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Empirical Proof Of The Giant Con
Submitted by Thad Beversdorf via First Rebuttal blog,
I want to continue on with my recent focus on the giant con and if you’ve been reading my work lately you’ll certainly know what that is. However, for those of you not familiar with the giant con, it is the idea that our economy is growing when, in fact, it hasn’t had growth in decades with the exception of the late 1990?s. In a recent article I wrote for the benefit of Steve Liesman, I showed that the giant con is entirely a function of debt. I explain why debt is actually a net negative given real interest rates and I strip out debt from GDP to show that GDP has actually been contracting for some time. Recently I’ve been I looking for other ways to prove that the giant con is truly happening. But let’s just have a quick look at what real GDP adjusted for Debt would like. We see in the past 40 years the only period of real GDP growth was between 1996 and 2000 and has collapsed since early 2007 to date.
Most of us are familiar with the concept of money velocity. It is a measure of how effectively or efficiently we are utilizing our money stock to generate output. The idea is that the more I invest the more notional returns I can generate. However, in the economy there is a downside to ‘investing’ with additional money supply, namely, inflation. And so we want to maximize the amount of output we generate from a given stock of money to optimize our returns. We gauge this via money velocity and often we use M2 Velocity as the key measure. Currently M2 Velocity is around 1.3, meaning that for every supply of dollar we are generating 1.3 dollars of output. This is down significantly from the late 1990?s at which time we were generating around 2.3 dollars of output for every dollar of stock.
Now pondering this the other day my thoughts started drifting to debt and GDP. See while the downside to increasing money supply to generate more output is inflation, increasing debt to generate more output can have far more dire consequences. And it struck me as curious that despite hearing once in a while that total public debt is now larger than annual GDP we rarely hear about why this is bad. And so I wanted to find a way to depict the problem. I’ve always argued that debt is not inherently bad. Debt, when used correctly can be extremely powerful and productive in regards to maximizing returns. However, misallocated debt or malinvestment of debt ends in devastation, most of us have a pretty good grasp of that concept.
So it is important then that we ensure our debt is being allocated effectively so as to avoid devastation. But how do we do that? How do we know debt is being effectively put to work in the economy so that it actually returns both principal and some additional positive return at least sufficient to cover the interest payment on the principal borrowed? Well I’ve put together a chart.
The chart depicts something I’m calling Debt Delta Velocity and M2 Delta Velocity. All I’ve done is used the change in GDP and money stock to get the delta velocity. That is, for each dollar we’ve added to money supply in a given period (and I used annual periods) we gauge how much additional output was generated. So then it’s change in GDP divided by change in M2 Stock (whereas M2 Velocity is total GDP/total M2).
And so in order to measure the effectiveness of our debt utilization I take change in GDP divided by change in debt. Now the issue with debt is that it needs to be paid back. And so if we are generating anything less than the principle + real interest rate we are actually losing money on each dollar of debt despite official total GDP increasing due to the inclusion of debt principal. So let’s have a look at the chart.
And so what we see is M2 Delta Velocity (green line) showing a positive trend from the late 1960?s through the late 1990?s at which point it goes into a nose dive that continues today. This means that we’re being forced to print proportionately more dollars to generate the same amount of output. But one dollar of additional supply is still generating more than a dollar of output. However that does not appear to be the case with debt delta velocity.
The Debt Delta Velocity (blue line) is the change in GDP/ (change in debt + cumulative change in annual interest payments). The idea is that the cost is not only the additional principal debt but the annual interest payment as well. And so even a linear accumulation of debt results in an exponential growth in obligations requiring significantly more GDP growth than does M2 Delta Velocity to generate positive returns. The significance of this chart is that it shows us for every dollar of debt we take on we are generating less than a dollar of GDP.
Specifically, the chart depicts a negative trend for Debt Delta Velocity throughout the 1970?s while stabilizing through the 80?s and 90?s only to fall again throughout the new millennium. One might initially point out that the recent downward trend is not as severe as M2 delta velocity. That is true. However, what we find is that since the late 1970?s we’ve not been generating enough output to pay back each dollar of principal plus interest. In simple terms we are losing money on every additional dollar we borrow despite being told we have GDP growth. The discrepancy is a result of the Fed adding debt principal into the growth factor of GDP.
This is obviously not a prudent calculation of GDP growth. Think about debt as an investment into our economy. We would measure the effectiveness of that investment by the gain or loss using an Internal Rate of Return (IRR) calculation. So the above chart tells us that for each additional dollar of debt we invest into the economy our actual return on each dollar has averaged around -50% since the start of the new millennium. This proves that while the actual GDP metric is growing, that growth is costing us 150% of the growth. This is absolutely not something to celebrate. The consequence of continuous negative returns on debt forces us to take on ever more debt, a process that has now become a death spiral for the economy, the USD and the nation.
