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Guest Post: How Government Spending Impoverished Us All

Tyler Durden's picture


Submitted by The World Complex

How Government Spending Impoverished Us All

A few weeks ago we discussed the growth of the "virtual" economy. The argument was that metal consumption (in particular copper and zinc) grew in accordance with global GDP until the mid '70's, after which metal consumption grew markedly more slowly than did global GDP. Our thesis was that global GDP (the "official" economy) has at least partially increased by management of perceptions and addition of a lot of economic "activity" which does not increase wealth.

It has troubled me in the past that I could file lawsuits against present and past associates, who in turn might file suits against me. In the very best scenario all that would happen is a redistribution of existing wealth, yet all the legal fees would be additive to GDP. Yet no wealth would be created (except from the lawyers' perspective) and a great deal would be lost. It has always seemed to me that economic activity of this type forms a component of GDP the magnitude of which is unknown.

A reader questioned whether the reduction in growth of consumption of these metals could be due to their replacement by less expensive alternatives. Although I believe that there may be a slight effect, as seen in relative increases in aluminum and stainless steel--I discount most of this because copper, for many of its applications, is very difficult to replace. It is why the price of Dr. Copper is thought to be such a good leading indicator for the economy.

Today we add nickel and steel to our graph, but instead of plotting them against GDP, we plot the ratio of their consumption to global GDP (all scaled to 1 at far left, in 1949).

What we are actually looking at is the relative growth in the amount of metal consumed in comparison to the growth of GDP. If the curve is level, then metal consumption is growing (or shrinking) at the same rate as global GDP. If the curve rises towards the right, then metal consumption is growing faster than global GDP. If the curve descends towards the right, then metal consumption is growing more slowly (or shrinking faster) than GDP.

We see clearly that the consumption of metals has not kept pace with GDP, with most of the relative decline happening after 1975.

At the World Complex, I view metal consumption as being a better indicator of economic activity than the officially reported GDP. Perhaps I should say I trust the metal consumption numbers more, as I suspect they are harder to fake. In any case, metal consumption usually involves making something, which is frequently accretive to wealth (except in the case of bombs, et al.).

The decline in metal consumption is a direct measure of the decline of real wealth. Yes, real wealth is not dollars, it is oil; it is copper; it steel. As long as the per capita availability of these resources is increasing, our wealth is increasing. I have argued in the past that the suppression management of commodity prices is largely responsible for comparatively recent declines in their per capita availability.

Has the definition of GDP changed over the last fifty years? According to wiki, it is defined as follows:

GDP = C + I + G + (X - M)

where C is private consumption, I is gross investment, G is government spending, X is exports, and M is imports. There hasn't been any change in the definition over the past sixty years. But here is something that has changed.

US Federal spending compared to GDP. The magnitude of spending really takes off after about 1970.

Now this is true for the US, but probably mirrored to some extent in other countries as well.

The problem is not a change in the way the GDP is defined--the problem is in the definition of GDP itself. If we want GDP to be a measure of wealth then we need to remove that G term--or part of it.

A tonne of copper can't be consumed until it is produced. But the government can spend money that it doesn't have. So government spending can't be part of what was produced by a country unless it has been covered by taxation--then at least the wealth was produced prior to consumption. If the spending is empowered by debt creation, then no production was involved.

It's like measuring the wealth of a family by counting the money they spend, with no regard as to whether they are piling up credit card debt.

The miscalculation of GDP is useful to TPTB because it creates an illusion that we are wealthier than we really are. Ph.D. economists can't perceive this truth if they want to keep their funding.

Perhaps in addition to occupying Wall Street, protesters should give some thought to occupying the White House, Congress, and the Senate.


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Fri, 10/14/2011 - 23:01 | 1776159 bigwavedave
Fri, 10/14/2011 - 23:26 | 1776197 X.inf.capt
X.inf.capt's picture

excellent point, dave!

most everything is synthetic,

thank god they havent started making plastic food for the u.s.,or

soylent green....bitchez!

Fri, 10/14/2011 - 23:29 | 1776230 dlmaniac
dlmaniac's picture

"Government's burden on the private economy is best measured not by how much revenue it collects, but how much it spends.' / Milton Friedman.

Sat, 10/15/2011 - 00:16 | 1776311 AldousHuxley
AldousHuxley's picture


Rick Perry's Son Was Forced To Quit His Job At Deutsche Bank Son of government worker When is Clinton's son-in-law going to quit goldman Sachs? GS is down half and no layoffs for banksters? Hatzius askign for QE3 so he can keep his job.
Sat, 10/15/2011 - 00:22 | 1776319 AldousHuxley
AldousHuxley's picture

and here is your mitt romney at bain cap telling southern rednecks how he has their best interests suckers!

Sat, 10/15/2011 - 06:08 | 1776589 grekko
grekko's picture

The formula for GDP appears to be missing something, let's call it "Z", which equals government (local, state & federal) borrowing.  This must be subtracted from the "G" term to come up with a real GDP.  Also, there should also be a term (for borrowing) to subtract from private consumption as well.  With these two added in, we'd probably see real GDP was just crawling along since 1971.

Sat, 10/15/2011 - 07:15 | 1776627 Raging Debate
Raging Debate's picture

Just create a new variable set that measures leverage. Call it the Leverage Meter. The PM's consumption vs. debt issuance would probably be one of the variable sets. When the Leverage Meter that the people use to see how they are being stolen from then the people know what to do sooner rather than waiting forty years to realize literally half their wealth was stolen from them.

Sat, 10/15/2011 - 09:46 | 1776745 French Frog
French Frog's picture

"US Federal spending compared to GDP. The magnitude of spending really takes off after about 1970."

All roads lead to or come from the end of the Gold standard?

Sat, 10/15/2011 - 08:36 | 1776688 Thisson
Thisson's picture

The borrowing you are pointing out is already included in the formula.  G = government spending (this includes when government spends borrowed money).  C similarly includes borrowed money.

That being said, your overall point remains valid that when you exclude borrowed money, there has been little organic growth of aggregate demand (GDP) and hence productivity.

Sat, 10/15/2011 - 08:44 | 1776692 nmewn
nmewn's picture

If I recall Kuznets (the "inventor" of the GDP metric) told Congress at the time he revealed it, GDP should not be used as a measure of a societies prosperity because it is flawed when used that way.

Government removes capital from an economy, it does not add to it...printing presses notwithstanding ;-)

Sat, 10/15/2011 - 10:19 | 1776777 LetThemEatRand
LetThemEatRand's picture

"Government removes capital from an economy, it does not add to it..."

Your statement would be true if 100% of capital were invested in a government-free economy.  But the reality is that uber-wealthy robber barons hoard their money and store it.   They will not put that money into the economy unless forced to by taxes, labor laws, etc.   Government redistribution in this context will add capital to the the economy.   

Sat, 10/15/2011 - 10:39 | 1776803 nmewn
nmewn's picture

"They will not put that money into the economy unless forced to by taxes, labor laws, etc.   Government redistribution in this context will add capital to the the economy."

Well, apparently your idea of what taxation & labor laws are for is very different from mine.

Taxes are to fund government operations, nothing more.

The taxes are "confiscated" from the economy. Once out of the economy they cannot add to the base of the economy without being re-introduced by government into what they deem fitting. You presume that government knows better than market participants on how best to allocate capital throughout the economy. I'm comfortable with the track record they have, that they do not.

As to uber rich...I'm not one by the way...but all that "hoarding" will be spent at some point. People move in & out of the ranks of the rich everyday...its not a static thing.

Its the manipulators of government policy and government itself who sets those policies who deserve our wrath...IMO.

Sat, 10/15/2011 - 10:51 | 1776819 LetThemEatRand
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Again, you would be correct if your narrow definitions were valid, but they are not.  "Government operations" include things like building bridges so that people can get to work in large cities more efficiently, building water/sewer infrastructure for cities, etc.  They also include direct hand-outs to the poor, who then spend every penny into the economy.   If the wealthy are otherwise going to take their excess cash and put it in a safe (they actually do that), the economy will benefit from the forceful taking of that cash and putting it to those uses.   Labor laws -- not addressed in your response -- even more directly inject value into the economy because they do things like force companies to pay higher wages and hire more workers.  The problem I see is that the robber barons have figured out how to bribe the politicians to avoid most of these rules and taxes, and they have been given free reign to go to countries like China that have no such laws.  Thus, government has been borrowing instead of redistributing.  Taxes are borne more and more by people who would actually spend their money and/or invest it for new production, and not just put it in Switzerland.  Taxation in this context does create the negative effect of which you complain.

Sat, 10/15/2011 - 11:11 | 1776868 nmewn
nmewn's picture

So you are a fan of big government...I am not.

Where do we see the economy suffering for the lack of a bridge? Have we not asphalted over the entire country? A quick look at any map reveals we have roads & highways everywhere. We pay taxes & fees to maintain these roads...I'm of the opinion we have enough of them.

I don't live in the city...but if those residents want a brand new water & sewer system why does it fall to me to help build it through federal debt loads? Can't they afford it themselves? I asked no one to pay for my well or my septic system.

