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Guest Post: The Shape Of The Debt Reset

Tyler Durden's picture


Submitted by John Aziz of Azizonomics,

I was asked recently by Max Keiser who benefits in the case of a debt reset, and when we should expect such an event to occur.



I don’t think I answered it as comprehensively as I should have. I talked a little about the fact that events leading up to such an event could be extremely messy and its impact unpredictable, and so it is hard to say who will benefit, although we can expect the powers-that-be  — and particularly the Wall Street TBTF banks — to try and leverage events for political and financial gain. And of course, all three kinds of debt reset — heavy inflation, liquidation or an orderly debt jubilee — would look very different.

Here’s the problem:

The crisis in 2008 was one fuelled by excessive total debt. As society became more and more indebted the costs of servicing debt became proportionally higher, which has made it harder for countries to grow. Instead of individuals investing their income, or saving it and using it to start a business, a higher and higher proportion of income becomes taken up by the costs of paying down debt.

Historically in a free market system, these kinds of credit bubbles have ended in liquidation of the entire bubble and all the bad debt. However the Fed’s money printing since 2008 (much like the Bank of Japan’s money printing in the 90s) has done just enough to keep the debt load serviceable.

The worrying thing is that Japan — which experienced a very similar series of events in the 1990s — remains in a high-debt, low-growth deleveraging trap. While the USA has managed a small decrease in indebtedness since 2008, it could take a very, very long time — Steve Keen estimates up to 15 or 20 years — for the debt level to fall to a level where strong organic GDP and employment growth is possible again. In my view, it is more likely (especially considering the Japanese example) that (with continued central bank assistance) there may be no long-run deleveraging at all, and that we may have entered a zombie cycle of reinflationary QE followed by market decline and deflation, followed by more reinflationary QE, etc. 

The point that I didn’t really emphasise to Max Keiser is just how beneficial a debt reset — so long as society comes out of it in one piece — will be in the long run. As both Friedrich Hayek and Hyman Minsky saw it, with the weight of excessive debt and the costs of deleveraging either reduced or removed, long-depressed-economies would be able to grow organically again. Yet after years of stagnation, a disorderly liquidation or inflation would surely be accompanied by financial, social and political chaos. And the cost of kicking the can and remaining in a deleveraging trap — as Japan has done (and as the US is now doing) — can have serious social consequences, such as elevated long-term unemployment, a deterioration in skills, diminished innovation and decreased entrepreneurialism.

I think this underlines the importance of trying to achieve the effects of a debt reset in an orderly way before nature forces it upon us again, and before we have spent a long time stuck in the deleveraging trap with a huge debt load relative to GDP, elevated unemployment, and very low growth. The least unfair way of doing this would seem to be the modern debt jubilee advocated by Steve Keen — print money, and instead of pumping it into the financial system as per QE, use it to write down a portion (say, $6,000) of each person’s debt load, and send out cheques up to an equal amount to those who are not indebted. Unlike with quantitative easing, because everyone gets the same quantity of new money, nobody receives a disproportionate transfer of purchasing power via the Cantillon effect, as happens not only with quantitative easing but also with more traditional monetary policy operations such as interest rate cuts, which are strongly correlated with disproportionately strong growth in the financial sector and bank assets. And the inflationary impact of the new money would be shared equally by everyone — rather than screwing pensioners or savers — because everyone would receive the same amount.

This is obviously not ideal, but it is surely better than remaining in a Japanese-style deleveraging trap.

Yet while most of the economic establishment remain convinced that the real problem is one of aggregate demand, and not excessive total debt, such a prospect still remains distant. The most likely pathway continues to be one of stagnation, with central banks printing just enough money to keep the debt serviceable (and handing it to the financial sector, which will surely continue to enrich itself at the expense of everyone else). This is a painful and unsustainable status quo and the debt reset — and without an economic miracle, it will eventually arrive — will in the long run likely prove a welcome development for the vast majority of people and businesses.


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Tue, 08/14/2012 - 11:01 | 2703770 mrktwtch2
mrktwtch2's picture

tell us something we dont that to much to ask for??

Tue, 08/14/2012 - 11:13 | 2703812 Stackers
Stackers's picture

Did you know the sky is blue because blue light waves are easier to scatter than longer red and yellow wave lengths ?

Tue, 08/14/2012 - 11:25 | 2703845 CIABS
CIABS's picture

I didn't know that John Aziz was a British kid in a T-shirt.

Tue, 08/14/2012 - 11:26 | 2703846 economics9698
economics9698's picture

Bankruptcy is the best option because it cuts off the flow of money to bankers.

Tue, 08/14/2012 - 11:39 | 2703893 French Frog
French Frog's picture

"This is obviously not ideal, but it is surely better than remaining in a Japanese-style deleveraging trap."

Unfortunately, every politicians would rather a big event did not happen under their watch, hence why the path of least resistance might just be a  Japanese-style deleveraging trap that goes on and on and on...

Tue, 08/14/2012 - 11:45 | 2703909 giggler123
giggler123's picture

It is important to point out that it worked for Japan when the rest of the world is OK but having everyone doing a Japan at the same time has not been tested.

Tue, 08/14/2012 - 12:03 | 2703970 economics9698
economics9698's picture

1.  Bankruptcy

2.  Austerity.

3.  Inflation.

4.  War.  

Tue, 08/14/2012 - 12:10 | 2703991 economics9698
economics9698's picture

Financial blow ups generally take 3 to 5 years, more towards the 4th and 5th year. 

Japan was a saving/exporting country and not like Europe/China/ or America.

Look for the fireworks soon.  When Germany, France, Spain, Italy breaks ranks you will see a lot of action in the bond market.  When that happens…

Economically the solution to prosperity is bankruptcy and a return to sound money.

Tue, 08/14/2012 - 12:57 | 2704144 Roger O. Thornhill
Roger O. Thornhill's picture


You missed showing it the way the cabal sees it.

1.  Bankruptcy

2.  Austerity.

3.  Inflation.

4.  War.  

5. ?????

6. Profit!


Tue, 08/14/2012 - 11:41 | 2703898 economics9698
economics9698's picture

John you need to lose the British accent.