In fact, with the exception of the late 1990?s we’ve been losing money i.e. misallocating our resources in economic terms since the late 1970?s. That is the stark reality that has forced America into a perpetual state of borrowing. That is, in order to keep the Giant Con going, specifically that our economy is growing, we have been forced to borrow ever increasing amounts of debt. Due to the laws of compounding interest, the growth in debt should then theoretically be exponential. And well that is exactly what we find. Have a look, basically an exponential function to the order of ’2?, exactly what we would theoretically expect.
This is also why we see interest rates declining since the late 1970?s and we will continue to see them decline until the collapse of the USD at which point a binary switch will be flipped and interest rates will sky rocket in an attempt to defend the hyper inflating US dollar. Have a look at an excerpt from my previous article “Interest Rates Cannot Rise, Here’s Why”
What I have laid out here is a green line that represents our total debt as a percentage of GDP. The purple line is the historic 10 yr Treasury Note rate which we are using as a proxy for the average interest rate on total debt (AIR). And the blue line is the interest payment on our total debt as a percentage of GDP (again using the 10 yr rate as a proxy for average interest rate on total debt) let’s call it DSGDP.
Do note that total debt as a percentage of GDP (green line) recently exceeded 100%. Also note that as the green line increases the spread between the purple and blue lines gets smaller. This is really just an algebraic principle. Historically the blue line is essentially a fixed rate (within a range) and so as the green line moves up the purple line (AIR) must move down so the DSGDP stays within the fixed range. As total debt became a higher percentage of GDP the average interest rate on debt must move down toward that 2.5% line that we’ve held for 15 years. As the total debt to GDP moves above 100% we should start to see the average interest rate on total debt (the purple line) move below 2.5% in order to keep the DSGDP around the 2.5% 15 year average. As a side, I did regress these relationships and found both statistical significance and good explanatory properties.
But the reality of our economic situation is that we have dropped below a critical (mathematical) point of income distribution. Below which growth becomes impossible regardless of the amount of money printed or borrowed. The reason is that misallocation of resources has led to capacity reductions in order to remain profitable, which has led to slack in the labour market leading to declining real incomes. The follow on from the poor policies fluttering their wings is that consumers have been saturated with debt in order to cover up demand deterioration resulting from the declining incomes resulting from the resource misallocation.
Additionally, all those printed dollars being pumped into the system are going to the very same small group of people whose marginal utility for consumption is now zero, and are thus allocating those excess funds to financial markets. Financial secondary markets are actually outside of the economy proper and so are an inefficient use of funds exacerbating the downward spiral of the working class and perpetuating the need for more debt and printed dollars.
Those printed dollars being allocated to financial markets have led to the current all time high market valuations which makes for a great soundbite to cover up destruction resulting from the resource misallocation. Additionally, our fiscal and monetary policies currently in place also exacerbate the inefficient allocation of resources by continuing to deter investors away from risky (effective) capital projects and into guaranteed financial markets.
So poor policies for decades have deteriorated natural demand to the point that debt was required to cover up the reality of demand deterioration (debt rather than changing policies was a choice by policymakers early on that allowed them to continue the misallocation of resources which obviously benefited them and their benefactors) which has taken us past the point of no return without suffering massive economic calamity.
This is essentially the perfect storm for a collapsing economy and we can see it manifest via velocity and income distribution. Let’s have a look at what happens as resources become increasingly misallocated. As discussed in depth in previous articles real median income is our proxy for both standard of living and income distribution (blue line below).

What we see is that debt delta velocity (red line) mirrors almost perfectly with real median household incomes (blue line). This further evidences that economic growth is a function of real incomes not income + debt. We should understand that this correlation is not a cause and effect relationship but the result of an underlying driver common to both. Specifically, efficiency of resource allocation. We clearly see that as our economic policies have become fixated on financial markets (inefficient resource allocation), both debt delta velocity (red line) and income distribution (blue line) have taken significant hits. Because of the inefficiencies we are required to print more money and take more debt. While this might not be problematic so long as we can print money and monetize debt forever, the reality is that there will come a point when it puts too much pressure on the US dollar.
I can assure you if we were anyone but the USA we would already be on our knees praying to the gods of fundamentals for mercy. Fortunately the central banking cartel, at least for now, is heavily reliant on the US dollar and military for its political power across the globe. And as such the USD is being protected like the proverbial prodigal son. But eventually the central banking cartel will grow weary of the pressure and difficulties of fighting the fundamentals and will shift their reliance to a new host, leaving the US dollar to lay in the bed they made for it.
