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Why The Status-Quo Is Unsustainable: Interest and Debt (What Yellen Won't Tell You)

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Even if the economy were growing at a faster pace, it wouldn't come close to offsetting the interest payments on our ever-expanding debt.

If you want to know why the Status Quo is unsustainable, just look at interest and debt. These are not difficult to understand: debt is a loan that must be paid back or discharged/written off and the loss absorbed by the lender. Interest is paid on the debt to compensate the owner of the money for the risk of loaning it to a borrower.

It's easy to see what's happening with debt and the real economy (as measured by GDP, gross domestic product): debt is skyrocketing while real growth is stagnant. Put another way--we have to create a ton of debt to get a pound of growth.

There is no other way to interpret this chart.


source: Acting Man

The Status Quo has only survived this crushing expansion of debt by dropping interest rates to historic lows. This is a chart of the yield on the 10-year Treasury bond, which reflects the extraordinary decline in interest rates over the past two decades.

The Federal Reserve has pegged rates at essentially 0% for years. That means the strategy of lowering interest rates to enable more debt has run out of oxygen: rates can't drop any lower, and so they can either stay at current levels or rise.

Near-zero interest rates for banks borrowing from the Fed doesn't mean conventional borrowers get near-zero rates: auto loans are around 4%, credit cards are still typically 16% to 25%, garden-variety student loans are around 8% and conventional mortgages are about 4.25% to 4.5% for 30-year fixed-rate home loans.

This decline in interest rates means households can borrow more money while paying the same amount in interest.

So the interest payment on a $30,000 car today is actually less than the payment on a $15,000 auto loan back in 2000.


source: The Born Again Debtor

The monthly payment on a $400,000 home mortgage is roughly the same as the payment at much higher rates on a $200,000 home loan 15 years ago.

So dropping the interest rates has enabled a broad-based expansion of debt across the entire economy. Notice how debt has exploded higher in every segment of the economy: household, finance, government, business.


source: The Born Again Debtor

The other half of the debt/interest rate equation is household income: if income is stagnant and declining, the household cannot afford to take on more debt and pay more interest. With real (adjusted for inflation) household income declining for all but the top 10%, households cannot take on more debt unless rates drop significantly.

Now that rates are at historic lows, there is no more room to lower rates further to enable more debt. That gambit has run its course.

Many financial pundits claim private debts can simply be transferred to the government and the problem goes away. Unfortunately, they're dead-wrong. As economist Michael Pettis explains, bad debt cannot simply be “socialized”:
 

Remember that the only way debt can be resolved is by assigning the losses, either during the period in which the losses occurred or during the subsequent amortization period. There is no other way to “resolve” bad debt – the loss must be assigned, today or tomorrow, to some sector of the economy. “Socializing” the debt, or transferring the debt from one entity to another, does not change this. 

There are three sectors to whom the cost can be assigned: households, businesses, or the government. 

Earlier losses are still unrecognized and hidden in the country’s various balance sheets. These losses will either be explicitly recognized or they will be implicitly amortized. The only interesting question, as I see it, is which sector will effectively be assigned the losses. This is a political question above all....

In other words, when marginal borrowers--households, students, businesses, local government agencies, etc.--start defaulting, the losses will have to be taken by somebody. This is true of every indebted nation: Japan, the European nations, China and the U.S.

The idea that we can transfer the debt to the government or central bank and the losses magically vanish is simply wrong.

Even if you drop interest rates, if debt keeps soaring the interest soon becomes crushing. Even at historically low rates, the interest on Federal debt will soon double. That means some other spending must be cut or taxes must be increased to pay the higher interest costs. Either action reduces spending and thus growth.

If rates actually normalize, i.e. rise back toward historic norms, interest payments could triple.


source: Federal Spending by the Numbers, 2013: Government Spending Trends in Graphics, Tables, and Key Points

Here's one way to understand how reliance on ever-expanding debt hollows out the economy. Let's say the average interest on the $60 trillion in total debt is 4%. (Recall that charge-offs for defaulted loans must be included as debt-related expenses. The interest paid to lenders is only one expense in the debt system; the other is the losses taken by lenders for defaulted credit card loans, mortgages, etc.)

That comes to $2.4 trillion annually.

Now take the $16 trillion U.S. economy and reckon that real growth in gross domestic product (GDP), even with questionable hedonic adjustments and understated inflation, is about 1.5% annually. That's an increase of $240 billion annually.

That means we're eating over $2 trillion every year of our real wealth, i.e. our seed corn, to support an ever-increasing mountain of debt. That is not sustainable. Even if the economy were growing at a faster pace, it wouldn't come close to offsetting the interest payments on our ever-expanding debt.
This leaves the entire Status Quo increasingly vulnerable to any sort of credit shock; either rising rates or a decline in the rate of debt expansion will cause the system to implode.

 

 

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Tue, 07/15/2014 - 11:47 | 4959274 Seasmoke
Seasmoke's picture

Can't they put all the bad debt into a rocketship and blast it into the Milky Way ??

Tue, 07/15/2014 - 11:56 | 4959310 StacksOnStacks
StacksOnStacks's picture

"Yes We Can!" - Barry O

Tue, 07/15/2014 - 11:57 | 4959324 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Standard Baby Boomer elitist crap. Spend money for themselves and cronies and screw everyone else including their own generation!

Tue, 07/15/2014 - 12:03 | 4959343 MillionDollarBonus_
MillionDollarBonus_'s picture

The middle class is the key to a prosperous economy; and one of the best ways to invest in the middle class is to invest in education.

From Wikipedia:

Members of the middle class belong to diverse groups which overlap with each other. Overall, middle-class persons, especially upper-middle-class individuals, are characterized by conceptualizing, creating and consulting. Thus, a college education is one of the main indicators of middle-class status. Largely attributed to the nature of middle-class occupations, middle class values tend to emphasize independence, adherence to intrinsic standards, valuing innovation and respecting non-conformity. Politically more active than other demographics, college educated middle class professionals are split between the two major parties.

Tue, 07/15/2014 - 12:06 | 4959363 Pladizow
Pladizow's picture

"Inflate or Die." - Richard Russell

Tue, 07/15/2014 - 13:01 | 4959554 FL_Conservative
FL_Conservative's picture

"Can't they put all the bad debt into a rocketship and blast it into the Milky Way ??"

 

Better to do that with all the bankers and lawyers.

 

And MDB, why not just give it all directly to the unions since it just passes through the system anyway?

Tue, 07/15/2014 - 14:07 | 4959782 TeethVillage88s
TeethVillage88s's picture

Exile the bankers

Uses less Fuel
saves Money
Provides opportunity to Confiscate their wealth
Provides opportunity to accidentally give them some noninfectious disease.

Tue, 07/15/2014 - 21:04 | 4961173 logicalman
logicalman's picture

Send 'em all to Fukushima.

Two benefits:

1. if they escape, they'll glow in the dark and be easy to round up.

2. They'll get a taste of the suffering they've inflicted on others for centuries.

 

Tue, 07/15/2014 - 23:35 | 4961584 Four chan
Four chan's picture

what, me worry? A. E. Neuman

Wed, 07/16/2014 - 10:47 | 4962579 RaceToTheBottom
RaceToTheBottom's picture

Why not send both into space: Both the Banksters and those that edumacate the banksters?  See how well Ivy grows in space?