Tue, 08/14/2012 - 12:04 | 2703974 economics9698
economics9698's picture

Who voted this down?  Never liked the Queens English.

Tue, 08/14/2012 - 11:35 | 2703880 Praetor
Praetor's picture


Nice facts, now s(he) knows.

Did you know the sky is blue due to the scattering by nitrogen gas molecules in the atmopshere? If we had a completely carbon dioxide atmopshere the sky would be red. ;-)

Did you know that neither of these gasses care about hyperinflation or debt jubilee?

Tue, 08/14/2012 - 12:46 | 2704109 francis_sawyer
francis_sawyer's picture

Neither does the Honey Badger...

Tue, 08/14/2012 - 11:05 | 2703781 realtick
Tue, 08/14/2012 - 11:51 | 2703920 Spigot
Spigot's picture

IMO the first two charts are appropriately viewed within the context of wave theory. The third chart (Fed) is not a market, not subject to wave theory. However, is it helpful to understand how actions on that chart effected the prior two charts.

Tue, 08/14/2012 - 11:06 | 2703785 Seorse Gorog fr...
Seorse Gorog from that Quantum Entanglement Fund. alright_.-'s picture

Did he just get out of bed?

Tue, 08/14/2012 - 11:06 | 2703786 Shizzmoney
Shizzmoney's picture

Bankers and economists expect that loans created by these debt bubbled will be paid....with interest....and made 100% whole.

They'll be lucky if they get 66% of that.

The fact that credit markets don't know this yet.....provess to me that a) they are really fucking stupid or b) manipulated by Central banks.

It's obv the ladder, with a little of the former.

Tue, 08/14/2012 - 11:07 | 2703789 centerline
centerline's picture

As if populations, social complexity, resource consumption, etc., etc. can continue indefinately.   

I am tired of the "growth" mantra.  Ever thought that "growth" is over?  What then?


Tue, 08/14/2012 - 21:24 | 2705575 Shizzmoney
Shizzmoney's picture

I am tired of the "growth" mantra.  Ever thought that "growth" is over?  What then?

That's what she said

Tue, 08/14/2012 - 11:09 | 2703795 LawsofPhysics
LawsofPhysics's picture

"...which has made it harder for countries to grow"


Stopped right there. Grow the fuck up.  Humanity is at the limits of growth, given the current state of technology.  In the absence of a debt jubilee, more debt or inflation will only lead to more capital and resource misallocation and malinvestment.

While TPTB may be able to print all the capital they want, not so with resources, hence, the dogs of war are barking louder every day,

hedge accordingly.

Tue, 08/14/2012 - 12:15 | 2704005 Spigot
Spigot's picture

IMO your equation has the terms in the wrong place and relationship. IMO the universal and continually expanding usage of debt has enabled humanity to grow itself beyond a level of sustainability within the context of the failure of such an economic infrastructure. We have added hundreds of years of growth in less than 100 years. The economic system is what is failing. Quite unfortunately, the end result for many will be very painful, or even fatal.

Tue, 08/14/2012 - 12:26 | 2704043 LawsofPhysics
LawsofPhysics's picture

Wrong, that is exactly what I am saying, thanks for proving once again, if you can't dazzle them with brilliance, then baffle them with bullshit.  eCONomics is a made-made construct, Nature really does not give a shit.

Tue, 08/14/2012 - 12:28 | 2704054 AnAnonymous
AnAnonymous's picture

IMO the universal and continually expanding usage of debt has enabled humanity to grow itself beyond a level of sustainability within the context of the failure of such an economic infrastructure.


What humanity? 'Americans' have grown themselves beyond a level of sustainability.

The other part? Not so much.

The world is finite and this is an 'American' world order.

In a finite world, when one participant has enough consumption superficy to consume beyond level of global sustainability, every other participant is de facto crushed by the excess of consumption, no matter one's own sustainability.

There are people around the world who are in a much more sustainable ways of life than the 'American' way of life. They have not grown themselves in the current state of the world.

No matter their actions, they are crushed by 'American' global impact on consumption.

Removing the non 'American' populations will not remove the sustainability issue.

Removing the 'American' populations, on the other hand...

But hey, 'Americans' are used to speaking on behalf of humanity so they have to fail to distinguish between themselves and others in cases like that.

Tue, 08/14/2012 - 15:07 | 2704684 forexskin
forexskin's picture

heya! and me thinking i was going to have to wait to tell the idiot to fuch off!

any more brilliant but pointless insights to offer? idiot?

Tue, 08/14/2012 - 16:06 | 2704895 odatruf
odatruf's picture

At least I could follow this rant.  Not talking about US Citizens(ism) helps.  He's still an asshat, however.


Tue, 08/14/2012 - 16:32 | 2704965 Panafrican Funk...
Panafrican Funktron Robot's picture

Where did Americans come from?  Who controls currencies?

Tue, 08/14/2012 - 14:13 | 2704233 Aziz
Aziz's picture

I would love for the true believers in Malthusianism and imminent Limits to Growth to read this and at least reconsider the parameters of their ideology.

Tue, 08/14/2012 - 15:19 | 2704726 LawsofPhysics
LawsofPhysics's picture

The 2 billion or so people that don't have enough food or clean water have a considerably different perspective.

Pull you head out of your ass and go study biological cycles such as the carbon, nitrogen, and sulfur cycle, to name a few.  all element flow through different oxidation states as a requirement for life on this planet (in a human-friendly form).

Either way, the planet will be fine, humanity will change it's ways or die.  Same as it ever was.

Tue, 08/14/2012 - 15:23 | 2704746 AnAnonymous
AnAnonymous's picture

Humanity does not have to change its way.

It is US citizen to include people who are out of consumption of a resource as an overconsuming pressure.

But hey, US citizenism is as US citizen does.

Only US citizens have to change their way of doing and this wont happen as their US citizen nature is eternal.

Tue, 08/14/2012 - 16:36 | 2704969 Panafrican Funk...
Panafrican Funktron Robot's picture

Probably the more useful deliniation would be white people, brown people, and yellow people.  The white and yellow people are going to need some substantial adjustment.  The brown people have already been living the suck.  You sound like a white dude, probably from the U.S. to boot.  Tell me, are you personally ready to live/die "sustainably"?

