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Debt In The Time Of Wall Street
By Raúl Ilargi Meijer of The Automatic Earth
Debt In The Time Of Wall Street
With all the media focus aimed at Greece, we might be inclined to overlook – deliberately or not – that it is merely one case study, and a very small one at that, of what ails the entire world. The whole globe, and just about all of its 200+ nations, is drowning in debt, and more so every as single day passes. Not only is this process not being halted, it gets progressively, if not exponentially, worse. There are differences between countries in depth, in percentages and other details, but at this point these seem to serve mostly to draw attention away from the ghastly reality. ‘Look at so and so, he’s doing even worse than we are!’
Still, though there are plenty accounting tricks available, you’d be hard put to find even one single nation of any importance that could conceivably ever pay back the debt it’s drowning in. That’s why we’re seeing the global currency war slash race to the bottom of interest rates.
Greece is a prominent example, though, simply because it’s been set up as a test case for how far the world’s leading politicians, central bankers, bankers as well as the wizards behind the various curtains are prepared to go. And that does not bode well for you either, wherever you live. Greece is a test case: ho far can we go?
And I’ve made the comparison before, this is what Naomi Klein describes happened in South America, as perpetrated by the Chicago School and the CIA, in her bestseller Shock Doctrine. We’re watching the experiment, we know the history, and we still sit our asses down on our couches? Doesn’t that simply mean that we get what we deserve?
Here’s McKinsey’s debt report today via Simon Kennedy at Bloomberg:
The world economy is still built on debt. That’s the warning today from McKinsey’s research division which estimates that since 2007, the IOUs of governments, companies, households and financial firms in 47 countries has grown by $57 trillion to $199 trillion, a rise equivalent to 17 percentage points of gross domestic product.
While not as big a gain as the 23 point surge in debt witnessed in the seven years before the financial crisis, the new data make a mockery of the hope that the turmoil and subsequent global recession would put the globe on a more sustainable path. Government debt alone has swelled by $25 trillion over the past seven years and developing economies are responsible for almost half of the overall gain. McKinsey sees little reason to think the trajectory of rising leverage will change any time soon. Here are three areas of particular concern:
1. Debt is too high for either austerity or growth to cure. Politicians will instead need to consider more unorthodox measures such as asset sales, one-off tax hikes and perhaps debt restructuring programs.
2. Households in some nations are still boosting debts. 80% of households have a higher debt than in 2007 including some in northern Europe as well as Canada and Australia.
3. China’s debt is rising rapidly. Thanks to real estate and shadow banking, debt in the world’s second-largest economy has quadrupled from $7 trillion in 2007 to $28 trillion in the middle of last year. At 282% of GDP, the debt burden is now larger than that of the U.S. or Germany. Especially worrisome to McKinsey is that half the loans are linked to the cooling property sector.
Note: Chinese total debt rose $20.8 trillion in 7 years, or 281%. And we’re talking about Greece as a problem?! You’d think – make that swear – that perhaps Merkel and her ilk have bigger fish to fry. But maybe they just don’t get it?!
Ambrose has this earlier today, just let the numbers sink in:
Devaluation By China Is The Next Great Risk For A Deflationary World
China is trapped. The Communist authorities have discovered, like the Japanese in the early 1990s and the US in the inter-war years, that they cannot deflate a credit bubble safely. A year of tight money from the People’s Bank and a $250bn crackdown on shadow banking have pushed the Chinese economy close to a debt-deflation crisis. Wednesday’s surprise cut in the Reserve Requirement Ratio (RRR) – the main policy tool – comes in the nick of time. Factory gate deflation has reached -3.3%.
The official gauge of manufacturing fell below the “boom-bust” line to 49.8 in January. Haibin Zhu, from JP Morgan, says the 50-point cut in the RRR from 20% to 19.5% injects roughly $100bn into the system. This will not, in itself, change anything. The average one-year borrowing cost for Chinese companies has risen from zero to 5% in real terms over the past three years as a result of falling inflation.
UBS said the debt-servicing burden for these firms has doubled from 7.5% to 15% of GDP. Yet the cut marks an inflection point. There will undoubtedly be a long series of cuts before China sweats out its hangover from a $26 trillion credit boom. Debt has risen from 100% to 250% of GDP in eight years. By comparison, Japan’s credit growth in the cycle preceding its Lost Decade was 50% of GDP.
Wednesday’s trigger was an amber warning sign in the jobs market. The employment component of the manufacturing survey contracted for the 15th month. Premier Li Keqiang targets jobs – not growth – and the labour market is looking faintly ominous for the first time. Unemployment is supposed to be 4.1%, a make-believe figure. A joint study by the IMF and the International Labour Federation said it is really 6.3% [..]
Whether or not you call it a hard-landing, China is struggling. Home prices fell 4.3% in December. New floor space started has slumped 30% on a three-month basis. This packs a macro-economic punch. A study by Jun Nie and Guangye Cao for the US Federal Reserve said that since 1998 property investment in China has risen from 4% to 15% of GDP, the same level as in Spain at the peak of the “burbuja”. The inventory overhang has risen to 18 months compared with 5.8 in the US.
The property slump is turning into a fiscal squeeze since land sales make up 25% of local government money. Zhiwei Zhang, from Deutsche Bank, says land revenues crashed 21% in the fourth quarter of last year. “The decline of fiscal revenue is the top risk in China and will lead to a sharp slowdown,” he said.
Asia is already in a currency cauldron, eerily like the onset of the 1998 crisis. The Japanese yen has fallen by half against the Chinese yuan since Abenomics burst upon the Pacific Rim. Japanese exporters pocketed the windfall gains of devaluation at first to boost margins. Now they are cutting prices to gain export share, exporting deflation.
This is eroding the wafer-thin profit margins of Chinese companies and tightening monetary conditions into the downturn. David Woo, from Bank of America, says Beijing may be forced to join the currency wars to defend itself, even though this variant of the “Prisoner’s Dilemma” leaves everybody worse off. “We view a meaningful yuan devaluation as a major tail-risk for the global economy,” he said.