If you think about it the past century has been all about transfer of wealth. Every bubble and subsequent bust results in significant transfer of wealth from the working class to the those at the top of the economic food chain. We saw tremendous wealth increases to America’s royal families subsequent to the collapse of 1929. Make no mistake that was not wealth creation but a zero sum gain. Millions of working class lost everything, being forced to give up assets at pennies on the dollar to America’s wealthiest families.
The same transfer of wealth takes place during every boom bust cycle. We are on the precipice of the third major bust since the beginning of the new millennium. This next imminent bust, however, could define the final transfer of America’s wealth because the working class has been forced to put everything into stocks given bonds are paying zero return. And so when the market tanks this time it will literally be the largest single transfer of wealth in the history of the world.
Institutional trading groups are salivating with the thought of enormous profits that will be taken upon the inevitable coming market collapse. Given we have in no way recovered from the last economic catastrophe, the next one very well could mean the end, at least for a period, of American wealth and power. And the end of the US dollar as the world reserve currency, which will result in a new much lower equilibrium valuation. With the central banking cartel, at that point, no longer having an interest in the USD, gold prices will be allowed to move up to natural supply/demand equilibrium as the extraordinary paper selling of gold will cease to occur.
If you take one thing away from this piece please understand the Giant Con is the result of the misallocation of resources by policymakers. It has benefitted them and theirs and is why the political class chose to cover it up with debt rather than reallocate. The misallocation has destroyed the nation, the dollar and standard of living of the working class.
The cost to the working class of falsify economic growth is beyond redemption. In the end, the path is set and there is no escaping from the debt trap in which we snagged ourselves. And so we bide our time until the weight of exponentially increasing debt collapses in on us. But then we rebuild. Will we prosecute those responsible for the destruction and then we rebuild with the ill gotten profits we strip from them in accordance with the laws of this nation that we will make clear apply to everyone in our reborn America. And we ensure future generations know not to succumb to the sweet songs of the Sirens of the Central Banks as these central bankers are an evil, gluttonous, pride filled, sociopathetic people who are devoid of conscience and any sense of humanity. They will be locked up next to the neoconsevatives in public cages to remind humanity of the monstrosity that once ruled this land.
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What is really the point of preserving such a civilization? A stagnated situation of people who are struggling to survive, consume, or, chasing profit? How we differ from parasites who keep consuming because they don't understand that they live in a planet with certain limits and resources?
Please don't confuse LIESman with facts... His head may explode while stuck up the Feds ass... Oh wait, keep it up...
@nomorebanksters
Excellent link +1
Thank you!
Shitty and incoherent article. More Ludditeism.
Or more simply, if we double our debt then we need to double the resulting GDP output plus interest just to break even. If we cannot do that we should just stop.
Tell that to equities...
So yu are saying this can't go on forever???
I for one am shocked to learn this.
It's already been going on for what seems like forever...
OK, but he's working too hard at this.
A much better split would be between private sector spending and government spending. (which nets out the debt issue)
One way or another, we are very close to peak government.
Private sector invests, Government spends. It spends money it took from the private sector in taxes. This author blames gov but seems to think the problem is a misallocation of government spending, as if a better management team of the same centrally planned economy would work.
Was true sometime back. Now, taxes are not raised from private. Deficit spending is where it is at. Government decides the winners -- it was healthcare last year with Obamacare (leading to unsustainable healthcare costs if it really to be paid by individuals). This year we are starting of with a bang with community colleges. If you work in these selected sectors, it feels great. Otherwise, not much.
As long as the dollar reserve status persists, deficits can be run without devastating inflation. If reserve status diminishes, we be in trouble. Hope our leaders can hold our status.
Do you REALLY believe the US has leaders? Wow.
The currency is safe and sound. It was placed into cafr's. When the next bust does come the funds will be withdrawn from the cafr's if the funds (currency) are worth anything.
And since derivatives (omnibus bill passed Dec 2014) are first in line and digital cash can be taken in an instant, it will be gone before you know it.
Read, watch and learn:
http://thecorporationnation.com/
http://www.cafr1.com/
10 things the media won’t be talking about after the Paris terror attack
WTF News put the Charlie Hebdo ISIS cartoon in the site header… Because…
I think I saw this headlne before, maybe it was the other 49 times you posted it in other threads
Go away you fucking spambot.
Your sister made 7000 dollars a week how?
WTFRLY's sister's roommate's boyfriend makes $8 an hour on a laptop spamming Zero Hedge.
The global credit (debt) bubble is in the last throes of bursting wide open. Bubbles always burst, some quite violently. This one, the largest debt bubble in history, will be catastrophic.
http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-r...
It ends this year.
There is certainly something that we can point to and say "that's going to be a problem, and likely this year" for the first time in a while. How are the frackers going to roll over their debt at <$50/bbl and 10% interest rates?
