Charting The Ten Year Prelude To The Keynesian Endgame

From John Lohman

2001-2010: Ten Year Prelude To The Keynesian Endame

Alas, one hundred years of the government’s attempts to mute the natural business cycle are slowly and painfully coming to an end.  A period where the government proactively encouraged consumption until it became 70% of the economy, we produced very little, and our savings rate reached zero.  A period where home ownership was promoted as the ultimate supreme goal until the last citizen that could fog a mirror yet was least able to afford it was suckered in.  As this leveraged consumption pyramid is finally ending, the government and central bank have embarked on one final mission to prop it up using the same tools that got us here in the first place: more leverage.  Only this time on a logarithmic scale.  Unfortunately, the scale is so large that it will not only guarantee an endgame, but it will accelerate it.  The visual below contains a few pieces of evidence that seem to confirm this, namely that over a ten year period: the consumer is stuck with an underwater balance sheet and the Fed’s attempt to create yet another bubble is only making it worse; outside of government efforts, the economy is unable to generate  sustainable job growth; and finally, the leverage scheme is so large that it no longer has a positive impact on growth (“debt saturation”).