• Steve H. Hanke
    05/04/2016 - 08:00
    Authored by Steve H. Hanke of The Johns Hopkins University. Follow him on Twitter @Steve_Hanke. A few weeks ago, the Monetary Authority of Singapore (MAS) sprang a surprise. It announced that a...

Guest Post: "Growing Your Way Out of Debt" Is A Fantasy

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Wed, 06/22/2011 - 18:30 | 1393340 SparkySC
SparkySC's picture

Cash advance a bank Credit Card.

Buy WAMUQ, WAMKQ, WAMPQ, WAHUQ and use their own money against them.


Win and Retire!



Wed, 06/22/2011 - 21:45 | 1393651 trav7777
trav7777's picture

and then default like the government will?

Interest is relentless.  Growth is not.

WTF did people expect to happen to the euro when to even get INTO the union, governments had to cheat and push interest into the future?

All those swaps that GS set up for them to get them under the deficit caps are now coming due.  Balloon payments.

Wed, 06/22/2011 - 18:24 | 1393341 SparkySC
SparkySC's picture

Sorry for the repeat.

Wed, 06/22/2011 - 18:25 | 1393343 SparkySC
SparkySC's picture

sorry repeated. 

Wed, 06/22/2011 - 18:55 | 1393393 Monedas
Monedas's picture

Repeat, my ass ! You are engaging in Fractional Reserve Posting ! Monedas 2011 Coming soon to your blog....Monedas' lecture series on Bathroom Science !

Wed, 06/22/2011 - 19:55 | 1393496 Ruffcut
Ruffcut's picture

Fractional Res posting! LOL

Hey, Jamie Demon said a couple months ago peeps were paying down debt, saving more and spending more all at the same time.

So far, I can't get that to work.

Maybe he meant that JPM was saving more from stealing more and creating more governmnet debt,

Wed, 06/22/2011 - 18:33 | 1393350 hambone
hambone's picture

Fucking amazing that this is somehow "news".  We have lived under the guise of fairy tales and skittles shat out of unicorns for so long the most fundamental details are now shocking.  I like the author and he is correct, but shit, still blows me away what he sez is way outside the consensus.

Fairy talez usually have a moral...moral of this story is live beyond your means and you'll eventually find out debt is a Bitch who will rob you of all your goodies and leave you worse of than before you met her!

Wed, 06/22/2011 - 18:38 | 1393360 Nathan Muir
Nathan Muir's picture

I was thinking the exact same thign Hambone.  When did common sense WRT the basics of finance become revolutionary ideas?  It's sad that MSM and the establishment have dumbed down the population to this degree.  There is a glimmer of hope though - last week I was going over the Greece issue with a friend who know's nothing of econ/finance - her response was simple yet brilliant...."so they are going to fix a debt problem with more debt, how can that work?"

Wed, 06/22/2011 - 18:55 | 1393391 hambone
hambone's picture


word....and your friend for President.

Wed, 06/22/2011 - 19:26 | 1393427 Mad Cow
Mad Cow's picture

Yep it's as old as humanity. Some may need to look at ancient documents on the subject of usury to get up to speed.

Wed, 06/22/2011 - 18:32 | 1393351 I am a Man I am...
I am a Man I am Forty's picture

stockman on dylan ratigan was awesome tonight, best rant i've seen

Wed, 06/22/2011 - 18:28 | 1393352 cat2
cat2's picture

Spend your way to riches!

Wed, 06/22/2011 - 22:16 | 1393686 snowball777
snowball777's picture

How much for a printing press?

Wed, 06/22/2011 - 18:36 | 1393365 Oh regional Indian
Oh regional Indian's picture

Kompound interest.
it the gift that keeps on pounding.


Wed, 06/22/2011 - 18:42 | 1393368 Hard1
Hard1's picture

Agree that these countries can't grow themselves out of debt, but stronger (for now) govenrments don't seem to have the will (aka balls) to cut their credit cards. Instead they are:

a -increasing the limit and extending the term with promises of austerity and growth projections (hopes)

b -review that prudence measures and growth have not worked

c - negotiate new promisis of austerity

d -return to step a

Wed, 06/22/2011 - 18:40 | 1393370 steveo
steveo's picture

I posted a Boatload of good stuff, could be a critical break already.  
The important moves come at night so Joe six pack cant participate.