And the poor being used as an economic redistribution tool in your example seems a little callous. One has to ask, what entity benefits in keeping the poor...poor. I would say the state does so it can keep taxes at an elevated level.

Labor laws are useful and have been shown to be so. But over regulation can and does subtract value. There are now more Department of Agriculture employees than actual farmers. I see no value in that.

Sat, 10/15/2011 - 11:19 | 1776882 maximin thrax
maximin thrax's picture

Direct hand-outs to the poor equate to converting one person't labor into another's consumption. Many call such institutionalized expolitationt Slavery. Why must there be ANY direct handouts when there are so many things, like roads and bridges you mentioned, that need construction or repair? The economy would surely benefit more if those who received government handouts worked (produced) for them. And labor laws, specifically wage laws, destroy domesic jobs, sending them overseas so stuff can be produced and sold for what the Market (that's us) is willing to pay. That hardly counts as beneficial to this economy, especially when those not employed rely on wealth transfer from those who are, as there's no net increase in production. We need two things to turn this country around - Production and Savings. From production comes Real Wealth and from savings come Real Capital. You seem opposed to both.

Sat, 10/15/2011 - 12:05 | 1777016 FeralSerf
FeralSerf's picture

Why do we need more production?  I can't see that there's any shortage of stuff?  If there's a problem, it's that there's too much production.

Most 21st century U.S. production increases are the paper shuffling variety.  There's definitely, IMO, an oversupply of this already.

Americans' wealth is being mostly absorbed by military expenditures and the FIRE industries.

Sat, 10/15/2011 - 16:34 | 1777533 maximin thrax
maximin thrax's picture

Clearly, we need to produce more of what we already consume, even if that stuff doesn't pay a living wage. Make up for that by providing workers who need it, not the idle, with a safety net.

Sun, 10/16/2011 - 12:45 | 1778882 Chuck Walla
Chuck Walla's picture

The county farm was a fine institution for helping the poor. They got room and board in exchange for growing their own food and maintaining the place. They got the dignity of working for what they received.  


Does anyone remember how the Democrats howled when it was suggested the poor in the projects help maintain it?  No, they said, it was unfair to take someone else's money and actually do something for it, thus ensuring the vote of the layabout class could remain firmly in the pocket of Democrats and, in turn, the Left need never worry about this important pool of votes wandering off the plantation and possibly thinking for themselves.  They gutted public education anyway, just in case the poor ever got an idea what chumps they really are.  Doomed to generational poverty by the soft bigotry of low expectations and the outright bigotry of no real interest past pulling a lever every couple of years.

Sat, 10/15/2011 - 10:58 | 1776841 LetThemEatRand
LetThemEatRand's picture

P.S.  If you look at virtually any statistics concerning wealth distribution in the U.S., it is becoming more and more difficult for the "lower" classes to join the ranks of the rich as the wealth distributes to an ever shrinking percentage of the population.  Another downside to lack of distribution.  And as the rich get richer, they have less and less need to ever spend/invest their excess funds.  

Sat, 10/15/2011 - 11:20 | 1776892 nmewn
nmewn's picture

I'm not saying we don't have a problem with the poor getting up the ladder. I'm saying government is a large part of the problem.

You can't have government minders over regulating, shutting down little girls lemonade stands, impromptu car washes in poor neighborhoods, sun tanning salons in strip malls...and what not...and then turn and say we need still more government.

We need in fact less.

Sat, 10/15/2011 - 12:09 | 1777025 El Yunque
El Yunque's picture

What is less government. If we have to go back and re-fight all of the battles we have already been through to re-establish things like collective bargainning or establishment of the EPA, any number of regs and agencies, do we in fact end up with a usable less, or just another round of putting it our face day to day in the firmly in the way of American life?

if you consider that small business (lemonade stands?) accounts for less than 8% of the jobs in this country at any given point, it seems we're chasing snipe out in the sticks, while the real carnage takes place, the diversions from the greater problems we're facing, for the nuturing of the American citizens need to be shielded from the boogey men.

Government is a collection of people we elect, and as such operates in much the same way a gun sitting on a table empty does, it ain't dangerous till somebody picks it up, loads it, and goes postal.

So government could be a problem, or a solution: When you consider as well, that conservative government has given us 135,000 new private contractors and companies providing goods and services to the U.S. government, a DHS super-duper agency composed of about 222,000 employees collected form the 21 agencies moshed togehter to create it, and a U.S. president lowering taxes, and borrowing money on the idea of the "stretegic defecit" as adopted under Reagan in the eighties, then spending that ten trillion dollars on two wars and the protection and security of a country and it's needs outside of it's sovereign borders, yep, it looks like something that needs to be ratcheted down.

When I think about lowered taxes and the myriad companies earning my tax dollars tax-free, at a markup to me, while I don't work for or particapate in their management or earnings, I'm thinking being a tax and spend liberal beats a no tax, borrow and spend on a small group of insiders a problem, a big problem.

And there is no big government or regualation involved in it what so ever, merely a smaller and smaller group of insiders getting fiflthy stinking rich, pulling so much wealth out of the top of the system and parking it, as a huge huge problem, whereas, when the folks in power decided to roll bag the regs - the firewall between retail and investment banking, lowering of capital requiremnets for banks, the decision not to have eyes into derivatives and the lack of limits in commodities index specualtion, all as components of an umanaged system whereas capital flows towards higher risk and return, then breaks over into a free fall as the trust gets broken because, collectively, no one knows what the hell is inside of the world of finance now that can blow the hole son of a bitch to smithereens.

Not because of too much government but too little of it, not because of too many people regulating and looking over shoulders, but because it would operate in it's self interest, completely ignoring the biggest problem of capitalism, period.

People, crazy, fickle people.

That ain't a large government problem, that's a large people problem, and should be considered anytime anyone considers trickle down, or Friedman, or the Austrians, or Ron Paul.

Imagine the NFL without it's "socilaistic" tenants of profit sharing, salary caps, collective bargainning and try to determine how many years it would be until a lack of rules and those things put in place to balance it out, turned it into a one pony show, and the whole interprise might go casters up, no eyes, no entertainment value, no add dollars, just Jones polishing his trophy in perpetuity in Dallas.

I think we need a change in our philosphy about government. Electing autocrats from business to lead or represent in a democratic republic is shoving square pegs into round holes. Government aint in the business to make money, but because of this "less" government philosophy, we now have a government that has found a way to drain the swamp of the many and enrich a few, to the great detriment of capitalism in general.

A guy collecting the trash on the national mall, now paid by a private concern to do the same job at a markup to you, the tax payer.

And you want less? I'm thinking I want more.


Sat, 10/15/2011 - 12:28 | 1777055 El Yunque
El Yunque's picture

Sorry about the grammar and spelling. I whipped it out, as I have to get to work now, I drive a shovel for a living, I'm not a trader, hold no wealth, and hell, I have no credit cards, thus I believe what I have to say about all of this has little relevance anyway.

The previous post was my first post on ZH; I've watched and laughed here for years, but haven't participated out of fear.

I'm throwing that shit out, so, everyone let me know what a fool I am, you'll get little argument from me on that one.

But as a bystander, I've been sucked into a lot of little battles I don't have time for anymore, and was just fine until the right started swinging a mace in the place years ago.

Up until 2001 I was making $200k a year fixing computer related shit. If this thing doesn't completely implode in the next six months, I intend to do that again. If if does, I will be growing beans and rasing cows, or something equally important like counting down the days until the sun explodes, and the earth is flat again.


Sat, 10/15/2011 - 15:02 | 1777308 nmewn
nmewn's picture

You did fine.

Sat, 10/15/2011 - 20:49 | 1778023 wisefool
wisefool's picture

Agree. you did fine. and dont worry about any junks (red arrows) unless somebody replies with the rationale.

Sat, 10/15/2011 - 12:14 | 1777032 wisefool
wisefool's picture

Dont forget the tax code, which allows the poor to stay poor with the incentive that they avoid a signifigant ammount of taxation, and the rich stay rich because they avoid a signifigant ammount of taxation ... but as you mentioned the middle class is too prideful to go the former and taxed to prevent them from entering the later. It is 99.9 vs .1, but if you dig deeper it is 51% vs 48.9% vs .1%

-Sun Tzu

Sat, 10/15/2011 - 12:53 | 1777092 tmosley
tmosley's picture

You do realize that "funds" or "money" or "savings" aren't wealth in and of themselves, but merely a claim on actual material wealth, right?

Spending doesn't help the economy, it hurts it, because every penny that is spent on consumer goods is a penny of capital that is consumed, never to be seen again.  Better that it be spent on capital goods, which increase production, and make EVERYONE richer.

But Keynesians are so stupid they can't even understand something that simple.

Sat, 10/15/2011 - 10:49 | 1776824 legal eagle
legal eagle's picture

Water piping used to all be copper, PVC baby

Fri, 10/14/2011 - 23:21 | 1776215 infinity8
infinity8's picture

exactly! - as someone who specialized in replacing metal parts with plastic for a long time/

Fri, 10/14/2011 - 23:24 | 1776219 infinity8
infinity8's picture

that said, the point about copper is right.

Sat, 10/15/2011 - 00:24 | 1776322 john39
john39's picture

But they do use plastic Noe in water feeds in residential construction in the US. There may be other similar substitutions.

