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Guest Post: Death By Debt

Tyler Durden's picture


Submitted by Chris Martenson

Death By Debt

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 might be, 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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Wed, 06/08/2011 - 11:36 | 1351055 oogs66
oogs66's picture

Yes, we need to stop "fixing" a debt problem by issuing more debt!

Wed, 06/08/2011 - 20:27 | 1353072 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

The debt fix will end in tears. Deflation bitchez!!!

Wed, 06/08/2011 - 11:40 | 1351064 ursus.peracto
ursus.peracto's picture

There will no longer be any faith in paper after this scheme implodes.

Wed, 06/08/2011 - 12:01 | 1351111 topcallingtroll
topcallingtroll's picture


Wed, 06/08/2011 - 11:47 | 1351114 topcallingtroll
topcallingtroll's picture

There may still be paper, but there will be no faith in governments. This lack of faith, a huge cultural shift, will be the end of socialism and transfer payments.

Argentines still use fiat even after a fifty percent collapse and the certainty of a future devaluation.

Wed, 06/08/2011 - 11:53 | 1351123 ursus.peracto
ursus.peracto's picture

Good point, but I mean the entire system, not just one component.


The Government of Argentina has promised that it will be different this time.

Wed, 06/08/2011 - 14:01 | 1351650 tiger7905
tiger7905's picture

A great Turk interview on gold and hyperinflation and how what the US is living now is exactly like when they lived thru the continental currency.

Wed, 06/08/2011 - 12:36 | 1351307 chartcruzer
chartcruzer's picture

This is a great article - and yes a currency crisis is inevitable.   Throughout time fiat currencies have allways failed.  What's amazing is that the breadth of the worlds major economies are all beyond the tipping point of the fiat/debt pozi play.  Read this.

The question that kills me is; how long will these debt loaded economies be able to extend and pretend?

Im monitoring long term interest rates, the price of gld, and the $ for clues...[s218718281]&disp=P[s172502148]&disp=P[s218820698]&disp=P


Wed, 06/08/2011 - 11:40 | 1351065 Spastica Rex
Spastica Rex's picture

Jesus would never have created a world with limits. Limits are for atheists and pussies.

Wed, 06/08/2011 - 11:48 | 1351104 ursus.peracto
ursus.peracto's picture

They come in handy for calc.

A champagne bottle is about the limit for a pussy though.

Wed, 06/08/2011 - 11:52 | 1351120 US Uncut
US Uncut's picture


Wed, 06/08/2011 - 11:50 | 1351126 ursus.peracto
ursus.peracto's picture


Wed, 06/08/2011 - 12:46 | 1351346 falak pema
falak pema's picture

talc or bubble

Wed, 06/08/2011 - 13:04 | 1351412 ursus.peracto
ursus.peracto's picture


Wed, 06/08/2011 - 16:36 | 1352317 falak pema
falak pema's picture

I prefer Hegel he was more bubbly and incomprehensible sober or drunk...also closer to god than infinitesimal as to be devilish.

Wed, 06/08/2011 - 11:39 | 1351073 alien-IQ
alien-IQ's picture

Debt is slavery and a nation that commits itself to endless debt commits it's people to endless slavery.

Wed, 06/08/2011 - 11:46 | 1351109 monkeys.pick.bottoms
monkeys.pick.bottoms's picture

You have described the last 300+ years of our civilization. Where is John Galt when you need him? Hurry up, will he?

Wed, 06/08/2011 - 12:55 | 1351388 Whalley World
Whalley World's picture

Who is John Galt?

Wed, 06/08/2011 - 14:44 | 1351843 ursus.peracto
ursus.peracto's picture

I hate to break the news but Galt died of a massive coronary after the end of Bretton Woods.

Wed, 06/08/2011 - 11:46 | 1351113 Hedgetard55
Hedgetard55's picture

Debt = cancer.


Hard to get cured unless removed early. We haven't removed it, but let it grow.

Wed, 06/08/2011 - 12:17 | 1351227 TruthInSunshine
TruthInSunshine's picture

Not just cancer, but cancer suffered under slavery.

Wed, 06/08/2011 - 11:53 | 1351118 Azannoth
Azannoth's picture

Remember the scene from Titanic where the Captain asks the Architect, if the ship can float with 5 ruptured containers, and the Architect says no it can't, the Captain asks 'are you sure?' the Architect responds, 'yes it's a mathematical certainty'

Wed, 06/08/2011 - 11:53 | 1351125 Cui Bono
Cui Bono's picture

Volunteer philosophy on the velocity of time or something....

