim Gieseke

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Poet's, From one pocket to another

Poet,

You've hit on the only possible solution to the debt-money endgame.  So far all of the bailouts have bailed out the supply side of debt, the banks who created that debt-money as loans.  If those same trillions had been given, not lent, to households, via a "debt salvation" program that gives each adult American with an SS number $1000/month, with a condition that any American who has debt must devote 100% of this money to debt repayment, then by bailing out households we could have bailed out the banks by restoring pretty much all loans to performing status.  

Fiat money is a pure creation that, since it was unmoored from gold that limited the quantity of fiat that could be created, can be created in unlimited amounts simply by keystrokes that add numbers to people's deposit accounts in bank computers.  Under the current (1913) system, only the Fed can create "base money" (bank reserves held at the Fed, and Federal Reserve banknotes), but it is the commercial banks who create all of the credit money that actually circulates in the economy as the “money supply”.  They create this money as accounting entries.  The principal amount of the loan is added as a deposit to the borrower's deposit account, and the debt + interest is charged to the borrower's loan account.  

You say, "Now obviously it's wrong to just print money out of thin air.", but that's exactly what commercial banks do when they make loans.  The Federal Reserve Act and the Bank Act transfer the government's money issuing power to the privately owned Fed and to private commercial banks.  Students of monetary systems, like Irving Fisher and more recently the Modern Money Theory folks, recognize that this current fiat debt-money system requires permanent exponential growth of debt-money in order to keep working.  As Chris observes, we have reached peak debt and we are not going to be doubling our debt again over the next 10 years to keep this arithmetically impossible system working.

Money is issued by banks as principal at interest.  This process only creates the loan principal, not the interest.  So money supply, the quantity of money that is spent into the economy by borrowers, is P.  But debt, the amount of money people need to earn back out of the economy to repay principal + interest, is P + I.  Arithmetically there is always more debt in the system than there is money to repay the debt. 

Banks have a monopoly on money creation.  The ONLY source of non debt money by which borrowers can repay loans is “income” that is earned by working or investing in the economy.  But “the economy” is the demand side of money.  Only the total spending of loan principal exists in the economy where it is available to be earned as income.  There is no money in the economy to pay the interest.  And, when “financial investors” (i.e. finance capitalists) remove money from circulation in the producing and consuming (i.e. earning and spending) economy and ‘invest’ it in the financial economy (converting their “money” to “capital” in the form of stocks, bonds, and other financial assets that pay the investor more money than he invested), there is even less money available in the "real" economy for debtors to earn to repay their loans. 

The only kind of money that can truly become unencumbered “income” is money that is “spent” into the economy, trading money for production or services.  Money that is “lent” into the economy with the intention of getting back more money than you put in, simply adds to the money deficit.  There is always more debt than money in our system, which is why exponential debt growth, a classic Ponzi, is the only way to keep the system going.  Our money system is a Ponzi, and the jig is up.

Most people assume that "government" creates our money.  This has been false since 1913, actually since the 1860s when Lincoln printed his own greenbacks and the Confederates printed their own graybacks, before the bankers took back control and replaced government fiat money with banker "gold-backed" money.  Private commercial banks actually create all our circulating money.  

On the monetary balance sheet, the banking system is the supply side of money and governments, households and firms (i.e. “the economy”) are the demand side.  Most "inflationistas" mistakenly accuse the government of creating too much money.  But in fact the government is on the demand side of money, just like you and me.  We do not enjoy the legislated privilege of creating and issuing money.  Only the banking system is allowed to create and issue money.  

If somebody is to blame for irresponsibly creating too much money, it is bankers, not politicians.  The supposed justification for taking the money issuing power out of the hands of government and giving it to "prudent" bankers was exactly to prevent inflationary money creation.  True, it takes two to tango.  Bankers could not create all this bubble money if borrowers, including government, were not willing to take on bubble levels of debt.  But the justification for private money issuance is precisely to secure the value of money and prevent bubble money from happening, and it happened in the 1920s only a few years after this "prudent" system was installed, then the first bubble collapsed giving us the wonderful Great Depression.  Now we have megatrillions of real estate bubble debt, and unless a whole lot of non debt money is issued to households to repay their debts and resume their consumption, there will be a greater depression in our future.