Sat, 10/15/2011 - 01:02 | 1776368 infinity8
infinity8's picture

big picture, most copper applications are not well substituted in plastics. but a lot of other metals are - a Lot. now.

Sun, 10/16/2011 - 12:22 | 1778848 ljag
ljag's picture

And I am right behind you changing it back to copper because the glue doesn't hold up as well as the CPVC. LOL! Although I must admit I spend more time replacing galvanized iron pipe (to copper) than anything else. As to government........just what does the DOE do? We are more reliant on foreign oil for our energy than ever. Homeland Insecurity? What a joke! We could start by getting rid of both.

Sat, 10/15/2011 - 06:15 | 1776592 tankster
tankster's picture

Plastic,indeed! Copper's use in housing peaked in the early 70's. 

first to go were the D.W.V systems. Next, the hydronic heating systems, and more recently, water distribution

From peak to trough, thats roughly 800 lbs. per house! 

Sat, 10/15/2011 - 10:30 | 1776793 Howard Beale
Howard Beale's picture

Plastic's not a metal. Silicon is.

Fri, 10/14/2011 - 22:52 | 1776163 Hurdy Gurdy Man
Hurdy Gurdy Man's picture

Color me a simpleton, but I can't figure out what to do with Dr. Copper from here...


Fri, 10/14/2011 - 22:58 | 1776174 devo
devo's picture

Hold or sell.

Sat, 10/15/2011 - 09:19 | 1776728 Hurdy Gurdy Man
Hurdy Gurdy Man's picture



Fri, 10/14/2011 - 23:02 | 1776181 blindman
blindman's picture

a local plumber recently lamented the use of plastic tubes
as replacement for copper water pipes. he claimed the plumber's
art is being eliminated. i have seen things that confirm this.
plumbing ain't what it used to be, neither is anything else,
for some time. the materials they are a changin', the quality
is in question. who would know the difference or care?
beats me.

Sat, 10/15/2011 - 09:21 | 1776729 Hurdy Gurdy Man
Hurdy Gurdy Man's picture

It creates more work and cheaper inventory for him... what's not to like from his perspective? Either he educates his client on the relative merits of choosing plastic, so the heats off of him, or he looks like a greedy sumbitch who just likes to dink around on plastic frequently

Sat, 10/15/2011 - 10:44 | 1776814 tmosley
tmosley's picture

Not sure what you mean by "more work".  PEX is clearly superior to both PVC (which is brittle as hell) and copper (which deforms when water freezes inside).

PEX returns to its original shape after deformation, including from hard freezes.  My current home employs the same material (at my direction), and when we had a 50-year cold snap last year, and people around the entire area were having leaks all over the damn place, ours merely had to thaw, and we had no problems.

Sat, 10/15/2011 - 10:40 | 1776805 oddjob
oddjob's picture

There have been a myriad of plastic fitting systems for water distibution in the home, most all have failed over a period of 15 years or less. Poly-b, poly-e, cpvc all are garbage for use inside your home.

Sat, 10/15/2011 - 10:54 | 1776833 tmosley
tmosley's picture

Ah, the fallacy of conflating the properties of all plastics.

Sat, 10/15/2011 - 12:26 | 1777050 oddjob
oddjob's picture

I have installed a lot of PEX, my only problem is that the crimped fittings have an i.d. smaller than the pipe size, unlike copper. Key to using pex is utilizing as few fittings(90's and T's) as possible using the home run system. Wirsbo makes a system that would be acceptable. But plumbers have a saying( amongst many others) 'copper is proper' 

Sat, 10/15/2011 - 12:55 | 1777098 tmosley
tmosley's picture

Sure, and buggy whips are the path to prosperity.

Sat, 10/15/2011 - 16:18 | 1777497 Hunch Trader
Hunch Trader's picture

35+ years of PEX plumbing systems,  floor heating etc. USA and globally.


Fri, 10/14/2011 - 23:25 | 1776189 X.inf.capt
X.inf.capt's picture

impoverished us all?

yes, and the people are pissed...



Sat, 10/15/2011 - 07:18 | 1776625 Ghordius
Ghordius's picture

GDP = C + I + G + (X - M)

is only an accounting agreement

like Assets - Liabilities = Equity

 (House - Mortgage = your investment in your House)


GDP is a question: Off the total of the "economic activity" of last year (GDP), which part was exported or imported (X-M), how much was reinvested in the economy (I), how much is lost because it was consumed by private households (C) and how much was lost because because it was consumed by the government (G).

The quality of the parts is more important than the totals, like in balance sheets.

Of course, the problem is that our western cultural direction was driven by growing the sum (GDP) without thinking about growing the quality of the parts.

MSM has a growth love story with (C) ->shop, baby, shop

Left parties have a growth love story with (G) ->spend, baby, spend

Conservatives have a love/hate story with (G) -> spend? hell, yes!

And Wall Street is convinced only they know what (I) is, even when they need (G) to keep up the bad quality they provided. -> the squid & co.


Put it the way of a shopping list: of the USD 40k I make this year:

good (C): how much am I going to spend on my family and me that has value?

less good (C): how much do I have to borrow for it? (from I)? How much is wasted for frilly BS which I only do because I'm too lazy to do otherwise?

good (I): how much am I going to invest in profitable ways?

less good (I): how much am I going to "invest" in the growth of (G) and (C)?

good (X-M): how much am I going to export for future (C) or (G) or (I)?

less good (X-M): how much am I going to import now for more (C) or (G) or (I) and I will have to pay back later?

and now (G)

good (G): how much taxes am I going to pay for the services provided by the state, including protection from the enemies of my country?

less good (G): how much of my taxes are wasted? How much of the spending of this year is part of the (I) in form of sovereign debt? How much is it repayment of past (G)?


the peddlers of (I) gang up with the peddlers of (C) and the peddlers of (G) and you know who loses? You and (I).

Sat, 10/15/2011 - 09:08 | 1776717 Thisson
Thisson's picture

You make a great point here about quality of the parts.

It's not the totals that matter, it's the quality.  Government spending isn't bad, per se, if it is used properly.  Investment isn't good, per se, if it's malinvestment.


Fri, 10/14/2011 - 23:15 | 1776198 Caviar Emptor
Caviar Emptor's picture

Copper consumption means we would have to actually make stuff. Don't be ridiculous we're a service economy that evolved past that starting in the 1980s! Ronnie said so. Like that Stark Treck episode where the aliens had evolved to just brains without a body. They were pretty smart, but pretty mean. 

We dun need no steenkin copper! We'll get by serving each other tacos!

Fri, 10/14/2011 - 23:31 | 1776234 Bartanist
Bartanist's picture

Yes, we eat massages, live in lawsuits and drive insurance to government jobs. Our wonderful service economy...

Fri, 10/14/2011 - 23:38 | 1776243 Caviar Emptor
Caviar Emptor's picture

Robosigning mortgage loans was just a utopian vision created by our banksters: a world where paper rules the people, and machines rule the paper. 

Fri, 10/14/2011 - 23:49 | 1776269 wisefool
wisefool's picture


Its about the method of taxation folks. I have been saying for a long time here that the tax code has 60,000 pages. it is well over 70,000 pages. That is why I fail. 

Sat, 10/15/2011 - 09:49 | 1776747 goldsaver
goldsaver's picture

Nice Dalek reference... We dont need no stinking Dalek... we have banksters!

Sat, 10/15/2011 - 10:44 | 1776813 wisefool
wisefool's picture

The Bernake/Dalek brain is impotent without its taxing/regulatory (read: force) implements attached to the robotic trashcan on wheels.

We gotta have banks to accomodate the arc of life, prudent risk taking, and time sharing said work product for cumulative and mutual gain.  We gotta have taxation to provide common services and a framework for opportunity. But we just cant have it be this crony capitolistic mess. 

Sat, 10/15/2011 - 08:38 | 1776689 Absinthe Minded
Absinthe Minded's picture

Did you ever think maybe the average American doesn't need the next best thing anymore? I mean we as a culture are selfish, greedy and gluttonous but as wages started to decline via inflation maybe getting the Iphone 4s isn't quite necessary anymore. The Iphone 4 works fine, why upgrade? You always get the geeks that have to have the latest but declining wages are starting to put a dent in disposable income to the point where having the 50" flat screen with a 240 Hz refresh rate isn't as important anymore. Look how many used cars are out there. My God why would anybody buy new? I think demand is going to dry up quite a bit more. China is starting to see it. My company just shut a line down. Things are about to get a lot worse this Winter. Think food.

Sat, 10/15/2011 - 10:26 | 1776784 flattrader
flattrader's picture

The personal dependency on smart phones bothers me a great bit,  There are some good affordable models with no contract plans (Virgin, Boost), but still I resist.  With the exception of htc phones, the screens are too small to be of any real use.

Give me a laptop or a netbook.  Even better, Asus has an Android tablet (ipad-like) device that docks with a keyboard to make a fairly productive netbook that I've been eyeing for a few months.

Most icrap is overpriced for what it is.  It's all about buying "cool".

