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

Tyler Durden's picture


Submitted by Charles Hugh Smith from Of Two Minds

"Growing Your Way Out of Debt" Is A Fantasy 

Add rising interest payments and higher taxes to declining assets and incomes and you don't get "growth," you get insolvency.

The Status Quo consensus is that "kicking the can down the road" a.k.a. "extend and pretend" will work because "Greece, Spain, Ireland et al. are going to "grow their way out of debt." That is a fantasy.

Here's why.

1. There's a funny little feature of debt called interest. The Status Quo solution for Ireland, Greece, Portugal, Spain et al. is A) increase their debt load with more loans and B) roll over their old debt into new loans, without the old lenders taking any "haircut" on the principal.

Both of these "solutions" add more interest costs. That means more of the national income stream must be diverted to pay the lenders their pound of flesh. That means there is less money in the national economy to buy goods and services, which means the economy must shrink to pay the higher interest costs.

This is why unemployment in Spain and Greece has skyrocketed and why 100,000 small businesses have closed in Greece in the past year.

2. A funny little feature of interest is that when people see you're at risk of default, they start charging you more to borrow their money. And it isn't a tiny bit more interest, it's a lot. Think subprime teaser loan at 3% shooting to 8%, or 28% if you're trying to sell new debt on the open market.

For the E.U. to "help" Greece and Ireland by rolling over their already crushing debt loads into new, higher interest loans is like "helping" a sick patient by sticking a knife into their back.

3. Governments over-promise future benefits to win elections in the here and now. This makes sense, of course, because you win the elections and power now and the problem of paying for these excessive benefits is left to future politicos and taxpayers.

But when the phony "growth" (think metasticizing cancer) fueled by rapidly rising debt is finally cut off, then the government has no choice but to raise taxes, and keep raising them, to pay for the extravagant past promises made to citizens.

That means more of the national income is diverted to taxes, only part of which flow through as cash benefits to consumers. Much of the tax revenues flow to cronies, fiefdoms and of course those higher interest payments on the ballooning debt.

4. Cheap abundant credit has a funny little consequence: asset bubbles. When everybody can borrow vast sums of nearly-free money at costs much lower than the outlandish gains being reaped by real estate speculators and punters pouring cash into stocks and commodities, then of course it is a perfectly rational decision to leverage yourself to the max, borrow as much as you can and join the speculative frenzy.

So assets bubble up to frothy levels, and McMansions sprout by the thousands on Irish and Spanish soil. The "demand" is not for shelter; it was all speculative demand for something to flip and churn.

So when the debt bubble pops, so too do all the asset bubbles.

5. Leverage has a funny little feature called collateral and that other peculiar feature, interest
. The land and house are the collateral for a mortgage (debt). As the real estate bubble popped, then the value of the collateral plummeted. Now the collateral is worth less than the loan--the borrower is "underwater."

The lender foolishly reckoned this would never happen, and now taking the collateral when the borrower defaults is an unsavory option because the lender will have to absorb a huge loss ("haircut") if they take the property.

So they choose to "extend and pretend," offering the borrower new terms, lower payments, etc., anything to keep the loan value on the books at 100%.

All of this is just artifice, of course; the borrower is insolvent, and so is the lender. As long as the borrower has to pay interest and principal, then there is not enough income left to "grow" anything. As long as the lender keeps the impaired loan on the books at the bogus valuation, then the lender is treading on the thin ice of insolvency.

6. As the national income and asset valuations both decline, the government imposes "austerity" programs which further cut incomes
. A funny little feature of government "austerity" is the cuts come from the citizen's side of the expense ledger, not from the crony/fiefdom side.

Here in the U.S., for example, the library hours are slashed and the parks are closed to save $22 million in a $100 billion annual budget (those are the numbers in California) while various favored fiefdoms continue to get their swag. The "pain" of austerity is anything but evenly distributed.

7. People facing financial uncertainty and duress have a funny little habit called saving. As the reality of instability becomes crystal-clear to all, then people rather naturally rally round and circle the wagons, i.e. start saving money to cushion them through the hard times. Trusting in future benefits and bubbles is obviously foolish, and the only avenue of relative safety is cash (or equivalent) in hand.

As people save more of their declining income, there is even less national income left to be spent on goods and services.