Tue, 07/15/2014 - 12:13 | 4959392 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

MDB, this is probably the first time I have ever agreed with one of your comments.

Tue, 07/15/2014 - 23:20 | 4961548 McCormick No. 9
McCormick No. 9's picture

 MDB is not one for subtle wordplay. I wonder what he thinks about the destruction of the middle c lass by mr. obama.

Tue, 07/15/2014 - 12:16 | 4959410 SunRise
SunRise's picture

Why talk in terms of class?

Tue, 07/15/2014 - 12:29 | 4959450 Eyeroller
Eyeroller's picture

Because that is how Barry and the Dems divide and conquer.

Never mind that it is their own policies that have made the poor poorer.

Just promise free stuff and call any opposed to you racist.

Tue, 07/15/2014 - 14:32 | 4959882 AnAnonymous
AnAnonymous's picture

Because that is the way 'americans' put them their things.

For 'americans', the group is all.

Tue, 07/15/2014 - 20:40 | 4961123 Hydesrevenge
Hydesrevenge's picture

Economically, if I think about it, the poor are the wge earners trying to sustain, the rich are comfortbale keeping their money, the middle class are the future rich creating wealth.

 

Tue, 07/15/2014 - 21:06 | 4961181 logicalman
logicalman's picture

Take a look at George Carlin on this subject.

http://www.youtube.com/watch?v=XdH38k0iUgI

Wed, 07/16/2014 - 08:42 | 4962149 andy_pandy
andy_pandy's picture

The only "wealth" the middle class create is a result of the blood sweat and tears of the "poor". There is no wealth creation aside from the ding und sich of perception; capitalism has morphed into cronyism and fascism, leeching off central banks in order to perpetuate the myth of class distinctions in an increasingly unequal world; the speeding train of technology, like a virus, will eventually need a driver that stops at all stations

Thu, 07/17/2014 - 20:15 | 4971087 TheRedScourge
TheRedScourge's picture

Considering that anyone who earns less than $120,000 a year in the US pays less income tax than their share of government expenses, neither the poor nor the middle class produce any wealth for the most part. And we all can be sure that spending your EBT balance isn't creating any wealth.

Tue, 07/15/2014 - 12:37 | 4959472 LynRobison
LynRobison's picture

Well MDB, while we are on the subject of good things that won't help this particular problem, let me observe that one of the best ways to avoid gum disease is to floss every day.

Unfortunately, neither daily flossing nor investing in education will service the debt and keep the system from collapsing. 

Tue, 07/15/2014 - 12:42 | 4959490 TheEndIsNear
TheEndIsNear's picture

Wikipedia is one of the most biased and horrible sources of information that exists. It always invariably adheres to government lies in all things and is no better than the MSM. If you doubt this, read for example what it says about the demolition of the three world trade center towers on 9/11 with explosives by mostly highly placed dual Israeli citizens within the US government with a little help from Mossad for the execution of their evil plan. There is no mention at all of the active nano-thermite particles in the powered concrete nor the molten steel in all three basements two weeks after the demolition for example. Who benefited most from the 9/11 false flag attack, both politically and financially?

 

Tue, 07/15/2014 - 14:14 | 4959815 TeethVillage88s
TeethVillage88s's picture

The Stupidity is beyond All Reason.

I can sort of get that Liberals have LGBT, Anti Gun, Progressive Agenda that is very intrusive and has infected the US Court Systems.

I can get that Elitist Judges in New York City Support Nazi or Stasi type "Police State" measures and that our Courts are favoring Wealthy Corporate Interests.

But This is a Bipartisan Plot that Supports Wealthy Interests, Wealthy Bankers, Wealthy Corporations... and no one knows how SICK these people can be.

Anyone that thinks voting either Republican or Democrat will solve anything is in Lala Land. Powerful people just want to stick it to poor people while hiring mercenaries and additional security Measures.

I'm pretty sure if our Spies turn against the Congress, our Judges, or the President, they will die in vehicle or airplane crashes.

Tue, 07/15/2014 - 21:07 | 4961185 oudinot
oudinot's picture

Wkipedia seems to be quite helpful until one uses it to research a topic one knows well.  In these cases it is wholly ineffective.  Hence, it is probably crap compared to other more scholarly sources lower down on the search list  but it is so easy to use.

Although I am reticient to agree that  Wikipedia is complicit in the cover up of 9/11,  I think it is broadly agreed that we do not have the 'real story' but to assert it was definitely Mossad , thermite etc., is but a theory until one can tease out the evidence.

Tue, 07/15/2014 - 21:13 | 4961198 El Vaquero
El Vaquero's picture

It depends on the topic with Wikipedia.  When it comes to giving a description of wildlife or plants or whatever, it is normally good if you're not trying to become an expert.  

Wed, 07/16/2014 - 03:35 | 4961854 potato
potato's picture

What about historical accounts, like ho chi minh trail or the Battle of the Bulge?

Wed, 07/16/2014 - 01:05 | 4961727 NaN
NaN's picture

So where can I find this unobtainium that makes steel molten for weeks without insulation or an energy source? Sounds better than Hydrogen fusion. Maybe black holes were involved.

Wed, 07/16/2014 - 08:58 | 4962176 Tall Tom
Tall Tom's picture

Unobtainium is synthesized from the transmutaion of Imaginarium.

 

Just imagine that you cannot obtain Imaginaruium and then it transmutes into Unobtanium. It is so simple of a process that children find it naturally.

 

Weren't you paying attention in your alchemo-quantummetaphysics class? Did you forget the basic principle of setting aside your disbelief?

Tue, 07/15/2014 - 13:02 | 4959570 orez65
orez65's picture

Dear MDB, regarding your latest brain fart:

"... one of the best ways to invest in the middle class is to invest in education"

If the investment was to educate engineers, scientists, plumbers, electricians, in other words, investment in skill development I would agree with you.

But the reality is that the "educational investement" is being wasted in "educating" political "scientists", lawyers, "economists", "liberal historians", f...ing basket weavers ...

The present "educational investment" has created a massive bubble in our schooling system and prevented needed reforms, for example not investing enough in computerized learning.

If your goal is to piss me off, you have succeeded. You are the poster boy or girl for liberal s..t heads. I despise all of you. You, and all like you, are naive, arrogant and totally and absolutely incompetent.

Hell is too good a place for you.

F..k you a.s h..e. 

Wed, 07/16/2014 - 03:23 | 4961840 Stranded Observer
Stranded Observer's picture

Ha!  I checked your account and see you signed up over 2 years ago.  Read the comments much?  MDB is an exquisite, eloquent, full time troll who draws all the newbies into vehement replies.  Those of us who know this regard him in high esteem for the entertainment value he/she provides for all you suckers.  It's all good.

Tue, 07/15/2014 - 13:08 | 4959599 Dollarmedes
Dollarmedes's picture

"The middle class is the key to a prosperous economy; and one of the best ways to invest in the middle class is to invest in education."

The middle class won't be able to create real wealth while the parasite class is there to steal it: government, big crony institutions, big law, and social justice warriors.

Get rid of the parasites, then get out of the way. The middle class will fix itself. (of course, the parasites won't do this because there's no opportunity for graft)

Tue, 07/15/2014 - 14:19 | 4959834 TeethVillage88s
TeethVillage88s's picture

Sweeping Reforms.