Chung Mee: Opium is my business. The bridge mean more traffic. More traffic mean more money. More money mean more power.
Lawrence Bourne III: Yeah, well, before I commit any of that to memory, would there be anything in this for me?
Chung Mee: Speed is important in business. Time is money.
Lawrence Bourne III: You said opium was money.
Chung Mee: Money is Money.
Lawrence Bourne III: Well then, what is time again?

Wed, 06/08/2011 - 12:27 | 1351264 WonderDawg
WonderDawg's picture

Classic scene in a hilarious movie that largely flew under the radar. Laughed myself to tears the first time I saw it, and I'm sure it had nothing to do with what I was smoking at the time.

Wed, 06/08/2011 - 15:00 | 1351912 Mad Cow
Mad Cow's picture

I love that movie, thanks for the chuckle.

Wed, 06/08/2011 - 11:55 | 1351127 LawsofPhysics
LawsofPhysics's picture

True price discovery will come eventually, so long as fraud remains the status quo, that coming will be much more chaotic then if we had actually dealt with it 30+ years ago.

The world economy depends on cheap energy and exponential growth, neither is sustainable for extended periods of time.  Without drastically changing our monetary and economic systems the BRIC countries have the choice of bailing out the rest of the world, taking a big haircut on the poor investments (in all debtor countries), or invading the rest of the world and taking all physical assets by force.  There simply are no other alternatives moving forward with the current system.


Possession of real value added assets rapidly becoming 100% of the law around the globe.  Even the folks in the middle east are considering the possibility that their oil may be more valuable to them instead of being sold for anything, including gold.  

Wed, 06/08/2011 - 12:12 | 1351200 Bay of Pigs
Bay of Pigs's picture

Especially when some countries invade others for their oil and gold, you know, like Libya.

Wed, 06/08/2011 - 12:36 | 1351303 Nonanonymous
Nonanonymous's picture

Accruing to the benefit of the status quo, and not the general weal.

Wed, 06/08/2011 - 12:37 | 1351312 MolotovCockhead
MolotovCockhead's picture

How can it be worth anything when it can be so easily taken away, whether Oil or Gold? Look at Iraq, Afghanistan, Libya....

Wed, 06/08/2011 - 14:29 | 1351753 akak
akak's picture

Hey BoP, how went the Vancouver Cambridge House Investor's Conference?  Did our hero Jon Nadler dare rise to the podium, and was he soundly heckled if he did so?

Wed, 06/08/2011 - 16:08 | 1352210 Bay of Pigs
Bay of Pigs's picture


As usual, he was completely irrelevant, but the crowd was polite (as they usually are). He's lucky he doesn't post here. He would get torn to shreds. LOL.

Sadly, I wasn't able to confront him publically as I had hoped to do.

I might try again at the Silver Summit in Spokane, WA in October. 

Thu, 06/09/2011 - 14:33 | 1355189 akak
akak's picture

Thanks for the update, BoP!

But I must admit, I have a very hard time believing that ANY semi-informed investor audience would or could politely sit through any presentation of the disingenuous anti-gold propaganda endlessly spouted by that lying, pro-bankster shill Nadler.  Where is the outrage?  Where are the rightfully indignant challenges to mindlessly pro-status-quo disinformation and lies?  Had I been in that audience, you can be sure that I would NOT have sat quietly and let that bastard repeat his vile anti-gold bullshit!  Did NOBODY at least snort or guffaw in contempt?  What is WRONG with these meek Canadians anyway?

Wed, 06/08/2011 - 11:51 | 1351128 SheepDog-One
SheepDog-One's picture

The world fiat usury fractional banking system is collapsing. Theyre doing everything they can to keep it alive, because its the only way 'those people' know how to make a living in the world, but make no mistake its imploding.

Wed, 06/08/2011 - 12:20 | 1351233 TruthInSunshine
TruthInSunshine's picture

The Bernank is searching high and low for that killer app algorithm that allows him to ignore the fact that he can flood the system with more liquidity, even though demands for loans/debt/credit and the willingness to issue loans/debt/credit is contracting against a backdrop of weakening employment and wage trends (you could say employment is in a secular bear market).

Wed, 06/08/2011 - 11:52 | 1351129 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

acceptance of the fact that the economy can't be fixed

But, but, but...

I am still amazed at the (il)logical extremes some people will go to to try and explain some scenario by which it "corrects itself."

Actually after thinking for moment longer about it, most of these folks are just dutifully repeating some convoluted meme that they've attached themselves to.  I think this is to keep themselves from totally freaking out.