Even QE, where the Fed buys old Treasuries from the primary dealer (PD) banks and pays for them by creating new reserves in those banks' accounts at the Fed; and then the PD banks use their new reserves to backstop their purchase of new Treasuries to fund the $100 billion per month of deficit fiscal spending, depends ultimately on the private PD banks creating money to buy the new Treasuries.  A Treasury sold to a PD bank for "money", for a new deposit added to Treasury's accounts at those PD banks, is no different than you or me signing a promissory note to a bank to 'secure' a loan from the bank.  Our note, just like a Treasury note, is simply an IOU acknowledging our debt to the bank and our intention of repaying it.  You and me and the government are all on the demand side of the money supply.  Only bankers are on the supply side of money.

QE has to run through the PD banks because the Fed is legally prohibited from directly purchasing Treasury IOUs.  So the Fed buys Treasuries from the PDs then the PDs buy new debt from the Treasury.  Since the 1980s the Fed rebates its interest profit to Treasury after deducting its operating costs and its disbursements of dividends to its member/owner banks.  The PD banks take a cut of the action for doing the Treasury buying and selling that is QE2.  So the PD's cut and the Fed's costs are the only net interest that Treasury pays on its deficit spending via the QE2 program.

To fund a "debt salvation" program, Treasury could issue zero interest “perpetual bonds” (bonds that can be repaid, or not, at the discretion of the borrower) via QE3, and the only cost to Treasury would be the PD banks' cut, their transaction fees.  Under current monetary legislation this is the closest we can get to government issued non-debt money.  Treasury's perpetual bonds held by the Fed would be technically "debt", but if the government never has to repay it and if it's zero interest then it is the equivalent of debt-free money.

By giving this money to households, the demand side of money, the broken tormented demand side that has more debt than it can possibly repay out of future income, we could initiate the kind of virtuous debt repayment cycle you outline in your comment.  So far all the trillions have bailed out the supply side of money, the banks who find themselves with trillions of unpayable loans on the asset side of their balance sheets.  By suspending mark to market accounting, these bank's insolvency (i.e. all the real estate and other liquifiable assets that have been pledged as collateral against bank loans is now worth less than the banks' book value of those loans, so the banks' assets are currently worth less than their liabilities, which is the definition of "insolvency") is not a pressing problem, and they now have trillions in excess reserves, but no willing and able customers to borrow all the money and spend it into the economy where it can be earned as income and used by income earners to repay their old debts.  Call it a "liquidity trap" after Keynes, or a "balance sheet recession" after Richard Koo.  

Either way, the supply siders who control the government have bailed themselves out and charged all the costs to the demand side, to households and the government and future taxpayers in the nonbanking sectors of the economy.  That same money, created debt free by the government and given to households, would have indirectly balied out the banks by bailing out their defaulting borrowers.

So there is a solution, as MMT'ers have been arguing.  But it seems there's a global bankster conspiracy to destroy the middle class and create a new global feudalism, a plutocracy, rule by bankers and their collaborators the corporate titans.  We are to become debt peons, serf-slaves, serving our monied masters the banksters.  If there is no such conspiracy, then why is MMT "debt salvation" not on the table as a policy option, when its benefits have been clearly explicated at least since Irving Fisher in the 1920s and 30s?  And when statesmen like Jefferson from the founding of the Republic have warned of the dire consequences of allowing "European banking interests" to gain ownership and control of American money issuance like they had done in Europe?  

We "know" where the problem is (private banker debt-at-interest monopoly money issuance) and we know what the solution is (government debt free money issuance).  If we know this, and are not using this knowledge to solve the problem, then somebody's powerful agenda is preventing this simple solution from being enacted or even discussed in the mainstream policy debate.

“Never attribute to malice what can be explained by ignorance.”  If all the bankers and monetary and fiscal policymakers are simply ignorant of the simple mechanics of debt money vs. non debt money that I have outlined above, then they should be exposed as stupid fools and replaced with adults who understand how money systems work.  If they are not stupid fools and they understand the consequences of the current money system and are intent on perpetuating it to its logical conclusion of global plutocracy, then they are evil conspirators.  If they don’t understand money mechanics but arrogantly believe they do understand, even though their brilliant understanding ruins our real economy and leads us off the cliff, then the arrogance of their stupidity is evil.