But does that mean:

-Military Coup
-Civil War
-Secession of States
-Secret hits Squads to Take out TBTF Bank Executives
-Nationalizing Banks, Industries & Big Corporations
-Using Anti-Trust Laws to Break up Powerful Corporations & their Rich Executives
-Exile of unwanted people termed "Undesirable"
-removing Banking Powers from Powerful People/Entities
-Outlawing Lobbying, Campaign Contributions & Shell Companies

Tue, 07/15/2014 - 14:02 | 4959768 TeethVillage88s
TeethVillage88s's picture

German Government spends a lot on Training it's workforce. It even pays for German Language Classes and partners with industry to transform factories to new tooling and trains the existing workforce to prevent job loses. New Energy Programs get 5 years Interest Free Loans for Start Ups to prove their technology and business model like in Bio-fuel or Alcohol Stills (Actually Brazil and many countries do this last one.

I am not saying there is a German Plot at work in the USA to "Ruin" our Technology and Workforce Skills. I'm not saying that Germany is Rising and the USA has lost most export markets except for Oil Refining and other Oil & Gas work. I'm not saying that Germany Enjoys a strong Economy due to a "De Facto Mercantilism". But it is true.

How about Flat 1% Student Loans and Caps on Usury in the USA. How about the US Government loaning itself money instead of Paying TBTF Private Banks after all... with our current Debt Levels 102% of GDP things are so bad we are in "Full Crisis Mode Already" and Need Reforms before IMF/WB/OECD/BIS and the ECB start financial downgrades and Strong Recommendations for Reforms.

Wed, 07/16/2014 - 03:31 | 4961848 John_Coltrane
John_Coltrane's picture

Germany is pretty cold and thus white in the most important way-culturally.  Work ethic, standards etc.  Canada also has this advantage.  In any statistical comparison between mono-cultures like Japan or Germany to our "diverse" culture, the darker elements of the population (think Detroit) must be separated first to see if any real differences exist (e.g. gun death statistics, average income levels, IQ).  I'm guessing there are none.  But politically correct types believe this type of thinking is racist and must be avoided despite the cognative dissonance that results (though they still cross over to the other side of the street when those with higher melanone skin levels approach).   Survival trumps political correctness, I'm guessing.

Wed, 07/16/2014 - 03:34 | 4961853 potato
potato's picture

Better blame poverty. Yes, they have smaller brains, but poverty also has a high incidence with crime.

Tue, 07/15/2014 - 20:34 | 4961100 Escrava Isaura
Escrava Isaura's picture

Million dollar...

Welcome back!

Wed, 07/16/2014 - 03:26 | 4961843 Stranded Observer
Stranded Observer's picture

Yep!  And look at all the newbies he caught.

Tue, 07/15/2014 - 20:46 | 4961137 ebworthen
ebworthen's picture

MDB said:  "...invest in education."

What for?  To work at Chili's or sell Life Insurance?

We'd all be better off if the FED would just send us each $3 Million tax free.

I'll buy a home, and tip well.

Wed, 07/16/2014 - 09:06 | 4962203 PT
PT's picture

"Investing" in an "education" can be a problem when there is no money left for capital acquisition or R & D.  I guess there's always borrowing.

 

Minsky moment =  [ (income + capital gains) < interest due ]

Or, as others say:

http://www.investopedia.com/terms/m/minskymoment.asp

For example an investor might borrow funds to invest while the market is in an upswing. If the market drops slightly, leveraged assets might not cover the debts taken to acquire them. Soon after, lenders start calling in their loans. Speculative assets are hard to sell, so investors start selling less speculative ones to take care of the loans being called in. The sale of these investments causes an overall decline in the market. At this point, the market is in a Minsky moment. The demand for liquidity might even force the country's central bank to intervene.

http://en.wikipedia.org/wiki/Hyman_Minsky

Minsky argued that a key mechanism that pushes an economy towards a crisis is the accumulation of debt by the non-government sector. He identified three types of borrowers that contribute to the accumulation of insolvent debt: hedge borrowers, speculative borrowers, and Ponzi borrowers.

The "hedge borrower" can make debt payments (covering interest and principal) from current cash flows from investments. For the "speculative borrower", the cash flow from investments can service the debt, i.e., cover the interest due, but the borrower must regularly roll over, or re-borrow, the principal. The "Ponzi borrower" (named for Charles Ponzi, see also Ponzi scheme) borrows based on the belief that the appreciation of the value of the asset will be sufficient to refinance the debt but could not make sufficient payments on interest or principal with the cash flow from investments; only the appreciating asset value can keep the Ponzi borrower afloat.

If the use of Ponzi finance is general enough in the financial system, then the inevitable disillusionment of the Ponzi borrower can cause the system to seize up: when the bubble pops, i.e., when the asset prices stop increasing, the speculative borrower can no longer refinance (roll over) the principal even if able to cover interest payments. As with a line of dominoes, collapse of the speculative borrowers can then bring down even hedge borrowers, who are unable to find loans despite the apparent soundness of the underlying investments.

Thu, 07/17/2014 - 20:09 | 4971052 TheRedScourge
TheRedScourge's picture

Guess they're not any smarter if they're more politically active and still split between the parties. If they had all sided with one maybe it would indicate that they've figured out which party is the best, but the fact that they are split means there isn't one, but that they've still failed to figure that out.

 

Yes, let's dump more money into education, because we need more Ph.Ds driving cabs getting undercut by high school dropouts using Uber.

Tue, 07/15/2014 - 13:13 | 4959612 RafterManFMJ
RafterManFMJ's picture

Can we not dig a series of holes around the debt, fill the holes with water and then freeze the water?

This will immobilize the debt until future generations can pay for it.

Tue, 07/15/2014 - 15:37 | 4960205 Professorlocknload
Professorlocknload's picture

Nah, better to do the PC thing and put it all in the recycle bin.

Tue, 07/15/2014 - 11:59 | 4959334 MillionDollarBonus_
MillionDollarBonus_'s picture

.

Tue, 07/15/2014 - 14:03 | 4959772 redd_green
redd_green's picture

!

Tue, 07/15/2014 - 20:32 | 4961093 o2sd
o2sd's picture

Probably your best comment ever. Keep up the good work.

 

Tue, 07/15/2014 - 11:59 | 4959337 Itchy and Scratchy
Itchy and Scratchy's picture

'Change You Can Believe In'

Tue, 07/15/2014 - 11:56 | 4959312 kliguy38
kliguy38's picture

Finally some common sense.....much better than what Grandma says

Tue, 07/15/2014 - 12:30 | 4959456 jaxville
jaxville's picture

Good Grief!  A story about excess debt and not one mention of fractional reserve banking? The vast majority of debt out there was created as money being loaned out with an interest obligation.  What we are seeing now is a credit based money system that has hit the wall. It has gone about as far as it can.  Any action taken to maintain the status quo will have to be increasingly dramatic but yield shorter lived gains.

  Options are very limited at this point.  The scoundrels behind our current system are preparing to roll out a new one that allows them to retain power and their ill-got gains. 

    Not a good time to have your savings locked into some currency. 

Wed, 07/16/2014 - 06:46 | 4961962 layman_please
layman_please's picture

i also wouldn't mention fractional reserve banking. it's just too unbelievable as a concept. so every time i'm confronting it, i make sure i'm not dreaming.