If this were to happen, it would send a deflationary impulse worldwide. China spent $5 trillion on fixed investment last year, more than Europe and America combined, increasing its overcapacity in everything from shipping to steels, chemicals and solar panels , to even more unmanageable levels. A yuan devaluation would dump this on everybody else. Such a shock would be extremely hard to combat. Interest rates are already zero across the developed world. Five-year bond yields are negative in six European countries. The 10-year Bund has dropped to 0.31. These are no longer just 14th century lows. They are unprecedented.
[..] .. helicopter money, or “fiscal dominance”, may be dangerous, but not nearly as dangerous as the alternative. China faces a Morton’s Fork. Li Keqiang has been trying for two years to tame the state’s industrial behemoths, and trying to wean the economy off credit. Yet virtuous intent has run into cold reality. It cannot be done. China passed the point of no return five years ago.
That ain’t nothing to laugh at. But still, Malcolm Scott has more for Bloomberg:
Pushing on a String? Two Charts Showing China’s Dilemma
Is China’s latest monetary easing really going to help? While economists see it freeing up about 600 billion yuan ($96 billion), that assumes businesses and consumers want to borrow. This chart may put some champagne corks back in. It shows demand for credit is waning even as money supply continues its steady climb.
The reserve ratio requirement cut “helps to raise loan supply, but loan demand may remain weak,” said Zhang Zhiwei, chief China economist at Deutsche Bank. “We think the impact on the real economy is positive, but it is not enough to stabilize the economy.” This chart may also give pause. It shows the surge in debt since 2008, which has corresponded with a slowdown in economic growth.
Note: Social finance is, to an extent, just another word for shadow banking.
“Monetary stimulus of the real economy has not worked for several years,” said Derek Scissors, a scholar at the American Enterprises Institute in Washington who focuses on Asia economics. “The obsession with monetary policy is a problem around the world, but only China has a money supply of $20 trillion.”
China now carries $28 trillion in debt, or 282% of its GDP, $20 trillion of which was added in just the past 7 years. It’s also useful to note that it boosted its money supply to $20 trillion. What part of these numbers includes shadow banking, we don’t know – even if social finance can be assumed to include an X amount of shadow funding-. However, there can be no doubt that China’s real debt burden would be significantly higher if and when ‘shadow debt’ would be added.
Ergo: whether it’s tiny Greece, or behemoth China, or any given nation in between, they’re all in debt way over their heads. One might be tempted to ponder that debt restructuring would be worth considering. A first step towards that would be to look at who owes what to whom. And, of course, who profits. When it comes to Greece, that’s awfully clear, something you may want to consider next time you think about who’s squeezing who. From the Jubilee Debt Campaign through Telesur:

That doesn’t leave too many questions, does it? As in, who rules this blue planet?! That also tells you why there won’t be any debt restructuring, even though that is exactly what this conundrum calls for. Debt is a power tool. Debt is how the Roman Empire managed to stretch its existence for many years, as it increasingly squeezed the periphery. And then it died anyway. Joe Stiglitz gives it another try, and in the process takes us back to Greece:
A Greek Morality Tale: We Need A Global Debt Restructuring Framework
At the international level, we have not yet created an orderly process for giving countries a fresh start. Since even before the 2008 crisis, the UN, with the support of almost all of the developing and emerging countries, has been seeking to create such a framework. But the US is adamantly opposed; perhaps it wants to reinstitute debtor prisons for over indebted countries’ officials (if so, space may be opening up at Guantánamo Bay).
The idea of bringing back debtors’ prisons may seem far-fetched, but it resonates with current talk of moral hazard and accountability. There is a fear that if Greece is allowed to restructure its debt, it will simply get itself into trouble again, as will others. This is sheer nonsense. Does anyone in their right mind think that any country would willingly put itself through what Greece has gone through, just to get a free ride from its creditors?
If there is a moral hazard, it is on the part of the lenders – especially in the private sector – who have been bailed out repeatedly. If Europe has allowed these debts to move from the private sector to the public sector – a well-established pattern over the past half-century – it is Europe, not Greece, that should bear the consequences. Indeed, Greece’s current plight, including the massive run-up in the debt ratio, is largely the fault of the misguided troika programs foisted on it. So it is not debt restructuring, but its absence, that is “immoral”.
There is nothing particularly special about the dilemmas that Greece faces today; many countries have been in the same position. What makes Greece’s problems more difficult to address is the structure of the eurozone: monetary union implies that member states cannot devalue their way out of trouble, yet the modicum of European solidarity that must accompany this loss of policy flexibility simply is not there.
You can put it down to technical or structural issues, but down the line none of that will convince me. Who cares about talking about technical shit when people are suffering, without access to doctors, and/or dying, in a first world nation like Greece, just so Angela Merkel and Mario Draghi and Jeroen Dijsselbloem can get their way?
Oh, no, wait, that graph there says it’s not them, it’s Wall Street that gets their way. It’s the world’s TBTF banks (they gave themselves that label) that get to call the shots on who lives in Greece and who does not. And they will never ever allow for any meaningful debt restructuring to take place. Which means they also call the shots on who lives in Berlin and New York and Tokyo and who does not. Did I mention Beijing, Shanghai, LA, Paris and your town?
Greece’s problem can only be truly solved if large scale debt restructuring is accepted and executed. But that would initiate a chain of events that would bring down the bloated zombie that is Wall Street. And it just so happens that this zombie rules the planet.
We are all addicted to the zombie. It allows us to fool ourselves into thinking we are doing well – well, sort of -, but the longer term implications of that behavior will be devastating. We’re all going to be Greece, that’s inevitable. It’s not some maybe thing. The only thing that keeps us from realizing that is that the big media outlets have become part of the same industry that Wall Street, and the governments it controls, have full control over.
And that in turn says something about the importance of what Yanis Varoufakis and Syriza are trying to accomplish. They’re taking the battle to the finance empire. And it should not be a lonely fight. Because if the international Wall Street banks succeed in Greece, some theater eerily uncomfortably near you will be next. That is cast in stone.