Wed, 06/22/2011 - 18:40 | 1393371 bigwavedave
bigwavedave's picture

nice summary and mostly true. but both the premise and the conclusion are off the mark. its not greece that needs to grow out of its debt. its the eurozone that has to grow out of the greek debt hit. banks need more time to make more money etc 

Wed, 06/22/2011 - 18:50 | 1393384 Nathan Muir
Nathan Muir's picture

Still kicking the can.  Debt based money is, and will continue to be, the problem.  Exponential math ensures so.  Debt as money requires constant growth, without growth the deflation death spiral takes hold.  Math is the universal language for one simple reason, it is always correct.


Wed, 06/22/2011 - 18:54 | 1393389 bigwavedave
bigwavedave's picture

i didnt say they were going to win. but that is their plan. its got nothing to do with greece anymore. its all about recapitalization of the eur banks. the greeks will default when the eur banks inc ecb allow them to. simple. 

Wed, 06/22/2011 - 18:56 | 1393388 hambone
hambone's picture


Iceland, Ireland, Portugal, Greece are all already done.  Spain and Italy interest rates are on the verge of breaking out of their ranges and then EU is done bailing and it's simply austerity accross the board (or otherwise known as a depression)...but EU is still far better than US or Japan because at least there is a limit - and they are about to cross that thresshold.  Japan, America know no such boundaries and will destroy themselves and their currencies to "avoid the pain" of a depression (I guess they prefer hyperinflation first and then the subsequent hyperdeflationary depression...brilliant).

Wed, 06/22/2011 - 18:42 | 1393373 css1971
css1971's picture

You can't grow your way out when most of your money is credit. Growth means credit growth and credit growth means debt growth, which means more debt. All that work and you end up where you started, but with bigger numbers.

People simply don't understand what growth is. They don't understand that there is no correlation between money and stuff.

ok. 3% "growth" is a doubling period of  about 23 years. When I say doubling, I mean everything must double. If there really was 3% growth in an economy, then all the stuff which money represents would have to double every 23 years.

So, twice as many roads, twice as many offices, twice as many cars, trucks, trains, planes, twice as many houses, businesses, etc etc etc. Twice as much of everything on the market. Does that sound like what actually happens in 23 years? No. Real growth is much slower.

The growth then we see financial circles is just monetary growth. That we can grow as fast as you like. More money, more debt, more inflation more deflation.

"Growth" is simply inflation. When someone says they are going to grow their way out, they mean inflate, but using credit/debt rather than cash.


Wed, 06/22/2011 - 18:48 | 1393380 Bartanist
Bartanist's picture

Seems logical that the consequence will be an eventual Holy Crusade against bankers and the elitists who benefit from them.

Bankers and elitists are poorly prepared to defend themselves. They need protection from lackies who come from the same classes that they are oppressing.

Wed, 06/22/2011 - 18:53 | 1393383 bobert
bobert's picture

How do you define debt?

Public v. Non Public for example or "Intergovernmental," "non-marketable" etc.

It appears to me that "Intergovernmental" debt is being shown a back seat these days.

The debt that is being reported is the public debt or $9Trillion.

The $5Trillion "Intergovernmental" debt is dropped from discussion. Reason being IMHO is: The

Treasury is going to market the non-marketable debt and the Medicare Medicaid

SS and CSR Pension Trust Funds will be entirely depleted.

Nothing to worry about therefore. Spend away congress we have three years to go before the


In 2014 we go to pass through financing i.e., if they haven't gone up by then

interest rates are going to soar!!!

It will be interesting to see Medicare SS recipients pitted against the guberment

workers and the Pentagon.

Wed, 06/22/2011 - 18:54 | 1393386 Dre4dwolf
Dre4dwolf's picture

The only way for this mess to get fixed is for someone to die.


Its going to end up with the people vs the banks, and there are more people than banks.

Wed, 06/22/2011 - 19:01 | 1393394 Dr. Richard Head
Dr. Richard Head's picture

nu uh.  this time it is different.  money grows on trees doncha know

Wed, 06/22/2011 - 19:00 | 1393395 YHC-FTSE
YHC-FTSE's picture

Almost midnight here and there's a lot that's missing in this post but the jist is nothing we haven't discussed to death already - not that I don't appreciate your efforts to tie your observations together. It's a nice post.