Tue, 07/15/2014 - 13:13 | 4959615 tarsubil
tarsubil's picture

Essentially, yes. Rates can't go any lower? Yellen said the same thing today. This is just like an addiction. Lines are meant to be crossed. Rules are made to be broken. We will see nominal negative rates.

Tue, 07/15/2014 - 21:49 | 4961311 Yes_Questions
Yes_Questions's picture

 

 

and then some...

 

Why exactly "can't" the FED write off debt?  It can create money to buy bad loans and simply write it off.

 

ITS THE FED!  It'll be there to reap from the taxpayers another day.  

 

Wed, 07/16/2014 - 11:04 | 4962646 RaceToTheBottom
RaceToTheBottom's picture

We already are seeing nominal negative rates.  Cyprus is a good example of the plan.  

Keeping amounts less than Guaranteed amounts is a start but not a solution.

 

Tue, 07/15/2014 - 23:37 | 4961590 world_debt_slave
world_debt_slave's picture

and teach other life forms.

Wed, 07/16/2014 - 08:40 | 4962142 americanreality
americanreality's picture

You are typing from the Milky Way genius. 

Tue, 07/15/2014 - 11:48 | 4959278 NOTaREALmerican
NOTaREALmerican's picture

I'm confident the smart-n-savvy people can create more bullshit to keep the ponzi going.

Tue, 07/15/2014 - 11:49 | 4959285 yogibear
yogibear's picture

It's when the US government consficates IRA/401 accounts. Have to keep the public sector unions well fed with fat pensions and high pay.

Tue, 07/15/2014 - 11:51 | 4959294 Seasmoke
Seasmoke's picture

My My MYRA. 

Tue, 07/15/2014 - 12:23 | 4959431 Carpenter1
Carpenter1's picture

When you have the reserve currency, combined with a printing press and a brain dead public,  the circle is complete. Debt can go on forever, as much as I hate to admit it.

 

This is why Russia and China are wresting away the reserve currency and attacking the petrodollar, they know that's the only way to put an end to this madness and remove the lollipop from these spoiled brats hands.

Tue, 07/15/2014 - 11:50 | 4959289 buzzsaw99
buzzsaw99's picture

Damn, and he was doing so well until he got to this: Now that rates are at historic lows, there is no more room to lower rates further to enable more debt. That gambit has run its course...

Tue, 07/15/2014 - 11:54 | 4959299 El Vaquero
El Vaquero's picture

I don't think that actual NIRP, rather than de facto NIRP by keeping a positive interest rate while lying about inflation, will work for too long. 

Tue, 07/15/2014 - 11:55 | 4959306 Cthonic
Cthonic's picture

As Goldman showed, there's still room to lower rates.

Tue, 07/15/2014 - 11:58 | 4959330 pods
pods's picture

If rates are forced down further, things will be even more Bubblicious than they are now.

Ummm, Bubblicious.  

pods

 

Tue, 07/15/2014 - 12:08 | 4959345 buzzsaw99
buzzsaw99's picture

exactly. take your biriniyi ruler, run it across the tops on the TNX chart from 1985 until now, and you will see that there is LOTS of room out to the right in there. Also, as for the fed's holdings of Ts all that interest goes back to the shiftless CONgreff, so in essence that rate is zero no matter what the duration. Clearly the fed will untaper qe at the first sign of stock market stress so that free financing will continue to grow FOREVER.

Tue, 07/15/2014 - 12:16 | 4959397 CrashisOptimistic
CrashisOptimistic's picture

Useful to look back at the beginning of QE3.

It was a few weeks before the election.  Something panicked Bernanke -- maybe Romney's good performance in debate #1.  (I may have that timing wrong).

But regardless, Bernanke saw some evidence of devastation and embarked on ENORMOUS QE.

Now, what was it, and what is better now?  Quoted unemployment is better, but it was trending that way before QE.  Quoted inflation hasn't changed.

GDP is definitely lower.

Oil is higher.

So what is the overall rationale here, not philosophically, but in terms of what is different numerically now vs fall of 2012?  The economy is clearly weaker.  The year's GDP will be sub 2%.  So why is a rate increase correctly considered in this time frame?

Tue, 07/15/2014 - 12:32 | 4959454 buzzsaw99
buzzsaw99's picture

the bernank panicked a lot, and for good reason. sometimes he cut rates 75 bps in the middle of the night. he didn't even allow QE2 to expire (like he did with QE1) before launching right into QEinfinity. Yellen is a fool if she thinks she can taper. She is even moar of a fool of she thinks she can raise rates EVER. the system is now MUCH, MUCH, MOAR dependent than ever. If Yellen doesn't know that she is about to get a fast lesson in PAIN.

Tue, 07/15/2014 - 14:31 | 4959876 TeethVillage88s
TeethVillage88s's picture

Too Many Hockey Sticks on too many charts.

Besides someone on the world stage will eventually outplay us.

China may crash and partly cause us to crash, so it may not be China that wins. But even China can be part of the BRICS setting up the end of the Petro Dollar, return of cheaper US Dollar from overseas.

Complex. Lots of Treaties out there, agreements, and sovereign debt. Everyone wants something. Europe could move to Special Drawing Rights.

Tue, 07/15/2014 - 12:52 | 4959514 GooseShtepping Moron
GooseShtepping Moron's picture

What is a biriniyi ruler?

Tue, 07/15/2014 - 13:04 | 4959582 buzzsaw99
Tue, 07/15/2014 - 13:17 | 4959600 GooseShtepping Moron
GooseShtepping Moron's picture

Thanks Buzzsaw and Cthonic.

EDIT: Since I love doing "internet archeology" (i.e. looking back at old posts, news articles, editorials, and predictions and seeing how subsequent events actually played out) I watched the old CNBC video of Birinyi which aired nearly three and a half years ago. The sad thing is that while his ruler idea of linear extrapolation is of course ridiculous, his strategy of being "comfortably bullish" worked out just fine.

It gets very tiring watching other people make money by being right for the wrong reasons.

Tue, 07/15/2014 - 11:52 | 4959295 El Vaquero
El Vaquero's picture

I wish there were a way to convince the masses that the dollar is the ultimate ponzi.  Then you could get them to ponder whether or not it is ethical to pay their debts back.

 

But people think that they gotta pay all of their debts, because it's good and right and 'Murica 'n shit.  Like lambs to a slaughterhouse. 

Tue, 07/15/2014 - 11:55 | 4959303 NOTaREALmerican
NOTaREALmerican's picture

If Americans thought how you desired our society would by like Greece or Italy.   We got the best society on the planet for the top 20% because most of the dumbasses blindly follow the rules and worship authority.  

Tue, 07/15/2014 - 12:12 | 4959387 El Vaquero
El Vaquero's picture

No, if Americans thought like me from day one, things would be very different.  If they started thinking like me today, it would be much worse than Greece or Italy.  It would be complete pandemonium with riots and starvation.  But that is inevitable.  It is going to happen no matter what we do at this point, no matter what I want.  It's just a question of timing.  I'd just rather get it over with and let the chips fall where they may.  Slow pain vs fast pain.  We are going to collapse.  The question is, are we going to let the criminals push us down further than we would otherwise fall without them?

Tue, 07/15/2014 - 12:27 | 4959421 NOTaREALmerican
NOTaREALmerican's picture

Sure,  but,  most humans are pathological optimists and authority worshippers and nothing can change human nature. 

Re:  The question is, are we going to let the criminals push us down further than we would otherwise fall without them?

