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Guest Post: The Real 2013 Cliff

Tyler Durden's picture


Submitted by John Aziz of Azizonomics blog,

There’s a much bigger cliff than the so-called fiscal cliff. The absolute worst result of the fiscal cliff would be a moderate uniform tax increase at a bad time, resulting in a moderate contraction. It is an obvious - but ultimately rather cosmetic - stumbling block on the so-called “road to recovery”.

The much bigger cliff stems from the fact that the so-called recovery itself is build on nothing but sand. This is a result of underlying systemic fragilities that have never been allowed to break. I have spent the last year and a half writing about this graph — the total debt in the economy as a proportion of the economy’s output:

This is the bubble that won’t go away. This is the zombified mess that the Federal Reserve won’t let dissolve (as happened regularly in the 19th century and early 20th century each time there was an unsustainable debt bubble). This is the shifting sand — preserved by the massive monetary stimulus programs — that the so-called recovery is built upon. During the 1980s and 1990s and 2000s cheap money pumped up the debt level in America. In 2008, the bubble burst, and the hyper-connective fragile financial system was set to burn. Then central banks around the world stepped in to “stabilise” (or as Nassim Taleb puts it, overstabilise) the financial system. The unsustainable reality of debt vastly exceeding income was put on life support.

A high pre-existing residual debt level makes growth challenging, as consumers and producers remain focussed on paying down the pre-existing debt load, they are drained by pre-existing debt service costs, and they are wary about taking on debt or investing in a weak and depressed environment. It’s a classic Catch-22. The only true panacea for the depression is growth, but the economy cannot grow because it is depressed and zombified. That’s where a crash comes in — the junk is liquidated, and clearing the field for new growth. That is what Schumpeter meant when he talked of “the work of depressions”, something that many mainstream economists still fail to grasp. (In fairness, a similar effect can probably be achieved without a depression through a very large scale debt relief program.)

Japan has been stuck in a deleveraging trap for twenty years, to no avail, all that has really occurred is that the private debt load has been transferred onto the central bank balance sheet — there has been very little net deleveraging) and while the Japanese central bank has completed round after round of quantitative easing — sustaining and preserving the past malinvestment and high debt load — the Japanese economy is still depressed.


That is the road America and most of the West are now on. And just as Japan’s bank stocks did multiple times even after the Japanese housing bubble burst, American banking stocks — even in spite of a year of fraud, abuse, mismanagement and uber-fragility — have been shooting up, up, up and away:


The zombie financial sector is the real cliff — as interconnective as ever, as corrupt as ever, and most importantly, nearly as leveraged as ever:

Margin Debt November 2012

This is a reinflated bubble built on foundations sand. I don’t know which straw will break the illusion (middle eastern war? Hostility between China and Japan? Chinese real estate and subprime meltdown? Student debt? Eurozone? Natural disasters? Who knows…) but this bubble poses a far greater threat in 2013 than the fiscal shenanigans and the Boehner-Obama “Boner-Droner” snoozefest.


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Mon, 12/31/2012 - 11:47 | 3108980 Pinto Currency
Pinto Currency's picture


This article could give Krugman a second epiphany in a week.

Mon, 12/31/2012 - 11:52 | 3108993 Zer0head
Zer0head's picture

the term 'fiscal cliff' was a brilliant marketing gimic created by _____

says it all

Mon, 12/31/2012 - 11:59 | 3109006 DaveyJones
DaveyJones's picture

They would never lie to us

especially during the holidays

The whole recovery is built on sand

just like our energy 

Mon, 12/31/2012 - 12:51 | 3109143 Pinto Currency
Pinto Currency's picture


The term fiscal cliff is a distraction from the two decades of accelerated gold and monetary rigging that led to the biggest economic and debt bubble in history followed by its collapse.

Now peg the blame on congress with the fiscal cliff.

What you can blame on congress is the fact that it created and then allowed the Federal Reserve central bank to continue to exist.

Mon, 12/31/2012 - 12:01 | 3109021 Landotfree
Landotfree's picture

This is the real cliff.   Humans do not have unlimited power nor do they have the means to harvest unlimited power... unlimited power is needed to sustain the equation.