Wed, 06/08/2011 - 11:54 | 1351138 topcallingtroll
topcallingtroll's picture

But there is rebirth after collapse and contraction.

Doesnt that fix the problem eventually?

Wed, 06/08/2011 - 12:12 | 1351201 ursus.peracto
ursus.peracto's picture

Hegelian Dialectic?

Wed, 06/08/2011 - 13:38 | 1351566 DosZap
DosZap's picture


hell yeah, been using this scam for YEARS.

What do you think all this QE shite is?

Wed, 06/08/2011 - 11:56 | 1351147 SheepDog-One
SheepDog-One's picture

Theyll freak out one morning soon when they announce all their 401K's and pensions have been seized.

Wed, 06/08/2011 - 13:19 | 1351480 Dr. Richard Head
Dr. Richard Head's picture

They'll be pleasantly suprised one morning when it is annouced that all all 401K's and pension have been reallocated in the form of lifetime income distribution options and will be required for defined contribution plans.  Uncle Sam loves you and you will love him.

There you go...muuuuuuuuuuuch better.

Wed, 06/08/2011 - 14:12 | 1351678 JailBank
JailBank's picture

They have already kicked that off by confiscating government TSP 401k.

Wed, 06/08/2011 - 11:55 | 1351131 Mentaliusanything
Mentaliusanything's picture

August 15th 1971 - He did it ! He unleashed the anchor and said farewell. We can't grow debt being tied to it, they pleaded. Thnx Tricky

Wed, 06/08/2011 - 11:52 | 1351132 topcallingtroll
topcallingtroll's picture

The economy cant be fixed?

Kondratiev winter always turns to spring eventually doesnt it?

Now i wonder if the fifty year jubilee throughout the middle ages was their solution to the kondratiev winter.

Wed, 06/08/2011 - 13:59 | 1351641 NotApplicable
NotApplicable's picture

I think he means it can't be fixed within its current broken paradigm. Which is why he probably thinks The Bernank can't just write a check for $5T a year to re-engage the debt tower (which I believe to be the likely outcome). Why? Because I expect the current system to be replaced by the paradigm, "ZIRP Along the Entire Yield Curve," ending the idea of lending at interest as a profit seeking endeavor (nationalizing all financial entities in the process).

To me, Martensen's "chart that explains everything" is indicitive of the cumulative cost of debt service overtaking the ever shrinking marginal utility of debt, (which has gone negative as a result), along with the debt driven consumption and malinvestment he mentions.

While ZIRP4EVA will not occur overnight, I see it being ushered in because first, "We have to do something!", and second, "There Is No Alternative" (TINA). Over time, as the "muddle-through non-recovery" progresses people will start to think it normal for the Central Banksters of the world to provide interest free loans to governments to spend, because, "why else would they need to exist?"

It's really all about changing the perspective known as "conventional wisdom" over time as they change the underlying convention. While a 30 year Treasury paying .0000001% may seem asinine today, well so did the idea of $14T in US gov. debt back in 1971.

Yet here we are today, squarely in Asinieland.

Wed, 06/08/2011 - 11:54 | 1351143 nobusiness
nobusiness's picture

The real purpose of our massive military might just be to protect us from the Chinese debt collectors who are coming either because we default or print so much that the debt they hold is worthless.

Wed, 06/08/2011 - 12:01 | 1351156 SheepDog-One
SheepDog-One's picture

A military more overextended than the Roman military was, and also troop morale at all time lows, military suicides all time highs.

Wed, 06/08/2011 - 16:45 | 1352370 falak pema
falak pema's picture

they say the roman legions in Africa declined due to sexual exhaustion. They found the Numidian women too enticing. Imagine that beaten by a pussy, or a pack of pussies...

Wed, 06/08/2011 - 19:41 | 1352967 Ben Dover
Ben Dover's picture

Being beaten by a pack of pussies is a tradition that goes back at least to the Greeks -

Wed, 06/08/2011 - 12:02 | 1351163 A_MacLaren
A_MacLaren's picture

Not when jack-booted thugs in Government are the debt collectors...

Acting on orders from the U.S. Department of Education, a S.W.A.T. team broke into a California home Tuesday at 6 a.m. and reportedly roughed up a man — all because of his estranged wife’s defaulted student loans. She wasn’t there.


Yet, Kenneth Wright of the city of Stockton was grabbed by the neck by handcuffed before he and his three young children were put in a police car as the officers searched his house, he told ABC News10. He said he was in his underwear the whole time.


“They busted down my door for this. It wasn’t even me,” Wright told the local news station. “All I want is an apology for me and my kids and for them to get me a new door.”


Local police were reportedly not involved in the incident.

