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Guest Post: Debt - Driving The Economy Since 1980

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Submitted by Lance Roberts of Street Talk Live,

 


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Tue, 10/23/2012 - 12:16 | Link to Comment Mercury
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No we're not

Tue, 10/23/2012 - 12:17 | Link to Comment tsx500
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SUCK IT BERNANKE  !

Tue, 10/23/2012 - 12:22 | Link to Comment Mercury
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Oops. That was supposed to be under this quote:

It’s time for our leaders to wake up and smell the burning of the dollar – we are at war with ourselves and the games being played out by Washington to maintain the status quo is slowing creating the next crisis that won’t be fixed with monetary bailout.

We're at war with those who are burning the dollar. Deflation can be a good thing.  Wouldn't it be nice if the prices of some of the things you paid for every month were deflating?

On the off chance that monetary stimulus doesn't work, someone is going to have to take it in the neck.

And the government is going to do everything it can to make sure it isn't them.

Tue, 10/23/2012 - 16:07 | Link to Comment LMAOLORI
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A Ponzi Scheme Called America

snip

When it comes to the U.S. economy, who will come to its rescue?

Oh, I forgot the big difference. When the U.S. needs to issue Treasuries to pay for its debt, the Federal Reserve prints money to buy the debt. That’s the difference; the U.S. prints money, Spain can’t. The U.S. is a Ponzi scheme, and eurozone member Spain isn’t; so the U.S. gets a top credit rating. Now I understand how it works.

Fri, 12/21/2012 - 00:24 | Link to Comment mediaprizm
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Hove Driving Lessons & Worthing Driving Lessons, Hove & Worthing Driving School offer pre-test and post-test driving lessons including Intensive Courses, PASS PLUS and refresher lessons.

Mon, 12/24/2012 - 17:50 | Link to Comment BigJim
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Fascinating!

Tue, 10/23/2012 - 12:45 | Link to Comment TheGardener
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Try to combine debt with friendship, lend out any amount on any terms to friends.

 

First, the installments will stall but your friendship will stall even faster.

Second, your now former friends will default but think because you got them into that debt trap,

you owe them further assistance.

 

a) you pay up, throwing good money after bad

b) you write your mistake off , but will still be hated

c) you depend on the very close peoples that just ripped you off and you wipe off credit and renew at best behavior

 

D) you have not only applied this to friends but family members too, welcome to Earth

 

 

Tue, 10/23/2012 - 13:39 | Link to Comment Zadok
Zadok's picture

Gardener: Add one thing to make it great. Counterfeit what you loan out as step one.

Beautiful!

Tue, 10/23/2012 - 12:22 | Link to Comment PUD
PUD's picture

Bingo! Without perpetual exponential debt creation there can be no "growth"...peak debt. Exponential debt kills the host. There is no fix.

Tue, 10/23/2012 - 12:47 | Link to Comment LawsofPhysics
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Sort of.  "Money" and "Debt" are human constructs that sociopaths now use to maintain power and control. Nature and the Laws of Physics don't give a shit about either.  Why does the lion eat other animals? Because like anything else in the real world, he needs energy to actually do anything.  No energy, no economy.  Human population has and is still growing exponentially.  You only need to ask yourself one question to know how your quality of life will be impacted moving forward; has the energy available to the population been growing exponentially as well? - FAIL.

Tue, 10/23/2012 - 12:56 | Link to Comment metastar
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Unfortunately,with this sad pathetic joke of a monetary system you are correct. But, how do you keep the growth increasing when the debt levels get so high in relation to income/GDP? It is the low rates we currently enjoy, courtesy of helicopter Ben, which allows us to service the debt though it keeps growing. Massive inflation (I.e. dollar devaluation, I.e theft from savers) is what the scum bags seek.

Tue, 10/23/2012 - 13:31 | Link to Comment catacl1sm
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Throw in a little energy depletion and resource depletion and we have a the makings of a Perfect Storm.

Tue, 10/23/2012 - 15:20 | Link to Comment Panafrican Funk...
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The strange part is that the writer of this article is still operating under the delusion that there is still a possible "fix" to the problem.  Is he aware that we are bankrupt?