- System Increases, Max Potential

- System unable to Increase at the needed rate

- System starts to collapse 

- System hit max potential on the downside

- Liquidation of the unfunded liabilities ie people, animals, etc.  (100+ million last time, this time much more will have to go)

- Rinse and repeat (see you in next generation)

Sorry, this fiscal cliff talk has nothing to do with the problem, neither did housing, neither did any excuse that is going to come up, those are symptoms of the problem.

Mon, 12/31/2012 - 12:13 | 3109074 kridkrid
kridkrid's picture

^^^ end of thread.

Mon, 12/31/2012 - 12:32 | 3109138 Dapper Dan
Dapper Dan's picture

On the Kardashev scale the world is a 0,

From Wiki.

The Kardashev scale is a method of measuring a civilization's level of technological advancement, based on the amount of energy a civilization is able to utilize. The scale has three designated categories called Type I, II, and III. A Type I civilization uses all available resources impinging on its home planet, Type II harnesses all the energy of its star, and Type III of its galaxy. The scale is only hypothetical and in terms of an actual civilization, highly speculative; however, it puts energy consumption of an entire civilization in a cosmic perspective. It was first proposed in 1964 by the Soviet astronomer Nikolai Kardashev.

Mon, 12/31/2012 - 14:03 | 3109527 fishdicks
fishdicks's picture

Is that a pictyre of "Bill the cat"?


Mon, 12/31/2012 - 13:27 | 3109368 Snakeeyes
Snakeeyes's picture

Staggering debt, staggering tax increases, gov't takeover of healthcare, skyrocketing commodity prices. What else can go wrong?

Mon, 12/31/2012 - 11:46 | 3108972 _ConanTheLibert...
_ConanTheLibertarian_'s picture

This is going to be so ugly. My mood is inversely proportional. Already feeling better.

Mon, 12/31/2012 - 11:48 | 3108981 jkjacksonhole
jkjacksonhole's picture

Soon it may not be smart to be a gov't employeeor dependent on gov't payments.

Mon, 12/31/2012 - 11:52 | 3108995 otto skorzeny
otto skorzeny's picture

don't worry-the cops will be the last ones receiving their checks as the Titanic slips under the surface

Mon, 12/31/2012 - 12:05 | 3109040 seek
seek's picture

Nope. We've already seen in Oakland and a few other places that they're not a protected class.

Politicians, even local ones, will be the last receiving checks. Which they will probably need to turn over to ex-cops to save them from what happens next.

Mon, 12/31/2012 - 12:44 | 3109198 BooMushroom
BooMushroom's picture

So if you are, what do you do??

Save, store, stack, prepare, and learn.

Mon, 12/31/2012 - 11:49 | 3108982 Ricky Bobby
Ricky Bobby's picture

We are not on the road to Japan we are on the road to Venezuela.

Mon, 12/31/2012 - 12:04 | 3109005 falak pema
falak pema's picture

they have Orenoco AND Chavez (not good health)  and their gals r pretty! 

Meanwhile this guy has an "end game" I don't like which highlights Aziz's vision of the private banksta cliff.

Jesse's Café Américain

Yikes, I want to enjoy my new year's eve. We've survived Mayan lets make it thru to 1/1/013! 

Mon, 12/31/2012 - 12:18 | 3109095 Salon
Salon's picture

Venezuela is in the top ten countries in happiness surveys. I wish we become like venezuela. They dont give a flying fuck about government edicts and no one would ever register their guns.

Mon, 12/31/2012 - 12:01 | 3109025 magpie
magpie's picture

A long way to Invergordon

Mon, 12/31/2012 - 12:46 | 3109208 Dick Buttkiss
Dick Buttkiss's picture

Zimbabwe, actually, the problem being that we are a fully urban-industrial society, while they are still mostly rural.  We are too removed from the land, in other words, to go through hyperinflation without going through hell.

Hope to see you on the other side, though.  Here's how:

Mon, 12/31/2012 - 12:46 | 3109209's picture


we are on the road to Venezuela.


Instead of hope and change we got Hope and Crosby? Well, that is an improvement.