One thing that I have ranted often about in the past is the notion that time is money. Or, to be more accurate, quantifying every aspect of human life in terms of vulgar coins. That notion gave birth to what I regard as one of the most evil inventions in finance: The compound interest formula. If you don't know how it deceives, obfuscates, and defrauds hundreds millions of people every day, and mutilates honest trade between honest men/women, then you should. 


Wed, 06/22/2011 - 20:16 | 1393494 slewie the pi-rat
slewie the pi-rat's picture

the release of the evil formula that could destroy everything but slugs, roaches, and banksters is surpassed by the evil i, slewie, do, in re-releasing the dastardly formula b/c hey! i want to!

A = 1500(1+ 0.043/4) 4(6) (raised to the 4(6) power)

A = P(1 + r/n)n(t)


      P = principal amount (the initial amount you borrow or deposit)[$1500]

      r  = annual rate of interest (as a decimal) [.043]

t  = number of years the amount is deposited or borrowed for.  [6]

A = amount of money accumulated after n years, including interest.[$1938.84]

n  =  number of times the interest is compounded per year [4]


Wed, 06/22/2011 - 19:00 | 1393399 Akrunner907
Akrunner907's picture

Thank you for demonstrating your basic understanding of finance.  Now can you think in the abstract and understand that logic does not apply to goverments.  Goverment finances are operated based on the expectation theory:  That you can always expect tax revenues to increase based on changes in monetary and legislative policy.  What amazes me is that for all the brain power in these officials, how come they are too stupid to realize there is no spoon?

Wed, 06/22/2011 - 22:21 | 1393691 Libertarian777
Libertarian777's picture

there is a spoon.

only you don't own it

the government does

you however, owe the debt on that spoon. pay up sucka

Wed, 06/22/2011 - 23:00 | 1393741 Dre4dwolf
Dre4dwolf's picture

Or you can grab the spoon and tell the govt and the bank to go f themselves ;) they are so tied up with paper work they won't be able to attack you for atleast 2 - 3 years.... and by then you can get your own spoon as there will be billions of spoons that no one wants anymore.


Wed, 06/22/2011 - 19:10 | 1393406 km4
km4's picture

Europe's crisis is China's opportunity. No wonder nice Mr Wen is on his way | Timothy Garton Ash | Comment is free | The Guardian http://bit.ly/knw5TE

Wed, 06/22/2011 - 19:19 | 1393420 Dr. Porkchop
Dr. Porkchop's picture

It's like digging a hole. What's the first thing you should do when you find you've dug yourself into a hole?

Wed, 06/22/2011 - 19:37 | 1393460 Dr. Richard Head
Dr. Richard Head's picture


you dig it deeper.

 the key is to make sure the dirt thrown from the hole is piled as close to the edge as possible.  this way you can make sure you know how much further to dig.  

Thu, 06/23/2011 - 07:01 | 1394095 jackbooted gauleiter
jackbooted gauleiter's picture

I don't know, I suggest you ask Dennis Healy.

Wed, 06/22/2011 - 19:20 | 1393421 sschu
sschu's picture

It seems Von Mises said something about boom and credit and there only being 2 ways out, currency debasement or take the medicine.

The stark choice and depth of the pain we face becomes more realistic everyday.  It is like the law of gravity but with a longer time constant, you eventually fall.  Bennie, Bam etal have no idea what to do, so they will revert to all they know, and that is more free money. 

The die is cast, any hope of "fixing" this with a minimum of cost and in short order is gone.  All that remains is how the end game will play out.


Wed, 06/22/2011 - 19:31 | 1393446 Bay of Pigs
Bay of Pigs's picture

Yes, and gold revaluation. Possibly into the multi thousands on that massive amount of debt.

Jim Willies latest on the Armada of Black Swans now circling,



Wed, 06/22/2011 - 19:24 | 1393433 Atomizer
Atomizer's picture

Open Forum Davos 2011 - Euro Grounding? 

A little history before the Euro 



ZH readers, take time to watch/read.