Tue, 10/23/2012 - 12:24 | Link to Comment Poor Grogman
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You lost me at the word "Subsidies"

Tue, 10/23/2012 - 12:32 | Link to Comment Cognitive Dissonance
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And here I thought all that money I made in the stock market during the late 80's and all of the 90's was due solely to my brilliance.

<Turns out it was all leveraged fiat bullshit and I'm still as dumb as a bag of rocks.>

/sarc

Tue, 10/23/2012 - 12:33 | Link to Comment Jumbotron
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WINNING SINCE REAGAN !!!!!!

Tue, 10/23/2012 - 13:23 | Link to Comment falak pema
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In 1959 during the elections in UK, Harold Macmillan coined the phrase : you've never had it so good. 

It was the last time an Englishman said that for twenty five years, as Rule Britannia sank into the waves of economic regression, until MAggie's big stick Union bashing and big bang sleight of hand began. 

In 1986 Reaganomics and Maggie's Bigbang changd the philosophy of capitalism. 

When GWB was elected he could have said the same thing as Harold Mac. So we are now, since 2007 pinnacle, heading into in a twenty five years down spiral as Pax Americana will eat humble pie based on that analogy.

Lets hope that nothing drastic changes the nature of this depression. But given the political dynamics of the US we can expect the worst as the UK never became a police state inspite of its economic regression.

Tue, 10/23/2012 - 15:18 | Link to Comment TheGardener
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"as the UK never became a police state inspite of its economic regression."

 

Being a "multicultural society" requires heavy repression, polite Englishmen ignore this fact ,

inspite of thought crimes accused in a more  revolting way then ever in recorded history as ever.

Questioning or mentioning anything  taboo is illegal in most of formerly civilized European countries

and that includes the UK to some extent. Former civilized countries!

Tue, 10/23/2012 - 12:35 | Link to Comment MaxMax
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Most of the money in existence is created by debt or the belief that something rose in value (like housing until 2006 when it was monetized by reselling, home equity lines, etc).  With debt, you always have an interest rate associated.  So at the end of the period, you have to pay back debt + intereset.  Only way to do that is to get some new debt created before then. 

We hit peak debt.  The system can't physically pay off all the debt because there isn't enough new debt being created.  That's why the government is deficit spending like mad.  If they stop, the economy will really tank.  It is too late now - we are on the other side of credit creation.

Tue, 10/23/2012 - 13:35 | Link to Comment catacl1sm
catacl1sm's picture

It will tank either way, the question is, will have hyperdeflation or hyperinflation first? I tend to lean towards the latter as it benefits TPTB the most.

Tue, 10/23/2012 - 13:46 | Link to Comment Sockeye
Sockeye's picture

You missed the point of the article. Despite protestations by TPTB, excessive debt will force deleveraging. Aka depression.....and eventually follwed by currency collapse (hyperinflation).

Tue, 10/23/2012 - 14:22 | Link to Comment slightlyskeptical
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That is why the only answer is to delever by eliminating debt based money completely.

Let's say tommorow the government announces that they are closing the Fed and returning to Treasury issued money with no debt attached. They will be paying off all external debt with cash. At the same time they announce that fractional reserve banking of any sort is finished. banks can only lend what they ahve as assets. They also announce that there will be no more income tax, that the government will simply print the money for it's operations and try to match it's spending to moderate growth levels as in a mature economy more and more money is needed in order to produce the desired levels of savings and improved lifestyles. 

The voices of the masses scream how inflationary this would be. I disagree venhemently. Such a move would force wide spread investment. Investment would spur greater supply. Greater supply would spur lower prices, not higher. It is this aspect that everyone always get wrong, because in our current enviroment increased money supply has not resulted in increased production. It is instead used in financial machination which drags our economic woes forward and creates inflation through decreased supply. Eliminate that ability to leverage and like magic that money will go into productive investment.

Tue, 10/23/2012 - 19:17 | Link to Comment SeattleBruce
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"and try to match it's spending to moderate growth levels as in a mature economy more and more money is needed in order to produce the desired levels of savings and improved lifestyles."

