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John Taylor Explains Why Credit Growth Equals GDP Growth
Credit Growth Equals GDP Growth
August 19, 2010
By John R. Taylor, Jr. , FX Concepts
Way back in the 1960’s analysts were worried about the multi-decade increase of debt. Some focused on personal debt burdens, some looked at corporate gearing, and others feared government deficits, but for years and years these worrywarts were proven wrong, as the economy powered higher and higher making the critics look like idiots. Statistics on almost all types of debt showed a high correlation between their increases and increases in measures of economic health like the GDP, average personal net worth, and the country’s standard of living. Underneath this positive economic view, seemingly out of sight to everyone, a slow weakening was taking place. As the years went on, the dollar increase in debt necessary to generate a dollar increase in GDP kept growing. Back in the late 1940’s and 1950’s, it took about a one dollar increase in debt to generate a one dollar increase in growth, but in each succeeding decade the amount of debt necessary to generate a dollar increase in GDP kept growing. Through the most recent decade, it seems to have taken more than five dollars of debt to produce one dollar of growth, and over the last few years the numbers might have gone into reverse, or perhaps only toward infinity, as all the increase in debt does not seem to create any growth.
Debt does not seem to be the answer, but there is absolutely no sign that the opposite is the answer either. The world has not seen a global reduction in debt levels since the Great Depression and that process was not understood at the time. No one really knew what the level of total credit was until after the fact and no country went about purposefully cutting the national debt level. It is true that there were many disjointed efforts to reduce government borrowing, but these efforts were not international in scope and did not involve squeezing corporate or individual borrowing. Looking at recessions through the last half-century, it is clear that credit levels decline in recessions and it should be obvious that any coordinated efforts to reduce credit outstanding will lead to a decline in final demand. As an expansion of credit has lost its power to stimulate growth (because of the extremely high levels of current debt outstanding) and as a reduction in debt levels is not a good thing, the world seems to have reached a dead end – at least in a growth sense.
As a result of this logic, we have reached the conclusion that a new depression has begun (as we argued back in late 2008). Any increase in debt only delays the process. But with no growth generated by increasing debt, this strategy can only fail quickly, as unfortunately the US administration has illustrated. Eventually, there is no choice but to go through a reduction in the global debt level, most likely by defaulting on much of it and less likely by paying it all off over many, many years. Only after the debt is purged from the global balance sheet can the growth-augmenting reflation successfully begin again. The sharp, aggressive recession in 2008 was created by the collapse in the global banking system set off by the collapse in the US real estate market. Although the moves by Paulson and Bernanke to re-float the system were courageous and temporarily successful, because they increased US and global debt levels without generating growth, they were doomed to fail. Any further efforts by Obama and Bernanke will be an echo of the first effort, but a fainter one. With the Eurozone entering into an ‘austerity’ regime which will impact on six countries, three of which (Spain, Italy and
France) rank among the top economies of the world, we are seeing the deflationary debt process move into a more aggressive phase at this time.
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"Any increase in debt only delays the process."
Duh... that is the whole system... you increase credit/debt until you peak and then it collapses into a mess. You run a usury pyramid scheme and at the end of the line you are surprised by the results.... hahaha.
The outcome has always been known, and if the next system is just like the present system it will happen exactly the same way yet again. The function of the system is to rise, peak, collapse and implode.
"Debt does not seem to be the answer, but there is absolutely no sign that the opposite is the answer either"
Sounds like something a rat would say on a burning ship way out at sea, with nowhere to jump to. More debt is the answer, the problem is humans have no ability to sustain the amount needed.... humans do not have unlimited power yet the system they use requires unlimited power to sustain it. Good luck.
if the next system is just like the present system it will happen exactly the same way yet again. The function of the system is to rise, peak, collapse and implode.
Right, but the debt super-cycle takes decades. If we can hit the reset button by clearing out the bad debt, we're looking at 10-25 years of expansion and prosperity. I'll take that.
Any growth has to start from the bottom up as the trickle down effect has never worked for any period of time.Manufacturing has to be restarted in the Wests bankrupt economies as the real profit in any product comes from producing goods from raw materials.Rebirth of manufacturing is the key to success.Why should people pile up further debt to buy foreign goods and build up someone else,s economy.Forget Globalisation that has just accelerated the collapse of the West with profits for the few.Most people want to work to improve their lives so give them the chance however don,t entrust it to a politician who dosen,t care about results as long as the numbers are right or an asset stripping billionaire who is interested in the short term,it has to be done for the long term with proper investment.China is destroying the Western world with capitalism whilst never renouncing communism,leave it to it,when things get really bad will she bail us out,forget it.