Tue, 08/14/2012 - 11:09 | 2703796 Mrmojorisin515
Mrmojorisin515's picture

I think the idea would work, but at the same time it doesn't take into account the giant companies that also make up a part of the status quo along with the banks and government.  I assure you sir that they are just as guilty as the banks, so even though this solution looks good on paper, an organic collaspe might be the only true solution.

Tue, 08/14/2012 - 12:00 | 2703958 XitSam
XitSam's picture

Unless the citizens suffer something far, far worse than what they have up to now, they will immediately start the debt cycle over again.

Tue, 08/14/2012 - 11:12 | 2703805 loveyajimbo
loveyajimbo's picture

So sending out $6,000 to each citizen... would be around $10 Trillion?  Would cause a brief spike and then we are stuck with a vastly higher debt load?  How would this in any way solve the main problem of over spending in DC and the structural lack of jobs?  Sounds more like an Obama election ploy... this author is usually sharp, bu tthis one flew over my melon.

Tue, 08/14/2012 - 11:55 | 2703936 Almost Solvent
Almost Solvent's picture

I don't think there would be any "debt load" - just FRNs printed out of thin air with no bond or other debt instrument attached to the issuance.


Inflation would most likely be an issue, however.

Tue, 08/14/2012 - 11:57 | 2703943 David Wooten
David Wooten's picture

It's actually only $2 trillion if you're counting US citizens.  But who's counting?

Tue, 08/14/2012 - 14:20 | 2704489 StackAttack
StackAttack's picture

I, for one, cannot wait to use my $6000 bribe check to buy 3-4 oz of gold.


Tue, 08/14/2012 - 11:12 | 2703806 Mrmojorisin515
Mrmojorisin515's picture

it also doesn't get to the root of the problem, which is money itself.  Now i am not foolish enough to try and suggest and answer to that, but under the current system the insiders will always win.  Why have we been reading this blog for so many years if we propose solutions that don't take into account the true problem?

Tue, 08/14/2012 - 11:12 | 2703807 Yen Cross
Yen Cross's picture

 Santelli just plugged Z/H on those , bogus "Retail sales" numbers. Nice work Tyler!

Tue, 08/14/2012 - 11:15 | 2703813 TahoeBilly2012
TahoeBilly2012's picture

Yea, and so this isn't enabled by the "enablers", but some mass moronic over shoot. They wouldn't of course be using the scenario to take out the rest of the Central Banks worldwide they are still after WHILE they put us broke debt slaves in total lockdown. This isn't planned, it's coincedental. I am tiredd of listening to would be intelligent US "men" take this subject about 1/3 of the way through intellectually....jive.

Tue, 08/14/2012 - 11:14 | 2703815 centerline
centerline's picture

Just FYI, printing a shitload of cash to give everyone a check DOES screw the savers in terms of immediate currency debasement.  It also has serious worldwide ramifications.  Given the host options in front of us, it is the "kindest and most equitable" of options - but really is nothing more than another "kick-the-can" move at best.



Tue, 08/14/2012 - 11:16 | 2703823 LMAOLORI
LMAOLORI's picture



"The crisis in 2008 was one fuelled by excessive total debt"


I feel sooo stupid here I thought the crisis was caused by the TBTF banks making sub-prime loans and then selling them to investor's worldwide as prime.  I also thought when they found out AIG couldn't cover they were like sharks smelling blood in the water. 

Hangs head in shame.

Tue, 08/14/2012 - 11:34 | 2703877 Lednbrass
Lednbrass's picture

So I am clear on this, your argument is that taking a loan is in fact not debt?

Tue, 08/14/2012 - 11:38 | 2703890 centerline
centerline's picture

I think he forgot the /sarc just make sure everyone got it.  Debt has to come from somewhere, eh?

Tue, 08/14/2012 - 11:47 | 2703912 LMAOLORI
LMAOLORI's picture



"Lednbrass So I am clear on this, your argument is that taking a loan is in fact not debt?"

No I am not saying that at all one person's debt is another person's assets. It is however fraud to sell something as AAA grade prime when it is in reality something akin to taco bell meat which I believe was 88% beef.

Tue, 08/14/2012 - 11:58 | 2703949 Dumpster Fire
Dumpster Fire's picture

I'm afraid to ask what the 12% is.

Tue, 08/14/2012 - 12:36 | 2704076 LMAOLORI
Tue, 08/14/2012 - 11:18 | 2703827 AGuy
AGuy's picture

"The fact that credit markets don't know this yet.....provess to me that a) they are really fucking stupid or b) manipulated by Central banks."

I think your over looking something important. If a large number of loans go bust, then all those bankers are out of a job. Most Bankers are working to hide the problem so they can continue to collect a paycheck. Most of the Bankers know about the problems, but promote propaganda using the media to hide the truth.

This is probably true for most institutional investors that are managing OPM (other people's money). Notice that most pension plans are heavly invested in this crap, yet where is the money of the investment managers? Its in US treasuries, PMs and other risk-adverse investments. If they really believed in the Credit markets, they would have invested there personal savings in the same crap that they invested OPM in. The Money managers make money of paper returns and projections. They make huge projections over a 5 to 10 year period, so they can get big bonuses now. By they time the projections are realized as huge losses instead of profits, they already made their money.





Tue, 08/14/2012 - 11:18 | 2703828 Dr. Engali
Dr. Engali's picture

Didn't the need for continued never ending growth get us into this mess? How about a nice steady economy where people can make  a living and get to save some of what they earn instead of having their wealth transfered to either end of the spectrum?