8. These forces are self-reinforcing. The worse times get, the more people save. the lower the national income, the more taxes will be raised. The more visible these trends become, the more interest lenders demand as they see the positive feedback loops leading to insolvency.

Once a household or nation is burdened with stupendous debt loads and stagnating earnings, "growing your way out of debt" is impossible. The E.U. may succeed in strong-arming Greece into swallowing even more debt, more austerity and higher interest payments, but that will only speed up the self-reinforcing dynamics of insolvency, and guarantee the losses kicked down the road for a few months will be even more devastating.


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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

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.

Wed, 06/22/2011 - 19:38 | 1393455 gwar5
gwar5's picture

Greece is going to have to default anyway ---- they damn well better not allow their politicians (banker agents) to promise away their sovereignty and national assets for the short term extension being dangled.

The system will crash and then it'll reboot, so what? It's already at depression levels. Ain't got nuttin' to lose.... so hurt me.

Wed, 06/22/2011 - 19:51 | 1393483 AndyR
AndyR's picture

#5. - "The lender foolishly reckoned this would never happen"

I disagree the lenders didn't think it would happen.  Most didn't care as thery simply sold the debt to other investers or designed the loans to be refinanced.

The major lenders knew the default would occur, resulting in the CDS problems of 2008 and current day.

Wed, 06/22/2011 - 20:32 | 1393561 topcallingtroll
topcallingtroll's picture

they just wanted the commission after packaging and selling the loan, and the end of year bonus.  They didn't care what might happen several years down the road. 


Most of those guys probably knew it would blow up eventually but feigned surprise.  They also knew this was their once in a lifetime chance to get rich, and most of them were smart and put it into bankruptcy exempt investments and trusts from the very beginning, so that if they ever did get sued the money was untouchable, unless it could be proven the money was the proceeds of a crime.

Wed, 06/22/2011 - 20:00 | 1393488 slewie the pi-rat
slewie the pi-rat's picture

moved.  north. 

Wed, 06/22/2011 - 19:56 | 1393491 Robslob
Robslob's picture

Let's all just trade Robo's market calls and get rich together!

Snarcasm ON

Wed, 06/22/2011 - 20:09 | 1393528 Dr. Richard Head
Dr. Richard Head's picture

I would rather smoke and drink my excess capital till my death than play this "investing" game again. In fact, I believe my portfolio is now drunk to very drunk.

Wed, 06/22/2011 - 20:24 | 1393552 slewie the pi-rat
slewie the pi-rat's picture

returns are down, toxicities up.

Wed, 06/22/2011 - 22:48 | 1393540 sasebo
sasebo's picture

Might I add that as long as we elect myopic assholes to run our govmunt and so long as they have something on the table for breakfast, they don't give a shit about nothing.

When there's nothing on the table, that's when they'll start worrying.

Wed, 06/22/2011 - 20:20 | 1393545 JimBobOMG
JimBobOMG's picture

I bet my house on silver last year and it grew my way out of debt. I think the government should do the same...

Wed, 06/22/2011 - 20:55 | 1393603 gwar5
gwar5's picture


Wed, 06/22/2011 - 21:00 | 1393605 gwar5
gwar5's picture


Wed, 06/22/2011 - 20:36 | 1393568 topcallingtroll
topcallingtroll's picture

The Asians grew themselves out of debt after the asian crises.  It can be done, but it requires a disciplined people who can forego short term pleasure for long term goals.

Thu, 06/23/2011 - 01:17 | 1393918 ViewfromUnderth...
ViewfromUndertheBridge's picture

and Western consumers with credit to buy their landfill

Wed, 06/22/2011 - 20:54 | 1393594 jointhewave
jointhewave's picture

Watch the YouTube video...

Fallen Man: The Road to War & End of America



Wed, 06/22/2011 - 22:36 | 1393710 Boop
Boop's picture

Mel?  Mr. Gibson? Is that you?

Wed, 06/22/2011 - 20:56 | 1393596 gwar5
gwar5's picture

Well you can't grow government through deficit spending to grow your way out of debt. Somebody has to work in the real economy.

Why can't a country grow it's way out of debt through sound (eg. gold standard) currency, controlling government size and spending, and grow the real economy?  

It will never happen if there is a private central bank happy to just debase the currency to fund the deficit spending and the politicians. Little wonder the politicians become de facto agents for the banks and the status quo. 