As for the title, it’s obviously Marquez, and what better link is there than Wall Street and cholera?
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'IMF destroyed Greece to sell out its deposits'
this is it, the crux of the matter. WE ARE ALL GREECE. we must support them if we are to save ourselves, or else wait for the next sacrifice and hope we're not it. in this regard, all the banker-controlled nations of the world are waiting on death row.
Yeah but this is bullish, remember? So BTFD.
When the economy crashes into oblivion I will almost feel sorry for the financial advisors that are just sorry piece of shits who don't know their ass from a hole in the ground. Not everyone who runs money should be hung up from street lights - just the CEOs and Fed Board. SOme will need to go to prison, well a lot of bankers should go to prison, but some are just trying to have careers and think a diversified portfolio is real. Of course it isn't when all assets are tied together (besides gold).
It is hard losing peoples money, and everyone's about to lose all their god damn money.
Yep - and it just might start with returning vets who've been shafted by the wall street gangsters.
http://blogs.reuters.com/great-debate/2015/02/04/vast-majority-of-those-...
when this gets out to the returning rank and file - they just might go looking for a new source for their pensions
One person's debt is another person's gain; it's (supposed to be) a zero-sum game. And just abandon the idea that any nation will be able to "pay back" its debts. Government debt cannot be compared to household debt, for one because governments can print money while households cannot. Here is an enlightning piece of infotainment: https://www.youtube.com/watch?v=iFDe5kUUyT0
all debt is the banker's gain.
"Government debt cannot be compared to household debt, for one because governments can print money while households cannot."
But what government is printing money? The U.S. is 18 trillion in debt. The government is borrowing money, same as the household.
I have to disagree moneybots. Gov bonds if they go to 0, there is no collatoral. Corp bonds, there is at least a carcass, same with households, REPO MAN!
http://armstrongeconomics.com/2015/02/06/debt-forgiveness-the-seventh-year/
What about Iowa?
Good farmland.
I'm sure the holders of Treasury Bonds have some collateral that is valuable.
< lol $18 Trillion
< I'm missing something
Fiat money is to the economy what sweets are to kids:
Simply Irresistible (https://www.youtube.com/watch?v=UrGw_cOgwa8)
Fiat Money is like Arsenic. It makes your skin glow. So help yourself to more-everyone's doing it.
Debt is a charge against the future. At some point the debt is greater than anything the future can support- against real, private income. Government checks and FIRE don't count because they are really taxes or fees against someones' private sector income.
And we are there now.
"Remember us!"
"I believe it is [debt] for our time. We thank you from the bottom of our hearts. Go home and get a nice quiet sleep."
A comment below on this article by a twentysomething techie: https://www.cryptocoinsnews.com/jeremy-gardner-dedicated-life-cryptocurrencies-block-chain-technology
"There is so much positive movement and input in [the cryptocurrency] sector that it is purely a matter of time before one single step transforms the digital currency ecosystem and then starts to absorb the $75 trillion of global assets (and further $125 trillion of credit debt) to see just how much money there really is in the world."
Not only will we find out how much money there is; we’ll wrest it from the powers that be in the process and create vastly more of it — real money, real wealth — bringing about the end of money and banking as we know it, as well as the nation-state, and liberating humanity at long last.
Wishful thinking...
You really believe the NSA & the other tech power houses, that are controlled by the status quo, will ever allow their control to be undone by crypto-currency?..
I wish it would or could be that easy, but it NEVER will be..
The more that governments try to stop them, the deeper down the rabbit hole cryptocurrencies will go, the key being not just the decentralized blockchain (the foundation) but the decentralized automomous companies (DACs) build on top of it (e.g., https://bitshares.org), creating an edifice of unimaginable complexity yet so ethereal that no one will be able to get their hands on it.
What are they going to use for connectivity?
Who owns the wires? (virtual and real)
The _ignorant_ uneducated _boobs_ in the National Security Agency
and the full blown _retards_ in the status quo have already painted themselves into a corner with _fiat_ and if their largesse could be facilitated by crypto, they would pile on en masse in a nano second, but they know they are _fucked_ and they also know it is zero sum with no way out. In effect, the NSA and the status quo have imprisoned themselves en masse and they are in bondage to the quantum effects of what they created by deinstitutionalizing Glass-Steagall. These mindless _fucktards_ have simply eaten too many retard sandwiches whilst growing up. And Greenspan consumed the most retard sandwiches out of anybody included in the matrix.
This is one gigantic world Ponzi scheme with no checks and balances that will end in doom.
3x, baby, 3x. the limit of gdp to debt, before fraud must ensue. tic toc tic toc
resetting here and there, and soon the cascade of debt derivitives brings it all down.
we are at the crumble stage(credit to cog dis). we all know what happens when the foundation crumbles away. good luck and have a wonderfull day. off to see the wizard, ha...
"before fraud must ensue" ??
Good comment. But you must mean before MORE fraud must ensue.
We've been living in a world of political and financial fraud for decades.
Your lights are on, but you're not home
Your mind is not your own
Your heart sweats, your body shakes
Another loan is what it takes
You can't sleep, you can't eat
There's no doubt, you're in deep
Your budget is tight, you can't breathe
Another loan is all you need
Ohh oohh
You like to think that you're immune to the stuff...oh yeah
It's closer to the truth to say you can't get enough
You know you're gonna have to face it
You're addicted to debt
Might as well face it
You're addicted to spend
Might as well face it
You're addicted to debt
da spending Disease. cold sweats til the urge overwelms I GOTTA HAVE NOW. then the buyer remorse. then the payments. then the sale at a losS. CYCLE REPEATS: moar credit(another card or higher risk loan) and off to buy moar, MOAR, MOAR...
credit where it's due:
https://www.youtube.com/watch?v=XcATvu5f9vE
or to put it another way
https://www.youtube.com/watch?v=E-P2qL3qkzk
(with apologies for the effing commerical in front, bleh)
Wall street, central banks, banksters etc... Are the greatest crime syndicate ever known to mankind.