Mon, 12/31/2012 - 11:50 | 3108987 Spastica Rex
Spastica Rex's picture

I thought a reduction in the funding for the Imperial war machine was the worst thing.

Mon, 12/31/2012 - 12:07 | 3109046 Dr. Engali
Dr. Engali's picture

We can't cut funding to the war machine. If we do who is going to liberate and bring democracy to the west?

Mon, 12/31/2012 - 12:15 | 3109084 DCFusor
DCFusor's picture

They need to liberate US!

Mon, 12/31/2012 - 20:13 | 3111075 AGuy
AGuy's picture

"They need to liberate US!"

Already in Progress. They are very good at liberating our money and liberty from us!


Mon, 12/31/2012 - 11:51 | 3108989 otto skorzeny
otto skorzeny's picture

The govt forecasts much growth- in my tax bill. can't wait til real estate taxes resume their skyrocketing trajectory upward as "median home price" resume their climb-at least according to the media and tax assessor.

Mon, 12/31/2012 - 12:02 | 3109029 northerngirl
northerngirl's picture

My 2013 property taxes increased, and the value of home decreased.  It is great to live in a country in which the tax collector is always in a, "Win-Win", position. 

Mon, 12/31/2012 - 11:52 | 3108994 DaveyJones
DaveyJones's picture

Perfect News for a Happy New Year Everyone

They call it New Year

But as I get older in the West

The only one I remember

Is in the East

Mon, 12/31/2012 - 11:54 | 3109004 Spastica Rex
Spastica Rex's picture

Year of the Snake

Mon, 12/31/2012 - 11:57 | 3109018 DaveyJones
DaveyJones's picture

anything that resembles both a penis and poison is fitting for these folks

Mon, 12/31/2012 - 12:06 | 3109044 Spastica Rex
Spastica Rex's picture

In a snake year, you're supposed to save money and look out for deception, that is if you're superstitious in a Chinese sort of way.

Mon, 12/31/2012 - 12:44 | 3109190 DaveyJones
DaveyJones's picture

what a coincidence

both money and deception

have also "gone long" with the penis

Mon, 12/31/2012 - 12:52 | 3109227 Spastica Rex
Spastica Rex's picture

You and penises.

I finally saw "Brokeback Mountain" the other day. It was so sad. :(

Mon, 12/31/2012 - 15:44 | 3110098 chubbyjjfong
chubbyjjfong's picture

So sad, but yet so beautiful.  The passion and the sexual energy between them.  The way they looked into each others eyes.  I love the scene where he rushes back into town and french kisses him against the wall.. so hot.  God I love that movie.  Fiscal what?

Mon, 12/31/2012 - 11:56 | 3109012 tooriskytoinvest
tooriskytoinvest's picture

Happy New Year Middle Class: The Fiscal Cliff Is Going To Rip You To Shreds. Your Taxes Are About To Go Through The Roof And Politicians Are Too Busy Fighting With Each Other To Do Anything About It.


Mon, 12/31/2012 - 11:57 | 3109015 Dr. Engali
Dr. Engali's picture

I didn't think anything could be more exhausting to hear about than Greece...then came the "fiscal cliff " meme.....I need a drink.

Mon, 12/31/2012 - 12:29 | 3109125 Mark123
Mark123's picture

Exactly!!!  It is as if we have morphed into mega-Greece-land (same delusional lifestyle/economy, but on a massive scale).



Mon, 12/31/2012 - 11:56 | 3109016 GMadScientist
GMadScientist's picture

Ah, much more gets liquidated in a depression besides the cruft; to continue to miss such a simple point is part and parcel to the Austrian tunnel vision of the future.

Mon, 12/31/2012 - 12:17 | 3109092 tarsubil
tarsubil's picture

What exactly is your point?

Mon, 12/31/2012 - 12:29 | 3109127 knowless
knowless's picture

I think he might be drunk.

Mon, 12/31/2012 - 12:55 | 3109245 Dick Buttkiss
Dick Buttkiss's picture

I think he might be stupid.

Mon, 12/31/2012 - 12:25 | 3109111 Salon
Salon's picture

You are right of course.