Didn't the US grow it's way out of debt, the old fashioned way, after the Revolutionary War and the Civil War?

Wed, 06/22/2011 - 22:09 | 1393627 Element
Element's picture

Great post, it reminds me of the myth of us all catching 'Japanese disease' as a likely outcome. How many times have you heard someone say the USA and Europe etc., will just "turn Japanese", with slow or no growth, interspersed with mild deflation and vulnerability to exogenous shocks, etc., but basically quasi-stable?

Allow me to debunk and pop that desperate MSMS mass delusion.

In the 1990s the only other major state that had a more porked economy than Japan was the former Soviet Union. The USSR as a block had always been insular and skint so this did not make any real negative difference to Japan's plight in terms of demand, as they contributed little to Japanese trade anyway (except as they opened up it actually created a surge of global demand, which the Japanese then benefited from).

But the rest of the world was still only 1/3rd of the way into the greatest credit-bubble in human history, and post the early-1990's recession cycle, and US S&L snafus, you had the EU and NATO extending themselves and new credit lines to former Soviet states, and Russia itself. Thus generating aggregate-demand growth, and opportunities for debt growth (money creation).

'Debt-inflation' as opposed to Fisher's 'debt-deflation' is what resulted, and this negated Japans private sector debt-deflation (and reduced the RE collapse impact).

This all allowed a super-sick Japanese economy in profound debt-collapse, that by all rights should have descended into a Depression (rather than just a stall), then  allowed them to print and 'place-hold' the economy and GDP on the back of vigorously rising foreign demand for their exports.

Plus the global bear-market in imported industrial commodities didn't finish up until about 1998, as cold-war national strategic metals stockpiles were sold off, mines closed, and production demand for these fell away as the 'peace dividend' and base closures unfolded, as military budgets fell.

So cheap commodities and the spreading crony-'capitalism's' debt-inflation caused compensating strong demand for Japan's very high-quality, yet still fairly cheap, and certainly very reliable durables and electronics. So the world's debt binge kept Japan afloat when it would otherwise have plunged off a cliff into protracted severe austerity.

Instead, they printed to smoothed out the dips and bumps - AND - they got away with the resulting >200%GDP public debt growth ... until now.

Some people wrongly believed that Japan had a 'depression', but actually, it had no such thing, not even close! They had nearly full employment throughout, and hit the public-spending throttle (in a way I doubt any other peace-time country ever has. Hence Richard Koo concluded this was a good idea, but it wasn't, it was the setup of a far greater collapse still to come.

But something else also happened in the western world, we all began to imagine (delude ourselves) that this is all that would happen in a market economy with RE collapse, and we believed Japan was in 'depression'. When it really just a very mild protracted absence of growth. So we lost a lot of fear of economic collapse and absurd debt-growth levels, and ignored the damage of deficits and interest on the debts, and we did not think a Western RE collapse would therefore be particularly bad (if could even happen).

Meanwhile, RE idiots told us repeatedly that house prices never fall, yet there was Japan's RE, right there, in smoking ruins, even as they were saying it!  ... EEEEEEDIOTS!!! ... and the MSM let them say that nonsense, either through collusion, or else massive incompetance of very low-grade interviewers.

People basically thought, "if that's a depression then it really ain't so bad".

It was only the absence of GDP expansion but nearly full employment, low rates, and dis-inflation, and massive Govt print/spending. Who couldn't 'survive' that for 20 years?! It was hardly crippling, and nothing like a Depression. And that lulled the West into thinking the plainly idiotic monetarist idealism might actually work, in a true DEPRESSION.  

But the basic problems is; the macro-picture of 2011 is nothing like it was in 1990.

In 2011 all G20 economies are profoundly inter-dependent, including the surging BRICs. And they've all got mountains of private and public debt, unemployment is a big problem, and weakened demand plus competitive debasing that's verging on trade-war.

And all these are being propped up via Bond auctions for increasingly short-term debt maturity, whilst pretending a 'recovery' will soon bless us.


Who's going to do for planet Earth, what the former record private credit-bubble of all of planet Earth - combined - did for Japan for the past 20 years?
  hmm? .... any ideas? .... no? ... none at all? 

Perhaps Alpha-Centauri wants BMW's and iPhone's, and really cheap condos on a barrier island?

And that's why the 'Japanese-disease' outcome fallacy of our ever intrepid monetarist eCONonaughts is clearly a load of bollocks.

