Putting The Cart On Top Of The Horse, Or Why Heaping Fiscal "Stimulus" Upon "Stimulus" Is Suicide For America

Tyler Durden's picture

Every time someone mentions fiscal stimulus (and specifically the failure thereof), the conversation, after repeated empirical demonstrations that said stimulus virtually always ends in tears, will veer to the Economics 101 textbook definition of the savings-investment identity, in which Investment = Private Saving + Government Saving + Current Account (the simplistic argument goes that a surge in Government Savings, i.e. austerity, means a plunge in net investment as the private sector is unable to step up), which more than anything, seeks to provide the last possible goalseeked explanation of why Keynesian assumptions still work in post-modern monetary environments, in which monetary policy has passed into the twilight zone of global central planning (i.e., money printing is rampant and thus textbook definitions of "savings" in a ZIRP environment are completely irrelevant). The irony, as so often happens, is that those who invoke this identity (which John Hussman has done a very admirable explanation of here) mix apples and oranges, and use, incorrectly, a monetary flow concept to explain what is fundamentally a production efficiency and labor (and post facto: consumption) phenomenon. That many of said proponents also make the gross mistake in assuming that in some perverse post-Keynesian universe a reserve currency issuer (however temporary, because there is no such thing as permanent reserve) can issue an infinite amount of debt, which by implication would result in the grotesque lim interest rate=0 as debt issuance ->infinity is inconsequential: this may work in a black box vacuum, but most certainly does not work in a globalized world in which currency, and yes, binary reserve status (consisting of 1s and 0s), is fungible with a keystroke (ref: the historic August 22 start of Renminbi futures trading which the CME today disclosed the margin requirements for). What this lengthy preamble tries to say is that feeding the government monster is, contrary to what Krugman and other Keynesians will tell you, in the current regime of coincident monetary irrigation, an exercise in futility. Perhaps nobody does a better job to explain said futility than Bill Buckler in his latest edition of The Privateer, which we urge everyone, and most certainly the POTUS who just requested more fiscal stimulus, to read in order to take a step back from theoretical, and wrong, textbook formulations and to see the stimulus forest for the burning trees.

Putting The Cart On Top Of The Horse:


For a human lifetime, since the 1930s in the US and across the developed world, the health and “growth” of an economy has been “measured” by how much has been consumed. Part of this consumption, it is true, is the natural result of prior production. But over the decades, an increasing proportion of it has been done by means of borrowed money. Worse still, the calculations of economic “growth”  have included consumption by government. Government, by its nature, produces NOTHING. Any government, even one which is limited to protecting life and property and issues no debt whatsoever, is a cost on the economy. The fact that this cost is necessary does not negate the fact that it is a cost.


It is one thing to measure this cost in terms of money. It is another thing entirely to measure it in terms of the real wealth which has been consumed by government. The ONLY way to increase the wealth of an individual or a nation of individuals is to produce MORE than is consumed. The difference - which is SAVINGS - can then be used to produce more real wealth with more efficient means and thus less real effort. This is the only way that an economy can genuinely “grow”. This is what transformed the US from an all but untouched potential into a continent-girdling economic powerhouse. It was not done by means of currency manipulation. It was not done by means of government borrowing. It was not done by all encompassing rules and regulations. It was done by means of political AND economic freedom.


It cannot be done in any other way. Increasing the units of the medium of exchange will NOT do it. Increasing the debt burden on generations to come will not do it. These things will do the opposite. They will and have inexorably led to capital consumption. The results of capital consumption are visible all over the world today - but in few places is the evidence more stark and obvious than it is in the US.


The century-long experiment of putting the cart on top of the horse has all but killed the horse. There is no way that the genuine productive capacity of the US economy can keep up with the government’s stampede into unrepayable debt. In reality, the US government has destroyed the productive capacity of its people. If they refuse to realise it - the economy and the markets will do it for them.


That process began on August 4 when US stock markets had their worst tumble since February 2009.

When all the wooden philosophers, tenured academics, ivy league economists and constitutional lawyers understand the message in these 5 simple paragraphs, then, and only then, can America maybe resume its way to prior greatness.