And, in fact, they must be held statutorily to these levels of spending and money creation (to maintain say a reasonable price target).  The money supply would need to grow, with a growing population (and that's the only reason!)  The statutory penalties would need to be severe, and if such a government committee violated them, it should result in instant dismissal from the committee and severe jail penalities (to prevent fraud/corruption).

This is the glaring issue with teams red/blue - and frankly with Obama's ridiculous DOJ - not one conviction of this greatest fraud of all times...

Wed, 10/24/2012 - 13:08 | Link to Comment dadichris
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Build a better monetary system and people will move to it voluntarily.

Tue, 10/23/2012 - 12:41 | Link to Comment Freeman Tilden
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The interest of capital is the rate of increase of the produce divided by the  whole produce; but this is quantity which most rapidly approaches zero, unless means can be found of continually maintaining the rate of increase. There is no reason to suppose that industry can return any vastly increasing produce from the greater application of capital.

Stanley Jevons 1870

Tue, 10/23/2012 - 12:38 | Link to Comment davidsmith
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"Debt is, by its very nature, a cancer on economic growth."

 

One of the more idiotic statements ever on ZH.  Ha ha!  Can't you get the schoolboys off this site?

Tue, 10/23/2012 - 12:57 | Link to Comment Freeman Tilden
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A WORLD IN DEBT chapter XII

THE DEAD HAND UPON PRODUCTION

We are concerned, however, mainly with the impress of usury capital upon the productive machinery. Here, its thrusting tactics are certain to show their effect in disproportion, or distortion. What is commonly called overproduction is the result. It tries one avenue after another to see whether the law of compound interest cannot be matched somewhere in production. In doing so, it stimulates certain industries at the expence of others, putting pressure upon consumption to take care of the increased volume, only to find itself at last with plant facilities far beyond its needs: and compound intrest running day and night.

Freeman Tilden

Tue, 10/23/2012 - 13:35 | Link to Comment Radical Marijuana
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"debt cancer" engulfed the system ... Most of the people commenting on the Zero Hedge Web site appear to understand that problem.

("davidsmith" appears to be a stupid troll, with some ulterior purpose.)

THE PLAINLY OBVIOUS FACTS ARE PRIVATIZED FIAT MONEY-AS-DEBT.

The significance of that picked up speed since the Bank of England first allowed fractional reserves, a few Centuries ago. It picked up a lot more speed during the last 100 years, when the USA became dominated by that system.

That system broke free of all restraints since the 1970s, when any attachment of fiat money to gold was abolished. My opinion is that the literally exponential increase in total debts within the USA has been going on not just since the 1980s, but from the 1970s.

The problem is that cancer runs away, by automatically getting worse, faster. When it first starts, we may barely notice. However, as the cancer doubles and doubles, it eventually causes more severe symptoms.

The mathematics of exponential growth describes a situation where things get worse faster, nearer the end ... President Bush presided over almost doubling the debts of all Presidents before him. President Obama presided over doubling the debts of all Presidents before him. In order to keep the established systems going, the next President would have to double down again, by presiding over the USA doubling the total debts again more than all other Presidents before him too!

Understanding the globalized, privatized, fiat, money-as-debt system is the most important factor with respect to understanding everything else. It is relatively easy to provide theoretical solutions to that problem, until one faces the realities that the REASON we live in a plutocracy is that the people who made and maintained that system did so by being the best organized gang of criminals. The existence of that system was due to the triumph of lies, backed up with violence, operating a system of fraud and robbery, and now, the runaway triumph of that system makes it practically impossible for any of the theoretical solutions to be implemented.

Personally, I like the theoretical ideas of people like Ellen Brown and Bill Still, HOWEVER, those ideas are actually impossible to implement, since the established systems were built on the basis of lies, backed by violence, and therefore, will maintain themselves in the same ways!

The parasitical cancer has totally infiltrated every aspect of society, like when a cancer goes through the process of metastasis, and thus becomes inoperable, and therefore, has gone to the point were it has become a terminal fatal illness.