Doesn't it seem like a good idea to get through the bankruptcy before we worry too much about re-starting manufacturing? The repudiation of debt is fine, but a thorough reorganization - so you don't end up in the same situation down the road - is also a function of bankruptcy proceedings.
I don't see a 'rebirth of manufacturing' if there is no thorough reorganization of our economies AND its managers.
Manufacturing fled in large degree thanks to unions, which are always and everywhere vehicle for union organizers to the detriment of all stakeholders including workers, and thanks to the the gigantic stacks of do-gooding federal regulations that have accumulated. We don't want to go back to Dickens or be modern day China, but generally competitive forces in the labor market would drive out such abuses in and of themselves. Fordism solved this sort of problem long before government and union bossing and regulating stepped in. That's just the way we roll here in America. Unions and government regulators are sucking parasites, largely, encrusted across the dermis of US based industry. Within our borders, it relocates as best it can to "right to work" states, and less regulated and less taxed ones. This would be why Dallas and Houston are way better off than Detroit or any rustbelt, former manufacturing place. Union weakness and a light hand by regulators with the lightest possible topping of taxes, is the way to get stuff made here in the U.S., by and for US workers.
Bottom line whatever the bullshit is unions eat profits.Forget that the workers in their millions are the real movers in society.When you reduce their wages you reduce your own profits.Would you rather pay wages and harness a nations talents or welfare and leave em to rot.Grow up and realise no mans an island.Sack the Unions is a great slogan but life is never that simple,for every cause there is an effect.Once you import cheap goods and cheap labour and carry on the policy you sow the seeds of your own destruction.
Poor or bad greedy unions are usually the result of poor managements.In fact poor management is rarely mentioned as the prime cause of most problems.Cooperation achieves the best results and if achieved negates Union power,however in the ridiculous chasing of continual huge profit increases the workforce get shafted and thats when you get problems,not usually the other way round.
I think the main reason American manufacturing has largely become uncompetitive is because environmental regulation and worker health/safety/compensation regulations are much more generous in the US than most other places (especially China).
Since we impose more costs on US-made manufactured goods than we do on foreign goods, it's natural that US companies would offshore production.
The answer is to impose tariffs on incoming goods that account for the environmental damage and lax worker health/safety/compensation regulations in the exporting country. This would mean tariffs on goods from China, for example, but not from Japan or Germany.
It may sound unfair, as cheap labor is the developing world's greatest asset, but it's wrong to export American manufacturing ability and jobs to developing nations who exploit their workres and pollute the environment. We're basically just off-shoring our pollution!
Ummm.. JT is a name, but is this not just an off-the-cuff summary of the Debt to GDP graph, which we have seen go negative at least several months ago if not longer?
That would be like me harping on Leo for being a pollyanna with respect to the double dip, its several weeks old and not news anymore.
I guess we are spoiled as we do our own research day in and day out and already know these things. But JT does the same. Hmmmm....
"Only after the debt is purged from the global balance sheet can the growth-augmenting reflation successfully begin again."
Only after all the wicked, greedy banksters have been thrown in jail like Madoff can the borrow-buy-brag cycle successfully begin again.
But that's not gonna happen. The looting and manipulation will continue.
"Who rises up for me against the wicked? Who stands up for me against evildoers?"
Psalm 94:16
Only after all the wicked, greedy banksters have been thrown in jail like Madoff can the borrow-buy-brag cycle successfully begin again.
You are too kind.
http://en.wikipedia.org/wiki/Gibbet
Too paranoid.
http://en.wikipedia.org/wiki/Signals_intelligence
We could deleverage, but the legal system doesn't permit for a functioning society in that case. Governments are collapsing, but the law forbids critical infrastructure from returning to private hands.
We get a revolution either way...
10,000% GDP growth coming your way soon enough.