Wed, 06/08/2011 - 12:02 | 1351172 alien-IQ
alien-IQ's picture

and that's how people get "accidentally" gunned down by trigger happy steroid pumping cops.

Wed, 06/08/2011 - 13:46 | 1351587 DosZap
DosZap's picture


This is insanity, there has to be more to this.

That local LE would follow these orders is unbelievable.

The Chief should have said SCREW YOU.

They all are pussies.IF, this was for the reason stated.

You SERVE a warrant, you do not kick the door down.(esp for a student loan default).

This man, and his children deserve millions.


Wed, 06/08/2011 - 12:20 | 1351235 Spastica Rex
Spastica Rex's picture

The U.S. military is what backs the dollar. No offensive military, no almighty dollar, no empire.

Wed, 06/08/2011 - 13:32 | 1351539 Dr. Richard Head
Dr. Richard Head's picture

WE ARE NOT AN EMPIRE!!!!!  We are the good guys remember.  Fighting for the freedom of the US. They all hate us for our freedom. /sarc

Wed, 06/08/2011 - 15:05 | 1351926 MayIMommaDogFac...
MayIMommaDogFace2theBananaPatch's picture

Yeah.  Feel the freedom.  Are you feelin' it?  </sarc>

Wed, 06/08/2011 - 16:47 | 1352385 falak pema
falak pema's picture

Are you giving head as you speak sir?

Wed, 06/08/2011 - 20:07 | 1353025 Confuchius
Confuchius's picture

Good guys.

Compared to what, exactly?

Wed, 06/08/2011 - 12:01 | 1351157 Cassandra Syndrome
Cassandra Syndrome's picture

Anyone think there will be a massive single day Credit Event? Or will it be an incremental collapse?

The world is so interconnected and no one really knows the full extent of this ludricous system, so the credit event is possibly unimaginable.


Wed, 06/08/2011 - 12:14 | 1351224 Diogenes
Diogenes's picture

There won't be any Big Bang or giant collapse. The economy will continue grinding down until you reach the level of Bulgaria. Most people won't even notice. If you find this hard to believe, look at the number newbies on this board asking when the collapse will begin lol.

The latest round began in 2006 with the end of the housing boom. We are well into the collapse now.

Wed, 06/08/2011 - 12:46 | 1351359 karzai_luver
karzai_luver's picture


Wed, 06/08/2011 - 12:17 | 1351234 Bam_Man
Bam_Man's picture

I am in the "single day event" camp and believe its epicenter will definitely be in Europe.

Also believe it could happen at any moment, as the insolvent banks/sovereigns are already living on "borrowed time".

Wed, 06/08/2011 - 20:30 | 1353076 Roger Knights
Roger Knights's picture

Yeah, we've been lulled by the endless can-kicking. The "event" that could shatter that charade would be a ruling against bailouts by the German constitutional court. Or election victories by anti-bailout parties. Once the crowd started rushing for the exits as a result, it could turn into a self-fulfilling door-buster.

Wed, 06/08/2011 - 12:26 | 1351259 mayhem_korner
mayhem_korner's picture

Think about those cartoons where someone starts a pea-sized snowball rolling down a mountain...

The one potential game-breaker in the mix is the margining under Dodd-Frank.  Lots of food-fighting going on over that by the Gangsta-14.

Wed, 06/08/2011 - 12:04 | 1351169 duo
duo's picture

$52T at 4% is $2 trillion a year of interest that has to be paid somewhere in the system.  Consider that 110,000,000 households at $45K a year is only $5T.  When interest expense becomes larger than household income of the whole country, do we cross the event horizon into the black hole?

Wed, 06/08/2011 - 12:06 | 1351191 SheepDog-One
SheepDog-One's picture

Theyre still looking for who is goin to pay the interest. I dont see anyone.

Wed, 06/08/2011 - 12:24 | 1351269 ursus.peracto
ursus.peracto's picture

Now we know why they are looking for life on other planets.

Wed, 06/08/2011 - 12:49 | 1351369 karzai_luver
karzai_luver's picture

Good planet BAD planet?


Wait we already have that here...........






Maybe best that we don't find anyone "out there" as they would not possibly pity us fools.


Wed, 06/08/2011 - 13:01 | 1351414 TruthInSunshine
TruthInSunshine's picture

They need more debt slaves in order to service the interest on the debt, which flows to you-know-who.

If only Bernanke could be more successful by printing more debt slaves!

Printing fiat is old school, and has lost its efficacy.

Wed, 06/08/2011 - 12:16 | 1351218 LFMayor
LFMayor's picture

You know it.  Then on down to the singularity.  Where all things are infinite.