They own the money printing and the "lawmakers" so who in their right mind would imagine that they would ever give that up? Never by their own accord. Greed is all consuming and a banksters greed knows no bounds. They would pop their mother and first born in the head with a nail from a nail gun if that would insure them gain.
So the printing(debt) will continue on and on until it can not, killed off by it own hand. No fiat paper money system has never not failed in history and no fancy computer will change that this time either!
FUBAR!
"No fiat paper money system has never not failed in history..."
Every system fails. Every cycle has a down phase. If gold backed systems succeeded, everyone would have one. The down phase of a cycle tears things down. Roosevelt abandoned the 20 dollar peg to gold. The 20 dollar peg to gold didn't prevent a credit bubble in the 1920's. As has been noted recently, by some pundit, Britain abandoned the gold standard and recovered quicker from the depression. Roosevelt supposedly noted that and thus devalued the dollar.
Two more bankers have a fatal 'accident'...
http://allnewspipeline.com/Bankers_Killed_In_Train_Crash.php
"Debt is too high for either austerity or growth to cure."
This is the central fact that is impossible to explain away. The only *known* solution to this problem that allows organic capital regeneration is world war. No, not proxy wars. The real thing--the kind that wipes out accumulated capital on a massive scale and extinguishes the polite agreements that keep debt in place.
called enslavement...
Allow me to put my tinfoil hat on. The Central Bankers WANT this massive world wide debt as this will be the excuse to take the present system down and bring in their own "New World Order". This couldn't happen unless you first wiped out the "Old World Order". Canada is a good case in point. Personal debt has soared over the last several years yet the only thing the Bank Of Canada has done is give a queit little whisper about how they are "concerned" about Canadian debt levels. BS!!!! They could have easily reigned in the personal spending gorging that took place. Look at Canada's ridiculous housing bubble. It was fully fueled and encouraged by a Canadian government controlled group called the CMHC. Again, the house price madness and debt levels taken on could have very easily been reigned in but it wasn't. Why? Again, you cannot bring in the new world financial system until you take down the old system........on purpose!
Allow me to put my tinfoil hat on. The Central Bankers WANT this massive world wide debt as this will be the excuse to take the present system down and bring in their own "New World Order". This couldn't happen unless you first wiped out the "Old World Order". Canada is a good case in point. Personal debt has soared over the last several years yet the only thing the Bank Of Canada has done is give a queit little whisper about how they are "concerned" about Canadian debt levels. BS!!!! They could have easily reigned in the personal spending gorging that took place. Look at Canada's ridiculous housing bubble. It was fully fueled and encouraged by a Canadian government controlled group called the CMHC. Again, the house price madness and debt levels taken on could have very easily been reigned in but it wasn't. Why? Again, you cannot bring in the new world financial system until you take down the old system........on purpose!
No one forced the sheeple to borrow.
Don't follow the mob going over the cliff.
Privatized profits, socialised losses.
There are multiple NGOs promoting the consolidation of Canada into the USA - this debt is one solution whereby public land which is vast in canada is privatized
The usa would get 26 million new taxpayers - white and yellow no black or brown - which will balance out the new program
Omen IV - not so sure you would get the majority of Canadians going along with that idea but then again 'he who has the gold makes the rules" and Canada sold most if not all of its gold a long time ago. Will they nationalize the corporate (ie shareholder) reserves in the ground when the shit hits the fan? Time will tell.
From "what can't be repaid won't be" to "restructure it? "
Only way it can be "restructured" at this point is to print it away. There isn't any other politically viable means. Well, other than just blow it all up in war.
Back debt to gold, revalue gold to the $10k - $20k range.
Speking of "Debt"...
Anybody get a peek under the covers at the board of directors that just bought the NYSE that is only 15 years old?...
Not that bizarre doesn't begin to cover it or what we've witnessed on this exchange in thelast 6 years, but it just goes to show us that BTFD doesn't even give a shit about what should be an historic moment that would 15 years ago have raised more than a few eyebrows doesn't even get a "yawn"!
Brave new world we have here.
US total debt $58 trillion ... time to lever up??.........
http://research.stlouisfed.org/fred2/series/TCMDO
It is what bankers do.
Issue loans and collect interest.
When no one can take on anymore debt their products have reached market saturation.
Unlike Apple they can't bring out iPhone 7, they only have one product.
Greece is a minor setback. Syriza will submit or be liquidated.
The damage is done. We have yielded the right to issue money to people who answer to nobody but themselves and their bank accounts, and control the world's armies and nuclear arsenals to boot. They go down, so do we. They've seen to that, never fear.
Only two things will ultimately see off the debt-slavery system for good:
1. Our masters finally develop robots and computers able to do any job a debt-peon can and do it with much less complaint (they have no "wants," just fuel and maintenance needs), leaving them with no further use for the rest of humanity even as debt-slaves and free to exterminate us once and for all. (Their plan for themselves is to upload their personalities to computers and live forever.)
2. A nuclear war that undoes not just the Industrial but the Agricultural Revolution, assuming it doesn't see off all life on earth. There were no money lenders in the Stone Age. The meek will only inherit the earth when there;s nothing left on it wirth inheriting.
Either way? This is probably the final century of human civilization as we know it.
Enjoy the show and playing with your gold coins, for all the good they'll do you in a nuclear winter. Just pray you don't live to see which option will be applied.
(You won't be able to bribe the robot pushing you into an extermination chamber either, not with all the gold on the planet. The galaxy has plenty more element 79 where that came from.)
"Syriza will submit or be liquidated."
<Confessions of an Economics Hit Man>
to the dudes running greece
"listen folks, it is real simple. You bend to our demands and each of you get $20 million in a swiss bank account ... or don't fly in small airplanes, or cross the street ... "
I'm sure robots and computers can grow food.