Asymptote. Look it up. As the interest rate x approaches zero, debt, y, approaches but never reaches infinity. y=1/x. It really is that simple.
I generally call it upwards X~Y axis Buzz.
http://en.wikipedia.org/wiki/Asymptote
RWIW> read what it's worth. The author of this article is well learned.
I don't know Buzzy...
I think that this time the debt will pretty much reach infinity.
Agreed. But will it exceed the number of Reggie Middleton's selfies???
Zimbabwe didn't reach infinity? Of course, you're right.
There's only so much room for zeros on the currency.
I hope the programmers who wrote bank software used longs instead of ints where notional amounts are in question.
Then you use exponents.
In Keynesian economics, debt can exceed infinity.
And at zero interest rates profits eventually go to zero. This, IMO, is the end game. That the E in PE will collapse to nothing. This is inevitable in a society that bails out failing businesses, gives free educations to CC students eith a 2.5 GPA and no work is required for the majority.
The Germans are the last stand. One cannot overstate the importance of full blown European QE. The Germans cave to Draghi and every Soveirgn debt in the developed world will eventuall peg to zero. Investors will search out yield until it is gone.
Basic staples of US Life, anecdotal, not data, this is my disclaimer. Excluding sales or "price club" coupons.
One gallon Whole Milk, organic: last week $7.19 this week $7.29 (one year ago $5.49)
One gallon Whole Milk: last week $3.60 this week $3.80 (one year ago $2.90 at Sam's Club, lowest in town)
One pound Cheddar, brick: last week $7.98 this week $8.29 (oya $6.49 at Sam's)
One pound shredded Mozzarella, Kroger Brand: last week $8.49 this week $8.99 (oya $7.89)
I like to follow these because many of them have WIC Tags, and I wonder what kind of a dent that puts in their cigarette money.
Almost off-topic to your meaning, but I would strongly urge you to Costco for cheese. They have a few other good deals, like on wine, but primarily it's cheese--very good cheese at Kroger store brand (or Kraft, I suppose, makes little difference) prices.
Getch'ur cheese at Costco.
I agree cheap choices are better, but even if I had a Costco in town I'd avoid it. God forbid I carried my weapon and ended up perforated like that really affordable delicious Jarlsberg next to my corpse, coagulating for hours in the Las Vegas sun. RIP Erik Scott.
You don't "open-carry", do you?
Think about it, especially in relation to that "six-or-twelve" thing: if you conceal-carry and someone notices your hardware (without a deliberate act) on your part then you're doing it wrong.
Unless Costco has metal detectors or a "stop-and-frish" policy, I wouldn't sweat it. And worst comes to worse, you'll be asked to leave the store.
These charts are the first I have seen which directly reflect my personal experience of the past 40 years.
I remember the end of the 70s and the economic malaise (depressed psychological conditions) of that time. I remember the 80s, and it felt like paper growth. It felt like financial BS masquerading as growth, thus the '87 crash. I remember the mid 90s, when computers hit, and you could feel the energy. There was genuine excitement about the new technology, and the bubble that appeared from that was broad based. Most of us got sucked in. It felt "real". That is what creates growth, when people get excited and motivated by a new change. And the the first decade of this century, marked by Bush's famous "don't worry, go shopping!" This is desperation, which has only accelerated since 2008.
The lies are fast and thick. But I'm confident that many, many people are aware on a subconcious level of the patterns that the graphs in this article demonstrate. The terminal collapse (as opposed to the past 15 years of 'preliminary collapse') is written in, and each day it is one day closer, until it is here.
An unserviceable debt explained objectively. Don't expect Liesman to refute this any time soon. Checkmate!
The point of this article is valid, but the computation is wrong. You cannot get an honest or valid result without removing from GDP everything that is not net productive (and producing $1-billion "worth" of bombs and blowing up $100-billion worth of stuff is not productive).
Furthermore, the article computation is [unknowingly] skewed to favor debt.
Frankly, to perform this computation in a world of fiat is not trivial.
Productive efficiency has been climbing (largely due to computers and better automation), but the inefficiencies of predatory enslavement and predatory destruction and redistribution is much greater... hence the falling standard of living.
I've thought a lot about this. I'm not sufficiently plugged in to be able to do this, but I'd love to see a "GDP" calculation that includes only actual tangible production. In fact, I am willing to consider wiping most services out of GDP. What is 'produced' when one person cleans another's laundry? What lasting wealth is actually being created? I don't think this has grown in some time. But I don't have the technical background to argue this case, so I confess this is my instinct rather than a data-driven reaction. I'd love to see someone make an attempt at showing data that strips out the mutual circle jerk that our "services" economy suggests. The graphs in this piece are a good start. I'd love to see a continuation along this thought process.