Tue, 08/14/2012 - 11:23 | 2703839 Dr. Richard Head
Dr. Richard Head's picture

THAT'S UNAMERICAN!!!! (at least in today's Amerika)

Tue, 08/14/2012 - 11:28 | 2703853 poor fella
poor fella's picture

but.. but... but.. what about the global economy and free-trade?!?!?  [said in the whiniest voice one can muster]

Tue, 08/14/2012 - 11:30 | 2703859 Sean7k
Sean7k's picture

You need the continued, never ending growth to conceal the dollar inflation that creates it. The worm ouroboros. Of course, the austrain business cycle explains all this. It also gives us a system where bankers and other corporate elites cannot transfer the wealth of all to their own accounts. That may be the problem- we want a fair system that is not excessively gamed- opps!

Tue, 08/14/2012 - 11:35 | 2703882 Dr. Engali
Dr. Engali's picture

We don't need the never ending growth...they do. Of course if we had real money we wouldn't have to he never ending growth to hide inflation.

Tue, 08/14/2012 - 15:54 | 2704858 AnAnonymous
AnAnonymous's picture

The US citizen middle class requires the infinite growth meme, not the upper or the lower classes.

Tue, 08/14/2012 - 11:19 | 2703830 SheepDog-One
SheepDog-One's picture

Its going to hit like a ton of bricks dropped from a crane, and far sooner than people believe....the banksters want 'Hated whitey repub' in there to take all the heat, theyll guarantee it with events in the coming days.

Tue, 08/14/2012 - 11:38 | 2703856 DOT
DOT's picture

Bush's Romney's Fault !

I support blaming Romney for the last eleven and one half years of the Chenney Administration.

Evil bastard !                                     

Tue, 08/14/2012 - 11:20 | 2703833 AssFire
AssFire's picture

Devaluation Bitchez

Tue, 08/14/2012 - 11:21 | 2703835 Winston Churchill
Winston Churchill's picture

Debt Jubilee ?

Only if its pried from their cold dead hands.

Tue, 08/14/2012 - 11:23 | 2703841 SheepDog-One
SheepDog-One's picture

No doubt, may as well be discussing unicorns that shit gold dubloons by the bucket alongside 'debt jubilees'.

Tue, 08/14/2012 - 11:26 | 2703847 Dr. Engali
Dr. Engali's picture

My unicorn shits gold eagles.

Tue, 08/14/2012 - 11:48 | 2703917 Winston of Oceania
Winston of Oceania's picture

We had a goose that worked something like that but we ate it...

Tue, 08/14/2012 - 16:17 | 2704921 Helix6
Helix6's picture

Actually, they ate it.

Tue, 08/14/2012 - 11:22 | 2703837 monogratis
monogratis's picture

The problem with the idea of a "debt jubilee" per Steve Keen, is that how does the government go about forcing people to pay down debt with "QE for the People" money.  You give people $6000 dollars and you expect them to pay down debt?  How do you force them to do that?  What if I pay down $6000 in debt and then go into another $12000 in debt after I open new credit card accounts.  What if I use that $6000 and leverage it into a massive bet and lose it all?  How about I use that $6000 to buy silver and everyone else does and we crush the JP Morgan short position and collapse the credit market.  

The unpredictable effects of printing money and giving it to people is foolish and the counterproductivity of such a venture is surely not being explored by these "free market Socialists

Tue, 08/14/2012 - 11:26 | 2703849 SheepDog-One
SheepDog-One's picture

And then why would anyone ever again do anything except run up as much debt as they can, knowing that theres no point paying off your debt when it will just be forgiven again sooner or later.

Tue, 08/14/2012 - 15:00 | 2704653 TPTB_r_TBTF
TPTB_r_TBTF's picture

The creditors will take everything the debtors have (possibly with future obligations too) to pay off as much of the debt as possible.  Only the "rest" of the debt will be written off in a jubilee.   A jubilee will not be "fun" for the debtor.  The debtors will learn a lesson...

Tue, 08/14/2012 - 15:55 | 2704861 AnAnonymous
AnAnonymous's picture

Currency issuers are the ultimate creditors.

Tue, 08/14/2012 - 16:22 | 2704933 Helix6
Helix6's picture

I think Steven Keen missed the function of the "debt jubilee".  The real function of that custom was to limit the amount of credit extended to a maximum of 7 years.  No one would offer credit beyond that point beacuse of the jubilee.  Furthermore, creditors would require hard collateral or indentures as conditions of credit extension, knowing that a jubilee was coming.  The jubilee acted as a kind of lid on excessive use of credit. 

Tue, 08/14/2012 - 11:34 | 2703876 DOT
DOT's picture

I believe the current scam is to give the money to the Bankers, who don't write down anything, then tax the sheeple to "pay" for it.

Tue, 08/14/2012 - 11:44 | 2703902 SheepDog-One
SheepDog-One's picture

What money do the sheeple have to tax, unemployment checks and food stamps?

Tue, 08/14/2012 - 11:47 | 2703913 Winston of Oceania
Winston of Oceania's picture

Because you won't be able to borrow until/unless you have sufficient collateral or in other words you don't need the money.

Tue, 08/14/2012 - 14:28 | 2704513 StackAttack
StackAttack's picture

Speaking of crushing the JPMorgan silver short position... I've often wondered if we here at ZH can't plan a coordinated effort to do this.  We all know that the move only takes a small percentage of participants to make this happen.  I know some of you are already all-in on PMs, but if we saved our dollar-cost-averaged PM purchases up for a few months, then pulled the buy trigger all on the same day...  BOOM GOES THE DYNAMITE!!!  Give them a taste of their own medicine.  Wouldn't that be sweet?!

I nominate October 8th as the day for this, in honor of silver's atomic weight of 108 -> 10/8 (sorry for you non-Americans who think 10/8 is August 10th... that day has already passed, anyway).

Tue, 08/14/2012 - 11:24 | 2703844 Quinvarius
Quinvarius's picture

Japan style QE won't work here.  Japan wasn't the world reserve currency or a military power.  It had nothing to lose.  The world had nothing to lose by letting Japan go its way.  The USA cannot maintain another 20 years of depression and still be the USA.  Japan style deflation will result in total collapse.  It is like comparing a college student with a credit card to an adult with a mortgage, massive debt, car payments, kids, a wife, ect.  The scale of one playing the delayed payment game or working for tips to get by is totally not comparable to the other.