The criminal are the smart-n-savvy authorities so the answer MUST be: yes. 

Tue, 07/15/2014 - 12:27 | 4959444 El Vaquero
El Vaquero's picture

I actually think that will vary on a regional basis.  Compare Utah where Mormons often have a year's supply of food for religious reasons vs NYC. 

Tue, 07/15/2014 - 12:41 | 4959464 NOTaREALmerican
NOTaREALmerican's picture

Well, if we're talking about survival of collapse then the Mormons will be in better shape.   But,  Mormons are also authority worshippers and easily manipulated with bullshit, so their resulting new society will be a carbon copy of what we've got (except the invisible gold-tablets will be even more "true").

The problem we have now is there's NO problem.   The current system is functioning exactly how you'd expect it too:  the smart-n-savvy people create bullshit causing the dumbasses to worship the smart-n-savvy people.   That's ALL there is.

Tue, 07/15/2014 - 12:55 | 4959543 El Vaquero
El Vaquero's picture

And that is a fair point.  IIRC, Mormons do make up a disproportionate number of FBI agents, which is consistent with them being authority worshippers.  But they will also be much less likely to be sitting there waiting for the government to save them.  It cuts both ways.

Tue, 07/15/2014 - 12:21 | 4959427 Miffed Microbio...
Miffed Microbiologist's picture

I think therefore I ...don't have much in common with a lot of people. I had hoped this wasn't true but after struggling in vain to wake the sleeping masses in my sphere, I can boast of 100% failure. A few did cock their head a little so maybe there is a slight chance in the future. I just now focus on survival and pray I never need to.

Miffed;-)

Tue, 07/15/2014 - 13:11 | 4959608 BigJim
BigJim's picture

Yes, it's hard work, proselytising doom. But someone has to do it!

I'm sure I'll garner some frowns from my fellow Hedgers when I say that the biggest change I've seen is via judicious Facebook postings. After years of political and monetary postings, a few of my friends actually seem to be waking up. A bit.

How much is down to me and how much is just reality disturbing into their slumber with cognitive dissonance is hard to tell.

Tue, 07/15/2014 - 13:33 | 4959666 El Vaquero
El Vaquero's picture

Some people freak the fuck out when you proselytise doom.  It puts them in an uncomfortable place where they have to ponder the possibility that there will not be a better life for their children, and they shut down. 

Tue, 07/15/2014 - 22:25 | 4961372 oudinot
oudinot's picture

People talk about the decline of the Roman empire and compare it to the modern American Empire. Its not a bad analogy however, the Roman Empire almost dissolved in the 3rd century after the death of Alexander Severus (d. 235 AD) and the reign of Diocletian (285-305). Two hundred years before its official collpase in 476 AD. The Roman economy was in tatters , the Emperors, over 30 of them in a 50 year period, were often illiterate generals who happened to have the best local army at the time.  Beginning with Aurelian the Empire recovered under Diocletian's reign.

Diocletian made what we would think today as socialist reforms but they were really right wing policies.  The economy was in tatters, the coinage clipped, abused-and one of the biggest problems was that there was too much labour (don't forget there was so many slaves, and as such  kept 'free people' out of the labour market) and they  kept changing from one economic enterprise to another causing extensive damage the economy. Diocletion ordained that Roman citizens would have to serve in  whatever occupation, business that their father was in; no exceptions (except for the Nobles and the Emperor's favourites of course, some things never change).

The only field that was open to the citizen was the army.  If one was ambitious, one joined the legions.

Anyways, with Diocletian the economy picked up, the Imperial revenues held up just enough to keep things humming , but at extemely low growth, if any,   and Constantine the Great, after many expensive, bloody wars became the sole Emperor in 323 AD.  He was a clever man realized that the center of power was in Asia, not Italy, and built Constantinople (now Istanbul) in the Dardanelles where Byzantium had been for centuries.

Building Constantinople was an expensive project.  Constantine did two things to raise capital from an impoverished Empire: 1. He further degraded the gold and silver coinage and changed, decreed the ratio of value of 16:1 from 18:1  (silver value to gold value).  This seems small now to us, but since he had extensive silver mines in Spain (which are still producing today)it was a very significant change at the time-this ratio change helped helped Constantine out fiscally.  (interesting thought if one took the gold price and divided it by 16 one would get  roughly $80/oz. value for the silver; on the other hand if we take the contemporary  silver value and multiply it by 16 we would have $376 gold).  2.  Constantine decreed a 'capito' tax-a tax on every head of all the Empire's subjects.  Parents were responsible to pay for thier children.

The taxes were horrendously burdensome.  To start with there was not sufficient coin for the common man to accrue to pay the tax.  The Imperial tax collector (who had to pay the treasury directly and was held resposbile for the whole amount of  'capito' tax)  was forced to get paid in kind with chickens, goats, rugs,olives etc.  It was an inefficient system.  

The capito tax, especially in Campania, Italy-a breadbasket to Rome for centuries but its soil was completely exhausted by this time- was so  draconian that parents resorted to infanticide, regardless of gender. Many other jurisdictions resorted to the same atrocious acts.  Campania in a bit over 100 years was uninhabitable; no people, no crops,no grains no livestock-just a desert.  The Empire's population  contracted,  the economy was moribund, the coinage further degraded, inflation occured, the standard of living decreased significantlyfor everyone , only the very wealthy got wealthier.  After Constantine's death in 337 AD civil wars ensued that further weakened the state.

The Roman Empire looks bad, ready to fall, right?  Its over.  Wrong,the Western Roman Empire had 150 more years!!  The eastern Roman Empire lasted another 1,100 years (Constantinople was sacked,captured by the Muslims in 1453).

So although the American Empire looks ripe to fall it may last another 100, 200  years as it slowly slips into the mire.  The Preatorian Guard propped up the military emperors in the disatrous 3rd century, the NSA/CIA/MIC look pretty entrenched to control power regardless of the 'puppets' they manage.

I hope that I am wrong on the timing issue.

Wed, 07/16/2014 - 07:42 | 4962024 The Blank Stare
The Blank Stare's picture

Nothing like a little bit of history after dinner!

Tue, 07/15/2014 - 11:57 | 4959318 Grande Tetons
Grande Tetons's picture

Do you have a printing press? 

Yes...great....spend more. 

No..fuck you. 

Tue, 07/15/2014 - 12:03 | 4959355 Imminent Collapse
Imminent Collapse's picture

Why can't the Fed absorb the debts?  After all, it is just play money to it.

Tue, 07/15/2014 - 12:15 | 4959398 kurzdump
kurzdump's picture

It could 'absorb the debts', however the 'real' economy would collapse anyway. Economic depression can't be offset by printing money - this would only lead to a skyrocketing inequality and total lost in faith of the currency.

Tue, 07/15/2014 - 12:18 | 4959416 El Vaquero
El Vaquero's picture

 

this would only lead to a skyrocketing inequality and total lost in faith of the currency.

One shoe has already dropped...

Tue, 07/15/2014 - 13:19 | 4959636 BigJim
BigJim's picture

 Why can't the Fed absorb the debts?

They can. But rising asset prices increasingly starts feeding into commodities and inflation really takes off.  Rising land prices, for instance, can't possibly not result in rising commodity prices.

They can't expand the money supply (without it increasing the stock of productive assets) without it kicking off price inflation.