You don,t want infrastructure in private hands,look at the UK were screwed for the necessities of life,luxury goods may be cheaper but the profits from our utilities are exported.The public needs to demand that they are run by the Public for the Public Good and a way needs to found to ensure that happens,they are too important to a nations future to be run any other way as you find out when you are screwed bigtime in the future.Take them out of the politicians hands before its to late.
If they are put in public hands, how are they not in politicians's hands? You have no faith in free markets and that is a mistake. If private hands abuse a product, it begins to sit on the shelf.
You assume we must have public water, electricity, gas and sewers. You assume a certain lifestyle. Well, there is a cost to that lifestyle- public ownership insures private abuse. It insures inefficiency. It insures greater cost for the same good.
Will there be problems? Of course! The difference is that each individual is empowered to create their own solutions, rather than hope for the powers on high to help them- cause we all know how that turns out...
How far would we be if we left research to private entities? We have a system where the public does things in the name of the common good and then the fruits of this are handed over to companies who operate for own good.
If telecommunication was left to the likes of AT&T then we would not be on this site today. They did not want anyone impinging upon their monopoly and did not allow third party devices (modems). Furthermore, DARPA developed the internet. Maybe the taxpayers should be demanding a royalty for it's use?
Well, brother, you've had your century of government-sponsored research, government education, and government-owned infrastructure.
It's a miserable failure.
Don't forget to throw away your computer and cancel your internet subscription. Such miserable failures that would never have existed without government sponsored research...
Miserable failure they are not, but a more interesting aspect of this would be to stack up the scientific discoveries done through central command in the 20th century, to that of the "free market" say in the 19th and early 20th century. A comparison should also include the amount of money spent to fund the progress.
why compare when it's obvious to anybody with a functioning brain other than free-market ideologues that we need both. The public funds mainly the fundamental research that may not have an immediate short term application but a huge long term benefit, the private does the rest.
That may very well be a false dichotomy, unless you wish to argue that no fundamental research was done prior to government involvement.
No but fundamental research costs a bit more now than it did back then. But also we can see millions of times further or millions of time smaller than we did back then. For instance Newton built the first telescope on his own in a few months, current telescopes require tens of thousands of man year to produce and test.
Well, that example is a bit too convenient, since it is very easy to pick an item/product that -- at present stage -- requires special processes and technologies (that have yet to be commoditized) in order to be manufactured. Hence, one needs to put in the balance the cost of production vs. the benefits.
Sure, we can blow huge sums of money to put a bigger and better telescope in space, but will the benefits go much farther than cooler looking calendar pictures? Or could we have waited perhaps a decade or two until improved manufacturing techniques enabled much lower final cost?
No, it's not just cooler looking calendar pictures. The only way to get to levels of resolution that will enable us to distinguish planets, and maybe habitable planets, around other stars, is to send a powerful telescope in space.
.... without any viable means of getting there for at least some decades.
That's kind of like saying inefficient overpaid bureaucracy jobs are a benefit to society,
because Einstein started putting together his theory of relativity while working in the Swiss patent office.
Putting the theory of relativity on paper just required Einstein's brainpower. But a theory is worth little as long as it hasn't been tested and its theroretical predictions verified with experimentation. That didn't come cheap and wasn't the result of private business investment...
In all fairness, World War 2 wasn't exactly business as usual.
Better off. If research was not restricted and free to all, we may have even greater discoveries. We still have monopolies, they are merely government sanctioned and protected. Example? Copyright laws. Did ATT lose it's sting? Hardly. Now they work with government to listen in on every word you utter.
There is no good government function outside the protection of private property. Not one.
It has always been interesting to me how some people say that they want less government, except when it comes to protecting property rights. Do you consider yourself property or do you also want the government to protect your person as well?
I say, if we are going to get rid of government intervention then we should get rid of it completely. Maybe there are those who don't like the government telling them they can't slaughter fat, rich assholes and loot their homes. Survival of the fittest is arguably the most efficient and natural re-distributor of wealth. That's how things were in Iraq after the US toppled the government. It was a type of anarchy where the oppressed were finally able to settle their scores.
That's not the type of world I want to live in.
That's a pretty silly statement, since property rights are crucial to progress, otherwise we'd be spending all day guarding our valuables. Besides, history has shown that people have come together to protect what is theirs, and, within the confines of their community, the concept of property rights has developed.
Whether the idea of property rights is within a tiny village, or is extended to a whole country is irrelevant, as there are similar requirements: the people need to elect representatives that will enforce that right (think the three branches of government).