Tue, 08/14/2012 - 11:34 | 2703875 Patriot Eke
Patriot Eke's picture

Perhaps that's the plan.  I'm not saying you're one of them, but I get the feeling a lot of Americans think, "That'll never happen here" simply because we're in America.  The Romans probably thought the same thing.  Every empire has.

Tue, 08/14/2012 - 13:41 | 2704336 Anusocracy
Anusocracy's picture

Uh-oh. Empire broken?

Tue, 08/14/2012 - 14:34 | 2704526 StackAttack
StackAttack's picture

True, Quinvarius.

Japan's stagflation/recession/depression was, I would think, partially offset by still strong economies/currencies in the rest of the world (USA/EU/etc) importing their products.  Without a big economic engine running somewhere on the planet, the situation gets much worse for countries facing similar.  And, there is no engine bigger than ours, right now, so for us to face it... BIG DIFFERENCE FROM JAPAN!

Tue, 08/14/2012 - 16:44 | 2704984 Panafrican Funk...
Panafrican Funktron Robot's picture

What's the alternative?  Oh, shit, there is none.

Tue, 08/14/2012 - 11:31 | 2703860 AGuy
AGuy's picture

"there may be no long-run deleveraging at all, and that we may have entered a zombie cycle of reinflationary QE followed by market decline and deflation, followed by more reinflationary QE, etc. "

This seems unlikely as some nations, Germany and most norther EU members won't play ball. Sooner or later they kick away the last leg holding up the "Euro" table. I also doubt that the US can sustain itself using QE. Today the US national debt is at 16 Trillion and climbing fast. With boomers now retiring and drawing ever larger and large sums of month from entitlements and pension plans its difficult to see  and long term stability. The US might be able to hold out for another 4 to 6 years. Beyond that its very unlikely that the US will avoid a tipping point.

This years global drought might just be the tipping point that breaks QE. If this seasons harvest does result in significant shortages it's going to kick off a global food inflation problem. This could result in kicking off double digit inflation for everything, and also cause a stagflationary global economy. QE would be worthless, and would just bring about hyper-inflation. The only choice they would have is raise interest rates, but that would bankrupt many nations (including the USA)  since many have excessive debt loads. At most the US gov't can raise rates to about 3.0% to 3.25% without defaulting. That is not enough to stop inflation.





Tue, 08/14/2012 - 16:46 | 2704989 Panafrican Funk...
Panafrican Funktron Robot's picture

"At most the US gov't can raise rates to about 3.0% to 3.25% without defaulting."

I would suggest that the current rate is actually the max pain point.

Tue, 08/14/2012 - 11:32 | 2703862 Zola
Zola's picture

Better to tank the banks and remove the stupid laws restricitng anyone from opening their bank. With free market banking, these clowns TBTF would be out of a job in no time.

Also issue a letter of mark & reprisal on Bernanke and any other counterfeiter and you've solved 8/10 of the problem.

Repeal the income tax that gives values to the treasuries where the anti dog eat dog communists stash their ill gotten gains.

Partial defaut on national debt until DEBT/GDP <50% . 

Tue, 08/14/2012 - 11:45 | 2703906 noel8
noel8's picture


Please do not save, do not pay down debts "you can ALWAYS roll IT over " restructure and now even think of getting   a debt reset,  

 So do not improve your balance sheet with real sound money  

  BUY anything from equities bonds real estate. Distressed debts. Mortgages ... with  poor collaterals  and  make more debts 

 you will be helped with the money of  the stupid savers,  the unlucky one's on fixed income,( with real rates negative they will get nothing in return and will loose purchasing power)  and the ones who bought those debts..




Tue, 08/14/2012 - 11:45 | 2703907 JR
JR's picture

I can’t believe a debt Jubilee is what Hayek would have called for. As a practical matter, it wouldn’t work. After the $6000 is doled out, what then?

Once again, the Establishment and its supportive critics provide us with the alternative of only two alternatives – continued stagnation with enrichment of the financial sector or forgiveness of debt (forgiveness of crime).  Either way, the banking syndicate wins.

The third alternative, never mentioned by those who support the modern Keynesian economic pattern, is to haul the culprits to jail and reset not the debt but the rules that govern the economy. And this can be done when the rebellious people finally reach a crescendo demanding justice, perhaps not very far away.

Once you have economic justice, a true market regained and those who violate it punished (by taking away their ability to have a bank, i.e., disapprove Goldman so they can’t operate anymore) the advantages would be incredible. Then you have the beginnings of genuine economic growth from the people who produce and earn it.

In short, stop corrupt Keynesianism, rise up against the Fed, don’t accept the banker alternatives, and push for prison terms.

Tue, 08/14/2012 - 16:26 | 2704948 Helix6
Helix6's picture

Aaaahhh!  The proverbial voice, crying in the wilderness!

Tue, 08/14/2012 - 11:48 | 2703916 johnjkiii
johnjkiii's picture

Maybe we could exhume George McGovern too! He could raise the bet to $10,000 each and we'd all have a lovely Christmas.

Please, somebody tell me when the bullshit economics will end.

Tue, 08/14/2012 - 11:55 | 2703928 Bam_Man
Bam_Man's picture

John apparently hasn't noticed that the "debt jubilee" is already happening.

Of the six people/couples I know that have mortgages, NOT A SINGLE ONE is making payments. All are living in the un-foreclosed home - some for as much as three and a half years at this point. And stupid me, I paid cash for both my houses.

Tue, 08/14/2012 - 12:02 | 2703964 Almost Solvent
Almost Solvent's picture

Exactly. Within another 5 years, I doubt anyone will be making any mortgage payments. My wife & I make them only becasue we can afford to. We figure that once gas hits about $7/gallon, all hell will break loose.