They can, but what would be the point once they've overtaken us and all but a few of us are (as far as the makers, owners and operators of robots are concerned) so many useless mouths? I seriously doubt they'll have much use for pets.
The oil and gas out of which most fertilizer for industrial agriculture is made will have far better uses post-Singularity---fuel and lubricants for robot settlers of Mars, for instance.
"China is trapped. The Communist authorities have discovered, like the Japanese in the early 1990s and the US in the inter-war years, that they cannot deflate a credit bubble safely."
Bubbles burst. Bubbles rise parabolically and thus deflate the same. The age of discovery was a long time ago. The math on bubbles is ancient news.
China is just Greece writ large.
The Chinese oligarchs have looted the system and absconded to Manhattan, Vancouver, London, Singapore. In a command economy wherein evil shadow bankers can be shot, why does debt keep growing?
Is this a feature or a bug, as the software guys ask? Raul continues to get confused. The robbery is the robbery. The debt is just the "getaway car".
Vichy Dc has seen the light and is stacking, lead that is? I wonder WHY?
Syriza must know they are literally putting their very lives on the line.
I wish them well in their efforts to give Greece back to the people.
Freedom from the self important, self appointed aparatchicks in Europe is becoming very fashionable and I'm all for it.
Default, go back to the Drachma, to hell with the Troika, it can't really be any worse than it's going to be if you capitulate.
Meijer (and, sadly, it appears the editors of ZH as well) clearly doesn't really understand the nature of the monetary system at work here. No taxpayer money from any country was ever "loaned" to the Greeks. All"loans" in a fiat money system, across the full spectrum from home mortgages to national infrastructures, are the very devices used to create that money.
This is what "fractional reserve banking" is all about, and this is precisely why and how bankers became the richest and most powerful people on the planet. You didn't actually think they acquired all that power simply by collecting interest over the years, did you? If so, you probably also haven't noticed how disproportionately greater the world's "debt" is than its global GDP... How is it possible that banks acquired that much more money than any given economy could produce?
Welcome to the matrix.
All the money supposedly "owed" by the Greeks is money that was created entirely out of thin air by the ultra wealthy and powerful at no expense or effort whatsoever. This is the astounding nature of this ponzi-scheme and scam, such that the ordinary person finds it profoundly difficult to wrap their head around it.
In reality, the central banking system does a hocus-pocus shell game with paper certificates, swapping "bonds" for "currency" --and voila! -- someone better start working and come up with some real wealth, like food or oil, to pay their "debt" or else get called a deadbeat and/or threatened with violence.
It's all an empty facade and the Greeks are finally calling the bankers bluff.
Well, let us assume that Greece defaults on all Euro debt. Is anybody on the hook? And if yes, who?
Interesting question but since the banks are backed by the government and the government is backed by the people, the end result is people are on the hook via taxes and if that doesn't work the on the hook for less wellfare, government jobs, less war industry, less healthcare, less of everything you can imagine. Then the people die starting with the elderly until the planet is at its low energy carrying capacity.
That depends on how many zombies there are per capita.
Fractional Reserve Banking is and always was a leverage play. Banks put in $1 of their own capital and could lend out $10 (on a 10% reserve ratio and a closed economy).
Today bank reserves approach zero and what's called "bank reserves" can be government debt claims. Therefore, debt is to infinity and beyond- while the ability of the real economy to pay interest on the debt is heading to negative infinity and beyond.
Imagine the $58 Trillion dollar debt against real GDP net of Government and the FIRE sector. Against private sector employees and the private sector business that have to carry taxes and fees, the debt is insurmountalbe already.
Subprime is contained. - Ben Bernanke - March 28, 2007
I was looking at some nation by nation debt figures. I noticed that in Europe, Sweden had it's share of debt on the public sphere, but Sweden really came into it's own in it's much, much larger private debt burden. Swedes are deeply in debt en'mass. It has been 5 years since any extended stay in Sweden for me, but I assume that Swedish housing is in a massive bubble. The Swedes must be taking massive mortgages to get a home, and I am sure the floods of liquidity are driving prices up like everywhere else.
6 years ago, a cousin to me sold one of our old family cottages, a cottage near the sea in a growing seaside village, now expanding by orders of magnitude. Our cottage was over 120 years old, but well kept and with a nice addition, but still a very modest affair. She had just reached retirement age, divorced and not at all set with savings. Simple, she put the old cottage on the market, and has bought a condo in a nearby village with the proceeds, and has enough cash left to live into her 90's! The simple cottage went for a huge price. That means all the better RE in the area must be off the scales. Mortgages are the only way to buy in, the bubble must be huge.
Debt is everywhere, Public, Private. And the Central Banks solution to low growth is to push for more loans. more debt, more borrowing and consumption, more asset bubbles, more housing bubbles. When this reaches peak debt, it will explode the entire world economy like a nuclear winter.
There are so many other bad news factors in addition to finance that it boggles the mind. If you understand EO - EI = Energy available you know that we are on the back side of that curve. Simple things like top soil are on the back side of the curve. Fertilizers same. Oceanic plastic continent, anyone. Radiation? A Carrington Event (which is absolutely inevitable) taking down the world wide electrical grid, GPS and other satellites, computers that all modern airplanes, internet and modern civilization depend. Did I mention overpopulation and we live on a finite planet? We do live in interesting times.
I'm a bit confused about China. ZH tells me they're now the world's largest debtor, but aren't they also the world's largest creditor too? How does that work?
Holding US Debt is like an insurance policy for them.
They are a creditor nation in the sense that they hold an immense amount of foreign reserves, which are comprised of sovereign bonds of other nations, primarily the U.S.
The above is referring to their domestic credit creation machine, which has been running on over-drive for many years...
OPEC is determined to save market share by losing money long enough to drive out competition. Too much supply has driven down prices, they say. Unfortunately for them, the rest of the oil producing countries can't afford to stop pumping so they are trying to increase production and make up the losses in quantity. So prices are falling with no end in sight.
The same exact process is happening in currencies. Countries are pumping currencies out of thin air thinking they are going to make up losses by sheer quantity.