Until then, we are merely digging our way out of very deep hole, increasingly "faster" and "faster."

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pappyhlace's picture

this is all a game of musical chairs

enjoy it while the music is playing

trav7777's picture

these articles are so much mental masturbation by people unwilling to accept that the Era of Growth was ended by world Peak Oil.  None of this monetary or fiscal shit matters, because oil cannot be printed.

Dunno which is worse, the delusions that we can restart growth by fiscally stimulating or that if we just "let the debts go" that we'll achieve a new era of growth after that.  Neither side can face the hard truth.

RockyRacoon's picture

Gold cannot be "printed" either, and it was in use long before oil was a commercial good.   Posts like yours are so much mental masturbation by one who is unwilling to accept the fact that OIL is a passing energy source just like others which have dropped into obscurity or minimal use.   Peat anyone?

Mad Max's picture

There is some hope in Gen4 reactors and the Thorium fuel cycle.  Some.  And post-Fukushima it seems unlikely that anyone other than China, and maybe India, will continue work on nuclear power.

So yes, by all means, go back to peat.  Peat will power your central electric plants, your car, the combine, airliners, etc. etc.  I'm sure.  There can't possibly be any issues of energy density or flexibility of use.

World oil reserves were like a massive inheritance.  That inheritance is now largely consumed.  Some of it went for good use, some neutral, much ridiculously stupid, but so much is gone.

Please, tell us how whale oil will save us.  I'm sure there are a few whales left that the Japanese haven't killed.

CrockettAlmanac.com's picture

Rocky is saying that human ingenuity will find new methods of power generation. What will they be? I don't know because I'm not a 21st century James Watt. We'll have to wait for such fellows to reveal their ingenuity but if we don't stifle the market or blow ourselves up such advances are a certainty.

Rocky is not talking about looking backwards and using peat or whale  oil. Seems that you've chosen to willfully misunderstand him.

Flakmeister's picture

I think you don't have clue what is Rocky really said...

If you are not the 21st century James Wattt, and dreams of such are the extent of understanding of energy, then you should really sit this one out and mentally masturbate about your free markets elsewhere. 

Terminus C's picture

Are you implying that you are a 21st century James Watt?  That must be the reason you 'understood' Rocky and feel that you have the ability to weigh in on this discussion.


Flakmeister's picture

Unlike most here, I do know I am not the James Watt of the 21 century. But having studied things like thermodynamics, system modelling, a little petroleum engineering, and having been a close follower of the oil markets for many years certainly does allow me to chime in....

So you you want to talk about Energy? Surprise me...

RafterManFMJ's picture

You all miss the future glory of America. We have the most disgustingly obese population on the planet, and human fat is pound for pound, as energy dense as gasoline.  The slack-jawed couch potatoes can be hunted easily or trapped using corn curls for bait.

Harvesting this resource will create many jobs, and we can export our blubber globally.  Human fat - the original biodiesel.

Ident 7777 economy's picture



Killer punch line delivered in second paragraph!


epwpixieq-1's picture

Studying is fine especially when is done not by the text books. Have you studied Tesla? Do you know what Electricity is? ( Careful with this one, for even Tesla noted that he did not know that force of Electricity is )

Have you BUILD something that works by TRANSFORMING energy even with small neodymium magnets?

What is the controversy that is inherited in the second law of thermodynamic?

Do you know what is the fundamental theoretical problem that plague the physics that started with the twisted and subsequently widely accepted interpretation of the Dirac equation ( otherwise an amazing human achievement )

Do you know how many physical phenomena are in head on controversy with the standard book science, starting with Faraday's basic controversial experiment ?

When you can open your mind for what Energy is, only then there is a reason to talk about Energy. Everything else is isolating your self from Nature in mathematical formulations based on personal views, egos and misunderstanding of the Natural phenomena, although expressed in a beautiful language.


Flakmeister's picture

I've solved the Dirac equation....

Electricity is not a force...And please explain the "problem" with Faraday's experiment. In your own words, please.

You seem to playing word salad,...

Ident 7777 economy's picture


His reply:


"Umm, duh, uhhhhh, er, ummm, can I uhhhh ...