That's why austrian's are so much against artificial credit expansion by central planners beyond the productive capacity of the economy to support it. Because it is gonna be bad for all no matter what in the Value deleveraging phase even if value loss is masked by nominal increases.

Everybody is gonna be hurt worse the longer this drags on.

Mon, 12/31/2012 - 11:59 | 3109019 AndrewJackson
AndrewJackson's picture

Bernanke is adding some serious acceleration to this graph. Positive Velocity in this graph by 2014 for sure.

Mon, 12/31/2012 - 12:01 | 3109026 Bad Attitude
Bad Attitude's picture

Even if Dear Leader forgave my student loans and morgtage, I still wouldn't vote for him in 2016. (Yes, I know there is that 22nd Amendment which limits a President to two terms. But, nobody, especially the political class, seems to give a damn what the Constitution says anymore.)

Mon, 12/31/2012 - 12:01 | 3109027 adr
adr's picture

Re-inflate the bubble to create the "weath effect". That is all they know how to do. The probem is each bubble has done nothing but concentrate the resulting "wealth" into fewer hands each time.

Sure the mega millionaires have done great since 2009. A local high end mens store by me has never done better business. The problem is that is just one store with five employees that sells a few couple thousand dollar suits a month, not exactly volume business.

There have been so few people that have benefitted from the "Great Recovery" that the net effect on the economy has been negative. The wealthy are hoarding wealth, and could not spend all their gains if they tried.

You need 100 million people spending a thousand dollars on stuff, not a handfull of people spending a couple million. Even 1000% gains in the stock market on a average persons invested savings, would only lst them a year or so if they lost their job. Not exactly a path to wealth.

The higher the market goes, the further down the true economy falls.

Mon, 12/31/2012 - 12:28 | 3109120 Salon
Salon's picture

You can only pull demand forward and create artificial demand as long as people believe those IOU's they hold are worth something.

Then the fun begins

Mon, 12/31/2012 - 12:52 | 3109234 BooMushroom
BooMushroom's picture

401(k)'s have been cashed out all across the land, and once you see how hard they bend you over when you do it, you never bother contributing again, especially since your employer stopped matching.

Mon, 12/31/2012 - 12:04 | 3109036 Muppet
Muppet's picture

From John Hussman last night: "there’s some talk of the Senate passing a bill and sending it to the House, though this would seem to violate Article I Section 7 of the Constitution, which requires all bills for raising revenue to originate in the House. "

Mon, 12/31/2012 - 12:05 | 3109038 Atomizer
Atomizer's picture



While we approach the 11th hour of fiscal cliff bullshit by fear, it’s time to roll out the new US Basel III banking rations. This is the real core of sundry MSM [drama queen] propaganda inventions thru topic avoidance.  /LOL


Mon, 12/31/2012 - 12:09 | 3109051 andyupnorth
andyupnorth's picture

So it appears that the Federal Reserve & Co. really hates to see total private debt decrease, regardless of the exponential growth of government debt.


Power to the People!

Starve the Beast!

We will not be debt slaves!


[Disclaimer: Paying off my mortgage debts takes many years of discipline and dedication, especially due to family responsibilities and social pressure, but we're slowly but surely doing it!]

Mon, 12/31/2012 - 12:11 | 3109064 Pharming
Pharming's picture

Agreed!  I'm right there with you Andy in the North.  

Hey, your picture reminds me of a Falstaff bottle cap.  

Mon, 12/31/2012 - 12:09 | 3109053 Pharming
Pharming's picture

Ahhh....2013 My resolutions...


1.  Stop clinching my teeth.

2.  Send links from Zerohedge to someone new weekly.

3.  Stop biting the inside of my lip.

4.  Secure the bunker.

5.  Get a bigger safe.

6.  Increase my share in Cabelas and subsequently lead.

7.  Buy silver mines.  

8.  Donate to William Banzai for Fed Chairman campaign.

9.  Get on waiting list for liver transplant.

10.  New bayonet.

Mon, 12/31/2012 - 12:10 | 3109055 IridiumRebel
IridiumRebel's picture

As for the 2012 "CLIFF" (Crappy Legislators In Full-on FuckStickness)......


