2016 Theme #4: The End-Game Of Debt-Fueled "Growth"

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

This week I am addressing themes I see playing out in 2016.

A number of systemic, structural forces are intersecting in 2016. One is the end-game of debt-fueled "growth."

We can summarize the official "solution" to the Global Financial Meltdown of 2008 in one line: borrow and blow trillions--of yen, yuan, dollars, euros, reals, you name it.

The goal of borrowing and blowing trillions was to re-invigorate "growth"-- any kind of "growth," no matter how wasteful, unproductive or even counter-productive it might be: wars, nation-building, ghost cities, needless MRIs, useless college diplomas, bridge to nowhere--anything the borrowed money was squandered on counts as "growth" in the Keynesian status quo.

Unsurprisingly, this strategy yields diminishing returns as the negative returns on all this debt-fueled spending piles up. While the yield on the "investment" is either negative or only fleetingly positive, the interest due on the debt is forever. That's the source of diminishing returns in a nutshell.

The diminishing returns on additional debt is clearly visible in these charts.

Global debt has soared but this massive stimulus has yielded subpar "growth" (and the final costs of all the astounding mal-investment have yet to be totaled):

Has borrowing and blowing $9 trillion solved any structural problem in the U.S. economy? No.

While total credit in the U.S. has exploded, GDP (a measure of actual output) has under-performed for years. The tiny decline of credit in the 2008-09 financial meltdown almost collapsed the global economy. The strategy of borrowing and blowing trillions has backed the global economy into a corner: expand debt or die.

While U.S. bank credit has expanded by 40%, GDP has risen 21.7%--roughly half the rate of credit expansion. This is diminishing returns on a vast scale.

It's requiring more borrowed yen/yuan/dollars/euros just to keep the global economy from collapsing in a heap of impaired debt. The costs of waste, fraud and mal-investment are finally coming home to roost, and while near-zero interest rates serve to mask the future costs, near-zero rates cannot stem the rising tide of mal-investment.

Rather, near-zero rates have fueled mal-investment, waste and unproductive spending. The diminishing returns on that strategy of "growth" are inescapable.

*  *  *

My new book is #7 in Amazon's Kindle ebooks > Business & Money > International Economics: A Radically Beneficial World: Automation, Technology and Creating Jobs for All. The Kindle edition is $$9.95 and the print edition is currently discounted to $21.60.

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Thu, 01/07/2016 - 11:02 | 7011081 buzzsaw99
buzzsaw99's picture

yeah bank credit is up but bank deposits are up by a similar number. as for total credit what is to stop it from going higher? as for treasury debt you ain't seen nothin' yet.

Thu, 01/07/2016 - 11:03 | 7011093 Newsboy
Newsboy's picture

Got Gold?

China and Russia do.

Thu, 01/07/2016 - 11:04 | 7011097 buzzsaw99
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if i lived in china or russia i would want gold too.

Thu, 01/07/2016 - 11:10 | 7011133 Rabbi Chaim Cohen
Rabbi Chaim Cohen's picture

I heard that hot air doesn't make the best foundation to build on...

Thu, 01/07/2016 - 11:02 | 7011091 NoDebt
NoDebt's picture

Can we make with the helicopter money drops already?  What happened to that idea the last couple weeks?

 

Thu, 01/07/2016 - 11:18 | 7011157 The Saint
The Saint's picture

You know, I waited for years for Bernanke to fly that helicopter over my house and drop me a wad of cash so I could stimulate the economy but he never showed.  I feel slighted.

Maybe I'll have better luck with Yellow Dog.

Thu, 01/07/2016 - 11:38 | 7011323 Thought Processor
Thought Processor's picture

 

 

 

Somebody please do a quick analysis of worldwide QE expenditures vs. market appreciation (in relative dollars).  I'd like to know how much bang we've gotten for the buck thus far so to speak.  

 

Can't be that difficult.  Krugman are you out there?