Tue, 08/14/2012 - 12:01 | 2703961 bankruptcylawyer
bankruptcylawyer's picture

better to do this or that or BLABLABLA


what a bunch of F-ing nonsense. 

no one on these boards is going to come up with a good idea for getting things 'done' because all you fools are busy waxing on about what the best theoretical action is. 


you can't implement a theoretical action to achieve a desireable outcome without first mapping out the field of possible actions. The theoretical mumbo jumbo above always fails to talk about what actions are actually possible. 

for example---legislation is frequently talked about. how on earth is any legislation going to be achieved if 1) no one on here controls who writes what legislation in congress let alone who gets elected

2) no one on here can attest to the fact that even if legislation were written to make law these theoretical 'plans' that the other arms of the govenment---executive branch and courts----would not obstruct the execution of these laws. 

so rightthere-----the above article is about a debt 'reset'. as if the writer is totally Fing blind to the realities of life. 

debt is being 'reset' for peeople all the time who go broke and declare bankruptcy or get kicked out of their houses in foreclosures. ----the debt that is not being reset and it being rolled over with printed money is being funded ultimately by the fed. mr azizonomics doesn't control the fed, he doesn't control anything related to the functions of the fed, and nor will anyone who only possess theortetical ideas about what the fed should do have any control over the fed. 


the question is ----why, when people have been talking about the obvious solutions for years---why has nothing of substnace actually been done. I for one blame everyone. the academics need to start addressing the underlying impotence of the american public and how to begin remedying that. 


occupy wall street is still out there trying to 'occupy' the world. they are a bunch of fruitless morons and yet, they still understand the utility of 'trying'. perhaps they can be useful idiots to some other group that has a better idea about pursuing 'action' rather than pontification about theory. there must be , of course, a theory of action. but mere 'ideas' like the thoughts above, about what ought to happen, is not a theory about how action must be taken to make certain outcomes happen. it is just the obvious desired outcome desired , described at length. 

it's simple, the question is how do you bring about the collapse of the system as quickly as possible. The answer is by gaining the necessary amount of control over the system. In a dysfunctional government , you do not do this by playing on the terms of the government--by playing their game. they already control the game. voting is an utter waste of time. even dangerous to the person who wants to 'act' , in so far as voting provides them an excuse not to 'act'. 

assymetric tactics are the only way to take control over a systsem that has set up, and exploited the rules for its own perpetuation. In the u.s. , one of the primary rules of exploitation are controlling the money supply. The only way to get assymetric control over this power is to do that which attacks the fed and forces their hand. forces them to hyperinflate---or to totally cut off all credit and drive the system into a credit collapse. the longer they run the middle, the longer they retain control by retaining the ability to contro lthe money supply. a hyperinflation or hyper deflation by definition are outcomes that preclude the effectiveness of currency manipulation ; when your car falls off a cliff, the acceleration pedals, or the breaks, are of very little use. 


if you ask me, the above article has it very wrong. the 'debt reset' would be just as well if we could manage to drastically accelerate the level of debt out there. why? because drastically increasing the level of debt would ensure a more rapid approach towards hyperinflation. the sooner we get to a monetary cliff the quicker the fed loses its power. 

while many people feel the fed and the banks and the govenrment is doing a bang up job in making this happen as quickly as it possibly can ( and that the system is collapsing on itself faster than you could hope ) there are others that suspect a protracted decades long japanese style game can be played. 

ive watched the past 4 years dumbstruck by the fact that the game was played as long as it has. And from this, my conclusion is that it can go on a great many more years with the fed in control for far longer than anyone here would care to accept. 

Thus----there is a need for action, not just talk. and anyone saying otherwise, that one ought to just turn their backs, stockpile and hoard and prepare for the apocolypse and just wait----is someone who is actually contributing to the problem of convincing everyone there is nothing you can do about it. there is something you can do about it, and by refusing to participate in collpasing the system, you are contributing the circumstances which allow the system to perpetuate itself. 





You are not going to have some sort of subtle aibility to control the 'collapse ' or otherwise. 

Tue, 08/14/2012 - 12:38 | 2704086 AnAnonymous
AnAnonymous's picture

But I am an American and we, Americans, are destined to prevail.

Signed: an American.

Tue, 08/14/2012 - 12:58 | 2704147 JR
JR's picture

The Fed’s currency bag of tricks is unlimited. Example: Oil is a quasi-currency. When the price of oil goes up, it creates more money. Oil money that isn’t spent is sent through the bankers who leverage it and lend it out; Banker Big Oil then cries inflation and raises the price of oil again to get even. “A higher-price for oil sucks money out of an oil-consuming country,” Paper Money points out. “That country then has less money to spend for cars and apples and gasoline. Less money, less activity, recession, unemployment. Deflation—the oil price increase acts like a tax. In the oil-consuming country there is less money…” And, so, the Fed prints a little more money…

As British banker Lord Armstrong said, money is gaseous rather than liquid, literally uncontrollable: “Like fire; you must prevent it from getting out of hand.”

“When Peter Pan’s invisible friend Tinker Bell is dying, he steps out of the play, goes to the footlights, and addresses the audience directly. ‘Do you believe?’ he asks. ‘Say you believe! Clap your hands if you believe!”

“’What happens,’ I once asked a Broadway actress who played Peter Pan, ‘if the audience doesn’t clap?’

“She said, ‘The show would not go on…’” – Paper Money

Tue, 08/14/2012 - 16:46 | 2704991 Helix6
Helix6's picture

no one on these boards is going to come up with a good idea for getting things 'done' because all you fools are busy waxing on about what the best theoretical action is.

So... if I read this correctly, you're suggesting that no one has the right to comment on things that are not under his/her control?  Whatever happened to petitioning for redress of grievances?

ive watched the past 4 years dumbstruck by the fact that the game was played as long as it has. And from this, my conclusion is that it can go on a great many more years with the fed in control for far longer than anyone here would care to accept.


there is something you can do about it, and by refusing to participate in collpasing the system, you are contributing the circumstances which allow the system to perpetuate itself.

Help me out here.  Somehow, I missed exactly what you are suggesting I do about it in your rant.

But here I will make a prediction.  We are entering a new feudal era.  Societies advance when economic surplus grows and is spread widely, thus creating many possibilities for innovation and investment by a large segment of society.  Societies stagnate when economic surplus either declines or is concentrated in few hands, thus depriving many members of the society the means to innovate or invest.  Feudalism results when all surplus is captured by the rentier class, leaving all others to serve them while living at a subsistence level.