Ident 7777 economy's picture


by epwpixieq-1
on Wed, 08/17/2011 - 08:47

Studying is fine especially when is done not by the text books. Have you studied Tesla? Do you know what Electricity is? ( Careful with this one, for even Tesla noted that he did not know that force of Electricity is )

Have you BUILD something that works by TRANSFORMING energy even with small neodymium magnets?

- -  - -  - -  - -  - -  - -  - -  - -  - -  - -



A 'free enetgy' nut no doubt.


Also, NO PROOF. Never has been. Unless you have a 'prime mover' (steam, wind, water) that MOVES a wire thru that magnet's magnetic field ...


Otherwise "Show me your experiment" demonstrating the effect beyond doubt. So far, NO DICE.


(NOTWITHSTANDING a plethora of YouTube vids where peak power,  voltage or current are conflated for the same RMS quantities. MAKE those same tests properly iinstrumented with a scope or RMS instrumentation and get back to me.)



epwpixieq-1's picture

Absolutely correct A 'free energy' nut.

I am not trying to convince anyone, I left this illusion of educating people a long time ago, it is difficult to "see" something when one does not have eyes for it.

Buy the way my the magnets were mentioned with conjunction with the word "even" in the meaning of a simple device.

With magnets I agree one needs a prime mover, but this is not the case when you have waves. The movement of the magnets creates nothing more but waves. It is just the most efficient rudimentary magnetic hammer humans have discovered.

In Nature Everything is based on vibrations the rest is up to the people to who CAN to create and to build. The rest are empty words.

Flakmeister's picture

Hey, write a paper and submit to hep-th over at Los Alamos.... You are clearly on to something.

tinsmith's picture

.... i knew james watt, i respected james watt, and you sir are no james watt.   now, if you want to talk about harvesting energy, lets forget james watt and instead think of james brown.  someone works out a way to bring that man back to life and we are set.  ever seen the energy that man put out during a performance, we could measure browns instead of watts.

Oh regional Indian's picture

Well, I am a 21st century James Watt and then some, but will nto play the game because the gate keepers are precisely people like TRAV, whose know only simple concepts like the Second Law of Thermodynamics is inviolable.



Michael's picture

The self fulling prophecy the MSM is trying to push just isn't working this time.

Statistically, Ron Paul is winning.

Besides, age isn't a problem these days since people are living a lot longer.

snowball777's picture

If Ron Paul wins (LOL...check the 'statistical' track record of those placing well in IA straw polls), and Medicare and SS are gutted (also LOL), that whole people living longer thing will no longer apply.

Bendromeda Strain's picture

I only need to outlast you, Romer.

All you Berkeley types make a lot of assumptions about your own usefulness.

Let's test those assumptions already. Oh, I forgot to LOL.


g's picture

Assuming that some form of energy production will emerge to replace fossil fuels is naive and dangerous. We should have started contingency planning, improving efficiency, and integrating large numbers of other energy producing systems 20 years ago, to mitigate the disaster that could occur when fossil fuels run out or do not produce a gain in EROEI.


The fact the the media and the government refused to accept the peak oil concept is egregious. There may be no technological wonder, technology does not produce energy by the way, that will provide for our current energy needs. Fact is even if we could produce enough electricity for commercial, residential, and transportation systems without fossil fuels, our infrastructure could not use it, it would take a decade or more to transition the transportation infrastructure to use electricity, once again something we should have started 20 years ago.


Check out ChrisMartenson.com, he sums it up best, some nice statistics on the number of alternative power producing plants it takes to replace fossil fuels, mind boggling really. He also discusses the issues with converting the transportation system to use electricity. Check it out.