Both of these have the same underlying problem, no demand. All the credit (and accompanying debt) in the world will not change that.
Driving up supply will always decrease demand. Isn't that what we have known since the origination of trade?
"Driving up supply will always decrease demand" I think you mean "price".
As to currencies-every country is trying to kill their currency relative to all other currencies. The CNY/JPY is putting Japan and China on a collision course because both desperately need exports.
And Merkel must be delighted with the events in Europe as the Euro crashes against the USD. Keeps German exports priced cheaply and Germans working.
Debt and infinite fiat creation is creating dangerous conditions.
Is debt a symptom, or the disease itself?
The author is a nice guy whose heart is in the right place. But he gets confused because he hasn't figured out basic causality.
Debt levels have increased around the world not because people and Governments don't understand the perils of debt. They've increased because without debt, the western welfare state model cannot keep standards of living growing in the presence of "free trade" and the emergence of China, India and Brazil. Recently, debt levels have increased in China and Brazil so as to bolster aggregate demand in the face of massive "mal-investment". Debt is just a palliative for a deeper problem.
Economics is about choices and constraints. Constraints are about thermodynamics as much as they are about finance. The emerging world runs on mercantalism and the Western world runs on welfare-state cronyism/socialism. Neither will work. Debt is just a lubricant. And the gears are getting jammed in spite of it.
Incidentally, Zeitgeist Addendum does a beautifully concise job of demonstrating the magical process of money creation (nothing up my sleeve!) by the banking cabal. No need to watch the whole movie however; just move the cursor up to about the 4 minute, 20 second mark and watch, say, the next 10 to 20 minutes. Feel the scales fall off your eyes:
http://www.zeitgeistaddendum.com/
the only thing chinese leadership fears is a popular revolt. so far they have been able to distract the disgruntled populace by directing the hate outward. throw in a few corruption trials and so far they seem placated. everything else for them is manageable.
Yep.
Buzzsaw: if you had to speculate, whom do you think the Chinese Oligarchy/Party will blame for the inevitable debacle in China?
The China Elite manage the currency, allocate the credit and set the rules of the game. At least the Greeks are credibly able to blame the Troika for some of their problem.
china has always been a debacle and will always be a debacle. only when a large enough portion of the public becomes really, REALLY, miserable do they revolt and the blame game doesn't work. even after the revolt they end up worse off than they were before. the chinese (and japanese) public have an enormous ability to withstand hardship. I always marvel at that.
" it’s Wall Street that gets their way. It’s the world’s TBTF banks (they gave themselves that label) that get to call the shots on who lives in Greece and who does not"
This is a direct result of the continued centralization of power, like the EU, and worse, it is a result of big money bribing politicians in all nations. Banks and Market makers own the political systems of most countries. The politicians act in the banks interests, not the people's and they never will. As long as open bribery, corruption and insider trading are the norms.
Yes, America is no free country. That is an illusion of CNBC, CNN, FOX and MSNBC. The corporate owned media has spread lies thick and fast for nearly 30 years now. They deliver the message of bankers and market makers to us as if it was news, when in fact it is propaganda and lies. But, I bet 80% of Americans are still true belivers in the lie about freedom, democracy, privacy and opportunity. The real opportunity comes if you sign on to serve the Bankers and the Markets. Or their enforcers, the Military Industrial Spy Complex.
At High School class reunions I always like to hear how people are doing and what careers they are in. The happiest and most succesful class mates I know of come down into these fields.
1. Government workers
2. Engineers and managers for Military Industrial Corporations
3. Retired Military and Spy types
Many of my old pals worked for the major defense contractors in Minneapolis MN. They built explosive warheads, missile engines. Guidance systems, torpedoes, and many electronic warfare systems. They had great 30 year careers at the big names we all know. Now retired rearly and living the good life.
Yes! When I go home to Virginia for reunions, it's easy to see who received the "peace dividend": all the Government workers/consultants/spies. Mediocre restaurants are packed on Tuesday nights.
Naturally. The banksters actually need such people to stay in power. Austerity is for civilians with no access to nuclear weapons and only a trivial supply of conventional weaponry, if that.
Any US government serious about stopping the spooks' gravy train would be overthrown PDQ. It's the same in every country with a standing army, as Syriza may be about to find out.
I moved to DC in mid '90s. Best move of my life. Made $1.0 Mil on my home, $1.0 Mil in the Internet and continued a decent career. This has been and is still a boom town. They're buil;ding $5.0 Mil houses just down the road from me.
Cool story bro. Pray that the robots will find it just as impressive when it's your turn for the extermination chamber.
All central banks do is defer an economic position to the future hoping it will resolve itself but when it returns with compounded interest on the bad debt growing faster than any meaningful growth it comes back alright bigger and badder than the time before. THAT BAD DEBT NEEDED REMOVING WITH NO FUTURE INTEREST ON BAD DEBT.
Japan central bank, a decade a go promised its people a future after some suffering (bollocks) the debt is now bigger than before. Go tell the Japanese people the truth, "we are by following the economic policies in a far worse position than we were then". YOU COULDN'T MAKE THIS SHIT UP BUT THE CENTRAL BANK DID.
Japan's position and the similar economic policies that the west follows of keynsian greed, the poorest being destroyed does not work EVER. THIS IS WHAT HAS TO CHANGE.
Can central bankers change? ... No so the outcome becomes determined solely by their rigid level of entitlement.
The whole notion of debt as a rational way of paying for anything should be given a decent Christian burial once and for all!
Debt should not exist as a 'business'...There should be no industry or persons who make their living by issuing debt in any form. Debt should only exist between individuals...like I borrow from my parents, or a friend, with BOTH parties remaining subject to the original agreement for the duration of the loan. No 'selling' the debt to others, no packaging and dilution of risk...the lender should be informed of the risk of default, and the borrower should be reminded of his liability to pay back, or lose assets should he do fail to do so.