Fri, 10/14/2011 - 23:14 | 1776200 Poor Grogman
Poor Grogman's picture

The only practical limitations I can see to the ponzi is if we run out of somthing (oil) .

Or Alternatively once every real asset is encumbered by debt.

We are getting there folks!

And if you are too smart to go into debt to support the ponzi, well the government can do it for you, without you lifting a finger.

Just sit back and watch dancing with idiots and let the government worry about those complicated numbers.

Sat, 10/15/2011 - 11:57 | 1776999 Flakmeister
Flakmeister's picture

Strictly speaking we started running out of oil when the first barrel was extracted. I think that you mean to say re: the ponzi, is that it ends once the supply of key ingredient is no longer able to increase. And yes, oil has peaked and the ponzi is over.

Fri, 10/14/2011 - 23:18 | 1776208 Ye Ye
Ye Ye's picture

What about the information economy, such as Zerohedge?  An alternate explanation is that the economy is less about "stuff" and more about ... well ... whatever it is that we do on this site.

Fri, 10/14/2011 - 23:24 | 1776222 Caviar Emptor
Caviar Emptor's picture

Massively parallel neuronal synchronization

Fri, 10/14/2011 - 23:49 | 1776266 AldousHuxley
AldousHuxley's picture

90% bitch and moan...this is somewhat therapeutic

9% mind sync off the media grid

1% gold promotion

Sat, 10/15/2011 - 00:16 | 1776314 wisefool
wisefool's picture

Dont forget

Timmay=Tyler Durden

Ed Norton (narrator) = zerohegde.

None of us have the balls to be the head of the IRS and at the same time a tax cheat.

Sat, 10/15/2011 - 00:27 | 1776327 infinity8
infinity8's picture

all I know is I'm a tax cheat when feasible and wouldn't ever have the desire to head the IRS. But, it wouldn't surprise me there's a guy with the cajones to give it a try.

Sat, 10/15/2011 - 00:31 | 1776338 wisefool
wisefool's picture

Did you read the book or watch the movie this site uses for memes? Times change, us hedges need to assemble our thought patterns around the movie "Children of Men" with clive owen as our debt restructuring hero. Timmay/Tyler would be cool with that.

Sat, 10/15/2011 - 00:53 | 1776358 infinity8
infinity8's picture

I've seen Fight Club, but I don't live in movie/msm-land. the idea of assemling my thoughts around any movie is offensive to say the least. sorry Clive.

Sat, 10/15/2011 - 01:03 | 1776369 wisefool
wisefool's picture

That movie is better than the last 20 years of  policy makers combined. You really should check it out, and I do think that it would be a better cast of avatars for the contributors to this site under current geopolitical conditions.

Sat, 10/15/2011 - 01:57 | 1776428 AustriAnnie
AustriAnnie's picture

Red for you.

Go start your own blog with your Clive Owen avatars. I'll keep TD, thankyouverymuch!

Besides, I like signing onto twitter and seeing Zerohedge intelligence alongside that eye candy avatar.  

Sat, 10/15/2011 - 10:54 | 1776834 wisefool
wisefool's picture

I think you folks are getting me wrong. ZH has been a blessing to me. I am not bashing Tyler and crew. I used to watch the MSM and think I was in the know about economics.

I am still not very smart. But I do think the event at the end of fight club has occured (2008 crash), and we are now in the dystopian world trying to rebuild, but generally not doing a good job of it, which that movie covers. Me trying to start a new blog would be part of the fumbling around they do in that movie. My avatar on such new blog would probably be one of the extras getting processed in the internment camps, instead of one of the primary parts.

Fri, 10/14/2011 - 23:26 | 1776221 Da55id
Da55id's picture

All wealth is the product of the human mind. By that, I mean that without humans the word wealth itself would not be. Further, wealth is essentially an opinion of humans that rearranging atoms, energy and speed/timing optimizations gained thereby are all products of the mind some of which is intepreted to represent wealth. 

Thus, some hold the opinion that gold is wealth, while others view it as a nearly useless material - also, an opinion.

Ultimately, extending the reach, grasp, power, experiencing, flexibility, utility, longevity, health and plasticity of individual and socially related minds giving rise to increasing options is what is real wealth.

The GDP you are seeking is no longer physical. Much of it has jumped to the virtual - this blog for instance is built upon untold billions of creative efforts of the mind through centuries, but it has no actual weight, cannot be assayed, nor even found in the physical world. It's virtual, it's everywhere, yet nowhere in particular. Yet, it is. It represents enormous wealth.

the paradox of economic optimizations is that it seeks to eliminate the highest cost element in a construct. At first, muscle power was mostly replaced. Then, dexterity was replaced. Soon individual cognitive efforts will no longer be scarce.

The thing that you see that is disappearing is not GDP. It is the human mind replacing itself without knowing that it is doing it.



Fri, 10/14/2011 - 23:29 | 1776229 Caviar Emptor
Caviar Emptor's picture

What if the machines start to become self-aware? 

Fri, 10/14/2011 - 23:39 | 1776247 Hephasteus
Hephasteus's picture

I don't know but it sounds like the guy has about 50 expert system smartphone apps in his life.

Sat, 10/15/2011 - 03:26 | 1776473 NetDamage
NetDamage's picture

How do you know they aren´t?

Fri, 10/14/2011 - 23:33 | 1776237 X.inf.capt
X.inf.capt's picture

that flew right over my head...

but it sounded really cool!


Fri, 10/14/2011 - 23:47 | 1776259 Poor Grogman
Poor Grogman's picture

I agree that we create wealth from thinking.

Unfortunately we have to eat as we'll

And we haven't been able to replace food as an essential input to thought no matter how hard we try.

Then to further complicate things we need hydrocarbons to produce food.


Sat, 10/15/2011 - 00:06 | 1776302 Da55id
Da55id's picture

all too true.


We went from hunter gatherer, to scrub farmer, to horse/bull plow farmer, to steam plow, to gas tractor, to GPS guided tractor, to today's robotic tractors with no drivers at's a matter of time before most of the links in the food supply chain get "depersoned". So yes, we need food...and we're replacing ourselves out of necessity to get it.

I guess my point is that GDP is the wrong thing to look at. It's like the light around which a moth flies until it dies - having flown for leagues but gotten exactly nowhere at all.

Sat, 10/15/2011 - 02:45 | 1776453 mjk0259
mjk0259's picture

The flaws in GDP as a measurement of prosperity have been discussed since I was in college 30 years ago (hurricane increases GDP, etc). Now it's even worse - it includes a bunch of completely imaginary wealth supposedly generated by creating financial products and derivatives. We should have a measurement that includes things like life expectancy, happiness, degree of health, after tax income relative to rent, median net worth relative to rent,etc. TPTB of course know that present GDP is a bunch of BS and manipulate it to make the collapse look less severe. This has been going on to long to fool some though. Look for new improved measures of GDP soon - as was done with CPI. Maybe they'll count weapons as being ten times as valuable now since we use them a lot, etc.

Sat, 10/15/2011 - 00:15 | 1776309 Navigator
Navigator's picture

<<<All wealth is the product of the human mind.>>>


I see where you're going with that idea but you've stretched reality far past the breaking point.  Wealth is the product of labor.  Labor is first and primary in the creation of wealth. The most famous Republican of all was correct when he said: "Labor is prior to, and independent of, capital. Capital is only the fruit of labor, and could never have existed if labor had not first existed. Labor is the superior of capital, and deserves much the higher consideration." - Abe Lincoln

And gold is wealth?  Nope, gold is money...which is different than wealth.

Sat, 10/15/2011 - 00:36 | 1776346 Buckaroo Banzai
Buckaroo Banzai's picture

Unfortunately, Lincoln was dead wrong. Which isn't surprising, he was a lawyer, not an economist.

It is an indisputable fact that capital will always be superior to labor. An economy with labor, but no capital, can never get ahead, as economic progress is totally dependent on capital (savings) that is skillfully deployed to apply economic leverage to labor.

Sat, 10/15/2011 - 02:48 | 1776457 mjk0259
mjk0259's picture

And the ultimate way to deploy capital with leverage is with futures/swaps on synthetic derivatives, etc and we can all see how that's been working out for the average person. Not leading to them getting ahead.



Sat, 10/15/2011 - 09:16 | 1776690 falak pema
falak pema's picture

All captial is labour...think about that. Its labour plus RM; the latter, a resource whose intrinsic value per se, excluding labour to transform it, is ZERO.

This is obviously true in a non resource constrained economy...ex : When there will be no Iron ore on the earth our modes of life will change etc. But ABUNDANT iron ore is only priced at the cost of labour to extract/refine it, not for its intrinsic value. 

But your affirmation that capital is superior to labor is tautology. Capital is labour. Period. Intellectual/manual opitmised labour, which is better used than other traditional labour intensive methods. 