Evil or stupid, maybe both.  So take comfort in knowing that the banksters and corporate titans who are gaining absolute ownership and control of the Earth are either evil or stupid, and they are converting you to a serf either by design or by accident.  Either way you're in good prudent hands, aren't you?

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Debt vs Assets

If someone makes 60K per year and owes 240K on his mortgage, his debt is 400% of his GDP.

By comparison, a homeless guy who makes 10K per year panhandling but only owes his buddy $100 has a debt ratio of 1% of his GDP.

Based on just debt, the homeless guy looks a lot better than the guy with a home and job.

Now, the 240K home is worth 300K, even in today's market.  Hence, this 400% debt guy has a net worth of 60K vs the homeless guy with -100$ net worth. 

I'm not a Ph.D. economist (just a Ph.D. Physical Chemist who is a small business owner), but can we really evaluate debt by just looking at debt and not also looking at assets?  Shouldn't we subtract the value of the assests from the total debts?  If the USA has 100 million homes each worth 200K, isn't that $20 trillion?  Value of farm lands?  Value of all autos?  Factories?  Infrastrutcture?  Our military hardware?  Our space program?  Our research labs?  Our hospitals?

Somebody educate me, please.  Thank You.

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Not the same thing

Hi mikefox

What you are talking about is a blance sheet or maybe a financial statement or net worth. This would only come into play if our Gov. files BK and the court were then to liquidate the assets to pay off the debt. I don't think the American people would stand to have its assets sold off at auction to pay off the national debt. Mybe I am wrong, we sure seem to tolerate alot these days. Also most of the assets you listed are in private hands not public.

Rich

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But, there is no mystical equilibrium....

rhare wrote:

But, there is no mystical equilibrium.  Given a sound money (ie. one that is not manipulated - gold/silver are an example), and free exchange between individuals, each person will tend to look out for themselves.  Some will make mistakes, some will be swindled, but the majority will be diligent about their money and property.  Note this is a natural human behavior to protect ones family and property.

No mystical equilibrium???  But rhare, you then fully explain that there is ;)  I would conquer: there IS absolutely a mystical equilibrium. But it's really not mystical at all. This is exactly why...what is happening is happening...and its about time philosophy got back into the public conversation. For if we do not understand the economic workings of nature, we will forever stumble over ourselves trying to invent a manmade economic system for ourselves that is flawed. As is quite evident.

Remove all humans and their doings from this planet and it's all there to see. Energy and matter: life, always in its destructive-creative evolution; always striving for perfection; always striving for it's most "economical" state. Not perfect, but always striving to be perfect. All of which can be broken down to perfect mathematical equations. All happening without human intervention. Anyone notice?

Point: it's not a fixed, hard-coded system.

Enter humans (not the whole, the individual): left alone to build and produce and improve his life, unaware of the extremely delicate and fundamental natural economics of self interest (survival), risk/reward and supply/demand, could be what you call the mystical equilibrium. For these are the keystones and building blocks that maintain a self-balancing economic system. Not balanced...but always striving to be balanced.

Unfortunately, philosophy has escaped popular conversation today and is not in our consciousness as it was during the founding of the USA and our constitution; for the constitution was built around these silent, delicate principles of "natural law" and "natural rights". There is very little in the constitution beyond the instruction to keep individuals free and trade free. They understood.

For all you socialists out there, that feel there is a need to "fix" and "construct" and "hard-code" economic activities, and while you are doing so "take" earned private property from one individual to give to others out of "fairness", (or whatever justification you manufacture) is dead wrong. And history shows you this over and over. We are not robots...where our parts are shared at the determination of some higher authority (you?).

Point: a hard-coded economic system is bound to fail...as it eventually gets stale and slows and becomes unproductive. More hard-coding will not fix the problem (but it may pacify the current economic symptom--politicians take note!!!!).

Our once relatively free economic system has been inching out of balance for quite some time as we add more and more hard-coding, and put into place "conniving" inventions like the federal reserve/fractional lending/unions...etc, that tinker with the delicate risk/reward and supply/demand equilibrium, and have literally stopped it from relatively small, de-structive, re-structive, re-innovating, re-balancing efforts for decades. Our educational system comes to mind (what a lethargic black hole that is).