Wed, 06/08/2011 - 12:07 | 1351185 AcidRastaHead
AcidRastaHead's picture

Anyone know what the housing industry contributed to the GDP pre and post the crisis? Once that ponzi scheme collapsed which must have been a large driver to growth over the past decade or more what industry do these hopium smokers think will not only replace it but improve upon it as will be needed to pay down the debt?  I'm not conviced Tiffany's, Prada and Apple are really going to propel us back to prosperity.

Wed, 06/08/2011 - 12:21 | 1351202 TruthInSunshine
TruthInSunshine's picture

"everyone in the same boat" = expectations of QE3.

I've never seen a more anticipated unveiling (or resumption) of a major monetary policy initiative, or almost any other major event, ever, even though it's effectively worsened not only the condition of the economy, but Bernanke's options (even if you assume he's not intending to parlay any benefits onto society as a whole).

This is a good article, Chris. You were remiss to not touch upon the most important point, however --  jobs.

The economic structure of the globe, as it's based on fractional reserve banking, which requires the issuance of increasingly higher amounts of debt in order to achieve even nominal economic growth, is on a precarious edge when the underlying base that would give rise to both the willingness to lend and the willingness to borrow - employment - is so fundamentally weak (and getting weaker).

Jobs. Joblessness. Wages. Wage declines.

In a world of increasing productivity and the literal phasing out of whole categories of needed workers do to technological advances and globalization (fueling wage declines - labor is cheap, don't you know?), this is the critical link that is undermining the fractional reserve banking based economy.

Wed, 06/08/2011 - 12:14 | 1351207 cainhoy
cainhoy's picture

it will come as a thief in the night. you will turn on your telescreen and mark haines will smile at you. knowingly.

Wed, 06/08/2011 - 12:18 | 1351228 mayhem_korner
mayhem_korner's picture

Love the pockets graphic; moreover, the cut-to-the-chase tone that all the machinations are just noise relative to the real overhanging issue of the debt.

My question isn't what's the end of this's what's the next game?

Wed, 06/08/2011 - 12:22 | 1351252 Bam_Man
Bam_Man's picture

The "next game" is the scramble to grab productive, cash flow-generating assets for pennies on the dollar.

We have seen this movie before (Russia early 1990's) albeit on a smaller scale. 

Wed, 06/08/2011 - 15:14 | 1351975 Mad Cow
Mad Cow's picture

Next game up, global currency with the US as the fall-guy, or global police. Hey wait a minute!

Wed, 06/08/2011 - 12:30 | 1351282 baby_BLYTHE
baby_BLYTHE's picture

New Marc Faber interview

"The CIA is completely useless they had no idea that the unrest ( in North Africa and the middle east ) would start they had no ground information that something was going on so the US and this president had no way to react properly"

also talks about the dollar and the world economic slow-down

Wed, 06/08/2011 - 13:14 | 1351434 gwar5
gwar5's picture

CIA knows that the Obama marxist supporters are all over MENA supporting the Muslim Brotherhood and showing them how to do 1960's radical style demontrations to boot out the pro-West regimes. That's why so many of the MENA signs were in English with American style slogans. Obama can't say he has been behind it -- if it turns out badly (it will) he will be blamed and branded Carter on steroids (he is). It's not even a secret, except in the USA MSM, where it's not being reported to protect Obama and give him cover.

Everybody knows it, and the Israeli's certainly know it, and have said so, with Netanyahu remarking just last month how they've been following the strange brew of America leftists allying with the Muslim Brotherhood -- which are totally repressive to women, gays, religions and other freedoms.

Likewise, a 5 minute google search shows hundreds of pictures of the marxist Pink Ladies and Bill Ayers (just retired from teaching in Chicago) unabashedly marching with Hamas in Gaza, and mingling, meeting, and organizing with MB in the US and in MENA for the last several years in plain sight -- they're not hiding. The anti-Israeli flotilla was organized by them and they were even on the boats. Marxist Pink ladies even delivered a written message to Obama from Hamas on their return from an organizing visit. The pink ladies bundle hundreds of thousands of campaign $$ for Obama's election(s) and get an open door to the WH, and so does the MB.  

Obama knows all about it and so does the CIA. Obama is helping to orchestrate the resurgence of the MB, but the using Shariah movement and the MB is just our dweeb little commies. 

We don't know what the quid pro quo Obama is going to ask of the MB. But the left has always wanted an army of committed ideologues to provide muscle against Western capitalism.