What makes capital interesting to classical merchant/industrial capitalists is the time value of surplus value (profit) generated by labour used more efficiently to generate this surplus value in market. The usury rate of money is the OTHER source of capital. It can be argued it is entirely fictitious. As in a risk taking environment the efficient labour utiliser (capitalist) has the competitve advantage over time in the market over his less efficient labour utiliser (the manual worker). He doesn't need interest to make money. His profitablility comes from time value of labour preinvestent in capital. Its pays itself back on a basis of risk vs return for the overall market as a whole, until it becomes obsolete and adds no value to market. And the banks that use fractional reserve to generate financial capital are not a necessary intermediary to this capitalist model. Interest is not needed to make the capitalistic 'labour utilisation model' to work. It is in fact, in fine, a parasitic generator of geometrically progressed inflationary chaos. We could have banks as investors in capital schemes. They would then earn like the entrepreneur, as risk takers, not as lenders. They could also be paid as service providers for labour services like all other service sector companies. This would help deflate the intrinsic 'inflationary' role of fractional reserve banking. 

If the geometric progression of fractional reserve interest generating banking could be curbed and replaced by a form of monetisation without usury time value we would have a system that increases financial liquidity for real world entrepreneurial activity without increasing inflationary monetised risk. I'm no economist/banker so I won't elaborate on how to achieve this. 

Sat, 10/15/2011 - 00:42 | 1776350 Da55id
Da55id's picture

Labor is the mind's use of end effectors.

Sat, 10/15/2011 - 03:44 | 1776482 A Nanny Moose
A Nanny Moose's picture

As goes the mind, so goes the body. Your body does not move an inch unless your mind tells it to.

Sat, 10/15/2011 - 01:24 | 1776394 buyingsterling
buyingsterling's picture

A great point. If you had to measure the value of something like ZH in economic terms, it would be via consumption of leisure hours. This leisure activity is delivered at very little cost to the user, yet still has great value because it commands our time.

Your argument seems to be that we are replacing physical activities with mental ones, but even they will be increasinly unnecessary. This seems like an improvement; it certainly requires less resources, and likely brings people closer to truth, when they're ready. They should be less distracted by rote concerns, and will have become accumstomed to living through their mind. Nothing there replaces the satisfaction of love and family, and we're approaching an age where we will be able to enjoy the best of everything, and work less than we do today. That may be put off for a time by the chaos of the present system unwinding, but technology makes it likely at some point.

Sat, 10/15/2011 - 04:03 | 1776493 AnAnonymous
AnAnonymous's picture

This leisure activity is delivered at very little cost to the user, yet still has great value because it commands our time.

Or it is what you can afford.

Sat, 10/15/2011 - 15:35 | 1777377 Da55id
Da55id's picture


each era has its own version of wealth. In the 1st century it was salt (salary) 15th century it was spices. These things are now essentially free for the taking. The economic paradigm driving the acquisition of this stuff - for which people gave their lives in wars - is now so ubiquitous nobody would ever consider them worthy of fighting for...and they hardly appear at all in GDP.

I love the concept of Gross Domestic Happiness. At least it tries to aim at a useful target...which can be evaluated to be true or false by anyone considering its sum -  as a personal metric.

We are in an event horizon similar to the serial social implosions/innovations driven by the invention of the printing press, and this is why all the standard economic explanations are breaking down today. The printing press ended entire systems such as the monotheocracy of western europe (pope), theocratic franchises for royalty, and made nationalism and religious choice and great markets appear. We are now seeing for the first time the emergence of flash organization and flash institutions, and the demise of fundamental institutions such as the post office, retail commercial real estate, stock exchanges et al as they are rendered moot one after another.

Sat, 10/15/2011 - 05:11 | 1776557 jomama
jomama's picture

you trying to go all quantum physics 'n shit on us?

Fri, 10/14/2011 - 23:41 | 1776248 economics1996
economics1996's picture

I, and other, have written about how the GDP equation does not reflect economic activity accurately.


The problem with the equation is it was formulated by Simon Kuznets in 1934 when the government was 5% of GDP.  Today we know for every 10% of government consumption of GDP we lose 1/2% to 1% of GDP growth.  This is easy to see with the European/America economies over the last 40 years.

Sat, 10/15/2011 - 11:02 | 1776848 rwe2late
rwe2late's picture

This “guest post” headline and your reply promote a popular misconceptions.

Both err due to overgeneralization and mischaracterization. It is also somewhat illogical to claim the GDP measure is flawed, and then use GDP change to "prove" something is beneficial or detrimental.

The GDP calculation is not flawed simply because of government spending or printing. And the economy is not flawed because of the way GDP is calculated, nor by all “government” spending.

It makes no sense to say we are ALL impoverished by ALL government (public) spending. Some are clearly enriched, others not so much. Bankster bailouts enrich a few and impoverish many. Social Security Insurance payments “enrich” many and impoverish few, if any, especially since up to now they have been paid for by a regressive tax on the primary beneficiaries. Military spending enriches top military brass, Halliburton et al and secures resources for global corporations.

Same with non-government (private) spending. Weapons sales abroad enrich armaments producers, but impoverish many by diverting resources better employed elsewhere (same as SOME government spending).

Financial speculations enrich a few, and produce nothing of value, again misdirecting resources. Same for the health insurance industry and wage arbitrage outsourcing. Private wages have stagnated while wealth has been transferred upwards.

Fractional banking as well as government, creates “money”, which imprecisely measures “production” and “value“ even more so. The GDP calculation is flawed because the depleting of natural resources is counted as “production” with no deductions of natural “inventory”. In fact, the most profitable production typically results (at least in the short run) by employing the most environmentally destructive and wasteful methods, whether fisheries, fauna, forests, or mineral deposits. Same is true for the human costs, from the historical profits of slavery to wage arbitrage, from lax mine safety to deleterious foods. Spending for battleships and a domestic police state counts the same GDP as for hospitals and clean energy. Those with the “money” assign the “value”, and in a plutocracy … well you figure it out.

Privatizing profits and socializing costs is not done just within a nation. The global costs of global empire will be passed to whoever can be made to pay. The residents of no “nation” are exempt. As the costs of militarization, client oligarchies, plutocratic rewards, environmental destruction, and mal-directed resources in general pile up globally.

The distinction between “public” government and “private” business is an inexact mental construct . Even the most extreme libertarian assumes there are public (i.e. government) protections for property, liabilities, patents, business incorporation, bankruptcy etc. despite at the same time wanting to leave such as worker safety, pollution, food security, water supply, health provision, transportation, energy etc. to the mercies of the “property owners”.

But “property" rights are not innate or sacrosanct. Property, private land, private resources, contracts, liability, etc. are all legal constructs of the state, and do not exist apart from it.

The promotion of the generalized "property" concept as a value is shallow.

It makes no allowance for how the property has been acquired, how lands, water etc. once "public" have become "private", nor how the state has constructed a legal edifice of "ownership".

At its core, all “capitalist” profit is based on one form or another of limited access, whether to markets, resources, or labor. Without property “rights”, patents, licenses, captive markets, or captive labor, profits diminish. Thus, even without economies of scale, the built-in bias toward monopolization of resources and production, and labor arbitrage - and the symbioses with “government” to establish and protect those privileges.

Those who rail simply against “gubmint” are succumbing to a fraudulent paradigm. They are missing the point how the TOTAL economy (public and private) is geared to impoverish nearly all of us.

Nearly all of us are being ruined by a combination excess militarism, unbridled plutocracy, rampant public and private corruption, neglected infrastructure, debt and currency debasement.

Sat, 10/15/2011 - 15:49 | 1777408 economics1996
economics1996's picture

I think the point I was trying to make, and the original author, was that government distorts and misallocates resources.  If we eliminated government spending down to 11% of the GDP we all would be better off.  Less war, misallocation of resources that destroy the environment, such as the 4.2 million unsold homes, and overpaid parasites in government.

I agree with most of what you said.

Sat, 10/15/2011 - 20:43 | 1778002 rwe2late
rwe2late's picture

 Obviously depends on what the whittled down 11% is spent, and how the other 89% is used. Historically, small government co-existed with slavery, expansionist wars, and environmental despoilation.

Maybe I am becoming over-sensitive to the ZH articles and many reader comments (which always seem to at least implicitly contend) that  government over-spending (and to some ANY government spending) is the primary source of our woes, and curtailing it in any manner, automatically fixes things.


Fri, 10/14/2011 - 23:44 | 1776257 JustObserving
JustObserving's picture

Dagong the Chinese rating agency claims that half the US economy is a virtual economy:

"In the components of the U.S. GDP in 2009, the financial services sector accounted for 21.4%

while the real economy sector accounted for 65%.The total output value of the U.S.

financial services industry is composed of two major parts: one is the transferred

production value, most of which comes from value distribution of participating in

international production. Another part is the inflated value originated from credit innovation,

which belongs to bubble value. In addition, due to the high economic financialization,

more than half of the profits in the real economy come from the returns of financial

activities. If we exclude the factor of virtual economy, the U.S. actual GDP is about 5

trillion U.S. dollars in 2009, per capita GDP about $ 15,000. Meanwhile, the total domestic

consumption was 10.0 trillion U.S. dollars and government expenditure was 4.5 trillion U.S.


Fri, 10/14/2011 - 23:57 | 1776284 rbg81
rbg81's picture

And how much of the "real" economy is propped up by Government spending--especially deficit spending?  That is the really disconcerting part. 

Sat, 10/15/2011 - 01:30 | 1776403 buyingsterling
buyingsterling's picture

Thanks for this, outsiders often see us rather clearly.