In reality the system is collapsing. Do a search on U-tube for "Detroit Ruins 2011". It looks more like Mad Max 4.0 in Detroit's CBD!

And the sad truth is, both sides were and are right, demand will collapse if spending is cut, and the rest of the economy will collapse if spending is increased - or even if it's just sustained. Because there's actually no resolving a global debt-saturation except via Global Debt Jubilee. Our actual best bet is to unite globally in strikes and protests, and if necessary mass riots, to force a GLOBAL DEBT JUBILEE upon the entire bankster class, by forcing the entire system to its knees (like Greece's people are doing).

Because we will need to defuse and avoid any likely global Strategic-War, and only forcing a GLOBAL DEBT JUBILEE reset on these crooks can do that, as they'll never voluntarily accept it, as it's 100% antithetical to all their plans and intentions. They would rather have global war instead. And that's why we must in the end, bog the entire money and political and media circus, smash it, and force a global systemic reset (i.e. not the one the bankers have in mind, as you can be sure they are anticipating this).

The bankers want us to think we're going into a 'weak recovery' or maybe a stagflation phase, but we're not (and they know it). We're going to go into another systemic global collapse in demand and trade, only this time it won't bounce back after 12 months or so, and now will unemployment stop rising (so state-rations will be their stick ... so don't bite the hand the feeds you, etc.).

But that is our OPPORTUNITY to force a global reset, in every country, simply refuse to participate or allow them to control, until the banksters are permanently out of the political picture, and out of the lives of us all, and all debt is zeroed-out globally. That will never occur unless we force it to occur, and when we do, it will occur.

The events of 1989-1990 showed that the East German Stazi and Moscow had no power at all once the people had simply had enough, and the people then by mass show of their intent and desire, forced a political, legal, constitutional, economic and financial reset that eliminated the old system. It can be done, and it can be done without war, or massive famine.

You can have massive debts maintained, and therefore a super-long Depression, with no end in sight.


You can have no debts at all, and therefore a super-short Depression and a rapid recovery.

This is why Greece must not be permitted to default and leave the Euro system, as it would quickly become clear that this is an excellent means to ignite a national recovery. And they can't have the whole indebted world getting funny ideas, so the IMF and Banking Cartel must engineer a LOOOOONG depression for Greece, to prevent that at all costs.


Fractional reserve and crooked non-accounting is the only reason for all this drama and BS, i.e. no real-world reason at all. So ... via our precious representaive govts the banks are given licence to do this ... to create such havoc for 99.9% of us, ... but we're not supposed to or 'allowed' to return the favor? ... as this would be 'illegal' ... or morally wrong ... or not serving our best-interests ... in some mysterious and unfathomable way?


Well, Fuku all that!

Thu, 06/23/2011 - 07:30 | 1394098 jackbooted gauleiter
jackbooted gauleiter's picture

The "Jubilee" was a religious event staged by the Tribes of Israel every 70 years or so, at which time all debts were declared null and void.

For such an event to occur without massive dissention, there must have been something in it for both the borrowers and the lenders. That the lenders should acquiesce is counter intuitive, why would they allow this to happen?... unless they were operating a fractional reserve banking system.

That would suggest that there is a 3000 year history of fractional reserve banking systems imploding every 70 years or so.

But if we were to have a jubilee today then we would beggar the world. Why? Because people deposit their wealth in banks. As soon as they do that, they no longer have their money, they have lent it to the bank, and they have become a lender. When the jubilee occurs, this loan will be as void as any other and the contents of everyone's bank accounts will be appropriated by the borrower - the bank.

Thu, 06/23/2011 - 21:48 | 1397272 Element
Element's picture

Correct, they invented the problem, then realised it required a logical 'solution', the only one that works.

But there's NO reason you cant have á public National Depository and Trading Bank. The Commonwealth of Australia had one called the "Commonwealth Bank", until it was privatized by the Labor Party in the early 1990s, (and is now among the most reprehensible of all banks as the events of Storm Financial's collapse revealed after 2008's GFC). Labor (Kim Beazley in fact, the current Ambassador to USA) simply announced the Govt had no place running a public bank. They needed to balance their exorbitant spending and deficits, so they sold the people's depository bank.

And since then the Commercial Banks have been uncontrollable and exploiting the community like a bunch of vampires.