Wed, 06/08/2011 - 13:27 | 1351507 karzai_luver
karzai_luver's picture

The people on the ground want western style capitalisim,at least as practiced by China.

To puke up the bile about rights when the very gvt your western caps supported and used to suppress the rights of MEN and women is foolish and brands you as an MSM overdosed koolaid statist-fascist supporting goon.


Obama is nothing but chief asskisser of bankster propaganda.

He always was knows nothing else.



Wed, 06/08/2011 - 13:39 | 1351550 DosZap
DosZap's picture


MB was just registered as a bonafide US Political party.

All hail Muham-ed Bumma.

Wed, 06/08/2011 - 14:14 | 1351702 NotApplicable
NotApplicable's picture

Unless you've found something I haven't, I think you're referring to their status in Egypt, not the US.

Wed, 06/08/2011 - 12:31 | 1351286 TruthInSunshine
TruthInSunshine's picture

In our system:

Money (fiat) = debt = credit = asset = liability

It's all one in the same.

What is a Federal Reserve Note, Mr. Bernanke? What is money?

Wed, 06/08/2011 - 16:19 | 1352249 css1971
css1971's picture

Not quite. Fiat is about 5% of US money. We then privatised the rest of our money, which is credit, each dollar of which has multiple dollars of debt claiming it by now. It would be exactly the same situation with gold. The difference is gold is a harder task mistress than fiat.


We are just about at the point where the credit and fiat are unable to pay the interest on the debt.

As Chris says, what we have to do for the monetary system to function is take the next BIG 50 trillion dollar step in credit creation.


Another 50 trillion in 10 years. Bring those zeros Ben! Bring it! LOL.


Or we do the electronic equivalent of printing paper and print enough to pay off the debts.

Both are massively inflationary. Oh wait, the other option is to allow deflation to consume all the credit and simply default on everything, though I'd argue that all of the options above are defaults.


Wed, 06/08/2011 - 12:37 | 1351290 gwar5
gwar5's picture

Great article Chris.

"The more we spend, the richer we are! Yes, really!" -- VP Joe Biden, 2009.

Explains again why Romer's precious Keynesian multiplier doesn't work anymore. Too bad the mouth-breathing Keynesian trolls staked their entire life's work on a cheap scam. Most of them will now live to join Krugman already doing revisionism on the Keynesian post-mortem claiming they were still right all along.

Wed, 06/08/2011 - 13:26 | 1351512 karzai_luver
karzai_luver's picture

Is grover a commie?


Did ronnie really want to strangle gvt in the crib?



Wed, 06/08/2011 - 12:37 | 1351314 wombats
wombats's picture

It may only be paper fiat, but as long as its accepted then lets all just party on!  What's the point in having a credit card if its not used?

Wed, 06/08/2011 - 12:34 | 1351315 Nonanonymous
Nonanonymous's picture

So, does anyone have access to "Part II - Understanding The Endgame"?

Wed, 06/08/2011 - 12:34 | 1351319 wombats
wombats's picture

It may only be paper fiat, but as long as its accepted then lets all just party on!  What's the point in having a credit card if its not used?

Wed, 06/08/2011 - 12:34 | 1351321 wombats
wombats's picture

It may only be paper fiat, but as long as its accepted then lets all just party on!  What's the point in having a credit card if its not used?

Wed, 06/08/2011 - 12:48 | 1351364 bigwavedave
bigwavedave's picture

It would be more useful to actually look at the other side of this balance sheet. Who are the creditors? 

Wed, 06/08/2011 - 12:54 | 1351387 karzai_luver
karzai_luver's picture

Citizen, THAT is communist prattle and will earn you a trip to the campgrounds.



Wed, 06/08/2011 - 13:30 | 1351523 jacksmedullaobl...
jacksmedullaoblongata's picture

US government debt is just reaching records which were set at the end of World War II.  The US paid this debt, why can we pay the current debt?

Wed, 06/08/2011 - 13:32 | 1351542 karzai_luver
karzai_luver's picture

You forgot the sarc tags. That was ............o well no matter.


Wed, 06/08/2011 - 13:59 | 1351631 DosZap
DosZap's picture

One reason we were the largest creditor nation on earth THEN.

Now, we rank in top 10 most in debt.

Bottom line,we are dead broke, and the interest will accrue at a rate that exceeds any tax rate you could come up with......even 100%.

Besides, if anyone here thinks this debt has been run up with ANY intent of repayment, send ,me what your smoking.

The Golden Goose had to be killed..............

