Guest Post: Why the World Is Financially Doomed in Four Charts

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

Why the World Is Financially Doomed in Four Charts

The global economy is doomed to implosion, and here are four charts which explain why.

Though the complexities may appear endless, the global economy's coming implosion is really fairly easy to understand: here are four charts which do the heavy lifting. It boils down to these basics:

1. When money is dear and difficult to borrow, then productivity and capital accumulation are encouraged, speculation, malinvestment and debt-based consumption are discouraged.

2. When money is "free" (zero-interest rate policy) and liquidity is unlimited, then the opposite conditions hold: speculation in risk assets, malinvestment and debt-based consumption are all encouraged, and productivity and capital accumulation are heavily discouraged.

3. When debts exceed the value of the underlying assets, the only way out of the Tyranny of Debt is to write off the debt on both the borrower and lender's balance sheets, wiping out their capital via liquidation and bankruptcy.

4. The "extend and pretend" policy pursued by all major nations is simply transferring the impaired debt from private hands to the taxpayers (public debt), crippling the economy with higher taxes and higher debt service.

5. The Central State's "extend and pretend" policy requires heavy borrowing every year to prop up the status quo, pushing the Central State (or equivalent, i.e. the Eurozone) into an inescapable double-bind: either continue increasing public debt and cripple the economy with high taxes and high public-debt servicing costs, or let the financial status quo of "profits are private, losses are public" implode.

The first path leads to default, as the Tyranny of Debt cannot be masked for long, while the second path wipes out the Financial Power Elite which feeds the politicians.

Here are the charts. Note how the speculative economy created the illusion of rising wealth for the bottom 90%, an illusion stripped away by the Default Economy.

In essence, the Financial Power Elites profited immensely from creating this illusory wealth which gave the bottom 90% the false sensation that their declining earnings and purchasing power were being offset by the "magic" of asset bubbles.

Then, when the bubble popped, the Financial Power Elites transferred the impaired assets to the taxpayers, a process which is still underway. The politicos of both parties are complicit; behind the simulacra of toothless "reforms," this process proceeds in myriad ways (Bank of America transferring toxic debt to Fannie/Freddie, etc.) Behind the smokescreen of conjuring a "wealth effect" to foster more consumption, the Fed's purchase of Treasuries (QE2) serves this transfer-of-debt-to-the-public process.

This same process is playing out throughout the global economy: Greece, Ireland, the U.S., and eventually, in China when its monumental property bubble pops.


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Dr. Doom's picture

But the Dow will be at 36,000 so I will feel wealthy

Wynn's picture

hang on to that wealth, you'll need it to buy your 2 oz jars of gruel, if you can find any

rustybenelli's picture

I never have anything to dink when I read the comments section. Wynn your comment was so funny,im still laughing.

FEDbuster's picture

The "wealth effect" fades fast, kinda like the first guy to receive a 100 trillion dollar Zimbabwe bank note for a bag of rice.

markmotive's picture

We're well on our way...the political attitude is borrow 'till broke.

"...failure to raise the limit would precipitate a default by the United States..."

He said's the full text:

flacon's picture

Viva Ludwig von Mises!

Voluntary Exchange's picture

A system based on theft,  fraud and "legalized" violence (your "government" ) will expand until  its growing level of crime can no longer be sustained. When people go along with being taxed they support murder, theft, fraud.  Should they be surprised that they become the eventual victims of  the predators they continue to feed?


It is not good people who are attracted to monopolies of "legal" force, it is the violent and evil.  Good people seek not the "legal" power to steal from others (taxation), thieves do.  Good people seek not the power to lie without consequences, the corrupt do (and they write "laws" to make it "legal"). So why do people think they can ever obtain something good from "government" when it is the place where a clever criminal can act without being caught?

Let's stop being "free range slaves" in the free range "farms" of the wicked!


nope-1004's picture

Either borrow heavily to sustain status quo, or default on debt.


Who will be the lender under the first scenario?  To me scenario 1 is simply more Ponzinomics - ie. treasury / fed / PD charade.  It can't last.


SheepDog-One's picture

Theyre only keeping it going to some predetermined point...these people arent STUPID after all, theyre fully aware theyre running a market pumping Ponzi. The default will come, when its planned, and that will be when the world war is kicking off full steam.

Raynja's picture

People don't want to admit/see that this has never ended any other way.

Seer's picture

"The default will come, when its planned, and that will be when the world war is kicking off full steam."

There's a lot of truth in this if you understand how it's always been.  The rich/elites have always stirred the pot of divisiveness such that they could uncork it/pour it out when the time comes.  Set it up such that the <people of country X, "coloreds," socialists, poor> are demonized, and when the curtain starts parting a bit further (the men behind the curtain can no longer hide) the media will be unleashed to focus on the "others."  Quite sad, it's an age-old game, and even so-called more intelligent people that lurk here don't see it, meaning that it's likely really ingrained in a whole hell of a lot of people (Manchurian Candidates?).