"debt cancer" HAS engulfed the system! That is WHY my discourse on these topics always returns to the death controls via the murder systems, as the real basis of the debt controls through the money systems.

The real world system has become global electronic fiat money, backed by atomic bombs. That system has to double total debts, yet again, or else collapse to chaos, such as genocidal world war, and democidal martial law. We may be able to theoretically understand the NUMBERS, however, we have no actual experiences from the past to enable us to imagine what those NUMBERS mean! Those NUMBERS have been astronomically amplified from billions, to trillions, to quadrillions ... We can intellectually do those calculations, but it is virtually impossible for our common sense to fully imagine what such NUMBERS mean!

Tue, 10/23/2012 - 13:37 | Link to Comment catacl1sm
catacl1sm's picture

Not even a good trolling. Your masters will not be happy, at least try to back that up with some MMT or something, sheesh. Lame

Tue, 10/23/2012 - 13:45 | Link to Comment earleflorida
earleflorida's picture

http://en.wikipedia.org/wiki/1951_Accord

*[treasury - federal reserve accord of 1951]'the man who shot liberty valance?'

astrology's sign... 'cancer-4U' v. 'thy call too nature'?

'"rather go to bed without dinner than to rise in debt" _ "they that give up essential liberty to obtain a little temporary (debt) safety, deserve neither liberty nor safety" - - Benjamin Franklin'     

Tue, 10/23/2012 - 13:49 | Link to Comment Vince Clortho
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Are you a recent college graduate?

Tue, 10/23/2012 - 12:41 | Link to Comment zerozam
zerozam's picture

China is not in that equation...

Tue, 10/23/2012 - 12:47 | Link to Comment yogibear
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It's all about saturation of debt. Bernanke, Evans and Dudley have run out of credit capable suckers.

Even babies have debt liable with all the deficits and unfunded liabilities.

Bubbles and more bubbles the Fed banksters have created. Eventually they all pop.

 

Tue, 10/23/2012 - 12:49 | Link to Comment Isa rules
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"This is why we need real reform in government that leads to a smaller government, more clarity for businesses through pro-growth policies, real regulation of Wall Street which separates banks and brokerages, as well as programs and subsidies for bringing back to America those jobs that require a little hard work and a little bit of sweat but create a whole lot of pride and prosperity along the way."

So more of the same, only different? Hardly. We need a completely different monetary system to fix this. There's only one long hard road ahead to get past this mess, and it won;t be fixed by R-leaning policy tweaks.

Tue, 10/23/2012 - 13:41 | Link to Comment catacl1sm
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Only massive pain will bring the populace out of its stupor and bring about the necessary change. Whether we get the right kind of change is yet to be seen.

Tue, 10/23/2012 - 12:51 | Link to Comment Winston Churchill
Winston Churchill's picture

Smaller Govt. is the answer you say.

We are so far beyond the event horizon on that its a joke surely.

Between entitlements,welfare,corporate welfare,Fed and state employee,Government motors,

Defense contractors,TBTF etc etc,we have are now at maybe 20% of the population actually

producing something of value,and 80% being subsidised or employed by Govt.

Beyond broke, in all meanings of the word.

Tue, 10/23/2012 - 13:33 | Link to Comment icanhasbailout
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we will get to smaller government when the Leviathan collapses under its own weight, which we are real-time witnesses to as we speak

Tue, 10/23/2012 - 12:51 | Link to Comment themacronavigator
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I like to call the current period "peak gov". It will come to and end but I would not want to be short bonds prematurely...

 

www.themacronavigator.com

Tue, 10/23/2012 - 13:13 | Link to Comment neutrinoman
neutrinoman's picture

Good article, but the charts need to show real quantities, adjusted for inflation. The charts from the late 60s til the mid-80s are misleading without correcting for inflation.

Tue, 10/23/2012 - 13:14 | Link to Comment Bobportlandor
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"time for our leaders to wake up"

No time to be put to sleep!

 

A % of the 50 states need to tell their representatives come home we're now on our own.