Public banks bring a lot of positive systemic aspects.

And if the Govt (i.e. the people) controls the muney supply they can distribute a nominal start-up, of direct cash deposits to a nationalized depository bank account, for every legal adult citizen, as an economic reboot froma  Jubilee.

And the immigration squatters must go back home because they get nuttin' - not a damn pork sausage! Ok, maybe a cattle-truck to the border and a kick up the arse to help them re-orient their national loyalties, to their own countries of origin, so they feel motivated to fix them, instead of running away, and just shitting on, and making disorderly someone else's country. That's their 'human rights', right there.

Unemployment will disappear really fast, and prosperity will flourish - no debts and money with spending power and National resources and capacity/potential as backing for trade.

Think about what would happen with no limitations on your personal economic prospects. People will quickly realise they are in the...


L A N D   O F   O P P O R T U N I T Y


Remember that?

Wed, 06/22/2011 - 21:43 | 1393647 web bot
web bot's picture

Funny and outstanding post!  +1000

Wed, 06/22/2011 - 22:19 | 1393681 honestann
honestann's picture

No, Greece should THROW their way out of debt.  Just throw it off... ALL of it... in one shrug.

What a freaking relief that would be, too.

Of course, then the government of Greece must fire half of its employees, and cut pay in benefits in half to the remaining half.

Presumably the default would make it easier for Greece to "do the right thing".  I mean, hopefully nobody would lend them any money after a total, complete, unmitigated default.  Of course, since central banksters create debt out of thin air at zero expense to themselves, Greece should immediately add to their constitution an absolute prohibition on government debt (as should all countries).

GOVERNMENT DEBT IS SLAVERY and inherently and blatantly unethical.

Greece:  DEFAULT.

Portugal:  DEFAULT.
Spain:  DEFAULT.
Italy:  DEFAULT.

Let the central banksters eat fiat.

PS:  Notice the absurdity too.  The fiat cost the gangster banksters no time, effort or resources to create (a few keystrokes).  So "eating it" costs them no pain either, except perhaps early retirement with the millions they've already stolen.  In contrast, what do the suckers they've foisted these loans upon need to do to pay back these loans?  Answer:  become debt-slaves for the rest of time, and work for decades for benefits that others received years, decades, centuries before.  The choice is trivial, no?

Wed, 06/22/2011 - 22:57 | 1393735 Element
Element's picture

Check this Ann

Dated June 7th 2011


People are defaulting ...

Fri, 06/24/2011 - 00:43 | 1397589 honestann
honestann's picture

The more default the better.  To clarify my position and situation.  Anyone who borrowed from a financial institution got fake debt money created out of thin air by banksters has received NOTHING and should default on principle (as well as on convenience if it is indeed convenient).

Personally, I've always considered debt to be a form of slavery (especially when the lender creates the funds out of thin air).  And therefore I have never taken a loan, and never will.  So I do not advocate default to justify my actions, I justify default because it is ethical AND crucial to destroy the predators of all stripes, and the entire bansters system is right at the top of the list.

Wed, 06/22/2011 - 22:34 | 1393705 Frankie Carbone
Frankie Carbone's picture

Fractional reserve posting? Wow, you know this works in reverse, don't you? If his post is deleted then 10 more posts get called in. The thread gets deleveraged, a cascade runs its course and before you know it every post has been deleted. 

All because of one bad apple poster. 

Wed, 06/22/2011 - 23:03 | 1393746 monopoly
monopoly's picture

Great post and right on. Too bad only about 5% of us have any clue as to what lies ahead in that fork in the road.

Thu, 06/23/2011 - 05:03 | 1394038 Djirk
Djirk's picture

write offs and work outs is the only way to get back on the growth path. Investors with real cash can put it to work in the real economy.

Bush Sr put together a work out program after the S&L crisis and it was followed by a huge US boom.

My guess is it will never happen due to the knock on (down) effect of la la lost decade(s) here we come.

Thu, 06/23/2011 - 09:06 | 1394239 Silver Dreamer
Silver Dreamer's picture

Of course it is a fantasy.  It is the same as saying "I can eat my way out of obesity."  The truth of both issues is so simple that people apparently have a hard time grasping it:  If you want to lose weight, you consume less calories than you burn.  If you want to get out of debt, you spend less money than you earn.  Is it really that hard to understand?

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