By the way, the role of the government, when it comes to protection of one person from another, it is more along the lines of exacting punishment (enforcing the law). At the end of the day each person is responsible for their own defense, since, after all, even nowadays cops pretty much show up after the fact to do the body count.
If a community deems it necessary to commission lawmen to patrol the streets, then so be it, but let it be done at the local level.
You are calling my statement silly? If I hear you right you are basically saying that I should be free to kick your ass (I mean, if I were able to do so) so long as I don't steal your horse? Do you really think that securing property is more important than securing people?
History has shown that people have come together to form civilized societies, property rights is just one component of this.
That's quite a leap of logic, but even if you did it, government would hardly be able to stop you -- it will be only your fear of punishment, combined with your level of morality, that would prevent you from carrying such an action; additionally, any deterrent that I were to posses may also dissuade you from taking such action.
So, yes, civilized societies require more than property rights, but I'd still call your statement in the other post silly.
DARPA seems to job out development to private entities, universities and think tanks. Looks to me like it mainly just sets the bid requirements. Same story with NASA.
Government may provide an artificial (as opposed to market driven) financial incentive, but the actual research and engineering is pretty much left to private entities.
Maybe the most purely government research program was the Manhattan Project. I don't know if we could live without the fruits of that program.
I'm sure that DARPA would like to claim credit for developing the internet. But we all know Al Gore did that - right before he extinguished the fire threatening to engulf Earth.
You don't know what you're talking about with regards to space research and NASA. Probably 90% of the expertise and institutional knowledge about manned and unmanned space flight exists within NASA. Obama's plan to privatize space is a joke because the private companies don't have the know-how. They would have to contract back to NASA for their engineering and development work.
Maybe, though a quick glance at NASA programs shows an awful lot of design work being jobbed out. And NASA never manufactured a single bolt. And an awful lot of the gear NASA has used was designed and built by private companies. I'm never said NASA doesn't know something (or even a lot) about it. As for contracting back I doubt that very much. There would be plenty of unemployed former-NASA people around - if they were needed.
They need to be in the public,s hands but out of the politicians reach,start the management being accountable and if they don,t perform sack them.With the dire straights the US is in looks like you will learn the hard way.Free markets are collapsing as we watch,free markets depend on state debt to keep turning,is this not a free market abused product or are we all blind.I do assume we have public water,electricity,gas and sewers as these are the key blocks of life itself and of a stable society.Once you loose control of these functions you loose control of a nations destiny.These are things which should be a right in life,not a privelage otherwise you have no society just a hollow rotten core.These things are beyond individual empowerment,they were created and are maintained by collective effort.Sit on the shelf its life itself,the entire attitude in your post shows how the world has become the shitheap it is.
As all libertarians you're assuming private ownership always does better than public ownership.
There are many examples where it is not the case :
compare the rail system in France (public) with that of the UK (private). Or if electricity generation had been in private hands in France it would never had gone 90% nuclear.
Oh, and please don't forget to junk me if you have no better rational argument...
No junks from me. But I do disagree with your approach and examples.
Ownership implies the exclusive, free and unrestrained use of the thing you own. With that in mind I will point out that there is no such thing as 'private ownership' today. Government rules, regulations, requirements, tax policy, etc. create a situation where 'ownership' is far, far from absolute. Furthermore, few people alive today can recall a time when 'private ownership' even existed so we really have a limited frame of reference.
Would the US utility companies go 90% nuclear? It's a moot question. They can't, even though they are 'privately owned'. I don't know about the UK rail system, but I suspect that it is subject all manner of rate and service rules imposed by government.
What passes as ownership today is not what Libertarians are talking about when they talk about private ownership. Confusing the two is, however, a common mistake.
"the exclusive, free and unrestrained use of the thing you own"
so if I own a company called Chisso that produces fertilizers and I want to dump mercury in the bay of Minamata and kill or ruin the lives of a few thousand fishermen and their families, that's fine.
Or what about if I own a plot of land that I'd like to convert into an open air discotheque. Neighbours might not like the 105db but they can go to hell as I should have the free and unrestrained use of the thing I own.
If that's the kind of private ownership libertarians are thinking about, we can safely ignore it...
Don't be deliberately obtuse and absurd.