 

Tue, 10/23/2012 - 13:31 | Link to Comment icanhasbailout
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the rise of debt is the story of the rise of the Baby Boomer generation

Tue, 10/23/2012 - 13:43 | Link to Comment catacl1sm
catacl1sm's picture

They didn't know any better. They believed the lies of slimy politicians and professional "economists". Who wouldn't have wanted to believe that story? They may be living up now as they retire, but they're about to get the shock of their lives.

Tue, 10/23/2012 - 13:52 | Link to Comment Vince Clortho
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Hey! I got a great idea.  Let's point the finger at some muppets.  Yeah.  It's the Muppets fault.

Towering intellect.  Hope to read more of your thoughts.

Tue, 10/23/2012 - 14:20 | Link to Comment Radical Marijuana
Radical Marijuana's picture

That is coincidentally true. However, the current runaway system started with the Bank of England operating through the British Empire, and then continued through the Federal Reserve Board operating through the American Empire. In turn, that entire Anglo-American system was just the latest surge of Neolithic civilization. The baby boomers happened to rise at the same time as the fiat money, fractional reserve banking system divorced itself totally from gold, and thus, divorced itself from any limitation due to natural laws, such as the conservation of matter, and therefore, was able to become runaway fiat money-as-debts.

The baby boomers can not be blamed for Neolithic civilization going global, and then reaching global limits. Rather that was just the package deal of their times ... The baby boomers were born and raised during the times that were the best they had ever been. However, throughout their adult lives, everything has gotten worse, faster. They are now looking at things falling apart during their old age.

Medical cancer has become a major killer of the baby boomers, and the social cancer, in the form of the monetary system, overlaps that, in both causal and coincidental ways.

As above, so below. &

As without, so within.

Tue, 10/23/2012 - 18:31 | Link to Comment PKF
PKF's picture

I was born in 1953, a boomer.  I think the Plutocratic Boomers are to blame.  I played by the rules until I couldn't stand working for the Corporate Tyrants anymore.  They sucked my soul right out of me.

And yes, when young, we had a good life.  Now, it's merely the Decline of the American Empire.  We're living it now and younger people don't know that because they didn't get to have fun as kids....they can't see or feel the difference.

We read "1984" and thought it impossible. 

I never went into debt except for my condo and house.  Always paid cash for everything...even cars and drove them until at least 100,000 miles.  But I grew up on my grandparent's farm who had lived thru The Great Depression and learned about money and how to handle it.  Money has a strong emotional pull on everyone.  I hated Debt. 

Who knew that after I saw The Beatles twice, my life had peaked.  $5 ticket for the concert in Cincy! 

Tue, 10/23/2012 - 15:06 | Link to Comment madcows
madcows's picture

The baby Boomers were the children of the "Greatest Generation".  Coincidently, the Boomers are the "Leastest Generation".  They are the ones that have run the country for the last 30 years.  Unprecedented growth in national debt, massive business off shoring, massive underfunding of SS, medicare, and medicaid  AND wars in Iraq, Afghanistan, Libya.  Way to go Boomers.  You were able to destroy America in just 3 decades.  Here's a plastic trophy.

Tue, 10/23/2012 - 13:45 | Link to Comment Zero Govt
Zero Govt's picture

"Debt - Driving The Economy Since 1980"

Debt - Driving Bwanker Bonuses Since 1980

fixed

..and there you have it (economics) in a nutshell. Debt is a positive (profit) for bwankers and a negative (yoke) for everyone else in society

So bwankers jump into bed with the most crooked career structure in society, politics. Nobody loves a socialist more than a bwanker, because nobody debt-spends more than a loony leftie (though the right are equally as greedy)

which is why political puppets have been Target No.1 hunting for bwankers for centuries. No institution is so easily corrupted, no institution can 'justify' such collosal mountains of debt be spent so easily and without account, and to complete the orgy, bwankers get to suck out interest payments across the whole of society via national theft (taxation)

Sign a piece of paper and you get to rob an entire countries good work... minimal effort, maximum theft ...alchemy perfected by The Parasite Club

Tue, 10/23/2012 - 13:47 | Link to Comment catacl1sm
catacl1sm's picture

It's even better than that... They get a 'fee' up front, collect the heaviest portion of the interest, and then flip the whole thing to some 'investor'. They get they money quickly and someone else has to deal with collecting that principle + interest over time. it's like having your own personal ATM that never runs out.