I think I need to buy a gun's picture

oil and gold very important

go out on todays highways and by-ways it moves america...to say that it can be replaced by just anything....i don't think so and i think we are going to find that out

TruthInSunshine's picture


James Grant Suggests Life In Prison for Bernanke in WSJ


Jim Grant also points out that The Bernank could, slternatively, be hsnged under U.S. statute:

Ben S. Bernanke doesn't know how lucky he is. Tongue-lashings from Bernie Sanders, the populist senator from Vermont, are one thing. The hangman's noose is another. Section 19 of this country's founding monetary legislation, the Coinage Act of 1792, prescribed the death penalty for any official who fraudulently debased the people's money. Was the massive printing of dollar bills to lift Wall Street (and the rest of us, too) off the rocks last year a kind of fraud? If the U.S. Senate so determines, it may send Mr. Bernanke back home to Princeton. But not even Ron Paul, the Texas Republican sponsor of a bill to subject the Fed to periodic congressional audits, is calling for the Federal Reserve chairman's head.

snowball777's picture

I love the paleocon view of the world, where the US was frozen in carbonite 200 years ago and none of the laws passed or SCOTUS decisions rendered in that period ever need to be taken into account. Why not keep going backward? Claim something under the Articles of Confederation or the Mayflower Compact!

Ident 7777 economy's picture

Truly; FREEDOM is such an over-rated concept and "created equal" is a farce.








g's picture

I think we would all be happy enough if the FED was abolished. I am sure there is an element that would love to see the Bernank hanged. However, just getting congressional audits of the FED would be a miracle.

Mad Max's picture

I am ever so slightly less pessimistic than trav, but in about 99% agreement.  Absent oil, OR some breakthrough energy source not currently in use, the current population of earth is well and truly fucked.  And Peak Oil is more of a historical fact than a theory now.

Choices are a lower standard of living, a lower population, or (ding ding ding) both.

AngryVoter's picture

Maybe it was a load of crap but I remember reading that there is a massive amount of oil sands in Canada and can be extracted and profitable with oil north of $120.  Realizing that isn't cheap but it isn't doomsday.

Flakmeister's picture

There is a massive amount of bitumen in Canada, you will be producing synthetic crude at ~2 mmbpd for 250 years.... The rate  cannot be scaled to replace the "easy oil" that is declining... Unless of course you have a few Trillion to drop and don't mind creating Mordor in the north...

Mad Max's picture

That's even a bit kind - it's already creating Mordor of the frozen north, at current rates.  Economically it's an OK energy source, but the EROEI is bad, and the environmental damage is somewhere between appalling and catastrophic, barreling towards mind-blowing.

The 250 years might be a decent estimate, but it won't happen that way... in 250 years we will either have advanced nuclear (or better) energy, or we'll be hunter-gatherers.

Flakmeister's picture

No, it will be mined, too valuable a source of hydrocarbons that have many other uses besides burning. 

delacroix's picture

that recovery, relies on cheap natural gas, and lots of it

Flakmeister's picture

Yes it certainly does now, but oil is all but irreplaceable as input to too much *useful* stuff that they will find the NG.  

No need for  too many details in a quick post

Edit: IIRC, it currently using 25% of domestic production of NG in Canada... 

Terminus C's picture

The issue there is not so much the amount of oil in the ground but the amount of water needed to harvest it.  Northern Alberta does not have the water resources to extract all of the oil in the ground.

At the current rate of consumption it will not last that long anyway.

bid the soldiers shoot's picture

How much was a barrel of oil when you read that? That $120 could be a lot more now.

PulauHantu29's picture

Oil is way too cheap in the USA. Gas is more expensive even in China!

We need $5 to $8 gas before people get serious about driving those Mega-SUVs to hair saloons and soccer games with only 1 or 2 persons on board.

Nomura predicts oil to $220 and I suspect they will be right....event hough you can't drink oil (or eat gold either!).

Milton Waddams's picture

We need $5 to $8 gas before people get serious about driving those Mega-SUVs to hair saloons and soccer games with only 1 or 2 persons on board.

History, if it exists, will recall it as a mania on a level of Kindleberger proportions.

Ident 7777 economy's picture

by PulauHantu29
on Tue, 08/16/2011 - 23:52

Oil is way too cheap in the USA. Gas is more expensive even in China!

- - - - - - - - - - - - - - - - - - - - -

NO. Not historically, going back to like 1979 ...

spiral_eyes's picture

there is an equivalent to printing oil, and that is developing a meaningful alternative energy infrastructure. 