If you want to find a citation for an article that's presented like this without a link or citation, just take any sentence and paste it into Google. It's like magic. Just sayin, in case someone doesn't know.

Sat, 10/15/2011 - 02:53 | 1776461 mjk0259
mjk0259's picture

That makes perfect sense. And that financial component has increased greatly since the 1950's with the 'income' from it going mostly to the top 1%. Real incomes for the average person have been flat for decades despite productivity supposedly increasing 3% a year.

Fri, 10/14/2011 - 23:58 | 1776265 sitenine
sitenine's picture

A tonne of copper can't be consumed until it is produced. But the government can spend money that it doesn't have. So government spending can't be part of what was produced by a country unless it has been covered by taxation--then at least the wealth was produced prior to consumption. If the spending is empowered by debt creation, then no production was involved.

This is a very important point IMHO - definitely worth repeating. Governments are spending us all into debt and claiming it as productive 'output' that they then borrow even more against by pledging future tax revenues based on inflated GDP numbers. Banks are doing the same thing by claiming that assets are worth more than they are worth (mark to unicorn anyone?), or they claim their debts as assets on each others books that they then borrow more against ad infinitum (ECB accepting a soccor player as collateral!? - no joke! -

These are treasonous ponzi lies that are enslaving us. We deserve better.

Fri, 10/14/2011 - 23:49 | 1776267 economics1996
economics1996's picture

If you want a better feel for the rip off look at the price index on the Fed web site, monetary base, and loss of blue collar wages over time.  I wrote about that as well.

Fri, 10/14/2011 - 23:53 | 1776277 Caviar Emptor
Caviar Emptor's picture

US real median income dropped 9.8% since December 2007. 

Fri, 10/14/2011 - 23:51 | 1776274 rbg81
rbg81's picture

I think the metals analogy is a little naive.  Just pointing to raw consumption of metals ignores technological change and innovation. We use less steel in cars for a wide variety of reason, so steel consumption drops. Plastic instead of copper pipes, so copper consumption drops.  How about this:  Does software development = production?  If so, how much software do we consume?  How much does all the software we produce weight?  Chew on that one.

Sat, 10/15/2011 - 00:56 | 1776364 wisefool
wisefool's picture

My old DSP (digital signal processing) professor told me that every peice of software can be represented by hardware and vica versa. The entire Java marketing platform was built on that fact. Java did not win out, but the redheaded stepchilds we call smartphones do add wealth (quality of life) for those that can afford it.

Charlie Rose was drunk again last night inteviewing some chinese potentates, they said as part of a conversation "our peasants have cell phones" Charlie slurred something about his 1995 lexus with the built in car phone.

To answer your question, all the software in the world could probably fit on a SAN array at your local community college, which probably wieghs a ton. If the interior of fort knox was injection modeled with gold, and we sold it, it could service the worlds debt for maybe 2 years at todays spot prices.

Sat, 10/15/2011 - 05:44 | 1776571 Moe Howard
Moe Howard's picture

This is what the Commodor 64 days taught me:

Hardware does better more expensively what software does worse cheaper.

Hence in the days of very expensive ram, ram doubling software. Software simulated ram cheaper but slower. Or "winmodems" modems made for the wintel market that were a few "glue" chips with the majority of the processing done in software by the CPU. 

I didn't have a DSP professor. I learned from experimenting and reading.

Sat, 10/15/2011 - 08:45 | 1776693 rbg81
rbg81's picture

Your DSP professor may have been technically right, but its just not practical to replace hardware with software in the vast majority of instances.  Imagine building a hardware box that implemented Microsoft Office?  Or even just Excel?  It would be hopelessly complex.  Further, if a "bug" ever appeared, the hardware would have to be recalled and replaced, vs. just downloading a patch.  Complexity is shifted from hardware to software only because it is economical to do so.  Also, software doesn't have a warranty in the same way hardware does.  Only rarely can you sue a software developer when the product doesn't work properly.  That is no doubt another factor in the hardware vs. software decision.

Lastly, if you printed out ALL source code and related documentation, it would weight quite a bit.

Sat, 10/15/2011 - 08:45 | 1776694 rbg81
rbg81's picture

Your DSP professor may have been technically right, but its just not practical to replace hardware with software in the vast majority of instances.  Imagine building a hardware box that implemented Microsoft Office?  Or even just Excel?  It would be hopelessly complex.  Further, if a "bug" ever appeared, the hardware would have to be recalled and replaced, vs. just downloading a patch.  Complexity is shifted from hardware to software only because it is economical to do so.  Also, software doesn't have a warranty in the same way hardware does.  Only rarely can you sue a software developer when the product doesn't work properly.  That is no doubt another factor in the hardware vs. software decision.

Lastly, if you printed out ALL source code and related documentation, it would weight quite a bit.

Sat, 10/15/2011 - 10:19 | 1776778 wisefool
wisefool's picture

I agree with both you and Moe Howard. I just posted the truism. The marketing & business model sometimes outwieghs the engineering. Such as it is in givernment as well. Take for instance the regulatory regimes that Ron Paul and other are trying to reduce. If the government was not trying to play both sides, the housing bubble could never have occured. When the CRA was passed Sec-Interior or EPA would have said something to the effect of: "Hey folks, there are cases for new home construction, however, we are not going to let you build ghost cities/suburbs. That will destroy several ecosystems and regional watersheds." HUD could have piped in and said, "not to mention we have hundreds of thousands of homes that need to either be rehabbed or rebuilt." (which did occur I admit but there was a ton of new home construction). Then there could have been all the easy money in the world, but the buerocracy could have shaped it in a way that actually rebuilt places like Detroit and fixed the socio-econmic problems. 

Cities/Towns are usually sited where they are for a reason, without a population increase (Boomers are downsizing not upsizing) there is no reason to make more homes in new locales. For our analogy, the hardware easily has the cycles to add new funtionality. No need to create a co-processor on the motherboard taking up valuable geography and adding thermo, complexity, assembly and material costs.

Again, If the government was consistant with the way they weild the buerocracy we would not be in the shae we are in. They are hard asses on somethings, but on others like Fast and Furious, solyndra, Timmays taxes, the housing bubble, the SEC in general ... they are asleep at the wheel. That is why we should reduce the size of government and thier regulatory scope. They will start making better decisions and enforcement if they can focus like a laser beam.

Sat, 10/15/2011 - 00:01 | 1776288 cranky-old-geezer
cranky-old-geezer's picture



Why do these morons take hundreds of words to say what takes two sentences?   Do they get paid by the word?

The government has borrowed and spent $14 trillion of OUR wealth.  And we're not getting it back.

Sat, 10/15/2011 - 00:03 | 1776292 sitenine
sitenine's picture

That's actually one sentence.  Commas are your friend :)

Sat, 10/15/2011 - 11:42 | 1776963 stirners_ghost
stirners_ghost's picture

If it's our wealth, why can't you dispose of it how you see fit? Why didnt you just keep it?

What's yours is theirs. They own YOU. What are you going to do about it?

If a thug stole your wallet, would you care about his spending and borrowing habits?

Sat, 10/15/2011 - 00:05 | 1776298 zorba THE GREEK
zorba THE GREEK's picture

Western civilization has been in decline for decades. But this decline has been masked by accumulating debt.

We are fast approaching a saturation point for debt and soon that long delayed decline has to be realized.

But instead of a steady downward slope, we are now facing a very steep cliff. We all like to blame our

politicians for our present crisis, but all of us must share the blame. We allowed our politicians to increase

spending on social programs while at the same time cutting taxes. We stood by while the national debt

skyrocketed and few complained. The world is like the teenager who maxed out his parents credit card

and now has to face the music, only, on the other side of this debt, there isn't a pair of sympathetic parents.


Sat, 10/15/2011 - 01:05 | 1776373 AssFire
AssFire's picture

Well summarized w/o the drama. I agree.

I think we began accepting lies around the Lewenski era. Then it became ok to steal and lie.


Sat, 10/15/2011 - 09:52 | 1776751 cowdiddly
cowdiddly's picture

NAh We began accepting lies the day Kennedy got shot and Oswald was presented to us as the Patsy.

That was the day the music died. 

All the dredging and construction contracts were awarded to Lady bird Johnson's construction company in Cam Rahn Bay. During the Viet Nam war. LBJ states that he will bomb the VC into the stone age while he rakes in the profits and the poor kids go of to die.

Where do you think that scumbag Cheney got his playbook from when Haliburton was awarded all the contracts in Iraq? At least we protested the Viet Nam war. 

Sat, 10/15/2011 - 02:20 | 1776437 Market Efficien...
Market Efficiency Romantic's picture

So true! Especially your point re blaming ourselves aka society versus politicians. They only suggest what the general public would agree to in an act of collective moral hazard.

But why is that? I figured, we need to realize and live with the responsibility and pain that our meta capitaist system does not know morale. Either you accept this or you resist. If you do accept, you have to accept it in the immediately absolute terms of the capitalist system.

So, in essence, I feel, all the debt is the price for not being able to stand the pain of watching people starve, die from untreated illness. That is not a societal value, as we like to spin it in order to make it look like a strength. It is plain weakness and inability to live the negative consequences of a system, we are very much in favor of when it is about distributing its profits.