Tue, 10/23/2012 - 21:00 | Link to Comment Zero Govt
Zero Govt's picture

Nice 'work' if you can get it

with the exception of a few good bankers (there are some) the best thing to do with a banker is toilet cleaning. That's Benny's job at the Fed, mopping up all the shit (deals gone bad) on Wall Street

we need to get the rest of the WS and Eurozone bankers on toilet duty for the rest of their lives, and all central bwankers and Treasury officials since the 80's picking turnips sunrise to sundown

good honest days work, haven't had that out of them since they left their Ivy League schools

 

Tue, 10/23/2012 - 13:41 | Link to Comment LiesAreTheOnlyTruth
LiesAreTheOnlyTruth's picture

I believe our glorious leaders, without question.

You CAN borrow your way to prosperity and growth! 

Now ... FORWARD KOMRADS!

Tue, 10/23/2012 - 14:58 | Link to Comment madcows
madcows's picture

Today's economists believe debt triples the value of the debt as income.  They record it thusly: the bank gets a promised future income, which can be counted as good as money now; AND, the receiver of the money pumps it into the economy to purchase a house/car/ipad which is recorded as money receiver by the seller; AND, the debt holder gets something of value equal to the debt.  Shazzam!  a $200,000 mortgage just turned into $600,000 of money in circulation.  INFINITE Prosperity!

 

Tue, 10/23/2012 - 13:51 | Link to Comment firstdivision
firstdivision's picture

Reganomics bitches!

Love how this election cycle brings out the hypocrisy of both sides.  This cycle, I'm quite enjoying the GOP cry that Obama raised the debt by ~50% when, what may attribute as the greatest of Republican Presidents, the debt tripled during Regan's term in office.    Haakuna Matta Bitchez!

Tue, 10/23/2012 - 13:59 | Link to Comment Audacity17
Audacity17's picture

The democrat party institutionalized big government by passing social security, medicare, medicaid, the great society warfare state.  They then built the increases in via "baseline budgeting", while gutting our military.

Excuuuuse me if I couldn't undo it all with a majority democrat congress.

 

-Ron Reagan

 

Tue, 10/23/2012 - 14:27 | Link to Comment firstdivision
firstdivision's picture

What's the matter, veto arm tired?

Tue, 10/23/2012 - 23:10 | Link to Comment Audacity17
Audacity17's picture

Reagan vetoed plenty..and shut down the government a couple times.  How old are you again?

 

Tue, 10/23/2012 - 14:53 | Link to Comment madcows
madcows's picture

Reagan added to the national debt, too.  In my book that makes him as much a traitor as nancy pelosi and harry reid.  any politician that voted in favor of deficit spending should be tried as a traitor, and have their head chopped off and put on a pike down main street washington.

Tue, 10/23/2012 - 14:35 | Link to Comment Shock and Aweful
Shock and Aweful's picture

Very well said...

We are witnessing the end of 32+ years of one massive debt bubble....and honestly, that right there sums up the entire problem. 

We have lived beyond our means....not by working extra hard and burning through stored and created wealth....no, we are living in a financial fairytale.  One that says we can continue to have half of the world be our wage slaves....and support and subsidize our way of life. 

THe bottom line is that we cannot, and at some point will not be able to carry on the way we have for the last couple generations.  And really....we shouldn't expect to.

 

Tue, 10/23/2012 - 14:51 | Link to Comment jimmyjames
jimmyjames's picture

This is why we need real reform in government that leads to a smaller government, more clarity for businesses through pro-growth policies, real regulation of Wall Street which separates banks and brokerages, as well as programs and subsidies for bringing back to America

************

He did pretty good until he fell off the rails with this one-

Tue, 10/23/2012 - 14:52 | Link to Comment firstdivision
firstdivision's picture

So you're advocating less regulation on all business except banks, where you want to increase regualtions on it?  Good luck with that.