Wed, 06/08/2011 - 13:30 | 1351535 Ying-Yang
Ying-Yang's picture

Outstanding summary Chris... a great article to send to the sleeping masses. This is enough information to compare Greece to the US to illustrate the path we will follow. Greece is in the headlines and the US is not too far behind.

See you on the other side.....

Wed, 06/08/2011 - 13:50 | 1351610 CustomersMan
CustomersMan's picture


                           Speaking of DEATH, And SWISS Banks

        As this article points out, death can be more than a euphemism, as the story explains (real people are liquidated, murdered, as a routine practice) and dead is dead.


        The construct for the European Union was in the planning states since 1955. These criminals have a long-view of things, sometimes referred to as "gradualism" in order to make their plans manifest. If you are only looking at the U.S. death-by-debt, are missing the whole point and the "end-game".


From thetruthseeker:


In an interview with a prominent Swiss banker by WeAreChange on the 30th of May 2011, the deeply interconnected relations between high level management of Swiss banks and the Bilderberg club are exposed. It becomes clear that Bilderberg uses Swiss banks for money laundering activities, funding of government overthrows, killings and bankrupting countries.

Josef Ackermann, CEO of Deutsche Bank and member of the Bilderberg steering committee, is named as one of the important figures with plans to censor the internet and shut down one of the last places where free speech interferes with their plans for complete control.

Find the full interview below:

Q: Can you tell us something about your involvement in the Swiss banking business?
A: I have worked for Swiss banks for many years. I was designated as one of the top directors of one of the biggest Swiss banks. During my work I was involved in the payment, in the direct payment in cash to a person who killed the president of a foreign country. I was in the meeting where it was decided to give this cash money to the killer. This gave me dramatic headaches and troubled my conscience. It was not the only case that was really bad but it was the worst.

It was a payment instruction on order of a foreign secret service written by hand giving the order to pay a certain amount to a person who killed the top leader of a foreign country. And it was not the only case. We received several such hand written letters coming from foreign secret services giving the order to payout cash from secret accounts to fund revolutions or for the killing of people. I can confirm what John Perkins has written in his book “Confessions of an Economic Hit Man”. There really exists just a system and Swiss banks are involved in such cases.

Q: Perkins book is also translated and available in Russian. Can you tell us which bank it is and who was responsible?
A: It was one of the top three Swiss banks at that time and it was the president of a country in the third world. But I don’t want to give out to many details because they will find me very easily if I say the name of the president and the name of the bank. I will risk my life.

Q: You can’t name any person in the bank either?
A: No I can’t, but I can assure you this happened. We were several persons in the meeting room. The person in charge of the physical payment of the cash came to us and asked us if he is allowed to payout such a big amount in cash to that person and one of the directors explained the case and all others said ok you can do it.

Q: Did this happened often? Was this kind of a slush fund?
A: Yes. This was a special fund managed in a special place in the bank were all the coded letters came in from abroad. The most important letters were hand written. We had to decipher them and in them was the order to pay a certain amount of cash from accounts for the assassination of people, funding revolutions, funding strikes, funding all sorts of parties. I know that certain people who are Bilderbergers were involved in such orders. I mean they gave the orders to kill.

Q: Can you tell us in what year or decade this happened?
A: I prefer not to give you the precise year but it was in the 80’s.

Q: Did you have a problem with this work?
A: Yes, a very big problem. I could not sleep for many days and after a while I left the bank. If I give you too many details they will trace me. Several secret services from abroad, mostly English speaking, gave orders to fund illegal acts, even the killing of people thru Swiss banks. We had to pay on the instructions of foreign powers for the killing of persons who did not follow the orders of Bilderberg or the IMF or the World Bank for example.

Q: This is a very startling revelation that you are making. Why do you feel the urge to say this now?
A: Because Bilderberg is meeting in Switzerland. Because the world situation is getting worse and worse. And because the biggest banks in Switzerland are involved  in unethical activities. Most of these operations are outside the balance sheet. It is a multiple of what is officially declared. Its not audited and happening without any taxes. The figures involved have a lot of zeros. Its huge amounts.

Q: So its billions?
A: Its much more, its trillions, completely unaudited, illegal and besides the tax system. Basically it’s a robbery of everybody. I mean most normal people are paying taxes and abiding by the laws. What is happening here is complete against our Swiss values, like neutrality, honesty and good faith. In the meetings I was involved in, the discussions where completely against our democratic principles. You see, most of the directors of Swiss banks are not locals anymore, they are foreigners, mostly Anglo-Saxon, either American or British, they don’t respect our neutrality, they don’t respect our values, they are against our direct democracy, they just use the Swiss banks for their illegal means.