Wed, 06/22/2011 - 19:32 | 1393437 spanish inquisition
spanish inquisition's picture

Step 1. Someone has $0B and owes you $10B. Loan them $10B - they now have $10B in assets and owe $20B. They are now solvent and you can hope things get better and have them crack the whip on the proles to increase profits.

Step 2. They now have spent down to $5B and owe you $25B. Loan them $15B more - $20B in assets and $40B is owed. Hope some more and get them a bigger whip

I call it Economics

Wed, 06/22/2011 - 19:27 | 1393439 Caviar Emptor
Caviar Emptor's picture

Growing your way out of debt is just a convenient line used to extend a little more rope with which to hang yourself. 

Don't forget this is all done with one purpose: to keep the banksters in Gucci. 

Ask yourself: if the banks didn't have their necks on the line, what would the attitude toward Greece's debt problems be? 

They will bail them no matter what, austerity is all just a bluff. Don't cave to the banksters and trade away your country and national treasures, Greece!!

Wed, 06/22/2011 - 19:34 | 1393444 High Plains Drifter
High Plains Drifter's picture

Rush Limbaugh used to talk about growing our way out of debt. I knew it was a lie then and I know it is a lie now. We should not even have any debt. We wouldn't have any debt if we lived within our national means. That means getting rid of the FED. But what is Paul doing right now. Introducing a bill (like he always does it seems) with his good buddy Barney Frank, about legalizing marijuana usage. Yeh sure. That will help. Thanks a lot to Ron Paul.

Wed, 06/22/2011 - 19:47 | 1393484 Dr. Richard Head
Dr. Richard Head's picture

love you much hpd, but could you possibly specify what one congressman can do to end the fed?  sure his books are educating the masses to then verbally beat their respective congressman to do the same.  his tv appearances achieve the same goal, but obviously not enough.  presidential run in effect now and in the past, but that wont end the fed.  his committee is jr to the powers that has power to haul in the fed, so his chairmanship isnt going to do it.

i appreciate your p.o.v. and grasp it 100 percent, but i am curious as to what he could do to end the fed in his role that you see as his choice option.

Wed, 06/22/2011 - 22:03 | 1393675 High Plains Drifter
High Plains Drifter's picture

That's just it doc. He can't do anything and he won't. So why does he play this game of pretend with us, by intimating, that the system is still working and that if we just do this or that, that somehow things will all work out. This of course is a lie. Ron Paul is imho, a stalking horse and his job is to placate the ones who are angry and perhaps somehow, delay any actions they may contemplate. You see, the longer we wait to take care of business, the more power they get. Right now, food  is being destroyed. But I digress. Case in point is this. Ron Paul has been there inside the beltway for 20 years. Anyone that stays there that long and swims in that sewer, is bound to start smelling bad. Another case in point. Watch the following video. The Ron Paul of the 50's .




Welch was talking the same smack as Ron Paul does now. What happened? Nothing. Did things get worse over time? You bet they did. Let us face it ladies and gentlemen. Nothing of importance will ever come out of this out of control and illegal government. Nothing. When will the day come, when people realize this? I have written letters for 20 years. I made calls. They just blow you off. They don't care what we think. None of them. I have lost faith in them and they have lost me. Again, the Constitution is very clear on money. Congress shall have the power to coin money, not the damn FED. Now we are controlled by the hidden hand. To alleviate this control will require much pain, much pain.

Wed, 06/22/2011 - 20:24 | 1393544 Atomizer
Atomizer's picture

I'm not going to defend Rush. Can tell you that after 9/11, I forced myself to learn about this mickey mouse monetary system. Some folks are just starting to piece things together.. It does take time, everyday is still a new learning experience for me. :)

Wed, 06/22/2011 - 20:57 | 1393602 Yes_Questions
Yes_Questions's picture

Every time something like a Limbaugh tries to lure you with a shiny object (all liberals are stupid, global warming is a farce, etc. and so on), look the other way.  The purpose behind all of that is to get you to feel a certain way.

Certainly not to help you think critically and figure out who is actually fucking you over.

Think for yourself.