But this financialization of debt is ridiculous! Buying and selling it as if it was something real, something of value...on a par with actual goods and services, elevates it to a status it should never have been given.
There is no "obligation" to repay debt, despite the moral posturing of the creditor-class. Debt either can or can't be repaid, and this is due to the mathematical realities of the debtors position. Morality simply doesn't enter the equation. A person who takes a loan, and then loses his job, has not committed any wrongdoing. The reality is what it is, and both debtor and lender must live with the consequences of a bad business decision.
Without the whole phoney "moral hazard" argument, being a creditor becomes a rather dangerous occupation. Which it SHOULD be, in order that those who choose to do this have incentive to take it very, very seriously. Instead of relying on the State to press his claims, he must use due diligence BEFORE loaning the money, as he would forfeit the loan should the debtor be unable to repay it, and have to go after assets himself to recoup the loss. A lot of work...
My own personal position is that I don't 'loan' money to anyone. If one of my friends or family is down on their luck, I'll GIVE them what I can, without obligation. If I can't afford to give it without being paid back, then I'm obviously not in a position to loan it. THIS is the lesson all creditors must learn.
The lesson all would-be debtors must learn is that credit is NOT a good thing, and that loans are NOT a 'right'. The debtor who tries to walk away from a loan finds it easy because he doesn't even KNOW those people at the bank...it's not so easy to stiff your friends or family. Even if the law doesn't get you, they sure as hell will.
The loan business has CREATED moral hazard when it comes to debt by treating it like any other commodity. Well, in our society commodities are bought, sold, and discarded with little thought...so no surprise that we also view credit this way. When you owe your Mom money, default carries 'moral hazard'. When you owe it to a faceless entity called 'the Bank', it becomes just another business decision, with no moral obligation beyond coming out ahead of the other guy.
You can't have it both ways. The Bank is NOT your Mom, and you'll NEVER be obligated to it the way you are to her, regardless of what the law says.
Bemused.
Very nicely stated.
This is a point that most seem to miss or overlook. I can remember growing up in a family where my parents 'credit' or borrowing was with the local butcher shop, who they paid at the end of the month. Hard the default on the butcher with the consequences being not having meat to eat. The butcher was an active member of our neighborhood too, and sponsored our baseball/football teams. Think we would ever get that back from the mega out of state grocers?
This is why Greece got in trouble, and why the only solution for Greece is an inflating currency: the reason just dawned on me. The state is the counterbalance to the oligarchs. The latter suck the economy dry (no trickle down there), and historically, the Greek state got around that by making use of the privilege to run deficits, ie print money (not collect taxes) to keep pumping cash back into the economy. So can't blame them too much for spending other people's money now that they had the unified currency, it was just business as usual for them.
And Tyler: yes the banks were bailed out. That the greece population didn't receive any of that money is pure bullshit. First of all they spent it in the first place, hence the debt. The bailout kept their bank deposits intact, which included the money (debt) they had received. So spare me.
What a rare breed a country that has a functioning middle class, ie where the population finances itself.
Come to sunny Melbourne Australia......
where most people are up to their eyeballs in mortgage debt..........
It's not "Wall Street." It's the entitlement state and govt, which has the guns. Politicians promise the masses entitlements in exchange for voting them into power. The politicians then borrow and borrow and borrow until they can no longer repay the loans.
Then the banks that loaned them the money become "predators" when they cut the money off and expect to be repaid.
The Greeks are getting what they deserve.
And the bankers and others (Germany, etc.) are going to lose their shirts for playing this sordid game.
I say, good.
When the world is filled with printers, don't be suprised when get a world filled with debt.
In the blogoshere there is an enormous amount of angst over the incredibly huge amount of debt that has been piled up by the governments. And, I reckon, rightfully so. It represents a vile and corrupt governance that has wasted the taxpayers money in huge amounts.
But. This incredible wringing of the hands and invocation of 'chicken little' gets distracted away from some other simple realities.
One such reality is that a very significant percentage of that 'debt' has been spent on the proletariat. Simple fact. There is a lot of name calling and ire over that 'leakage' from the coffers of the plutocracy - but - who deserves that moreso than the workers whose labor created the production ??
Another simple reality is that the wealth looted by the plutocracy doesn't matter very much at all in terms of money. Now the power that the money gives them to further loot and repress the proletariat is a whole different matter. BUT - what matters to the proletariat and the middle class has very little to do with how much wealth the plutocracy has - OTHER than what the proletariat has looted out of their pockets. Very different story ...... If the proletariat were enabled with sufficient jobs and wages for those jobs provided a comfortable living, the amount of money the plutocracy had would matter little (except for the power to affect the socio-economic structure in a massively malignant way).
So this is related to what is horrifically wrong with the socio-economic structure - but significantly different in its reality - and the blogoshpere appears to be totally oblivious to the incredibly important distinction. (How about you?)
So there is another incredible reality that is being totally missed as well. Let's do a quiz.
The desperate problem with the current debt situation is not nearly so much the debt as it stands now, but that the debt robs the future - and ESPECIALLY the provisions to care for the increasing percentage of elderly !!!!
So here's the quiz.
1. If you were to try to provide for this really key issue with all the debt, can you think of any real way to 'store' wealth for the future needs of the elderly ??? Think about it - seriously. Can you think of a way to store wealth so that the care of the elderly wouldn't fall completely on the current production in future years ??? Now there's a structural problem ...
2. If you had an answer to #1 -and if you structured the economy so that everybody who needed a job had one and received a comfortable (NOT luxury) wage, here's the other quiz question. What possible problem would there be and to whom if the present debt were simply written off and never repaid ??? I would like to think that households/individuals with wealth of some level (few hundred thousand ??? tricky...) would not be deprived of their savings/wealth. But what problem would there be for the general socio-economic structure if the remaining debt were written off ??? Would it really affect the lives of 98% of the people ??? Hmmmm.
Moral to the story. Excess production is a key to creating 'capital' to be used to create infrastructure to increase future production. But other than that ---- aren't our lives really governed by current production irrespective of things like massive amounts of money wealth and massive amounts of 'debt' ???