 

Thu, 01/07/2016 - 13:32 | 7012243 Hal n back
Hal n back's picture

Amazon and its drones will be doing the drops. As soon as amzn is operational cash flow positive to support its stock price of , wow, its just above 600

 

Thu, 01/07/2016 - 11:29 | 7011253 KnuckleDragger-X
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I can see Yellen riding the money bomb down like Major Kong........

Thu, 01/07/2016 - 11:03 | 7011095 LawsofPhysics
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Still accepting FIAT currency in exchange for the fruits of your labor?

IT AINT "OVER" yet, not by a long shot!

Thu, 01/07/2016 - 11:05 | 7011100 ebworthen
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Debt jubilee, end central banking, and jail the criminals.

Thu, 01/07/2016 - 11:08 | 7011118 LawsofPhysics
LawsofPhysics's picture

...always the optimist.

Thu, 01/07/2016 - 11:11 | 7011142 Rabbi Chaim Cohen
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...always the dreamer.

Thu, 01/07/2016 - 11:17 | 7011183 LawsofPhysics
LawsofPhysics's picture

not necessarily. Guillotines are in fact real.

Thu, 01/07/2016 - 11:07 | 7011111 Jacksons Ghost
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War.

Thu, 01/07/2016 - 11:12 | 7011152 Rabbi Chaim Cohen
Rabbi Chaim Cohen's picture

Indeed. The stage is set and the first act is beginning now...

Thu, 01/07/2016 - 11:31 | 7011272 KnuckleDragger-X
KnuckleDragger-X's picture

When they bring the draft back, then bet on war. Cannon fodder is great if you don't give a shit.......

Thu, 01/07/2016 - 11:07 | 7011112 firstdivision
firstdivision's picture

K-Hen just got an increase on his credit limit.  Look at the markets go.

Thu, 01/07/2016 - 11:08 | 7011117 Slowdrip
Slowdrip's picture

Energy sector, leading the way back today. Thank God, beginning to panic there, for a minute....

Thu, 01/07/2016 - 11:09 | 7011130 Dr. Engali
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Pfffft.., no worries.., once we enter the world of NIRP the debt can pay itself back.

Thu, 01/07/2016 - 11:15 | 7011155 two hoots
two hoots's picture

Money, like time is manmade, does the sun care what time it is?  Who's to say this debt thing can't go on forever, like time?  Maybe we are just working through some of the mechanics as we perfect the money machine, say.....sundial to clock to watch?  Maybe money just a way of keeping score as a watch keeps time?  You can't eat either one.

Thu, 01/07/2016 - 11:14 | 7011165 surf@jm
surf@jm's picture

FED information technology department reports that Yellons computer keyboard has just broken its P for print key......

The resulting halt in money printing, totally collapses world economy like a house disapearing in the movie Poltergiest....

News reports say a flotilla of battleships is pounding an island in the Caribbean that politicians tried to escape to....

Also reports that sharks are feeding on those trying to flee the island....

 

Thu, 01/07/2016 - 11:26 | 7011229 Consuelo
Consuelo's picture

"My new book..."

 

Grab your old D28, pull back that greasy gray ponytail and wax nostalgic about the Haight Ashbury days Charles...    While you hawk your 'latest book' for a few more $$$...

 

 

Thu, 01/07/2016 - 11:44 | 7011361 SillyWabbits
SillyWabbits's picture

The name of the game is Grabbers!

Grabbers run the game and make the rules.

The one thing about Grabbers is they grab everything and never let go.

Why?

Because it is their nature..

Thu, 01/07/2016 - 11:48 | 7011402 agNau
agNau's picture

Anyone else notice that after the curtain pulled fully back exposing the US/NATO hand in play creating/supporting/funding terrorism(ISIS), several events including this major downdraft overtake the news?
This would fully place blame for all ISIS terror in the laps of US/NATO/Banking Cabal. Which must be covered up.

Thu, 01/07/2016 - 12:27 | 7011728 Gene Watson
Gene Watson's picture

this is it. the global debt collapse is accelerating. 

Thu, 01/07/2016 - 12:44 | 7011876 Sizzurp
Sizzurp's picture

Love my D28, but no ponytail.

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