Visualizing The Keynesian Endpoint

Tyler Durden's picture


We recently posted Kyle Bass’s keynote speech at the Americatalyst 2012 conference. One of the main threads running through his thesis is the “Keynesian Endpoint”; covering debt super-cycles, the Federal Reserve’s inability to move rates from 0% and the (unintuitive) interconnectedness of sovereign default and hyperinflation. By way of clarification to global Ponzi we discussed earlier, Addogram has created an excellent infographic plotting the development of these ideas and mechanisms from 1792 to the present day.


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Mon, 12/24/2012 - 00:55 | 3092337 spdrdr
spdrdr's picture

There is no such thing as "The Nobel Prize In Economics".

Google will be your friend on this journey of self-discovery.  Don't just take my word for it.  Research.

There is also no Nobel Prize in mathematics, simply because Arthur Nobel's wife was bonking a friend who was a mathematician!

We who applaud those who are conferred with the Nobel Prize need to consider these factors.




Mon, 12/24/2012 - 17:38 | 3093719 are we there yet
are we there yet's picture

Imagine if Nobel had given a prize for improvements in dynamite and explosives where we would be.  Nobel make his financial fortune in world war one explosives.

Sun, 12/23/2012 - 20:55 | 3092006 FreedomGuy
FreedomGuy's picture

How do you reliably invest in a world that is government controlled and centrally planned? Money, interest rates, short sale bans, fixed exchange rates, false GDP calculations, massaged inflation numbers...???

The next speech by the next important central planner/banker/Fed/prime minister can undo everything. Nothing is real anymore. Value is becoming impossible to assess and assign.

Good luck to you who have to wake up tomorrow, read the headlines and decide what to do with your money and investor money. I do not envy you, gentlemen.

Mon, 12/24/2012 - 13:57 | 3093271 are we there yet
are we there yet's picture

PM or other fixed assets that hold value

Wed, 12/26/2012 - 22:07 | 3097933 FreedomGuy
FreedomGuy's picture

I agree to a point. PM's have a downside limit, but even they are subject to the same forces and expectations.

Sun, 12/23/2012 - 20:58 | 3092008 chubbyjjfong
chubbyjjfong's picture

God I wish I had something witty to write, but I got nothin.  Nice graph though!

Mon, 12/24/2012 - 06:56 | 3092471 Sudden Debt
Sudden Debt's picture

maybe someing about that part that says:
"interest should rise by a factor of 10...."

0 or zero, times 10... nothing ten times over..... heck... why not increase it with a factor of a million? it still stays the same...

Sun, 12/23/2012 - 20:59 | 3092010 Cognitive Dissonance
Cognitive Dissonance's picture

Yeah......but it's different this time.


Sun, 12/23/2012 - 21:08 | 3092020 Atomizer
Atomizer's picture

Yep, just give me another 1.2 trillion in taxpayer's monies & I promise it'll work this time around. C'mon, I'll even pinky swear!


Mon, 12/24/2012 - 06:57 | 3092472 Sudden Debt
Sudden Debt's picture

yes, because now they can make a app for it...

Sun, 12/23/2012 - 21:05 | 3092017 lunaticfringe
lunaticfringe's picture

Am I the only one here who didn't understand those graphs?


Sun, 12/23/2012 - 21:29 | 3092059 Mike in GA
Mike in GA's picture

LOL...thanks, Luna, you took the words right outta my mouth.  I tried to get it, even read the fine print and still came away scratchin my head. 

The way I read that, we have PLENTY of rate room before detonation and that doesn't seem right when 1 percent = 160 BILLION $$

Sun, 12/23/2012 - 21:44 | 3092076 TumblingDice
TumblingDice's picture

The bottom chart illustrates the highest interest rate the gov't could theoretically tolerate. Right now, if we get over 15.2% then interest payments would outweigh gov't revenue. The lower that number goes the closer we are to the "endpoint."

Personally I don't think this is how it goes down since gov't revenue represented here as taxes is actually a secondary source of gov't income in a modern keynsian system after the primary tax of inflation. 

Sun, 12/23/2012 - 22:18 | 3092139 FreedomGuy
FreedomGuy's picture

The breakinng point is far lower these days. Depending on whether you are talking about short or long term rates a 2 to 3 % actual rise in rates breaks the piggy bank for good. We are trapped at zero interest given our perpetual overspending.

Sun, 12/23/2012 - 22:33 | 3092168 TumblingDice
TumblingDice's picture

You're probably right, but that kind of jump would be fought against tooth and nail by the fed. The "endpoint" wouldn't come from rates rising but from the costs involved in preventing them from rising.