Don't get me wrong, I am no socialist, I just freakin hate the increasing weakness and fake morale of our societies. Feast on discount food but close eyes and ears about any discussion on industrial food production. That's so perverted. We have become so oversocialized that we take up any future cost or risk as long as we are promised not to feel guilty for actively having harmed anyone.

Now, the price for this overcivilaization is on the table. There are two ways to handle it:

* Defend the egoistic position and live accordingly. No more collection of income and spending on any aggregate objective.

* Defend the altruist position and take the burden that has emerged and will emerge associated with any aggregate objective.


I am not arguing for either side, just saying, we need to stop resting in the cosyness of feeling both just and satiefied. Either or, with all consequences, anything else is a subjective moral profit with immense moral abritrage opportunities.

Sat, 10/15/2011 - 10:34 | 1776794 wisefool
wisefool's picture

Brilliant! Hence the states rights argument in the US. 50 little experiments going on all the time. If you dont want be a certain type of tax slave in one state you can be a different type of tax slave in another state.

Sat, 10/15/2011 - 04:52 | 1776544 jomama
jomama's picture


We all like to blame our

politicians for our present crisis, but all of us must share the blame. We allowed our politicians to increase

spending on social programs while at the same time cutting taxes i voted for: perot in 96', nader in 00', nader in 04' (again, sadly), and RP in 2008.


never bought into the debt triangle.  even as a youngun'.  


that's what i love about people that don't get it, but are on my team.

Sat, 10/15/2011 - 10:15 | 1776769 Hurdy Gurdy Man
Hurdy Gurdy Man's picture


eh... you forgot about these costly wars which availed no direct benefit to the USA aside from increased military spending and manufacturing in limited sectors of the economy

Sat, 10/15/2011 - 00:28 | 1776330 cynicalskeptic
cynicalskeptic's picture

ADDING VALUE in some tangible way creates real wealth.  Mine ore from the ground, cut down trees, grow crops, smelt ore into metal, turn trees into lumber, mill grain into flour,  turn metal into THINGS, build something with lumber, turn grain into bread.  CREATING 'intellectual property' that is bought and used - computer programs, even movies......  An economy grows in a real sense only if the total created 'value' in that society has increased at a corresponding rate.

But much of our economy does NOT create any real, tangible value. As noted, lawsuits simply redistribute existing 'value' ttaking a percentage in the process.  The financial industry which SHOULD sserve to allocat capital in ways that serves to fund produuctive 'value creating' industries exists fior its own purpose nw - repackaging and reslicing and reselling pies it did not bake.  AToo often it deals in totally 'phantom' products that exist only in a paper or electronic sense.   These activities do not create value or add value.  These activities are parasitic - taking value from productive enterprises.

Government can create money out of nothing - but if it receives nothing of value for that money it creates, govenrment is only devaluing its money.  If an economy does not grow at the same rate a nation's money supply is increased, you will have inflation - the value of the money declines and the 'increase' in GDP that seemingly occurs has to be reduced by that rate of currency inflation.   So simply paying for unemployment with money that government creates may allow the unemployed to buy goods but they are not doing anything to create value themselves.  They are not creating value for the money they receive.  This is th efallacy of measuring economies based on CONSUMPTION insrtead of PRODUCTION.

That is why we focus on CONSUMPTION now to measure economies.  We as a nation are PRODUCING LESS and LESS, creating less and less value even though CONSUMING more.   The financial industry in the US represented 7% of the US economy 40-50 years ago.  Now it has grown to 40%?!?!?!?!? 

If you lopok at the total 'money' exisrtent in the world, an enormous amount of is newly created 'paper' - derivatives based on NOTHING of tngivle value/  How many Credit Default Swaps exist owned by those with NO interst in the underlying security.  These are pure 'bets'.   If everyone on your street takes out insurance on YOUR home, does this represent the creation of real 'value' or are these simple bets which (if enough are made on the same event) may never pay off?   




Sat, 10/15/2011 - 01:04 | 1776370 IrritableBowels
IrritableBowels's picture

Like a virus, human overpopulation can be an issue.

Sat, 10/15/2011 - 13:05 | 1777113 tmosley
tmosley's picture

You've been watching "The Matrix" too much.  All life propogates the way Agent Smith described.  In fact, all chain reactions proceed the same way.

Humans hold back on breeding according to economic constraints, IF the constraints are not obscured by government intervention in the economy.  The poor farmers of the world produce many children, as they are useful as as labor.  Children are not useful as labor in industrial economies (rather they are an economic burden), so they don't have nearly as many, barely enough for replacement.

So let's cut the bullshit calls for population control, shall we?

Sat, 10/15/2011 - 02:01 | 1776430 Market Efficien...
Market Efficiency Romantic's picture

Not to confuse anything by the following comments, I think financial innovation is a virtual ponzi scheme, however with the capability of gaining power over emerging wealth in other, possibly more productive regions.

The only problem is, general criticism makes it appear more categorical than it is.

Where are the boundaries? What is productive and what is parasite not ex-post but ex-ante? Some banking service to the people and enterprises are a service but nevertheless very productive, both on an individual and aggregate level.

Services are intangible by definition, but we do not want to miss most services, so are they not productive?

And in the end, if to be decided ex-ante by regulation of welfare input, the most unproductive elements in the society will in the form of layers (themselves at maginal utility perspective rather unproductive) have the comparatively best lobbyists assuring the perception of their utility function.

So, in normative terms, I so much agree, but in practical terms, it is a hell lot more complicated than this.

Sat, 10/15/2011 - 00:34 | 1776343 reader2010
Sat, 10/15/2011 - 01:23 | 1776393 blindman
blindman's picture

@ " government spending impoverished us all ....."
yea, but, then again, government is nothing but the
tool of the international fraud and crime syndicate lately.
so, i wouldn't blame the " people " much. look for the criminals.
the key characteristic is they became really wealthy doing
the crime syndicate thing. hmmm. mysterious. no?

Sat, 10/15/2011 - 02:29 | 1776420 BlackholeDivestment
BlackholeDivestment's picture to wonder why our love is not sustaining us. Are we so weak?


Sat, 10/15/2011 - 01:54 | 1776425 RagnarDanneskjold
RagnarDanneskjold's picture

That is a chart of growing takes less input to generate 1 unit of GDP. This is the kind of chart Soviet economists would have pored over for years, trying to figure out why their massive copper or nickle consumption was not resulting in better economic growth than seen in the West.

Main point isn't wrong, but this does not show it.

Sat, 10/15/2011 - 02:10 | 1776433 blindman
blindman's picture

thank you ellen and nicki minaj for the consumer
shopping spree.. luv
turning the adorable into the nasty, it is usury.
Sophia Grace and Rosie Go Shopping!

Sat, 10/15/2011 - 02:25 | 1776442 DalaiLamaInAShark
DalaiLamaInAShark's picture

GDP is a bullshit Metric. In the Internet age there are MUCH better measures of growth and output, but we'll never see the data. TPTB are all to happy with the status quo.

Sat, 10/15/2011 - 02:47 | 1776454 sporb
sporb's picture

I call Bullshit on this headline. Enough "stupid-fodder" already

Sat, 10/15/2011 - 02:56 | 1776463 3rivers
3rivers's picture

Tyler, I can't help think that many of you are just plain losing it.  Growth is real.  Every time I go into town, which is Chiangmai, it has changed.  There are more buildings, they are not empty buildings, there are more people.  I used to have to drive an hour to get to a US style grocery store.  Now I have 5 new modern grocery stores, Costco sized, in less than 30 minutes.  During the recent EU rehash of the Greece-Portgual-Italy ponzi banking scheme, which noone in Thailand except a few folks at the Bank of Thailand even know the slightest thing about, the baht has held rock steady. Another example, there were no nice coffee shops in the two amphoe districts my home straddles 5 years ago.  Now I have a choice of many very nice places to get an iced coffee.  Before most folks at best had a 100cc Honda scooter and a few had a pickup truck.  Befroe long Thailand was the #2 pickup truck market in the world.  Now just 5 years later cars outnumber those pickup trucks.  Growth is real, it's just not happening in the land of the Big Money.  If you are negative on the long term prospect of the US dollar, then I am quite onboard with that prognosis.

Sat, 10/15/2011 - 03:15 | 1776469 BlackholeDivestment
BlackholeDivestment's picture

...and 3rivers is a happy member of the Moloch Club. Lol Eat some Yahoo CISCO kid, in Hell.

Sat, 10/15/2011 - 04:40 | 1776529 jomama
jomama's picture

perpetual growth to infinity, bitchez!

btw i have been to chang mai, also the golden triangle.  used to be the largest heroin trading spot for centuries.

Sat, 10/15/2011 - 08:20 | 1776675 css1971
css1971's picture

Ding. We have a winner.

You can see the countries in ascendancy and those in decline.

Come to think of it I need that info for the world.

Sat, 10/15/2011 - 03:39 | 1776478 krispkritter
krispkritter's picture

Don't worry, 'they' have it all worked out: "Illinois Democratic Rep. Jesse Jackson, Jr. told The Daily Caller on Wednesday that congressional opposition to the American Jobs Act is akin to the Confederate "states in rebellion."! 