They're kind of fucked. If QE stays locked in central bank reserves, the declining economic activity leads to monetary deflation which leads to more debt default. But if the banks lend those reserves into the economy, at present asset prices, then the chances are that they won't get their money back because valuations don't reflect the earnings they require from those assets to pay the debt.

Tue, 07/15/2014 - 14:50 | 4959975 TeethVillage88s
TeethVillage88s's picture

If I was a Bank (which I know nothing about)

We might already be doing several things to prevent Inflation.

The Belgian Bulge story about some entity absorbing US Treasuries sort of leads us down this line of thinking.

How do you absorb US Dollars & Treasuries Overseas & maybe even Equities owned by foreign owners?

To prevent Inflation

-Office or Entity secreting and openly buys up dollars/US Treasuries, maybe offers assets like Federal Land, Federal Roads, Federal Bridges, Federal Parks, Precious metals, mining rights, oil rights

-Keep US Average Wages & Exports Low to dampen velocity of money in pre-inflationary period

-Use Fed or Treasury to Buy up excess US Equities of Key Corporations or Key Utility Companies in a stock Sell Off, probably at the bottom some where

-Disguise QE to look like a stimulus when you are actually strengthen a sell off or slump in US Treasuries

Just like Greece maybe. Not saying I like this. I'm not even sophisticated here.

Foreigners will be Buying up farm land, Real Estate, Businesses, creating businesses... maybe. This is where part of the Inflation will come from. With a shrinking US Average Wage maybe the velocity won't be inflationary. We will just have new landlords, new bosses, and a bunch of foreigners speaking other languages all over.

Tue, 07/15/2014 - 21:18 | 4961201 lotsoffun
lotsoffun's picture

i still pay back my debts, but i'm old and stupid, and i can see that i am out numbered.  nobody younger than me appears to pay back their debts, or most of the people my age either.

there is no longer any moral hazard, why pay back?  i can sit in a mcmansion in many states, the biggest being cal, fla, ariz for years and not pay a cent.  then, i go down to the local for a few hours and rent this magnificent place out to porn shoot and make money.  sometimes when i come back, there's still some stupid btch looking for another line, or hoping to meet the 'rich' owner.  sounds like heaven to me.  you think i even paid a penny for the furniture?  - cable and utilities and i'm good to go

why would anybody pay back anything at this point?  they've made it clear, no reason to!

 

Tue, 07/15/2014 - 21:47 | 4961303 pods
pods's picture

Worse than no reason to not pay off debt, there is a reason to not pay off debt.

It is our money supply!

pods

Tue, 07/15/2014 - 11:55 | 4959302 tickhound
tickhound's picture

The status quo has always been unsustainable... Just a matter of 'when.'

Infinite economic growth models have an end game.

How planners react is symptomatic of problems that arise when growth approaches peak.

Many here react to symptoms... Later realizing they only extend a short term lifeline. Too many linear thinkers... Trapped inside narrow corridors of false choices and solutions.

Answer this bitchez...

A single bacteria is placed in a coke bottle. It doubles itself every minute and fills the bottle at midnight.

At what time is the bottle half full?

It's a simple problem that most here can't solve, or pretend to ignore.

Tue, 07/15/2014 - 11:56 | 4959315 NOTaREALmerican
NOTaREALmerican's picture

Re:  At what time is the bottle half full?

19:50.   When we had PURE capitalism and PURE Merica!  

Tue, 07/15/2014 - 12:06 | 4959367 rosiescenario
rosiescenario's picture

Actually the bottle is full all the time, the question is half full of what?

Tue, 07/15/2014 - 12:15 | 4959396 El Vaquero
El Vaquero's picture

Diarrhea. 

Tue, 07/15/2014 - 12:14 | 4959377 SunRise
SunRise's picture

So are you saying that wasn't the full moon I saw the other night at 11:59,  but the Great Pumpkin looking for the girl with the glass slippers?

Tue, 07/15/2014 - 12:18 | 4959399 tickhound
tickhound's picture

Or it's 11:58 and the bottle is 1/4 full... And "all is well and no one sees it coming"

But how can we? We aren't trained to think this way. We look to growth as a solution... For EVerything.

Tue, 07/15/2014 - 12:38 | 4959476 Blythes Master
Blythes Master's picture

The bottle is half full at 11:59.

So what's your point to this pointless excercise?

Tue, 07/15/2014 - 13:04 | 4959584 tickhound
tickhound's picture

... That the second guy to raise his hand in class is exposed as the idiot requiring additional spoon feeding.

Let someone else 'splain' it you so you can sponge on.

Tue, 07/15/2014 - 12:43 | 4959491 SilverSavant
SilverSavant's picture

At a minute to midnight.   But wait, that was when 2+2 still equalled 4.  Now, with the deflator and the defecator factored in, and then added to the whims and notes from the Odumber, that bottle could be half full for ever. 

Tue, 07/15/2014 - 14:54 | 4959994 TeethVillage88s
TeethVillage88s's picture

2 minutes to Midnight.

Meaning it will happen so fast no one will be able to do anything.

Tue, 07/15/2014 - 15:53 | 4960281 KnightsofNee
KnightsofNee's picture

Same question as the swimming and lilly pad in pond covering the whole pool. Decribes an exponential function. I try to explain debt expansion to friends in this way but they just run away screaming and plugging thier ears with thier fingers.

Wed, 07/16/2014 - 04:02 | 4961875 John_Coltrane
John_Coltrane's picture

Then get them to agree to give you 1 penny for the first square on a chess board, 2 for the second, 4 for the third etc.  This apparently worked with a Raja in India many centuries ago, but starting with a single grain of rice.  When the Raja got done paying up, all his rice storehouses were empty but he understood the exponential function.  But hey, there's only 64 squares on the board, and 2^63 pennies (or rice grains) on the last square can't be too much of a financial burden especially is they can all act like Bosons and occupy the same state (the only way they'll fit on the square). 

 

Wed, 07/16/2014 - 11:18 | 4962683 RaceToTheBottom
RaceToTheBottom's picture

I like the jumper out of a  sky scraper example better.  

For me the image of a bankster reporting that after falling for 199 floors of the 200 floor sky scraper, he is still doing well, is very comforting.  Maybe that is just me. 

 

Tue, 07/15/2014 - 11:55 | 4959304 ChartreuseDog
ChartreuseDog's picture

The article forgets that the US$ is the world's reserve currency at this point, so debts transferred to the government can be covered by printing money, in a sense, "forgiving" them.

This stops when the US$ stops being the world's reserve currency, which only happens when the US military stops being as fearsome as it is now. Up till this, anyone who has tried to come off the dollar system has gotten "democracy" brought to their country, good and hard.

 

Tue, 07/15/2014 - 12:17 | 4959413 El Vaquero
El Vaquero's picture

Yes, but now we have nuclear powers opposing us, and we're pissing off our friends, some of which are nuclear powers.  Our options are collapse, WWIII, which means nukes and collapse, or revolution, which also means collapse.  Which one leads to the best future? 

Tue, 07/15/2014 - 12:19 | 4959418 Honey Badger
Honey Badger's picture

Printing money doesn't forgive debts, its transfers them to users of the currency via inflation.  With the global reserve currency, the U.S. does not incur all the negatives of this inflation as it can pass some of this inflation to other countries.  When global reserve currncy status changes, the U.S. becomes an Argentina or Greece on a grand scale. 