I agree. But someone better have a lot of time and energy, because this won't be an easy task. And I agree, it is difficult to know precisely how to value services... or whether to include them. But excluding them might make easier the collection of data for years past, which are necessary to produce a graph. :-)
Frankly, to perform this computation in a world of fiat is not trivial.
It's impossible. The govt employs so many contractors, auditors, compliance people, etc. that would be classified as 'private sector', even though they are dedicated 100% to government endeavors.
Many of these contractors are nothing more than direct extensions of govt administrative waste. Those that are the least toxic are only parasitic consumers of fiat currency. These are few, though. Most function as cogs to predatory/oppressive systems and feed the meglomania of govt employees in order to retain contracts.
The most destructive contractors willingly advance the govt's means of imposing predation and destruction.
Productive efficiency has been climbing (largely due to computers and better automation), but the inefficiencies of predatory enslavement and predatory destruction and redistribution is much greater... hence the falling standard of living.
Agreed. I would like to add that govt misunderstanding and inefficiency has been the only thing minimizing the adverse affects of their predation. Govts are 90+% inept. Fed/State/Local govts in the US have spent $110 trillion since 1983, a good portion of it building control systems to 'manage' everyone and everything. They suck so badly at everything they do (except extortion and physical destruction) that these machinations are borderline stagnant.
But these systems are 'improving' (or should I say, becoming 'effective'). They are being used for analysis and decision-making, imposing controls that are politically motivated and not understood at all (creating skewed data, stimulating inappropriate governing actions, causing unintended consequences, driving more skewed data--into a death spiral of intervention and predation--driven by govt fascist despots).
Govts are only just beginning to have significant and obvious affects (mainly due to the efforts of contractors). In other words, govt imposition of predatory enslavement/ destruction/ redistribution has been quite inefficient, but that's changing as govts finally leverage technology to be more 'effective'.
Obamacare will likely be the biggest tool in the govt toolbox. It'll be providing data and administrative controls at an individual level of granularity, just like the IRS. Not only will govt have direct control over your finances, they'll have direct control over your health, and they'll abuse their 'right' to your health data to legitimize controlling everything an individual does. (For example: Taking psych meds? Did you purchase a gun? That'll trigger an audit and felony conviction/imprisonment/disarming.)
It's way past time to flee. Gotta get moving....
Go to a chamber of commerce after hours function sometime. The make up consists of bankers, realtors, lawyers, accountants and retired academics. There is not one representive of the productive class.
The producers are busy producing.
Don't forget the smiling insurance agent :)
Murray Rothbard writes about this in his work. Cleaning another person's laundry is productive since someone has voluntarily opted to trade the launder for his services. To directly answer your question, what is being created is clean clothes as opposed to dirty laundry.
The standard for determining what is production or not is voluntary trade. If someone is willing to voluntarily trade for what you produced, then it is valid production. The biggest problem with GDP calculations is that it includes government spending which is not voluntary since government takes its "income" by force from its subjects. GDP numbers are massively inflated everywhere.
Coming up with a "true" measure is impossible, I suppose, because everyone defines which activity is important differently. According to your definition, the Europeans are on the right track, for example, when they include prostitution and drug dealing in GDP, because those are two of the most purely voluntary trades (acknowledging this is only true when the prostitute is acting under her / his own will and is not a sex slave of a pimp) in human relations.
I guess I'm hung up on the word "product". To me a product outlasts the transaction. There should be something tangible after the event. I realize this is overly purist, but it is just the way my mind tends to think of these issues. It feels to me like the human population is growing at a significantly faster pace than that at which the physical necessities of life are growing to support them. We can trade all we want, but in the end, we need to make enough things to create a physical environment which is conducive to our survival. Are those physical necessities being produced, or are we just creating "apps" to move around more efficiently a tighter and tighter supply of them?
......Coming up with a "true" measure is impossible, I suppose, because everyone defines which activity is important differently. According to your definition, the Europeans are on the right track, for example, when they include prostitution and drug dealing in GDP, because those are two of the most purely voluntary trades (acknowledging this is only true when the prostitute is acting under her / his own will and is not a sex slave of a pimp) in human relations........
Rothbard, Frank Knight, Paul Samuelson, or even Adam Smith never cared about "true" measure, because that's a judgement and more often than not it is a social judgement. Thats the problem. You want to objectify value, when value is TOTALLY subjective. Rothbard arrives at voluntary exchange being the most efficient outcome because only under voluntary exchange can it be argued that both parties are better off. Given any endowment, there is always an opportunity for trade (exchange) such that at least one person is made better off, and no one person is worse off. And it is important to note that the sex trade (in the absence of coercion), is totally a fair measure of value, if the exchange occurs voluntarily.