An unknown source from a reliable member of a senate team player who has an advisor says that they are in fact talking and that talking is going to lead to a conversation where they will speak about a solution. And on that news, the DOW is moving higher.

Mon, 12/31/2012 - 12:12 | 3109061 Dollar Bill Hiccup
Dollar Bill Hiccup's picture


You MUST take another HELOC ... NOW !

If the system falls apart and you get angry, you will be allowed to throw rocks.

THEN you will be put into an internment camp. You will be kept SAFE from YOURSELF.

SAVING is a DISEASE which must be cured.

WE WILL CURE YOU if you have this disease.

Warning : Sarcasm and Irony can have dangerous consequences.

Mon, 12/31/2012 - 12:24 | 3109107 Mark123
Mark123's picture

This about sums up the intelectual depth of the debate:

"We can't use tax increases on anyone to pay for more spending," said Sen. Kay Bailey Hutchison, R-Texas.

That this can even be uttered against a backdrop of +$trillion deficits for the past 5 years funded almost entirely by central bank money printing is astounding in its stupidity.

Keep shopping people....everything is A-OK.

Mon, 12/31/2012 - 12:50 | 3109223's picture

We're past the point where it would make a difference but tax increases should have been used to pay down existing debt rather than as a justification for loading on more debt.

Mon, 12/31/2012 - 14:07 | 3109557 billybobtx
billybobtx's picture

Good ol' Kay Bailout. What a nimrod.

Mon, 12/31/2012 - 12:31 | 3109109 gdogus erectus
gdogus erectus's picture

This will break when they want it to break. The sharade of printing money and giving it to themselves can continue for quite some time. The throttle on the economy that seems to make an instant difference is gasoline prices. As this is yet another manipulated market, it appears that the point of raising and lowering gas prices is to keep the economy exactly where it is: In suspended animation. Used as cover for continued printing of trillions for themselves. This game could continue for a long time.

Mon, 12/31/2012 - 12:27 | 3109116 sbenard
sbenard's picture

I think the Mother of All Bubbles is US government debt. When that bubble pops, life as we have known it for the past half century will come to a very sudden and cataclysmic end.

Mon, 12/31/2012 - 12:39 | 3109174 orangegeek
orangegeek's picture

Government at all levels has made itself indisposable by becoming the largest customer of the private sector.


Government will continue to spend tactically to get re-elected.


For the other side to get elected, they have to block spending.


So Barry is playing the blame game - it's his only card left.


And in the end, private sector revenue and earnings will tank as will the markets.

Mon, 12/31/2012 - 14:00 | 3109512 Manthong
Manthong's picture

The CB’s have all the paper, all the electrons and all the shills in the world to keep their Ponzi going forever for those who stack paper and electrons.

I was thinking about how the evil might play out and one hypothetical had the real precipice at the point where London, the Fed and exchange bullion were leased out to the point that they only had their theater props of gold and silver veneer bars of tungsten and lead left that could not be shipped out to be recast as kilo bars by the East.

Nah..  that’s a crazy thought.

Mon, 12/31/2012 - 14:37 | 3109709 shovelhead
shovelhead's picture


Tis only one of the goblins lying in wait as we go whistling past the graveyard.

The goblins are Legion and all vie to be first to feed.


Mon, 12/31/2012 - 14:16 | 3109590 shovelhead
shovelhead's picture

So John,

I take this article to mean that spending more than you earn year after year will not end well.

My Dad told me that too, but he didn't have a PhD. in Econ.

Obviously we need more economists for a positive outcome.



Mon, 12/31/2012 - 14:18 | 3109601 fishdicks
fishdicks's picture

I used to ignorantly assume America would be remembered as a haven for freedom and rights. Now it looks like we'll be remembered for crashing world economies with our fiat currency and colossal Ponzi schemes. I've been reading up on the coming Agenda 21 and that's not exactly instilling confidence either.

Mon, 12/31/2012 - 15:44 | 3110099 Diogenes
Diogenes's picture

Remembered is right. You used to be great. What the hell happened.

Mon, 12/31/2012 - 20:16 | 3111085 rjs
rjs's picture

first chart looks impressive, but it's just a 2 1/2 per annum growth rate between 1981 & 2009...

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