"scientists find bugs that eat waste and excrete petrol"


the technology exists, you just need the infrastructure to harness it. all the stimuluses just went to helping the old banks, the old systems, and the old infrastructure, and that's why it sucks.  

forexskin's picture

Dunno which is worse, the delusions that we can restart growth by fiscally stimulating or that if we just "let the debts go" that we'll achieve a new era of growth after that.  Neither side can face the hard truth.

I appreciate your point, lucid and clear. It is an interesting (to me) human trait that we all wish to have a viewpoint that encompasses or circumscribes all others, like a 'theory of everything'.

I'm aware that my limit is access to incontrovertable information. since I don't sit in on FOMC meetings or run POMO ops, or sit in on Exxon's resource reporting meetings, I conclude that my views have to be assigned probablities, and my adaptation to possible future conditions weighted accordingly.

How much skin you have in the peak oil view, and how do manage to reconcile uncertainty as to who is really pulling the strings?

"Sometimes I wonder whether the world is being run by smart people who are putting us on... or by imbeciles who really mean it." - Mark Twain

Twain got it, but apparently only as far as asking the right question...

What do you gather if peak oil is just another manipulation (while believing myself its odds are 4:1 in favor of true). If it is manipulation, what is the bigger game?

Flakmeister's picture

One clue about Exxon is that even with the SEC mandating that tar mixed with sand is "oil" that Exxon was unable to replace its oil reserves over the past decade, down 5%... Buying existing oil production does not add to supply.

Net exports on the market are down ~10% since 2005, google Export Land Model, you'll get an idea how it will play out.

Ident 7777 economy's picture

by Flakmeister
on Wed, 08/17/2011 - 00:01

One clue about Exxon is that even with the SEC mandating that tar mixed with sand is "oil" ...

- - - - - - - - - - - - - - - - - - - - - - - -

Wow; the SEC is now involved in oil exploration geology and term definitions?


Who woulda thought ...


Dick Fitz's picture


Your moronic rants are tiring. Do you believe that all progress started once we found out how to pump oil? Can anyone be that stupid?

Even if oil ran out tomorrow, our accumulated knowledge would allow us to use alternative methods to extract solar/wind/tidal energy with barely a blip (a few decades at most) in reduction of global wealth.

The problem isn't oil/coal/shale, it's politics! There is more than enough food to make the world fat- it's the uneven distribution via politics that causes starvation.

Have you ever had a clue?

forexskin's picture

c'mon, give trav a break. there's a really good correlation between population growth and the successful explotation of fossil fuels for the last hundred years.

i absolutely agree with your point about uneven distribution due to politics, though.

once i looked into replacement energy technologies seriously, i understood just how difficult a proposition replacement is, and given the current population, the possibility of serious dislocations exists.

take a look at 'a century of war' by william engdahl - real eye opener onto the stage of the great game around oil.

ignore kunstler, he's pitching his own shit, somewhat over the top, and not amenable to getting any smarter, apparently.

Drag Racer's picture

no, don't give trav a break. he is here with an agenda to disrupt and hijack threads to throw them off the topic. he is a piece of shit waste of time to respond to.

Flakmeister's picture

Trav has his views about things, but his observations on oil and energy are rarely to be disputed.

tmosley's picture

If Trav had his way, 97% of humanity would be sterile and female geniuses would be lining up to be his fuck slaves "cause hes so smurt".  He claims that this is somehow "humane", while never mentioning the fact that his dumb ass couldn't even predict the demographic NIGHTMARE that such a policy would create (ie the offspring of 3% of humanity have to support 97% of the population, aka old people starving to death in the streets around the world).

Just because his dumbassed ideas and crappy metaphors go unopposed by you, doesn't mean they are valid.  Christ, he STILL won't accept the fact that ionic liquids extract oil from sand with very little energy input, meaning that we can extract bitumen from tar sands and restart practically every well on the planet.  He demands death for all immediately, and anything that doesn't fit with that grand proclamation of his is viciously attacked with ad hominem until everyone involved is bored to death.  Which I guess is where he wants them.  Dead.