Finally, I would agree with you - the world is consuming at an unbelievable rate, but, that is largely because of ZIRP, perpetual debt, and easy money. Investment used to be based on savings and a discount rate that was arrived at (DEMONSTRATED) through producer and consumer preferences. Growth was commensurate with income and savings.
But since about 1971 - government has fucked this all up by debasing the currency, price fixing rates, thus distorting capital allocations. Without an interest rate it is impossible to arrive at the "true" measure of an exchange. But, I will say this Sofa - durability, and sustainability were much more adhered to in the development of products 40 - 50 years ago than they are today. We have a throw away society today because government decided when it killed interest rates, that tenure in value doesn't matter.
People still love those houses built in the 40's because they were built to last - just like the autos in the 60's and 70's. You would also agree that mechanics tools (wrenches, sockets, and so on), were machined WAY better than they are today and infinitely more durable.
But the day we decided money weren't worth nothing (ZIRP and the perpetual debasement of currency), was the day we made goods commensurate with that value. Our preferences have been reduced to accepting a sort of max-min product and its reduced life. "Throw it away - we can always get another one."
This attitude is not a product of voluntary exchange - although it materializes through such. Nope this attitude is born by loose monetary/fiscal policy and "I want it all and I want it now attitude". The ONLY way this has prevailed is through a reduction in preferences and a big change in society's rate of time preference. Remember, we used to save for shit - and it used to take a while, and so when we finally amassed the savings we expected value for the money we were parting with. Well, the wait is no longer necessary or desirable, and so, with the reduction in "value" as a result of zero discount rates, so too has true value been distorted as you have correctly pointed out.
However, such a diminution in value is not a result of voluntary exchange, rather it is a result of government interfering in the process of production and exchange of scarce resources - distorting incentives and preferences - essentially compromising the best outcomes that the market will always reveal.
Government was the problem, is the problem, and always will be the problem - not the process by which civilized men exchange resources with one another. cheers.
A genuine thank you for your reply. Posts like this one are the reason I keep hanging around here. Tons of food for thought, and I'll be chewing on this one for a while.
How do you define "civilized men" in a power construct without elected government?
Its back to feudalism as power hates a vacuum : that's history's N° 1 lesson.
That feudalism has many forms : tribe, religion, blood line.
Its very easy to argue like you do when the basic premise of civilization is nullified : aka who carries the big stick.
'Cos that defines civilization itself.
Start from there, define who holds power if it is not an elected government and we will then see if your remarks have any relevance, other than being the rules of Utopia.
Inelastic markets need to be regulated or government owned. It can be no other way.
Otherwise, the markets will be monopolized and rents will be taken on the unwary.
This has always been the case, and it was first noticed by the French Physiocrats - who were really the first economists.
This notion that markets are perfect and they properly price, and that money can be created privately --- it is all nonsense that has no bearing on actual, factual, monetary history.
The only market type that can have competition and pricing is elastic markets. Even then you can get predatory producers who put melamine in baby formula. I guess the unwary can buy baby formula based on price alone, and then have their children killed?
Rent seekers exist in both the pirvate sector and government sector. Both types need to be restrained. What force is supposed to do the restraining? Somehow perfect market forces in some sort of fantasy Rothbard world do it all magically.
Silvio Gessel says there is only price, and it is discovered in markets. I say, markets can only work if money is scientific. Private money aka Rothbard, is anything but scientific. It is usury money pure and simple.
I agree with you and explosivo.
Some few years ago there used to be a website which produced "Real GDP" and as you would expct, it showed a much lower figure than what gets reported.
What is the black market? GDP/FU = quacking ducks GDP, +/- politcal agendas
"You cannot get an honest or valid result without removing from GDP everything that is not net productive"
True. But if that happened (and you also reported true CPI), net GDP would show big-time negative for decades.
Therein lies the problem carefully obscured: overall GDP is non-existent and the gap between "it" and peoples' expectations of rising living standards has been filled by growing ever larger heaps of debt.
That is, until 2008.
The US, Europe and Japan have been in decline for decades. You are correct, a proper inflation figure would clearly reveal this fact.
You're missing the fucking point entirely. Stop trying to be smart and just think for no other reason than to understand.
If debt is not serviceable by income generated from such application, then any surge in GDP is going to be temporary. Unfortunately, significant % of debt currently being created is not supportable by income stream.
For example, even if minimum balance payments (which is a very small % of total debt due) are being religiously paid by credit card holders, it is guaranteed that such debt is going to fail down the road -- it is only a matter of time.
"Curfew shall not ring tonight, Mr. Snedrig" .....Charles Dickens
The FED banks, JPM and GS need to take on more debt. If it breaks we arrest them, throw them into jail and wipe out the debt. Then we close the borders, kick out the illegals and become completely independent. What's so hard about that.