As the world learned from the experience of the Middle Ages, this is a highly stable system of social organization that can last literally for a thousand years.

Tue, 08/14/2012 - 17:07 | 2705029 Panafrican Funk...
Panafrican Funktron Robot's picture

I agree with you Helix, we're essentially in the oligharchy phase already.

Tue, 08/14/2012 - 17:05 | 2705023 Panafrican Funk...
Panafrican Funktron Robot's picture

I agree with your words regarding this article, all these hilariously small incremental changes would do fucking nothing but keep us trapped in the bullshit.

I also agree with you regarding a large quantity of people who have caught on to the need to prepare, that are doing it for selfish reasons and are not considering their responsibility to give a fuck about their neighbors.  

I tend to side with the viewpoint that minimizing participation in debt to the greatest degree possible is actually a quicker ushering mechanism towards getting us to the other side of this.  I see your point regarding taking on a fuckload of debt and then just not paying it, but that tends to attract all kinds of unsavory elements into your life.  Doing things like converting your fiat to actual currency, focusing your purchasing on stuff that enriches your local producers of goods, banking outside the TBTF system in instances you need fiat, educating your neighbors and friends and helping them out of their slavery, these are all actionable things we can do.

Tue, 08/14/2012 - 12:01 | 2703962 putaipan
putaipan's picture

all of you poo-pooing steve keen on the basis of the "6000$" need to go listen to the man....just like hudson,bill black etc- this proposed solution comes with prosicutions , monetary and tax reform. sheesh.

Tue, 08/14/2012 - 14:04 | 2704420 bankruptcylawyer
bankruptcylawyer's picture

everyone knows what the 'solutions' are steve keen is not proposing to do anything about bringing those solutions about except taking your money and talking------this is what lobbyists do only for the 'bad' guys and much more effectively.


instead steve keen should be talking about cost effective ways, to actually change how things are done. not ask for money to talk the same bullshit as always. you think bill black isn't a broken record? steve keen can eat my shit. these 'good gusy' are just selling the same old set of 'ideas'. don't believe the shit they say, they take money for advice, not for action. they don't DO anything. just sit and talk. and wax on philosophical ignoring the reality that the problem is not finding solutions. it's how to implement the collapse of the system that is preventing solutions from happening.

Tue, 08/14/2012 - 12:23 | 2704033 dwdollar
dwdollar's picture

Debt forgiveness and free money isn't the answer. Reckless behavior isn't corrected and savers are screwed yet again.

Tue, 08/14/2012 - 12:28 | 2704055 JLee2027
JLee2027's picture

Create your own debt jubilee. Stop paying paper debts. Put your savings into physical Gold and Silver (especially silver). Pull all cash out of the bank, leaving only a minimum balance.  Close all 401Ks, IRA, other retirement accounts.

Come on guys. You want the system dead? It's under your control. Do it.

Tue, 08/14/2012 - 12:29 | 2704057 Hayabusa
Hayabusa's picture

$6,000 per citizen... comon, what a moranic solution!  This is like giving my kids who spend every penny they get as soon as they get it an even larger chunk of money to spend/waste.  Sure, it would temporarily "stimulate" the economy (unless the sheeple receiving it purchased physical gold with it).  It wouldn't be long before we were all back facing the same systemic economic problems... it's a temporary solution to a long-term problem populated with greed, corruption and headed up by the biggest kleptocracy the world has ever seen.  Would the rich consider it... perhaps as a bribe to the 99%ers to shut their mouths and turn a blind eye to the TBTF banksters, the Fed, etc., yes, the not so bright low earning underlings view 6k much differently than the rich do and view the 99% MUCH differently than their own rich peers - to them the 99% are nothing more than irrating insects who can be satiated with mere table scraps.  I don't know about the rest of you, but you can't buy me off for a paltry 6k while the banksters concurrently steal trillions from the rest of us on an ongoing basis... although it help if it came directly out of the bankster's pockets... this proposal would essentially give us all money "out of our own pockets" put us all deeper into debt and debase the money supply even more.  I don't critisize often, but the preceding "solution" is among the most moranic proposed to date... after reading a few of the comments following it it's clear to me some of you out there are brighter than others.

Tue, 08/14/2012 - 15:29 | 2704767 Stuck on Zero
Stuck on Zero's picture

I like the idea so much that when I get my $6000 check I'm going to go out and use it as a down payment on a $50,000 Japanese car!


Tue, 08/14/2012 - 12:35 | 2704071 AnAnonymous
AnAnonymous's picture

US citizens have issues with the physical world or more exactly are so self absorbed that their personal situation overrides the physical world reality.

Jubilee is US citizen wet dreams as US citizens are the most indebted ever.

Back to reality though, a jubilee with the current level of consumption as brought by US citizenism would be a suicide.

Debt is about bringing the future into the present. And repaying the debt is about bringing the future back to the future.

A jubilee has light consequences when you consume the future lightly. When you consume the future as US citizens have been doing, maybe time to rethink the punk attitude...

Tue, 08/14/2012 - 15:13 | 2704708 NotAMathWhiz
NotAMathWhiz's picture

Do you ever get the feeling that no one is really listening to you?

Tue, 08/14/2012 - 15:58 | 2704869 AnAnonymous
AnAnonymous's picture

For what use?

When you have nothing to answer, it is better not to listen or at least feign not listening.

'Americans' have proven so far they have nothing to answer to 'Americanism' features.

So why should they pay attention to something they can not control?

It would not be of their eternal nature.