AnAnonymous's picture

 It can't last.


It cant last. But still it can last for the next 48 years. So you wont be bother by it.

As long as there are resources to buy, the US can buy them through  debts pyramid schemes.

First thing I checked out back in  2008. How long the US could practise US business style.

DFCtomm's picture

I think most intelligent people agree that it can't last. The 64 dollar question is when does it all come down. You indicate that in 2008 you did some type of research that led you to believe it could last for the next 46 years. Want to share so that we can judge the validity of your assertion?

DaveyJones's picture

yes, I fear they might be onto the scam. And in 48 years we'll be adding (given the momentum) a trillion dollars of debt every second. Just get a night job I guess

tmosley's picture

The longest lasting Fiat currency regime in the history of the planet was 50 years in Mongol China.  The US dollar has been fully fiat for 40.

I'm not sure we are going to break the record at the rate we are going.  Remember that the Yuan Dynasty had tribute coming to it from half of the world.  Come to think of it, not so different from today.

InconvenientCounterParty's picture

The Bernank issues statement on food inflation: " Human flesh is a significant source of protein. It stands to reason that eating your own flesh is an effective course of action provided the heartbeat is not affected. To maintain the proper and sustainable balance, nibble at non-essential areas such as the toes. The key to sustainable consumption, is to recognize when the heart beat is disrupted. At that time the prudent course of action is to moderate the consumption rate."



Hal n back's picture

that ties into the death panels where we would have a good supply of that protein.

malikai's picture

I'm afraid not. We will need them for pyrolysis conversion to oil, gas, and minerals. This is far more important than feeding the serfs. 

MayIMommaDogFace2theBananaPatch's picture

stands to reason that eating your own flesh is an effective course of action

Ouroboros Bitchez!

Cindy_Dies_In_The_End's picture

I think Stephen King once wrote "they taste just like lady fingers".

hambone's picture

I dare Charles Hugh Smith to name that financial doom in 3 2 charts...ok Charles Hugh Smith, name that financial doom in 1 chart...

Tyler, tell Charles what he's won!!!

Michael's picture

Just like in Zimbabwe.

Michael's picture

Just like in Zimbabwe.

Michael's picture

Just like in Zimbabwe.

AnAnonymous's picture

Sure. A lot of non Zimbabweans suffered from starvation because of Zimbabwe monetary policy.

Just like the US.

ThirdCoastSurfer's picture

 Little noticed Mexico is way ahead of you. It passed 36,000 a long time ago and should pass 40,000 soon. It's previous all time high was just under 33,000 in Oct 2007.

If you think things are good here, you should see the hoard of children begging in the streets down there. The 40% that are well off just can't imagine why the remaining 60% aren't in the market so as to improve their condition.  

Village Idiot's picture

What about the bat devil?

cougar_w's picture

She not a devil, she's an angel. And since you ask, she's busy:

Bringing new meaning to the term "inflated assets".

SDRII's picture

favorable revisions

LawsofPhysics's picture

Dr. doom,


Could you be more specific regarding the date the DOW will be at 36,000?  It just shit my shorts (so to speak).

DonnieD's picture

I wonder if Naseem Taleb buys Dow 30,000 calls or Dow 5,000 puts for his armageddon scenario?

Star Warrior's picture

Both via a Straddle Play, their both Armegedon scenario's

h3m1ngw4y's picture

on your thinking why dow 36000 (or 50k as in this video) is a very bad number. its more a real 85% loss to your real wealth:

do not juggle with numbers do the thinking behind the numbers to see what it means

its more a fatal attractor for me

Yardfarmer's picture

posters should honor the attributions. in this case,martin armstrong's prediction of a DOW 36,000. after which parabolic blowoff. will implode and settle to 400. of course timing is everything and therein lies the rub.

lynnybee's picture

when's this thing finally going to collapse ?   i'm the laughing stock of my friends & family .    i'm even stockpiling my daughter's home because she refuses to get sucked into this insanity !   I've got the silver, I've got the foodstuffs ........ & if I mention total economic collapse just one more time, they're going to have me committed !!

Wynn's picture

at least your prepared, some of us will only be eating birds and fish as they fall from the sky :-)

sabra1's picture

is there shake 'n bake for crow?

centerline's picture

Be careful around here.  You are likely to get several recipes.

KickIce's picture

First pointer, since they're falling a couple thousand feet you will not require any meat tenderizer....

lincolnsteffens's picture


Love it ..."meat tenderizer" I got a belly laugh out of that!!

Pegasus Muse's picture

I shall survive.  Oh, the savagery of it .... eating nut munchers .... poor little critters. 


getplaning's picture

That's hilarious. Actually, the squirrels like it. I have a pecan tree in my yard in Texas, and my kid has a trampoline. One morning I looked out the window and three squirrels were jumping on it. Swear to God.

Michael's picture

Mana from heaven. Yum.