They use huge amounts of money created out of nothing and they destroy our society and destroy the people world wide just for greed. They seek power and destroy whole countries, like Greece, Spain, Portugal or Ireland and Switzerland will be one of the last in line. And they use China as working slaves. And a person like Josef Ackermann, who is a Swiss citizen, is the top man at a German bank and he uses his power for greed and does not respect the common people. He has quite a few legal cases in Germany and also now in the States. He is a Bilderberger and does not care about Switzerland or any other country.

Q: Are you saying, some of these people that you mention will be at the up-coming Bilderberg meeting in June in St. Moritz?
A: Yes.

Q: So they are currently in a position of power?
A: Yes. They have huge amounts of money available and use it to destroy whole countries. They destroy our industry and build it up in China. On the other hand they opened up the gates in Europe for all Chinese products. The working population of Europe is earning less and less. The real aim is to destroy Europe.






....much more follows, and is earthshaking, as in a 10.00 Quake.

Wed, 06/08/2011 - 13:51 | 1351614 Yperkeimenos
Yperkeimenos's picture

Lets reintroduce slavery,that way labour costs drop to zero,profits are maximized and growth is sustained.

Wed, 06/08/2011 - 16:14 | 1352221 css1971
css1971's picture

I am already a debt slave.

Wed, 06/08/2011 - 17:13 | 1352474 dolly madison
dolly madison's picture

I had to default at the start of the recession on most of my debt because I was rich in land I couldn't sell and poor in cash.  I just have 4 more months until the statute of limitations is up on those defaults, so then I will be debt free.

Wed, 06/08/2011 - 15:21 | 1351998 kito
kito's picture

guys with charts but no understanding of human behavior. when india and china lament our situation, but still admit to being treasury druggies, it allows this game to continue for a veryyyy long time. nobody trusts any other bond market "more" than ours. maybe i missed the post, but why hasnt zh come up with a "chart" demonstrating exactly where all the world's trillions and trillions of future potential bond holding could go if they gave up on our market?

Wed, 06/08/2011 - 15:23 | 1352029 akak
akak's picture

why hasnt zh come up with a "chart" demonstrating exactly where all the world's trillions and trillions of future potential bond holding could go if they gave up on our market?

Most of it will inevitably go where all "holdings" in illusory fiat currencies have always eventually gone --- into the void.

Wed, 06/08/2011 - 15:31 | 1352055 kito
kito's picture

thats a lovely descriptive and poetic non answer. thanks

Wed, 06/08/2011 - 17:04 | 1352430 akak
akak's picture

I thought it was pretty clear and self-explanatory: most of those "holdings" are illusory to begin with, and will vanish with the collapse of the fiat status-quo.

Wed, 06/08/2011 - 17:32 | 1352553 kito
kito's picture

i said "future" as in money that china or india or any other country would normally put into u.s. treasuries going forward but, as per the pundits on this site, won't do, leading to , as the pundits call it here, an imminent bond collapse. martenson has said this shall occur in one year. ridiculous. nobody can devise a chart to demonstrate where all of these massive future reserves will be re-directed? 

Wed, 06/08/2011 - 20:38 | 1353103 Roger Knights
Roger Knights's picture

Some will go to gold and commodities, or to ownership of mines and resources. That's what China's started doing. They're wise to be the first to do so, before the prices skyrocket.

Wed, 06/08/2011 - 16:13 | 1352214 css1971
css1971's picture



That's what the next part of the article is going to tell you. People are going to be competing for real things to feed their families.




LOL. "bond holding".

Wed, 06/08/2011 - 17:09 | 1352457 dolly madison
dolly madison's picture

Yes, it's obvious we need to get off this debt based monetary system.  It is gasping its last breaths.

Until that gets done small farming & liquidity are the best bets for survival.

Wed, 06/08/2011 - 20:37 | 1353109 Roger Knights
Roger Knights's picture

"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."

Let's hope Prof. Rossi is on to something with his cold fusion gadget.

Wed, 06/08/2011 - 23:39 | 1353572 Zoran
Zoran's picture

It's about time these bank spruikers were exposed for what they are, sellers of debt enslavement. I mean look at the ridiculous price of housing and the spruikers tell us its going to double again from here, and how are we supposed to pay for that? More debt from the banks of course. The banks will never admit housing is in a bubble for as soon as they admit it they know the whole ponzi comes crashing down and ends in a vicious Credit Crunch! Oh well, I guess we just wait. The insanity can't go on for much longer and soon we'll see the market collapse under its own weight. The first cracks are starting to appear and I suspect that's why the banks are so desperate to convince us otherwise with their shonky reports!
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