Both of your examples involve the use of things that are not owned: The bay and the air around neighbors houses. That would involve infringing on the property of others and, besides being wrong, would make you liable for damages.
Is that the best critique you have? If so then I can safely ignore you.
Maybe I can clarify the point. If we only rely upon property rights then there is no way to exercise prior restraint. So, if I want to build bombs on my property right next to yours I can do so. I can point my homemade missiles right at your house, and you can't do a thing about it. You can't do anything about it until I impinge upon your property rights ... and by the time I do it won't matter to you because you will be dead.
The problems you highlight can easily be dealt with, using your prior restraint in a private context and only using the public court system to deal with disputes. I can live in a private community which bars such conduct. Folks like you seem to imagine that bureacracy is the only way society can function, and that individuals are not smart enough to develop systems that suit themselves and then band together to use them while still remaining free to leave.
Mostly, though, when discussing these subjects we quibble about where lines should be drawn, citing examples to prove our points, (unavoidably?) reducing the notion of individual liberty to a bidding war.
The water in the bay and the air around the neighbour's houses are not someone else's property. Water and air are fluids, they circulate.
It's in society's interest to protect the environment from harmful polutants. That's why we need environmental protection agencies to regulate and control the actions of property owners.
I am one of those awful libertarians, and I am the last person who would deny the need to protect the environment from genuine (not imagined) damage.
You do have the knack of oversimplifying things, and with that I'll just throw out there a few things:
"By the public, for the public good" sounds nice but how does it work in practice?
If you let the government (civil service, whatever) run things they will lose money regardless. The US Postal Service has a legal monopoly on mail delivery but can't break even. Partly because fees are manipulated for political gain and partly because of inefficiency and high costs because the politicians make money off public unions and they pass the excess costs onto the public.
Most public utilities can't make enough to maintain their systems so bonds are issued so you pay for the service once in your bill and again in your taxes. Once again it is political manipulation of fees in return for bribes and inefficiency of operations (in return for more bribes).
I can see that the government (supposedly our representative) should receive rent for the right to run public utilities but everything the government does is better off privatized. That includes schools, utility systems, cleaning of public areas, parking systems, parks, etc. Anything the govt touches is corrupt, inefficient and ineffective. Probably the police should be contracted out. The only problem then is to ensure (mostly) fair contracting to get the best services for the least cost. Public officials should provide oversight but they need to be watched closely to make sure that their net worth doesn't show any odd jumps and they should be prohibited from ever working in any industry they oversee. Politics should be a short term job, not a career. We need to make punishment for corruption so draconian that it isn't worth it (or at least corrupt officials are removed from the gene pool).
Some of this may happen once our current system collapses but the only way to restrain corruption and inefficiency in govt is to limit the amount of the economy the govt controls. Once we get back to the Post Office employing the majority of the federal govt workforce, we will have about "right-sized" the govt and our economy will probably do better.
I heard Iran was willing to put a bid in on privatizing our nuclear arsenal. They were giving assurances that it would be run much more efficiently.
yes its been said before
nathan covered it ages ago on his blob
he should be given credit for it
http://economicedge.blogspot.com/2010/03/most-important-chart-of-century.html
except that this graph is complete bullshit. You want some examples ?
Change in debt was positive in 1980, 1982, 1990, 2001 but change in GDP was negative all these years, so the quotient was negative. Just check the Z1 data.
This graph is completely erroneous and keeps being shown around with nobody checking the data.
Moreover change in debt divided by change in GDP has no unit. The graph puts it in $ units. Also this is not data from the "US Treasurey" but from the Fed.
So many errors in one graph and some people just keep sending it around with not an ounce of critical thinking...
There is a book, "The Blood Bankers" that details the effects of austerity and rampaging debt in third world countries. Without exception, every country that followed the prescriptions of the IMF and the banking community ended up poorer and in deeper debt with less ownership of production.
Welcome, with the third world tapped out, it is the first world's turn.
The bankers are not patriotic. They only worship at the foot of Baal. They will destroy any country in the pursuit of wealth accumulation. The policies they advocate will only transfer more wealth- not resolve debt issues.
There is one solution that is superior to the rest and it has been ingrained in all of us to be the anathema of life. Default on all debt.
If coupled with the elimination of central banks and fiat currency, economic activity can begin anew. The bankers will be poorer, but not without resources.