Want to see more hard-coding?? Just look at the tax code!!! For we are far over extended...way, way over extended.

Nature will be balanced..because nature is a mathematical equation that must add up. Unfortunately, we have been using future earnings (debt) to make our economic equation work today...be we can only reach so far into the future.

If we understand this we may be able to work faster to put into place freer markets by reducing government overhead which increases productivity and wealth generation, which increases tax proceeds, and have a somewhat softer landing back to the equilibrium. We need streamlining and like NOW. But I'm not optimisitic about that. Not when a majority of people do not understand the basics of the natural laws of economics...and the conniving manmade systems we installed years ago are still in place...and we are installing more.

My hope is when nature decides to hit the reset button, we do not have the socialist democratic party at the helm who have about 6% combined private sector experience...and no philosophical understandings of our constitution. For their only solutions will be hard-coded solutions, which are totalitarian by nature (that is not a pun). All for our own good of course.

Can't wait for that high speed rail here in IL so I can visit Detroit MI !!!

PS: some interesting reading  http://en.wikipedia.org/wiki/Natural_and_legal_rights

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doorwarrior
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moneys

I agree with alot of what you say. However, you are not taking into account a finite planet with finite resources. A completely unfettered market must grow exponentially forever. This is not possible. As humans we reproduce and grow our population. Because of our mastery over our domain we have extended life expectancy by over 2X in the last 200 years or so(a blip on the time scale of the planet). People who would have died fom any number of diseases or medical problems are alive and using up resources today. Population is probably the underlying main problem we face today. We have learned to sidestep our own population constraints set by mother earth through the use of oil and the massive farming procedures coupled with the advances in the medical field.

You must take this into account when discussing these problems. Without controling the population number we will use up all of our resources in short order(on the planets time scale) and then we will forced to reduce the population through starvation and lack of energy. When this happens all of the sociallist vs free market BS will go by the wayside and mean exactly what it means today , nothing.

I think you are strectching a bit by calling nature a mathematical equation unless you want to bring in chaos theroy. Nature does what it does and the species that can survive will, the rest will die out.

When nature does hit the reset button it will not matter one bit whos in control (I even think we are helping her push it right now). There will be nothing left of society as we know it today, the complex systems that are in place will be lost and the "control" will revert  to local communities. Those local comunities will not tollerate the social systems you are talking about.

Rich

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heterodox
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German history

We are told that after the 2nd world war, inflation in Germany caused people to have to use a wheelbarrow full of money to buy a loaf of bread.  Now, 65 years later, Germany is viewed as the main powerhouse behind the Euro.  What happened to their currency and the lifestyle of the average German in between?  How did they weather this storm?  Perhaps their story would shed some light on what we face and what life will be like for the rich, the poor, the working, the unemployed, the retired, while we go through the transition times ahead of us.

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Poet
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Germany After World War II Compared To America Now

heterodox wrote:

We are told that after the 2nd world war, inflation in Germany caused people to have to use a wheelbarrow full of money to buy a loaf of bread.  Now, 65 years later, Germany is viewed as the main powerhouse behind the Euro.  What happened to their currency and the lifestyle of the average German in between?  How did they weather this storm?  Perhaps their story would shed some light on what we face and what life will be like for the rich, the poor, the working, the unemployed, the retired, while we go through the transition times ahead of us.

Heterodox

The times and situations are vastly different. Taking the time to compare is more an exercise in wishful thinking than anything.

I think the West Germans used their industrial and technical know-how, combined with free money from the Marshall Plan and low-cost loans, and their thrifty, highly industrious workers in the aftermath of the war, to rebuild their economy. But they also had major tailwinds.

In the wake of the destruction after war and the post-war occupation, there was a lot of demand for manufactured goods throughout the world. Outside of America, Japan, and Europe, there weren't many producers. We also had a lot of cheap world resources to exploit back then, including really cheap oil from Saudi Arabia and the Arabian Peninsula, first struck in the 1930s.

Today, there are numerous manufacturing plants throughout the world that produce goods at far lower cost than America can deliver... Greater advances in technology, automation, and computing ability that magnify the productive capacity of fewer workers, a still-growing world population meeting finite resources (more expensive, more costly oil). And lastly, we have a huge problem with debt, military spending, and promised social welfare obligations that have been, are, and will continue to be a crippling claim on our future prosperity.