Tue, 07/15/2014 - 13:05 | 4959588 GooseShtepping Moron
GooseShtepping Moron's picture

Just because the dollar is the reserve currency does not mean that it has infinitely robust purchasing power, or that demand for it will remain steady. Endless money printing will devalue a reserve currency just as inevitably as it will a non-reserve currency, it will just take longer.

Tue, 07/15/2014 - 14:52 | 4959984 daveO
daveO's picture

Dollar useage, worldwide, has declined to about 62%, last I read. When it crosses 50%, look out!

Tue, 07/15/2014 - 22:58 | 4961496 oudinot
oudinot's picture

If the American mlitary is 'so fearsome' how come they can't win a war in Iraq or Afghanistan?

Wed, 07/16/2014 - 00:57 | 4961721 TeraByte
TeraByte's picture

You ignored Vietnam. That´s where it really started from.

Tue, 07/15/2014 - 11:56 | 4959308 pods
pods's picture

All in all a good piece.  One thing made me chuckle though:

" debt is a loan that must be paid back or discharged/written off and the loss absorbed by the lender. Interest is paid on the debt to compensate the owner of the money for the risk of loaning it to a borrower."

 

Banks lend what?

pods

Tue, 07/15/2014 - 11:57 | 4959319 p00k1e
p00k1e's picture

Since an OZ of gold will buy a block of buildings in New York, a simple silver eagle should buy one condo unit.  Therefore, a Monster Box should buy several condo complexes. 

We’re all going to retire wealthy – very. 

Tue, 07/15/2014 - 12:08 | 4959371 agstacks
agstacks's picture

Fun to think that way, but I'm more of the mindset that one simple silver eagle will feed my family for that day.  Hope you're right though!

Tue, 07/15/2014 - 15:00 | 4960032 TeethVillage88s
TeethVillage88s's picture

Personally I think we will all be Chicoms before we can spend it.

2 weeks or a month of secret deals, the Chinese or some other worst boss will own all the big buildings and many banks, energy companies, municipalities, highways, water ways, ports of all kinds.

But our military & Veterans will be fighting mad for 6 months or 10 years trying to locate the Bankers that sold us out, the Politicians that facilitated, and trying to figure out who is working with the "New Federal Government"

Tue, 07/15/2014 - 11:58 | 4959328 doomandbloom
doomandbloom's picture

We need to go to Mars. Everything will be ok.

Remain Calm.

Tue, 07/15/2014 - 12:32 | 4959459 Eyeroller
Eyeroller's picture

But Mars is already a desolate wasteland.

The Fed needs a new Utopia to completely screw over.

Wed, 07/16/2014 - 04:22 | 4961884 Lanka
Lanka's picture

Elysium will do.

Tue, 07/15/2014 - 11:58 | 4959331 Itchy and Scratchy
Itchy and Scratchy's picture

'If debt was the problem in the first place ....how is more debt the solution?' - R Paul

Tue, 07/15/2014 - 11:59 | 4959338 foodstampbarry
foodstampbarry's picture

The end game will come after the black messiah leaves office, not before.

Tue, 07/15/2014 - 12:03 | 4959354 Itchy and Scratchy
Itchy and Scratchy's picture

The female messiah will solve all the problems!

Wed, 07/16/2014 - 11:24 | 4962691 RaceToTheBottom
RaceToTheBottom's picture

The Businessman messiah will solve all our problems.....

OK, anyone figured it out yet?

The President has pretty much nothing to do with the problem.  It is the FED and the Banksters

Tue, 07/15/2014 - 12:38 | 4959473 Eyeroller
Eyeroller's picture

Don't know that the house of cards can remain standing for that long.

I think the Ponzi Munckin and her crew are trying everything in their power to hold it together until after 2014 elections. 

A black swan would actually be a godsend to them:  "It wasn't our fault.  Everything was working just fine until XXXX happened.  Who could have seen XXXX coming?"

Tue, 07/15/2014 - 12:01 | 4959342 youngman
youngman's picture

This problem is always someone elses problem..Congress is elected every 2 years and the Senate every 6 years.....so its way past their time in their minds..they only deal witht the here and now....not the future....that does not get you votes....A crisis is what they deal on...urgent and in the news....so it wont be until we fail ..only then will those in charge do anything...and it will not be good....they will try to survive....not fix anything

Tue, 07/15/2014 - 12:04 | 4959357 Winston Churchill
Winston Churchill's picture

As previously stated frequently by me the Doomsday clock is at 11-59pm,maybe later

since I started writing.

Tue, 07/15/2014 - 12:05 | 4959360 pakled
pakled's picture

"Stop the insanity"

 

/Susan Powter

Tue, 07/15/2014 - 12:08 | 4959374 lasvegaspersona
lasvegaspersona's picture

The Fed bought long term higher interest bonds in Operation Twist. They have decreased the interest the USG must pay and the interest rate. This means if short term rates rise the interest on the US debt could rise quickly as all new debt would be at current rates.

The Fed and USG cannot tolerate this as it would cause a failure of the entire system. Therefore short term interest rates willnot/cannot be allowed to rise. 

The Fed will probably move to the derivative market entirely and buy down those rates. This money is probably the fuel for hyperinflation. Where that money flows I don't know ...who sells these derivatives?...TBTF banks of course. Will they play nice with their new money? Will they discretely keep it at the Fed? Will they pour it into the market?

I'll be amazed if the Fed has found a cheap way to accomplish this task. If they have not then this is the end.

Tue, 07/15/2014 - 12:08 | 4959375 NoWayJose
NoWayJose's picture

The charade has continued longer than I thought, aided by weak Republican leadership and by the ability of the Fed to not only set rates, but to flush huge amounts of money into the hands of willing banks who use that money to postpone the inevitable by leveraging against any positions that are contrary to their interests (like gold or FX). 

Tue, 07/15/2014 - 12:12 | 4959381 jubber
jubber's picture

Excellent article

Tue, 07/15/2014 - 12:12 | 4959382 anefarious1
anefarious1's picture

In this fiscal or calendar year, you choose your timeframe, the US government's "National Debt" will increase less than the rate of inflation (if we believe those who say the CPI understates inflation).

And please don't counter with an 'unfunded liabilities' argument because lots of baby boomers are already collecting SS and a few Medicare and yet... the debt will probably increase less than 3% year over year.

What say you?

Tue, 07/15/2014 - 21:45 | 4961299 litemine
litemine's picture

Dreamer, Silly little Dreamer...............................The Fed has a full time fight on their hands just to keep Interest below 3%. The Brics, if they grab the reins, the only out is going to be WAR. With many out of work....there is no shortage of Puppets. If the "FED" loses the first ATTACK,  like an airplane going down, well You Know the Drill.

Tue, 07/15/2014 - 12:12 | 4959389 rosiescenario
rosiescenario's picture

Inflation benefits the debtor.........will we have more inflation?Is the biggest debtor in control of the amount of fiat issued?

 

Not too complicated.

 

 

Tue, 07/15/2014 - 12:13 | 4959390 NOTaREALmerican
NOTaREALmerican's picture

"The end of  [the world | the financial system | Japan | the Chicago Cubs World Series drought] is near". 

Tue, 07/15/2014 - 12:14 | 4959391 syntaxterror
syntaxterror's picture

Luckily, debt can go to infinity, thanks to the Bank of New York Yellen, and the form of repayment, the obama dollar, can go to zero.