Hire all the unemployed for $40k a year and bailout all the states.

Honestly, if this doesn't make your head spin, you're already dead...I'm gonna go puke.

Sat, 10/15/2011 - 04:03 | 1776494 BlackholeDivestment
BlackholeDivestment's picture 

...well, at least there is living the fantacy, as we get the shit kicked out of our dusty asses.

Sat, 10/15/2011 - 04:06 | 1776498 AnAnonymous
AnAnonymous's picture

In the very best scenario all that would happen is a redistribution of existing wealth, yet all the legal fees would be additive to GDP. Yet no wealth would be created (except from the lawyers' perspective) and a great deal would be lost. It has always seemed to me that economic activity of this type forms a component of GDP the magnitude of which is unknown.


Funny how US citizens come to grow aware of a situation and admit it when the denial of the situation is no longer profitable to them. Here's zero sum games that are not supposed to exist until they are done at the expense of US citizens.

Still, what the guy misses and deny is that the level of activity has risen through this little trick. A weird miss for a US citizen as US citizens are so used to monetizing any kind of conflict in order to reap the profits off.

Sat, 10/15/2011 - 04:26 | 1776514 Incubus
Incubus's picture

Most of you monkeys don't give a damn about the military welfare system that's burdening this country.  Instead of making educated, useful citizens out of these bottom-feeders, we give 'em guns to go kill civilians in other countries--and give 'em paychecks for it too.


I've been unemployed in the past and I've never taken any sort of aid or unemployment check.  And even now I pay my way through McCollege. I've got too much pride for that shit--to take handouts.  You think you'd catch me sucking up money as some welfare recipient with a gun in the military?  to hell with that.  The problem is that most people have no shame, or morals. Those burdensome military monkeys should be beaten across their skulls with books;  a bunch of uncouth, shameless dogs, the lot of them. 



Sat, 10/15/2011 - 05:32 | 1776564 Debugas
Debugas's picture

the author rightfully points to the fact that GDP does not measure wealth but the author does not go far enough to introduce a real measure of wealth and that measure should be total networth of the economy.things that grow on their own (like forests) add up to the networth, things thet detoriate over time reduce the networth and then you have to repair those things to offset that decrease, if you take a loan you have more money but you also have a debt obligation so the networth did not change at all. So subtract the debt of the government maturing from the GDP and you have a better figure (still not very good figure because debts are spanned over long periods of the future but at least it is a thought in the right direction)


Sat, 10/15/2011 - 05:56 | 1776580 broke433
broke433's picture

Our GDP will be at 3% in no time due to iPhone4s sales

Sat, 10/15/2011 - 05:58 | 1776584 bill40
bill40's picture

This article is total BS.It is accurate but the only none wealth being produced is that of the bankster bitchez. It is they who have a virtual economy and they who own government.


Now if you are suggesting that the government and the banksters are one and the same thing I hear you. If it is a public=bad private=good diatribe then you are nothing but a corporate shill of a bankster bitch. 

Sat, 10/15/2011 - 06:03 | 1776586 Poor Grogman
Poor Grogman's picture

GDP. =. Global Debt Ponzi.

See it is measuring something accurately....

Sat, 10/15/2011 - 06:26 | 1776599 I am Jobe
I am Jobe's picture

The Washington Times broke the story of the SEC’s porn problem, which became the subject of numerous inspector general investigations, last month. And Dealbreaker subsequently published one report of an inspector general investigation into an SEC regional supervisor who viewed transvestite porn at work as stress relief.

Sat, 10/15/2011 - 06:41 | 1776610 Matto
Matto's picture

the only way to know what is productive activity in and economy is to hold the money supply constant and see what whats left in ten years time.

Sat, 10/15/2011 - 06:47 | 1776613 Poor Grogman
Poor Grogman's picture

Welcome to the new gilded age!

Sat, 10/15/2011 - 15:28 | 1777362 ozziindaus
ozziindaus's picture

What do you mean? Stop all personal credit? You do realize that the public accounts for more credit than the government and is a far greater driver of monetory expansion? Infact, about 4x more.

Sat, 10/15/2011 - 07:52 | 1776649 stickywicket
stickywicket's picture

70s was domestic peak oil - don't know why no one ever ties this "tidbit" in. It's the gorilla in the room. It's why we started inflating, it's what led to the "service economy". I guess it's obvious to me because the economies of Okla and Texas cratered, was a big deal in my neck of the woods. It's when Carter said "tighten belts" but Reagan said fuck that, inflate.

Sat, 10/15/2011 - 08:22 | 1776665 falak pema
falak pema's picture

The whole rationale of the Thatcher-Reagan, 'post industrial, service sector model', based on supply side, deregulated FIRE/risk asset hyperinflation, was to get the USA out of 'the smoke stack' industry, controlled by the Unions and doped on salary inflation indexed on the CPI. That was the rationale of Reaganomics and subsequent 'outsourcing' in NWO political framework, where the USA had no geo-political RIVALS (except its own hubristic greed building up the mega debt ponzi economy).

So the decline of metal pricing was logical in that context upto 2000, UNTIL the outsourcing strategy transfered SO MUCH WEALTH to the new cheap factories of the world (Chindia/Korea/Taiwan/Japan) that they could call SOME of the strategic shots in the global economy as creditor nations. That is what has created the current metal/food commodity bubble, whereas the first world only SWEARS by the risk asset virtual economy bubble. Now both are shown up to be what they are : interlinked, incestuous hyper ponzi bubbles. Hard landings ahead in both first and Bric worlds. 

Not enough hard assets to wipe out debts and lack of real economic growth.

It is NOT government spending in first world that has impoverished it. It is SELECTIVE government spending in non economic sectors (Wars, entitlements, huge local government budgets) without sufficient TAX base, running up deficits, laxist monetary policy, lack of infrastructure investment, bad urban planning (decentralised  long transit private transport fed on imported gas as opposed to public transport on renewables/local energy sources in short distance transit zones) , that has crippled the growth perspectives in an age of expensive imported energy. 

Sat, 10/15/2011 - 08:11 | 1776667 css1971
css1971's picture

The decline in metal consumption is a direct measure of the decline of real wealth. Yes, real wealth is not dollars, it is oil; it is copper; it steel.

Almost. I think you are basically right. People have no idea what wealth is, the stock market goes down and they claim wealth was destroyed... WTF?

I wouldn't use copper or steel though. They are just a proxy for energy.

Take a look at energy consumed per capita per year and you will see where wealth is being created. You'll see where you should be investing.

Sat, 10/15/2011 - 08:13 | 1776668 Atomizer
Atomizer's picture

We should all thank our lucky stars that true visionaries have our best interests in mind. Just earlier in the week, Mr. Greenspan gives us hope by revealing a solution to the housing debacle.

Greenspan reaffirms his view that what we should have done is "burn down" houses in the United States to solve the housing crisis.

Talking Heads "Burning Down the House"


By the end of the week, Maobama rebranded his Jobs Bill package to "Jobs Imagined"

Comrades, we are definitely on the road to recovery.


Have a good weekend ZH'ers

Sat, 10/15/2011 - 08:33 | 1776678 WoodMizer
WoodMizer's picture

Empires come and go, but one unifying sign the end is near is foolhardy aggressiveness.  Our government will spend our fiat into oblivion because; they think that we need them to spend it.  They think the sky will fall if govenrment cuts its' spending by half.  Keynes' theories allow government spending to be counted as growth, a half truth Amerikans depend on. 

On a side note, I just discovered Robert Foster.  Looks like Russia today is gonna give him a shot at television. 

Long live Juice News.

Sat, 10/15/2011 - 08:30 | 1776682 Thisson
Thisson's picture

The premise of this article is flawed: GDP is not, and never has been, a measure of wealth.

GDP is a measure of aggregate demand.  It is also, indirectly, a measure of production (since the amount demanded must be produced).

More importantly, some of the allegedly "non productive" components of GDP do in fact have value.  The legal system's "redistribution" of wealth is not arbitrary, it's to enforce a system of laws which is essential for the formation of capital to occur in society.

Also, the author imputes zero value to things such as art, music, and ballet, which obviously DO have value since people are willing to pay for them.


Sat, 10/15/2011 - 09:03 | 1776701 GS21A
GS21A's picture

Gross Domestic Product Govt Debt Payable... was a measure of product available for consumption.  But as the G is only a transfer payment, no matter from taxes or borrowing, it only doubles the C+I, so is always a distortion of available product or capital.  It might as well be C+I + (Future C+I - Current C+I) + (x - M) = GDP.  But, then the debt, represented by Future C+I, is not available at time of maturity, five, ten, twenty years out.  So the (Future C+I)*10Yrs is not available at the time of its maturity, and then the (Future C+I)*20Yrs is not available....  Gee, government transfers have stolen all our wealth. 

Sat, 10/15/2011 - 09:08 | 1776718 Grand Supercycle
Grand Supercycle's picture

SP500 / DOW daily charts remain choppy but bullish.

A reminder that SP500 / DOW weekly indicators now give bullish warning. If confirmed, it suggests significant equity rally this year.

Importantly, monthly charts remain bearish.

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