Tue, 10/23/2012 - 15:23 | Link to Comment jimmyjames
jimmyjames's picture

So you're advocating less regulation on all business except banks, where you want to increase regualtions on it?  Good luck with that.

*************

How in hell did you come to that conclusion?

Business "subsidies" and all other government interference in the economy is exactly how we ended up where we are-

The only thing we need is a locked money supply and all the regulations we need will come spewing forth on their own-

Why do you think we don't have such a system now and why do you think the central bankers fighting so hard to maintain the current corrupt monetary system we have?

Tue, 10/23/2012 - 15:39 | Link to Comment DowTheorist
DowTheorist's picture

Debt corrodes the economy. Eventually, the last man standing will be gold. The flight to safety in bonds will end up badly.

Tue, 10/23/2012 - 17:26 | Link to Comment polo007
polo007's picture

http://www.financialsense.com/contributors/antony-mueller/quantitative-easing-folly-or-method

What is central banking good for?
 
What, so we must ask, is central banking good for when it is not even able to guarantee a stable price level?

Why keep a quasi-dictatorial creature within the government body that operates largely outside of public control? Why hold on to an institution that more often than not has failed to provide full employment and price level stability? By these criteria the Fed has indeed been a failure. What then, we must ask is the true mission of central banking as one cannot calibrate accurately the effects of monetary policy on the real economy and price level? The answer is provided by the historical origin of central banking. As Rothbard and other authors such as more recently Lawrence White have shown, central banking grew out from the cooperation between the state and the big players of the banking sector. The deal that was struck said that the big banks will finance government and that the government won’t let the big banks go bankrupt. For that purpose a lender of the last resort was installed in the form of a central bank which would obtain the privilege by the government to produce unlimited amounts of fiduciary money.
 
Historically the scope of discretion was restricted by the gold standard at first, yet over time the various constraints have been removed step by step beginning with World War I. With the so-called Smithsonian agreement of 1971 the last anchor for the US dollar fell. At the day when President Nixon fully abandoned what was still left of the gold standard, the starting gun was fired for the escalation of the financial sector to grow into its current gargantuan proportions. In tandem with the expansion of the financial sector, government grew its public debt into its current colossal dimensions.
 
While central banks are effective as lender of the last resort and thereby to safeguard the big players of the financial system from going bankrupt, they are not only incapable of promoting economic growth, employment and price level stability, they are in fact the major perpetrators of the business cycle. Always under pressure to set the interest rate as low as possible, central banks provoke artificial booms which inevitably must result in a bust. The big players in the financial market can profit on the way up without fear about the downturn as they can rely on the central bank to bail them out.
 
In an academic paper Bernanke (2001) and his co-author argued explicitly that central bankers should not try to prick asset bubbles but stand ready to bail out banks and financial institutions when the bubble bursts. In his speech as a Governor of the US central bank on “Monetary Policy and the Stock Market”, Bernanke declared in 2003: “The ultimate objective of monetary policymakers is to promote the health of the U.S. economy by pursuing our mandated goals of price stability and maximum sustainable output and employment. However … monetary policy actions have their most direct and immediate effects on the broader financial markets, including the stock market, government and corporate bond markets, mortgage markets, markets for consumer credit, foreign exchange markets, and many others.” The message was well understood. The big players in the financial market could rest assured that their central bank would bail them out when a new episode of the lending spree began - the housing bubble. Operating as bailout machinery for the financial system, the US central bank has thoroughly infected the monetary system with moral hazard.

Tue, 10/23/2012 - 18:03 | Link to Comment rjs
rjs's picture

the federal debt is just the sum of all new dollars created since the country began. Truth in labeling would have deficits called something like “new dollars created” or “new savings” and the debt would become “total dollars created” or “total savings”

Tue, 10/23/2012 - 21:24 | Link to Comment nastaking
nastaking's picture

the company has confined that model to the Q88+ Android 4.0 Tablet PC by unveiling a fourth generation version.

Wed, 10/24/2012 - 13:01 | Link to Comment dadichris
dadichris's picture

America - the nation that credit built.

"Of the indebted, For the indebted, and By the creditors"

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