Charts look good to me. Move on folks. Back to your trading terminals.

Tue, 07/15/2014 - 12:14 | 4959394 Atomizer
Atomizer's picture

Reverse banking repo to infinity. Central banker needs another bailout to justify inflationary growth. Even the inter-banking swaps piggy bank slush fund is running dry.

These idiots will be the first to become executed. Wealth threat has always been the mantra. When they lose their life, wealth transfers back. 

Bang, bang progressive fucktards. I wonder if the EU public will just burn down the European villas, family included. How about we pitch a new Hollywood reality show? 

/ sarc 

 

Tue, 07/15/2014 - 12:16 | 4959404 JustObserving
JustObserving's picture

Who cares about debt when unfunded liabilities are 7.5 times higher and growing 8 times faster?  But nobody ever mentions them - they must be in a galaxy far, far away.

Tue, 07/15/2014 - 12:17 | 4959405 JustObserving
JustObserving's picture

Duplicate - those gold and silver slams make me thirsty and prone to duplicate posts.

Tue, 07/15/2014 - 12:19 | 4959415 Inthemix96
Inthemix96's picture

Whats that mate?

What?

Odious Debt, who pays that then?

From money, printed from thin air, with you as the payee with interest added as good measure?

Fuck that mate, I NEVER signed, or AGREED to owt like that, tell the cunts to fuck off or I will kill the bastards where they stand, with a blunt pen-knife.

Fair play mate.

And tell that cunt, if he comes knocking here, I have a very nice fucking pick-axe handle with his name written all over it, the filthy fucking cunt what he is.

And there in, my friends, is what 'Odious Debt' is.  Its not mine, and I do certainly believe, it aint yours.  Tell the cunts to come get some, as they wont.  They shuffle paper about for 1 million a year, plus expenses, they think you dont know what they do, but we do anyhow.

Tell the skinny necked, pampered, privilaged on your fucking back cunts to come collect.

And then we hang them.

Idiot cunts.

;-)

Tue, 07/15/2014 - 12:19 | 4959417 I Write Code
I Write Code's picture

 

we have to create a ton of debt to get a pound of growth.

If only. When the government has to spend $10 to cause a company to make one more $1 widget, that's not even growth, that's just inefficient bribery.  But the loss is socialized across 300m Americans and 1.4b Chinese, so the government brags about the $1 in growth and nobody sees the downside.  But can that be kept up forever and without limit?  Well that's two questions.  Without limit, no.  Forever on a small scale - maybe.  That's what is different now.

Can we "socialize debt" by forgiving the borrower and printing money to repay the lender?  Well, yes, but it creates an immense moral hazard - then EVERYONE should go out and borrow EVERYTHING they can and then clamor for another jubilee.  Only fools and losers will NOT borrow.  And then if there's no jubilee - mass disaster.

Tue, 07/15/2014 - 12:20 | 4959423 fzrkid
fzrkid's picture

At this point the FED will continue to expand it balance sheet. This is much easier than getting hoemowners to make payments on houses they cannot afford.

 

This will continue indefinately and the price of everything will rise until one day it stops..

 

The gazzilion dollar question is what/when will cause that "ONE' day to arrive..

Tue, 07/15/2014 - 12:23 | 4959434 TwoHoot
TwoHoot's picture

One mans liability is another mans asset. One mans interest expense is another mans income. Look at both sides of the ledger. It is called "double entry accounting" for a reason.

ZIRP and easy default don't really change the overall money picture. They redistribute money from savers to borowers. It is how the middle class (savers and lenders) is being destroyed. That just leaves the rich and the poor. Sound familiar?

Tue, 07/15/2014 - 14:04 | 4959776 RichardENixon
RichardENixon's picture

You're ignoring the fact that the one man's asset is valued at fantasy level and the other man has no realistic way of paying his liability. You can demonstrate this at home by blowing up a balloon and popping it with a pin.

Tue, 07/15/2014 - 12:25 | 4959442 indio007
indio007's picture

Interest rates shouldn't exist anyhow so what is with the bitching? Usury has been considered worse than murder since the before Cicero.

Usurers would be denied last rites, a christian burial and all their property would be siezed.

 

 

Tue, 07/15/2014 - 12:38 | 4959474 NOTaREALmerican
NOTaREALmerican's picture

Hush,   REAL Christians should be worried about fornicating harlots and the proper usage of the male 5th appendage.   Let's not confuse them with usury!

Tue, 07/15/2014 - 21:33 | 4961261 booboo
booboo's picture

I think that is Mosaic Law so you may be confused, Christian precepts is "to neither be a lender or a debtor", not that modern christiandumb is following along on that one either.

Tue, 07/15/2014 - 21:36 | 4961268 litemine
litemine's picture

Then it's a good thing that Christians don't hold that Control, nor will they ever again. Even the vatican is clearing house.

Tue, 07/15/2014 - 12:39 | 4959481 Eyeroller
Eyeroller's picture

Just fart, Janet.

You know you have to.

You'll feel so much better afterwards.

Tue, 07/15/2014 - 12:42 | 4959488 Notsobadwlad
Notsobadwlad's picture

They will use the time tested method of executing a false flag event to cover and distract from the real purpose of burying theft, fraud and power grabs.

Once "the event" that they have executed happens they will point to the event as an unforeseen occurrence that has caused what they really wanted to happen in the first place.

Same script most likely with a different nuance.

The question is whether people will be smart enough to either anticipate it or defuse it. Most likely not since they control the media, the money, the religions and the government.

Wed, 07/16/2014 - 04:21 | 4961883 John_Coltrane
John_Coltrane's picture

Actually, people already spotted the false flag in Syria and then Urkaine.  The days of false flags like pearl Harbor are long gone in the new information age.  Less than 20% of the people bought either one and moron warmongers like McCaine stood out as the idiots they are.    Another war is simply not in the cards don't jew know it.  Its a slow decay to thermal death-just as predicted by the second law of thermodynamics which defines time's arrow.  Life can organize things for a brief time, but before jew know it a supervolcano or a asteroid hit occurs and then its back to the biological drawing board. 

Tue, 07/15/2014 - 12:50 | 4959518 malek
malek's picture

Michael Pettis explains, bad debt cannot simply be “socialized”:
Remember that the only way debt can be resolved is by assigning the losses, either during the period in which the losses occurred or during the subsequent amortization period. There is no other way to “resolve” bad debt – the loss must be assigned, today or tomorrow, to some sector of the economy. “Socializing” the debt, or transferring the debt from one entity to another, does not change this.
There are three sectors to whom the cost can be assigned: households, businesses, or the government.

I am losing my last respect for Michael Pettis.
Who does he believe he still needs to bamboozle by churning out half-assed bullshit like that?

Debt can and already is being socialized, by printing money.
The government cannot "resolve" bad debts because it has no money, except the one it takes from households (mostly) and businesses.
Businesses can resolve bad debts insofar as their balance sheet allows it, beyong that they go bankrupt.
Which means households are always the main, and often the only bagholder.

So contrary to Michael Pettis' initial premise, most debts are effectively socialized if direct participants were not enforced to hold reserves!

Tue, 07/15/2014 - 13:09 | 4959597 kurzdump
kurzdump's picture

"Socializing" (bad) debt means postponing its maturity. The debt is not resolved, Pettis got it right.

 

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