Become completely independent with what? All of the means of production we used to have are now in the hands of the Chinese. We dismantled it and shipped it to them - all of the machinery of our mills and factories. We'll be paupers and beggers. I'm going to see if one of those community colleges offers an associates degree in the art of picking through landfills and garbage dumps. I think its going to be a real growth industry.
As long as their assassins have access to our heroes, whether they be journalists, politicians or scholars, there is never going to be a chance because the people on Main Street follow the news and the news is tainted.
Here is a list of all the US politicians murdered while in office. Others who died in aircraft crashes, poisoning, unlikely accidents.
The bankers et al will kill anyone who interferes with their plan. That is pretty fucking obvious.
Either play their game or shut the fuck up about it and tell your children you are sorry, that you let a band of lying thieving lazy fuckers rule the world because "they kept killing our leaders."
Weak links in the chain are in place because they have destroyed or killed anyone in their way, or rose to the top by destroying their company, murders and assasinations aka mergers and acquisitions.
http://en.wikipedia.org/wiki/Arnold_Lewis_Raphel
http://politicalgraveyard.com/death/murder.html
Henry Gondorff would be impressed by the sheer size of the Giant Con. On the other hand, Liesman's brain is filled with the contents of a colostomy bag...
For those of us that read ZH and Thad albeit a very relatively small number of the affected, we get it. The overriding issue is and always will be the human factor. There was a short blog earlier on ZH about the war on intuition, the title was laughable given just how easy it is to lie, fool, rob, etc. the typical human. Sure, we can just bide our time and let it crash but my concerns are that 1) there may not be much left to rebuild and 2) our democracy/republic has been converted.
When their ponzi skyscraper of cards collapses, my guillotine will be their to catch them.
The banksters need to repay us.
Still a Keynesian analysis. The writer believes in "demand deficits" and sees "spending the money" as necessary to raise incomes.
Weird considering that the premise is that there has been no growth for decades...which is TRUE, but not because of "insufficient spending".
most excellent and well reasoned case.
couple of comments
- GDP comes from the private sector and you haven't factored in US personal and US corporate debt (forget US equities). Banks own all this debt, financed by the central banks printing of reserves and leverage (with other banks).
- the US is not a financial island and global policy makers (well Europe, Japan and the US as the biggest) have also engaged in this pretense of financially engineering the Reaganism of "deficits don't matter" putting down swaps with each other to pretend that someone elses debt is their asset. Banks and governments play a game amongst themselves as co-dependents (like crack den inhabitants).
- I am curious as to the current reconciliation of bank p/l in the quadrillion derivatives market. The net notional and the net p/l especially. I think that there is liekly to be an imminent bank failure, along the lines of AIG/Lehmans (maybe an italian/spanish or frnch bank, though the german banks are going to be vulnerable also with Japanese and US banks close behind (can't rule out those canadian banks either) and it would be nice to know which way to hold the umbrella (opposite where the fan is when the shit hits it)!
- it ought to be possible to remove the false economy on a bottom up basis. That is, count up what is free and clear amongst the population and then compare that to the false or odious debt that has been created during this yellow brick road of the last 40 years.
good stuff though.
A con? not if you buy low and sell high.
Posters at this website seem to believe most investors have some high level of intelligence and do careful analysis before putting all their hard earned money into the markets. I think it is evident they do not, and never have. The Fed has used behavioral economic models very effectively. They have used Ed Bernays techniques to get the masses into the markets. Punish savers, reward debtors. Remove fear and rely on greed (animal spirits). They have succeeded beyond their wildest dreams. The Fed does not have to target the 90%, they only have to keep the top 10% in the markets. They own 90% of the assets, and the lemmings will follow them. The trickle-down effect is working in the minds of the Fed bankers, even if supported by EBT cards, disability checks, and welfare. They have kept the peace and millions sit contently on their sofas watching ‘American Idol’ and not burning down the cities. Where have they failed? Will they fail? Perhaps if people all over the world lose faith in them. For now, lousy earnings, wars, terrorism, ISIS, mean nothing compared to the power of an omnipotent Fed. Who would sell stocks knowing the Fed bankers are guaranteeing them a big profit? Whatever you pay, with massive loose credit, a buyer can always be found to pay even more. Stock buybacks goose the earnings. One day it may all come apart, but so far only pain for the ZH bears.
You really do have no clue as to the damage that will occur when this current unsustainable Fed policy ultimately unwinds. Short memory? It's happend twice already in the past 15 years. Next will be the third. Maybe the last as faith in Fed policy will likely be shattered at that point. Enjoy the ride while it lasts. Just keep your chair close when the music stops.
Watch this. You are uninformed.
https://www.youtube.com/watch?v=fJSp1skVIkA
Naomi Wolfe The End of America (2014)
Thank you for an article about fiscal engineering. Had enough MSM hysteria.