Sun, 12/23/2012 - 22:44 | 3092195 fattail
fattail's picture

Rates will not be allowed to rise as the American people can not be allowed to know the true cost of the feds actions or the true cost of their entitlements.  They will only pay for this through the rapidly declining value of their green paper federal reserve notes.

Mon, 12/24/2012 - 00:02 | 3092275 yogibear
yogibear's picture

Bernanke and the Fed know this is what they will do.

Bernanke could have paid for his kid's school but knows he will devalue the $400K plus student loans he has.

Look at what Bernanke is doing, not what he is saying.


Mon, 12/24/2012 - 00:26 | 3092304 Big Slick
Big Slick's picture

The graphs do nothing to explain past massive financial crises.  Take 2008 for example. 

Mon, 12/24/2012 - 02:42 | 3092394 economics9698
economics9698's picture

The graphs look at federal debt and not TCMDO.

Mon, 12/24/2012 - 10:20 | 3092644 Bogdog
Bogdog's picture

Contagion from a euro collapse, or jpy collapse with losses in US institutions having to be backstopped by the treasury/fed, would require massive new printing by the fed. THAT then would further weaken the dollar and bring us closer to the endpoint so graphed, no?

Wed, 12/26/2012 - 22:05 | 3097931 FreedomGuy
FreedomGuy's picture

Tumbling, you nailed it. I have seen some new analyses of a zero rate environment. To keep rates that low there are other costs. As confidence fails the costs of credit swaps and repo agreements can skyrocket and break the piggy bank. Additionally, the other side of the trade is that grandma's retirement account dries up as interest rates pay zero and they eat the principle in the accounts. This further drives the demand for more government money and beneftis.

Sun, 12/23/2012 - 22:05 | 3092089 Atomizer
Atomizer's picture

Another unicorn rider who is blinded with debt jubilee rainbow treats. Do you see the Federal Reserve QE4 and MBS buy back chart?


Edit: Comment was in Response to Lunatic Fringe <-- thought this would be fitting for his/her ZH character.  

Sun, 12/23/2012 - 23:06 | 3092220 formadesika3
formadesika3's picture

I'm trying hard but I don't see it.

And I have eyes in the back of my head.

Sun, 12/23/2012 - 21:59 | 3092108 A Lunatic
A Lunatic's picture

The main point is this; It's all good until it isn't........

Sun, 12/23/2012 - 22:38 | 3092186 fattail
fattail's picture

we will see massive inflation before we see rates rise and likely riots in the streets, as the msm will not be reporting any of it.  

Sun, 12/23/2012 - 23:47 | 3092250 Odd Ball
Odd Ball's picture

I'm guessing money wasn't based on debt back in 1835.

Mon, 12/24/2012 - 06:59 | 3092474 Sudden Debt
Sudden Debt's picture

In debt we trust
Oh land of the indebted!

Sun, 12/23/2012 - 23:59 | 3092270 Yardfarmer
Yardfarmer's picture

this is all massively irrelevant. 

Mon, 12/24/2012 - 00:50 | 3092331 ball-and-chain
ball-and-chain's picture

Will we be seeing massive inflation?

Or will we be seeing massive deflation?

Does anybody really know?

Tune in next week.

Same bat time.  Same bat channel.

Mon, 12/24/2012 - 01:39 | 3092368 nbsharma
nbsharma's picture

Would be interesting to see this for Japan!

Mon, 12/24/2012 - 06:33 | 3092460 Motorhead
Motorhead's picture

Graphs, bitchez!

Mon, 12/24/2012 - 09:38 | 3092576 Woodrox
Woodrox's picture

so the dollar is declining... what is

the acceleration in the rate of change?

Mon, 12/24/2012 - 09:47 | 3092587 crzyhun
crzyhun's picture

Having listened to the wholeee talk by Bass. I think I will break out the Jack and get fried. How do you live when you know you will get executed real soooon?

Tue, 12/25/2012 - 09:27 | 3094423 dscott8186
dscott8186's picture

I have a problem with this whole concept.  Are these charts based on "chained dollars" or the amounts as stated in their time period?  Makes a huge difference.

Second problem here is the concept of interest rates during a period of debasement.  It's an oxymoron since the point of currency debasement is for the government not pay interest by buying its own bonds via money printing but to force everyone else to pay a stealth interest rate via devaluation.  

Here's a year by year break down of the Weimar devaluation:

While Germany never attempted ZIRP as the US is doing now, they are making all the same mistakes by over spending their revenues endlessly.  Obama's budget is doubling down on these mistakes.

Tue, 12/25/2012 - 11:06 | 3094590 Monk
Monk's picture

The problem was not caused by Keynesianism but the opposite. In this case, at least $600 trillion in unregulated derivatives that need to be backed by money.


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