Tue, 08/14/2012 - 12:35 | 2704073 blindman
blindman's picture

it will be about transitioning out of the one
and into the other as is ongoing. the lie is that
they care about the old unit while they destroy it
as the destruction of it takes place systematically,
transferring the value to the first recipient in the system, (cantillon apparently)
the bankers, who will recognize the transition mechanisms
and will steal the value from the old and invest it into the
new or transitional (traditional) store of value, of course with a new
rightful owner, themselves. the fed’s job here is to
destroy the dollar while appearing to save it or something
which is even more important than it. the game is old,
messy and unpredictable but hyperinflation does not hurt
everyone, (just the people), not permanently. it is part of the transition which
is required due to the nature of the flawed system itself.
that is part of the fantasy of the system, that it has integrity
and can work in the long run for the people by some tricle on effect. no, it can’t and will not. a transition
is required so …..there is only one option.
this system guided by the parties interest with their hands on the levers will choose hyperinflation, the wrong solution, out of their own self interest and with inside knowledge of timing and transition mechanisms.
and it all goes back to precious metals and the
rule of law, or guns and butter.
but this time, global hyperinflation/extreem
inflation, the idea of fiat money itself will
be challenged on a global scale. all of it.
and the longer the status quo is maintained,
whatever that is, the more stealing can take place
by the friends of the central banks.
"Richard Cantillon
From Wikipedia, the free encyclopedia
Richard Cantillon
1734[2] (aged about 54)
London, Great Britain
Notable ideas
Entrepreneur as risk-bearer,
monetary theory,
spatial economics,
theory of population growth,
cause and effect methodology
Richard Cantillon (1680s – May 1734) was an Irish-French economist and author of Essai sur la Nature du Commerce en Général (Essay on the Nature of Trade in General), a book considered by William Stanley Jevons to be the "cradle of political economy".[4] Although little information exists on Cantillon's life, it is known that he became a successful banker and merchant at an early age. His success was largely derived from the political and business connections he made through his family and through an early employer, James Brydges. During the late 1710s and early 1720s, Cantillon speculated in, and later helped fund, John Law's Mississippi Company, from which he acquired great wealth. However, his success came at a cost to his debtors, who pursued him with lawsuits, criminal charges, and even murder plots until his death in 1734." ...

Tue, 08/14/2012 - 12:50 | 2704126 areopagetica
areopagetica's picture

"So long as society comes out in one piece" -- that's the part that needs some discussion.  Falkenstein recently put the question this way: "I'm afraid we won't bounce back like Germany after Hitler, but rather slog into the abyss like Argentina. Perhaps kicking the can down the street will make us like the fall of Rome, a multi-century long slide."

Tue, 08/14/2012 - 13:03 | 2704165 SgtShaftoe
SgtShaftoe's picture

Thinking that we can do a "Japan" is a big big IF, so much so, that I think it's impossible except in economic models.  Japan was able to do it for as long as they have because of very country specific factors, namely savings, organic bond purchases, etc.  The US suffers from the Red Queen Problem, (run as fast as you can to stay in the same place) with every debt/leverage acceleration amplifying an error.  If we stumble, we crash, and in a year or two, once debt has increased more, if we so much as miss a perfect step while running 1000 KPH, we crash. Additionally, since much of out debt is held world wide, it doesn't necessarily need to be us that make a mistake.  A crash is inevitable.

For that reason, a Japan outcome, (historically speaking, not what's coming for them very soon) is highly improbable.  We will crash sooner, or later.  Every day that passes makes the inevitable crash bigger, and the trail becomes more treacherous and harder to travel. 

Tue, 08/14/2012 - 13:20 | 2704240 Aziz
Aziz's picture

Heh. I was talking about Japan's endless zombie cycles as a bad outcome. It's true America is potentially in line for much, much worse.

Tue, 08/14/2012 - 17:14 | 2705045 Panafrican Funk...
Panafrican Funktron Robot's picture

"Additionally, since much of out debt is held world wide, it doesn't necessarily need to be us that make a mistake."

What do you say to the idea that the Fed is buying up US debt for this specific reason, ie., to take those cards out of their hands?

Tue, 08/14/2012 - 14:12 | 2704446 blindman
blindman's picture

Eustace Mullins - The New World Order (Full Length)

Tue, 08/14/2012 - 14:27 | 2704510 Westcoastliberal
Westcoastliberal's picture

I like the $6,000 check jubilee.  Make that $6,000 to each taxpayer earning less than $200K.  Then assess a one-time charge to each taxpayer earning $1MM or more. Scale the % dependent on the source of their income (wages less, bonus/investment more).  Do the same with multinationals and heavily scrutinize their return for income attributed to "foreign operations" so they can't cheat.

Bottom line, milk the cow like they've been milking us.  Of course this is just a dream; it'll never happen so long as money controls politics and politicians.

Tue, 08/14/2012 - 14:46 | 2704569 earleflorida
earleflorida's picture

Excellent !

Your a pragmatic futurist that' s well grounded. Indeed, your spot on with the "Three Alternatives"... until then, kick, kick, and kick reality into the 'Twilight Zone', says it all!  

Great Post and interview with Max

Thankyou John

Tue, 08/14/2012 - 15:05 | 2704669 DR
DR's picture

War always makes for a good debt reset.


Cmon China...Go ahead, make my day!

Tue, 08/14/2012 - 15:39 | 2704768 jimthorp
jimthorp's picture

The powers that be have already had their own debt reset, why not let the general population have the same benefit.  The fed should lend trillions of dollars to the general population @ zero percent  and allow them to reinvest the money back into treasuries untill they have generated enough income to sure up their balance sheets, pay off their debts  and pay themselves a  multi million dollar bonus.  Or does being a  bankster  allow you to  fail and qualify you for more than $6000.00..  

Tue, 08/14/2012 - 18:38 | 2705216 ammo42
ammo42's picture

The least unfair way of doing this would seem to be the modern debt jubilee advocated by Steve Keen — print money, and instead of pumping it into the financial system as per QE, use it to write down a portion (say, $6,000) of each person’s debt load, and send out cheques up to an equal amount to those who are not indebted.

This is what is advised by the Théorie Relative de la Monnaie (Relative Theory of Money) paper available here (link and paper in French):

It advises printing around 5% of the monetary base every year, equally distributed between citizens, which is justified on the grounds that it is the only way to have equal access to money in space and time (the precise money printing rate is computed considering the demographics, and sets a compromise between the already-rich and the newcomers).

And also, it advises full-reserve banking and forbidding nominal interest rates above the monetary expansion rate: at least the banker kleptocrats won't get as filthy rich as now.

As a final word, to the gold-obsessed commenters: would you rather have your currency supplied by equitable printing, or by giant South African and Australian mining companies ?

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