I bought aud/usd yesterday.
Bitchez
Thats brave, though I did read where China just approved a new massive infrastructure project. Eventually, they will have dug up all of Australia and moved it to China. Or China will completely implode before that happens and take Australia with it.
I like how they label that one chart "Total Public Debt." It's not mine, or my kids, or their kids...
This is how I see it: Whomever voted on a deficit funded budget, or other spending bill, and/or signed one, then THEY are responsible for it, not us, the American people.
And don't worry, I checked with my lawyers at AK, AR, and Glock, and they concurred.
The banksters need to repay us.
Dont ya mean the bankers need to be repaid? The government needs to collect the ill gotten gains from the crony communists and pay the bankers what they are owed. In some cases they may be one and the same, but using your logic if I borrow money from a bank and get in over my head because I was irresponsible the banker needs to forgive the debt. Maybe they will eventually and by law they may have to but this is clearly punishing the wrong party.
The first part about the politicians paying up. Yep, that I am in agreement.
The banksters stole their depositors'' deposits, and then counterfeited up more fiat to create the loan-money they used to loan out to the people. This theft and fraud shows up as price inflation later. I.e. they stole what they loaned out from us, and not only are we not required to repay them, but they in fact are required to repay us what they have stolen from us.
The banksters need to repay us.
Another way, the way, to look at a "bail-in" is as an official recognition that the banksters have stolen the people's deposits, and cannot repay them.
Not to defend central bankers or anything, but they would have nothing to finance if politicians ran balanced budgets.
Stop! Keep the conversation intelligent.
I'm totally convinced now.
The economy is expanding and joblessness is no longer a problem. This is because the majority of Americans believe. They believe the propaganda, as it is recited verbatim on several different news channels across the country. The propaganda seems to have worked. I know this and here is my proof...
Obama's approval ratings have bounced back. Why? Because the economy is much better. The economy is now a perfect self fulfilling profacy.
What a joke.
I'm starting to see the logic of ZH posters who say we are already in collapse.
Instead of coming with a bang, it has come with a whimper to be followed by crying, then gut wrenching sobs; then there are those who will experience furious anger. imho
Let us simplify..
the GDP calculation is about 33% government spending.
The bigger government gets, the bigger the debt.
More debt artificially increases the GDP because the govt borrows and spends more each year.
To figure productivity, one must carve out the government spending...which will make the entire matter
seem more dire. Add in the gimickry of base line budgeting....6% more govt each year...
when the GDP falls below that 6%, we are going backwards...
Why do our 'representatives' hate America so much?
Higher beings from outer space may not want to tell us the secrets of life, because we're not ready. But maybe they'll change their tune after a little torture.
To the North of where I live is an Amish community. Sometimes they hold a "barn raising". The entire community turns out for a few days and builds a barn for one of their members. The women cook vast quantities of food: eggs, chickens, hams, potatoes, bread & biscuits, etc., all stuff they grew or raised themselves. The men work in teams to raise hand-hewn timbers cut from their own woodlots. When the barn raising is over, there stands a beautiful structure that will last 200 years, housing livestock to feed the Amish.
A Nobel-Prizewinning Economist would consider this entire project "non productive". They did not buy any materials from Home Depot, or food from FoodFlood, or beer from Wholesale Liquors. No contribution to GDP at all. Worthless unproductive fucks.
If, during the same time as the barn raising, a group of mainstream folks held a football watching party and charged a shit-ton of beer & pizza on their credit cards, the Nobel-Prizewinning Economist would applaud. They boosted GDP, paid sales tax revenue, and created money through debt. Yay! Good consumers! Way to be productive!
Sometimes economists lack common sense.
"Now the issue with debt is that it needs to be paid back"
Ah yes, with new debt.
Here's how standard-of-living /economic history works. None of it is negotiable. It is a cycle. Crucial to getting to the next step is not the wealth or lack of it.
1. A People believes they are poor, and they are, in fact, poor.
2. Next , they believe they are poor, but they are generating decent wealth.
3. They believe they are rich. And they are wealthy.
Then ...
4. They believe they are rich, but they are actually growing poorer on every measure.
5. The People believe they are rich, and they are actually poor.
In these multi-generational cycles,
- there is no realistic shortcut back to #3, or even #4, from #5. Because enough people believe they are rich. A strong underpinning to that is the general spread of the belief that if you're not rich, it is completely your own fault.
- the only way to get to #2, is with a serious stop at #1.
- The longer you remain in #5 as a People, the worse your #1 is when you finally get there. and the longer the duration to get #2 rolling.
It's now or later, and the key factor is what people believe.
If they believe it's bad enough, a People always finds a way.