Wed, 06/22/2011 - 22:06 | 1393679 High Plains Drifter
High Plains Drifter's picture

Limbaugh is controlled opposition. It is his job to fill the airwaves everyday with bullshit. This is what he does and has done for his whole career. Is there a reason why not long after he got into radio, back in 1988, that he suddenly had to take a nice vacation in Israel?  I think not. There is a reason why he went there then. They told him, imho, that he had to do things their way and his career would flourish, otherwise forget it.

Wed, 06/22/2011 - 20:51 | 1393579 Yes_Questions
Yes_Questions's picture

"We" would have no debt if not for predatory central banks, "living within our national means" is impossible under this system and that is not a mistake.  As it is now, the drug addled gas bag's income, as is yours and mine: are measured in currency borne of debt.

End the FED? Absolutafuckingmente!

Though the herb thing might gain some traction.  Hopefully.  Could help kill some part of the crony capitalist private prison industry while "We" are at it at the polls.

Thu, 06/23/2011 - 08:40 | 1394165 Silver Dreamer
Silver Dreamer's picture

Ending the 40 year "War on Drugs" would help.  Are you kidding?  How many billions of dollars have to be wasted before people realize it is a scam??  You honestly do not see it as that???

Wed, 06/22/2011 - 19:37 | 1393454 JR
JR's picture

It’s all so clear now - why the bankers are so concerned about Greece.  Why the default of a little Greek economy would be like the end of the world.  Why a vote in Greek Parliament can swing the US stock market.  Why Japan, with a huge economy, can suffer a devastating hurricane, flood and a radioactive tragedy and it hardly has an effect on the stock market.

Why is Greece so pivotal to world economics?  It’s because the investment bankers’ dream of combining all central banks into a one-world suprabank with its own currency and its own single political power – with political veto power over every parliament and every elected democratic body in the world – is at stake. Power! total power!! is at stake!!!

That’s why the international bankers are so worried about holding Europe together.  A hint at Greek default destroys the pattern of the IMF takeover through voluntary austerity programs by countries that are in economic trouble. IOW, Greece’s Parliament needs to “democratically” and voluntarily consent to IMF demands for the process to continue. Confiscation of Greek infrastructure cannot be done by banker decree. It must be “voluntary”; it must appear that justice prevailed.

It has to look as if Greece and her Parliament voluntarily by vote agreed to the IMF demands.  And, thereby, the IMF retains legitimacy and the European Union – the bankers’ main concern rather than the money – retains its role on the road to world governance.

That’s why the word “contagion” is used to strike fear in the hearts of the equity markets and businesses in the US and Europe, warning that default could lead to huge economic depressions in a domino effect around the world. This “fear journalism” comes from bankers who worry that a breakup in the EU blocks the progress of their world dominance.

European Central Bank President Jean-Claude Trichet outlined the process in his recent speech in Aachen, Germany, this month calling for an international banker dictatorship over Europe, beginning with the takeover of floundering nations :  “One way this could be imagined is for European authorities to have the right to veto some national economic policy decisions. The remit could include in particular major fiscal spending items and elements essential for the country’s competitiveness.”

Once there is veto power over a parliament, of course, that’s the end of that parliament.  Nothing can go through without higher approval.

Asks Trichet: “In this Union of tomorrow, or of the day after tomorrow, would it be too bold, in the economic field, with a single market, a single currency and a single central bank, to envisage a ministry of finance of the Union?”

Wed, 06/22/2011 - 20:11 | 1393525 gwar5
gwar5's picture

I think so.

If Greece fails, then the ECB immediately becomes insolvent and the EU fails. And if there is no EU, then there's no NWO anytime soon. 

NWO = world banking out of the IMF calling the shots, behind a world government authority facade out of the UN.


I wonder if people would be so passive if oil companies did what the banks are now doing? What if oil campanies embargoed oil to countries until they surrendered their sovereignty and assets to receive another 12 months of oil?  I dare say, people would not hesitate to go to war with the oil campanies to prevent such a thing. What makes the banks think their so special? 

If the EU does fall apart and world central banks collapse adn become insolvent, no doubt it has already been war gamed for a NWO gambit to rise from the ashes as a way resolve the "world crisis."  Private central banks need to be nationalized and put under civilian control with swat teams babysitting them. 


Wed, 06/22/2011 - 20:18 | 1393537 I_ate_the_crow
I_ate_the_crow's picture

Precisely JR, you get it. Always enjoy your posts.

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