Demographics
Germany lost some 8% to 10% of their total population, both military and civilian population due to the war and they suffered further in the years after. Because of such huge losses in reproductive aged men, and because their economic prosperity came a little later, West Germany's post-WWII baby boom was from 1955 to 1967, whereas ours started immediately after the war and started to decline after 1957.

So while our first boomers started reaching age 65 this year (2011), the first Germany boomers won't be 65 until 2020. Recession aside, demographically, they're still in their so-called "peak earning years" while our boomers are moving out of them into their socialized Social Security and Medicare "peak collecting years".

There are a lot of other factors, too, of course. But these are just a few that come to mind.

P.S. - Travlin opened my eyes with his post (see below). I didn't know civilian deaths were so high after the war. I had read about punitive dismantling of factories and German patents made freely available to all Allies, etc. But didn't know how bad it got with military administration and the privations suffered by the people. I guess the Germans can thank the Soviet Bloc for being enough of a threat that America had to make changes to ensure a stronger Germany.

Poet

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Travlin
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Rising from the ruins

heterodox wrote:

We are told that after the 2nd world war, inflation in Germany caused people to have to use a wheelbarrow full of money to buy a loaf of bread.  Now, 65 years later, Germany is viewed as the main powerhouse behind the Euro.  What happened to their currency and the lifestyle of the average German in between?  How did they weather this storm?  Perhaps their story would shed some light on what we face and what life will be like for the rich, the poor, the working, the unemployed, the retired, while we go through the transition times ahead of us.

Heterodox

Welcome to the forums.  Your post is very good.  You are off by one war on German hyperinflation.  That was 1921-23 following WWI.  http://en.wikipedia.org/wiki/German_hyperinflation_of_the_1920s#History  It was an important contributing factor to the rise of Hitler and WWII. 

Your question about Germany’s post war recovery is very apt.  This is the only example of a fully industrialized nation that was completely destroyed and had to rebuild literally from ashes.  The best account I have found is In The Ruins of the Reich, by Douglas Botting.  The original title was From the Ruins of the Reich.  You can buy a good used copy for less than $5 shipped.  There are only three reviews at Amazon but they give a good sense of the book.  http://www.amazon.com/Ruins-Reich-Douglas-Botting/dp/0413775119/ref=sr_1_1?ie=UTF8&qid=1307902236&sr=8-1

In the five years after the war ended Germans died by the millions, and if I remember correctly civilians deaths post war were comparable to all their military deaths during hostilities.  Living conditions were extremely primitive, with massive deaths from malnutrition, cold, and disease.  The official rations granted by the victorious occupying nations were below starvation levels, so people had to barter anything of value to survive.  Sex was a leading service for trade, and cigarettes were the most valued currency.

It was the deliberate policy of the USSR, USA, Britain, and France to make the German people suffer a prolonged ordeal so they would never again start a war.  The real German recovery only began three years later in 1948 with massive US aid under the Marshall Plan when the US realized that a stronger Germany was needed to counter the USSR as the cold war began.  http://en.wikipedia.org/wiki/Marshall_plan

I have re-read this book recently for the same reasons you asked your question and found it very useful.  There were also important differences to keep in mind.  The biggest one was political.  The German central government collapsed, but was replaced by hostile occupying victors.   While they generally did a poor job of helping meet basic needs, they did have resources of food, coal, oil, and logistics that prevented the worst from happening.  Most of the victors had been stretched to the limits themselves.  The situation was made much worse by ethnic hostilities of civilian populations, and the massive dislocations caused by the millions of slave laborers Germany imported.  It was the largest migration of people in human history, and took place in lands that were utterly devastated and in chaos.

This book is not pleasant reading, but it is very well written, interesting, and informative if you really want to know how a widespread general collapse plays out.

Travlin

PS – Poet posted while I was still composing.  He is using a different perspective, but his points are all good, especially the demand for goods to rebuild after the war.  For a while the USA produced 50% of Gross World Product.  There was a lot of opportunity for a local country to pick up the slack in Europe.