Regulation does not work, if it did, we would not be here now. Currency without value will not work, otherwise we would not have accumulated so much it is impossible to pay back. Inflation without deflation will not work.
The movement towards equilibrium is necessary for economic stability. This movement implies both directions. It implies "periods" of growth and periods of shrinkage. It allows for the rational discovery of prices and profit to encourage entrepreneurs.With every veil and obfuscation, we allow deception to steal wealth.
Austerity programs will extend, pretend and leave us in greater debt.
The solution is always the same: minimum government, no personal taxes, no wars unless war is waged against us with a clear enemy. No subsides, no entitlements, no inefficient- government run redistributions of wealth, no excuses. No fiat money, free banking with a real security for currency creation.
It isn't rocket science. Hard work=real wealth.
+ infinity
Ok, I'm in. Where do set up our new country?
And don't look now but jobless claims just came in at 500,000. Well OK, go ahead and look anyway.
This data point seems pertinent to me but futures have crept up since its release.
Am I missing something here? I thought jobs were the biggest issue now.
And of course, again, they say that jobless claims rose "unexpectedly"!
When exactly are those experts gonna start expecting this shit?! Never?
Welcome to the equity society. Debt is seductive because it positively magnifies returns, growth, ROE, etc. in the early stages. Unfortunately, most people forget that exponential credit growth inevitably chokes all debtors (sovereign, corporate, consumer, etc.) to death. Everyone thinks they can get before the tsunami, but everyone will ultimately drown in the wake.
I'm convinced that much of what we have witnessed economically over the past 30 years is a mirage. The bull market that began in 1982 was largely driven by the decision of TPTB to "lever-up" society as a whole - start of huge government deficits (simply tax cuts financed by borrowing), beginning of a secular LBO boom, a new obsession with realizing shareholder value by substituting debt for equity, etc. The Reagan Revolution, the "economic miracle" under Clinton and the economic growth under Bush II was simply the resulting of steadily increasing leverage. The subsequent appreciation in financial and real estate asset values created an illusory wealth effect because it was all created with debt. Somebody with $1 MM of assets that are financed with $1 MM of debt owns nothing and has no real wealth, only the perception of wealth. People are learning reality - the difference between asset value and net worth.
For all of you wondering WHEN this debt defaulting will begin I submit to you this evidence:
https://marketforceanalysis.com/articles/latest_article_081810.html
My reading of this is that the Central Banks have lost control of the last plug in the creaking dike holding back an alternative currency that will wash away all debts.
Yes ladies and gentlemen the end is nigh, Central Planning is about to go the way of the dodo. Why will this precipitate debt to fall from the system like crystals forming in a super saturated liquid in a high school chemistry class:
Interest Rates and the Price of Gold are inversely proportional.
A rising Gold price will pull dollar holders into Gold because it's an alternative currency.
To keep dollar holders the Fed will have to raise Rates to attract them (like Volker did in 1980).
Rising Rates will pop the ridiculous USTreasury Bond Bubble.
And Worse....wait for it.....waaaaiiit fooor iiittttt.....cause the Treasury to "restructure" their debt.
Tada.....I'll be here all zee veek.....
Mako,
Unfortunately this is the best system that the human kind is able to produce at this point in time.
And I really think this is an ok system as long as you let recessions take their course and purge the system of bad debt, eliminate those who made bad business decisions and let some others take their place. Someone has to take the loss at some point but as long as the political factor keeps intervening and bailing everyone out every time and again, the system will eventually collapse.
Precisely! Very wise statements, sir!
Exactly....how simple can it get ?
The 2006/7 economy number was 100/100....
This number represented all available money from both credit and asset valuations....
If credit is eliminated....and asset valuation drops.....the total economic number drops....
This number was 100/100....going to 60/100....and then to 30/100....
.....................................
Deflation.....IN A BIG WAY.....
...................................
Solution ?
The seeding of an overall sustainable job estuary....entrepreneurship and small business promotion....
How can this be promoted ?
Remove the individual and corporate income taxes....
The only tax should be a small basis point debit on all money in accounts....
.........................
This also cures the political process...the polys that will get in office are those that will reduce the tax take....
.......................
Never again will an American fill out any tax form of any kind....
.......................
Fairness and effectiveness ?