End of quiz.
'Capital' has an incredible number of 'definitions' - i.e. the word is used for such a wide range of things.
For the purposes of discussion, and I think pretty much in the perspective of this article, let's go with this 'meaning' of capital.
In a system where almost all production and 'wealth' are 'counted' by means of 'money', we will 'define' capital as money not being in circulation for consumption.
So, savings (whether in a bank or under a mattress or wherever) which is being withheld from consumption purchasing, is 'capital'. Profits of companies not used for building more production infrastructure or research are capital. Extra money injection into the system by a central bank by handing it out and 'accounting' for it as an increase in the balance sheet becomes CAPITAL !!!!!
You would have to be incredibly unable to see what is in front of your face to not understand that there is an enormous amoun of 'capital' floating around in the world at this point.
Certainly one of the completely - completely - valid perspectives of the article is that capital is utterly and inherently subject to the mechanics of supply and demand.
Capital comes fundamentally from production output in excess of what is 'needed' for consumption - or, and hugely important, what is withheld from consumption by choice of consuming less (think of the Japanese people and even the Chinese people for decades and decades. think of the thrifty US families before the advent of brainless excess consumerism) Capital also comes from the repressive looting of the plutocracy by deliberate and methodical under-payment for the labor of the people. THINK ABOUT THAT - IT'S INCREDIBLY IMPORTANT. And the other major source of capital is the 'printing' of money by governments/central_banks (where money is indeed created out of thin air by issuing the money with only an accounting liability on the balance sheet). Whether this 'printed' money is used as 'capital' or used for consumption depends on how the money is distributed/used - this is important !
You should think about this greatly important fundamental fact - money that is borrowed is a DRAIN on future earnings OR future capital generation which will NOT be available for 'use' when it is earned in the future. Present use at the SACRIFICE of future use!
Every time a debt is not repaid, SOMEBODY loses that capital who put in considerable honest effort to earn it. Rather horrific when you think about it in plain terms.
One would assess, I believe, that capital should be used to INCREASE how well-off the user of the capital will be in the future. For businesses, it should increase their productive capacity or increase their generation of new capital (return on investment !!) For governments, one would hope that use of capital for infrastructure would increase the productivity of their socio-economic area (city, state, country).
FOR INDIVIDUALS, the capital of savings SHOULD in fairness be available for future consumption AND should be rewarded with interest to the benefit of the saver.
Now consider the horrific notion of capital being wasted for no future gain whatsoever !!! Think of it in simplest of terms - capital being consumed for worthless consumption - EXACTLY equivalent to using it to pay someone to dig holes and fill them back up again. EXACTLY. Squandering.
Once upon a time, the 'money' handling infrastructure of the country (banks, investment financials) were greatly diligent in trying to make sure that every capital dollar was going to be repaid with interest. Which, of course, required that the borrower indeed was going to produce something that increased how 'well-off' the borrower was and that for sure the production of the borrowed would be sufficient to repay to debt. Gosh.
The productivity of modern economies has produced a lot of capital. The greatly significant theme of the article is simply - what has happened with/bcause_of this flood of capital ?? How can it be possible to scoff at the basic fundamental that, in simple supply and demand, a flood of excess capital will result in decreased interest rate ????
So a totally legitimate and totally pertinent query is - what was the result of this flood of excess capital ? The flows and international flows and uses of the capital are covered to some extent in the article. Certainly there is a lot more in depth and I certainly am not going to try to delve into that.
But, it is enormously important to dwell on one extremely significant result of the flood of excess capital. Human nature being what it is, the groups that are functional in the economy to be the go-between between generators of capital and users/borrowers of capital had so much capital to try to 'place' for productive purposes - AND to borrowers who could with almost total certainty repay the borrowed capital --- simply stopped caring about the responsible use of the capital. They were ALLOWED (how can you possibly not say even enabled - and even encouraged) to loan the capital to people/businesses who had little if any possibility of repaying interest much less original capital. To mention only a FEW of those horrific malinvestments, think of dot-com, South American totally unrepayable 'loans' of capital, Asian loans, sub-prime mortgage loans, etc. etc. etc.
Think about it - and then think again --- carefully. The story of the last half-century has been of the incredible squandering of capital in incredibly huge amounts - that capital going into some form of present consumption with ZERO increase in future productivity or well-being. Even worse yet, enormous amounts of 'capital' have been squandered by borrowing against the future by entities (personal, governmental, business) who are never going to repay the capital. This capital came from or came at the expense of --- the people. Simple simple simple. The people have been robbed of incredible amounts of their production. And something on the order of a hundred trillion or two has been robbed from the future needs of the people during old age - what an incredibly heinous process.
And - again, stop and think carefully. Again, look at what is in glarinlgy plain sight. Not only has so much present and future capital (AND future basic production) been squandered in the process of the incredibly heinous actions of the governments and financials at total malinvestment, but useful/productive_return investment of capital has virtually --- disappeared. Right in front of your eyes. Think of public infrastrure that has been so neglected that it is falling apart.
The incredible danger should also be obvious to anyone who stops to use even a little common sense. The squandering of capital that should have been reserved to meet future needs may have left such a huge demand on future production - that future production MAY NOT be able to meet the dwmands of the deficit created for the future !!!! Think - carefully. Think about huge needs for refurbishing massive amounts of deteriorated infrastructure. Think about the enormous need for drain of production for caring for the elderly in the face of looted pension capital.
There is NO possibility that the producers of the future will have enough production to meet the standard of living of the last few generations with the allocation that will be necessary to support the squandered current capital. There is a serious question, I imagine, as to whether the socio-economic structure can be even viable and survivable ..... Certainly there will be, at the very least, draconian results with respect to tradeoffs of fundamental socio-economic infrastructure needs versus the support of the elderly.
Be sure and vote for the incumbent politician when you have a chance to vote again, in a primary especially - if you even vote or have any concern whatsoever about your succeeding generations - and, ironically, yourself in your old age.