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Damnthematrix
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correction

heterodox wrote:

We are told that after the 2nd world war, inflation in Germany caused people to have to use a wheelbarrow full of money to buy a loaf of bread. 

It was actually the FIRST WW....

After WWI, Germany was forced to pay for reparations which sent it bankrupt, causing Hitler's rise (it's obviously much more complicated that that!)

The same mistakes were not made after WWII.  In a nutshell, that answers your question.

Mike

EDIT:  Just noticed Travlin's excellent "nutshell" much better informed than mine!  Thanks for the heads up on that book.... must find a copy.

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From one pocket to another

You are correct, websearch Bloomberg and you will see that more than $26,000,000,000,000, yes that's trillion with a "t", went mostly to the international banks during the bailout.  That would have been enough to pay off every mortgage in the U. S. and more.  If that happened our economy would be humming again, albeit with inflation in prices, but we have that already anyway. 

The world is run by an international cartel of banksters and huge corporations who care not for anyone or anything but themselves.  It is called "corporate fascism".

Tuco Benedicto Pacifico Juan Maria Ramirez

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Its the private debt

Another excellent article by Steve Keen

http://www.debtdeflation.com/blogs/2011/06/11/dude-where%e2%80%99s-my-recovery/comment-page-1/#comments

A long way to go yet..See Fig 16

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ProudCorporateTool wrote:

"

Lotsa debt, but how did it arise? Somebody got all that money, unless people were sitting around burning trillions of dollors of currency.

Poor people? Nope, they're still poor. The money isn't there.

Middle Class? Nope, most of them live paycheck to paycheck, or maybe have a few months cushion.

Rich people? BINGO

"

Yes, Indeed, It all went somewere - a lot of it has been hoovered up by the rich. Ofcourse the world population has been expanding as well - population increase since 1970 would probably fit that 1970-now graph which apears in the artical quite well except for the 2008 onwards bit since i think population growth is still chugging along.

Anyway all those new folks have absorbed alot of the debt counjured money even though they are living paycheck to paycheck.

We could of just printed off a load of money for the extra people without necessarily leading to inflation, but we didn't, we lent it to them.  We can just print it off now to cover that debt - again without  inflation.

There; that's the money sorted.

Can we print off some oil and food, while were at it?

No.

Ahh, there's your inflation!

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isora
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end of the hockey stick in line of sight

Hi Chris, excellent job! It took time to see the obvious. There is no way without resetting the financial system. This means erasing all savings, private pensions so far...

Yesterday I meet 2 highly educated persons, refusing to think about the things on the horizone.

Maybe our german goverment has even started to print a "crisis currency" as it was done some decades ago. There were only 15 Billion Deutsch Marks hidden in a systems of caves.

Cheers.

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Not really a problem

Most early corporations were setup so that investors could pool capital to undertake projects that could not be funded by an individual.  If the project went well then the investors collected a potion of those earnings, if they went badly the investors lost thier capital.  No bailouts, no "protecting bondholders", just risk and reward -- seems like a pretty good system to me.

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andyfisk
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So....... WHY did you do it?

because I decide if I suceed or fail, and because its great to wake up every morning looking forward to "going to work"!

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andyfisk wrote: Most early

andyfisk wrote:

Most early corporations were setup so that investors could pool capital to undertake projects that could not be funded by an individual.  If the project went well then the investors collected a potion of those earnings, if they went badly the investors lost thier capital.  No bailouts, no "protecting bondholders", just risk and reward -- seems like a pretty good system to me.

I would add to this that once the project was finished the corporation was disbanded. In other words the corpoartion was created to acomplish a certain project not to become its own entity with its own self serving goals. it was, in essence, a public servant.

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From one pocket to another

My initial reaction to the housing crisis was to wonder why, as you say, banks did not agree to stop ARM rates and or lower interest rates to a place where homeowners could remain paying. Instead owners lost all those home, prices devalued etc.  To lower interest rates on mortgages would "default on the legal contract" but wouldn't banks have done better if they allowed that? Instead, govt. stepped in to soak up bank losses but with no results for the homeowners.  I call for a semi-jubilee or a massive restructuring of mortgages which would have a direct impact on bottom lines of "joe six pack". Why didn't the TARP money go into programs like this?

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jamesmathew
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Really a great analysis...

Really a great analysis...

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