It does not get any fairer or effective than a small monthly debit on money in accounts....borrowed or not....
zexe
this is a good point
whats more to blaim the systemn or the politicians who prevent it from working?
but really should all money be debt?
there has to be a better system thatn that
alsoi should banks be bale to lend out money they havn't got
surely its fraud
inflation is theft
but the real crime now is not letting the system deflate
I think money is not like any other commodity because their most important function is a means of exchange. Therefore the current system where money is debt it does its job of providing a means of exchange when you need one (if the means of exchange was say gold, what wud it happen if gold reserves worldwide wud not grow anymore because there was a shortage in supply...?).
The problem is that at some point this system is corrupted and messed around with by politicians whose only goal is to get elected next time....that's where this system fails.
Bingo. Bingo. Bingo. Tyler please put this in gray and make it your must read post of the day. This, as succinctly as possible, demonstrates how the marginal effect of new dollar of debt on economic growth has collapsed, and that the return of prosperity is impossible until the massive government/corporate/personal debt problem is addressed.
nothing matters dudes
buy stocks! buy 30 yr bonds!
It's pretty simple, trickle down economics through bailouts, in which the money is either for debt, or leveraged trades, the amount of GDP growth is zero, because every dollar is wasted by doing NOTHING of REAL VALUE.
You see back in the past when we had stimulus and stuff, we built stuff, now, the only stuff we built, was going to be built anyways, and the rest went to the big banks who sat on it.
The money doesn't flow through, it get's sucked out through the process. That's how bad the system has gotten with leechers. Everything is leached away.
That's why anyone arguing for tax cuts is an absolute idiot. It won't boost crap except for the pocketbook of the idiots who caused this mess.
This is also why we'll turn into Weimar Germany soon enough, for a time, before deflation again. But of course even during deflation and inflation as a whole, there will be extremes in the opposite going on the whole time. Since printing money does not equal anything but crap GDP increases, QE2 or Weimar Policy, will only debase our currency, and not 'grow' anything.
We're right on that cusp. Currency debasement in the extreme looks to be right around the corner. The Weimar option is being used by the fed. No if's, and's, or butt's. Weimar Policy in full glory = QE2.
You can however wipe out the debts, by having them pass/fail the glass/steagall standard. You'd find out lots of our 'debt' is fraudulent and can be wiped away. Now the rich dipshit who was 'investing' in these craps will take the hit. Sorry, you've had 2 years to divest of the crap, if you're still in it, tough titty, said the little kitty, but the milk's gone dry.
I'm sure most could take the hit, if they've been this cluessless so far. Either way, the fraudulent debt needs to be cleared. In true Spock fashion, the needs of the many (the world and every US citizen) outweigh the needs of the dumbfuck few or the one.
With this done, NAWAPA, Real Space program, and real capital investment can occur.
Until then we're spinning our wheels and bending over for the banksters.
There is an unstable element inside our monetary structure, by its very nature. We must remove this unstable element. That element, is fraudulent debt.
There's obviously much more we have to do. But it all starts, and in lieu ends there. If you don't cancel the derivatives and fraudulent debt via Glass/Steagal, you don't have a future. Hell you probably won't even be alive, but perhaps that's a few years away, or perhaps weeks.
THE NEXT LEG DOWN ...
http://stockmarket618.wordpress.com
How much GDP growth you can create with a dollar of debt depends on whether you mean nominal GDP, real GDP as officially measured, or authentic real GDP.
A dollar of debt used to create about a dollar of nominal GDP, but part of that was inflation. A (chained) dollar would have created much less real GDP.
And if we're talking authentic real GDP growth, I suspect the effects of credit expansion were never all that much to begin with. Officially measured real GDP does not discount all inflation, as an economy's production in any given year always consists partly of substantially new products and services that can't be directly compared to the previous year's, and some which statisticians arbitrarily or lazily decide can't be directly compared. Those judged-to-be-substantially-new products and services are brought into CPI and GDP deflator calculations for that year with no inflation component. Thus for example in official real GDP figures it will appear that lawyers have increased their production of services per man-hour by multiples over the decades, because of the accumulated effects over those decades of judgments by statisticians that lawyers were not merely providing identical services for more money, but new kinds of services with greater real value.
There are certainly a lot of details like that to take into consideration.I read and understand the entire article and I really enjoyed it to be honest.
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