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Title: Death by Debt
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URL Source: http://www.chrismartenson.com/blog/death-debt/58941
Published: Jun 10, 2011
Author: Chris Martenson
Post Date: 2011-06-10 17:39:59 by Capitalist Eric
Keywords: None
Views: 3655
Comments: 10
One of the conclusions that I try to coax, lead, and/or nudge people towards is acceptance of the fact that the economy can't be fixed. By this I mean that the old regime of general economic stability and rising standards of living fueled by excessive credit are a thing of the past. At least they are for the debt-encrusted developed nations over the short haul - and, over the long haul, across the entire soon-to-be energy-starved globe. The sooner we can accept that idea and make other plans the better. To paraphrase a famous saying, Anything that can't be fixed, won't. The basis for this view stems from understanding that debt-based money systems operate best when they can grow exponentially forever. Of course, nothing can, which means that even without natural limits, such systems are prone to increasingly chaotic behavior, until the money that undergirds them collapses into utter worthlessness, allowing the cycle to begin anew. All economic depressions share the same root cause. Too much credit that does not lead to enhanced future cash flows is extended. In other words, this means lending without regard for the ability of the loan to repay both the principal and interest from enhanced production; money is loaned for consumption, and poor investment decisions are made. Eventually gravity takes over, debts are defaulted upon, no more borrowers can be found, and the system is rather painfully scrubbed clean. It's a very normal and usual process. When we bring in natural limits, however, (such as is the case for petroleum right now), what emerges is a forcing function that pushes a debt-based, exponential money system over the brink all that much faster and harder. But for the moment, let's ignore the imminent energy crisis. On a pure debt, deficit, and liability basis, the US, much of Europe, and Japan are all well past the point of no return. No matter what policy tweaks, tax and benefit adjustments, or spending cuts are made - individually or in combination - nothing really pencils out to anything that remotely resembles a solution that would allow us to return to business as usual. At the heart of it all, the developed nations blew themselves a gigantic credit bubble, which fed all kinds of grotesque distortions, of which housing is perhaps the most visible poster child. However, outsized government budgets and promises, overconsumption of nearly everything imaginable, bloated college tuition costs, and rising prices in healthcare utterly disconnected from economics are other symptoms, too. This report will examine the deficits, debts, and liabilities in such a way as to make the case that there's no possibility of a return of generally rising living standards for most of the developed world. A new era is upon us. There's always a slight chance , should some transformative technology come along, like another Internet, or perhaps the equivalent of another Industrial Revolution, but no such catalysts are on the horizon, let alone at the ready. At the end, we will tie this understanding of the debt predicament to the energy situation raised in my prior report to fully develop the conclusion that we can - and really should - seriously entertain the premise that there's just no way for all the debts to be paid back. There are many implications to this line of thinking, not the least of which is the risk that the debt-based, fiat money system itself is in danger of failing. Too Little Debt! (or, Your One Chart That Explains Everything) Note: this next section is an excerpt from a recent Martenson Blog entry, so if this seems familiar to any site members, it's because you've seen it before. If I were to be given just one chart, by which I had to explain everything about why Bernanke's printed efforts have so far failed to actually cure anything and why I am pessimistic that further efforts will fall short, it is this one: There's a lot going on in this deceptively simple chart so let's take it one step at a time. First, “Total Credit Market Debt” is everything - financial sector debt, government debt (federal, state, and local), household debt, and corporate debt - and that is the bold red line (data from the Federal Reserve). Next, if we start in January 1970 and ask the question, “How long before that debt doubled and then doubled again?” we find that debt has doubled five times in four decades (blue triangles). Then if we perform an exponential curve fit (blue line) and round up, we find a nearly perfect fit with a R2 of 0.99. This means that debt has been growing in a nearly perfect exponential fashion through the 1970's, the 1980's, the 1990's and the 2000's. In order for the 2010 decade to mirror, match, or in any way resemble the prior four decades, credit market debt will need to double again, from $52 trillion to $104 trillion. Finally, note that the most serious departure between the idealized exponential curve fit and the data occurred beginning in 2008, and it has not yet even remotely begun to return to its former trajectory. This explains everything. It explains why Bernanke's $2 trillion has not created a spectacular party in anything other than a few select areas (banking, corporate profits), which were positioned to directly benefit from the money. It explains why things don't feel right, or the same, and why most people are still feeling quite queasy about the state of the economy. It explains why the massive disconnects between government pensions and promises, all developed and doled out during the prior four decades, cannot be met by current budget realities. Our entire system of money, and by extension our sense of entitlement and expectations of future growth, were formed during and are utterly dependent on exponential credit growth. Of course, as you know, money is loaned into existence and is therefore really just the other side of the credit coin. This is why Bernanke can print a few trillion and not really accomplish all that much, because the main engine of growth expects, requires, and is otherwise dependent on credit doubling over the next decade. To put this into perspective, a doubling will take us from $52 to $104 trillion, requiring close to $5 trillion in new credit creation each year of that decade. Nearly three years has passed without any appreciable increase in total credit market debt, which puts us roughly $15 trillion behind the curve. What will happen when credit cannot grow exponentially? We already have our answers; it's been the reality for the past three years. Debts cannot be serviced, the weaker and more highly leveraged participants get clobbered first (Lehman, Greece, Las Vegas housing, etc.), and the dominoes topple from the outside in towards the center. Money is dumped in, but traction is weak. What begins as a temporary program of providing liquidity becomes a permanent program of printing money needed in order for the system to merely function. Debt and Europe The debt situation in Europe is fairly typical of the developed world and mirrors the debt chart of the US seen above. There's entirely too much debt, and most of the unserviceable amounts are concentrated in certain spots (i.e., PIIGS), while the amounts owed are concentrated in the German, French, and British banks. This New York Times graphic did an excellent job of summing everything up. Here is a slightly less-complicated image that expresses the same dynamic: If everybody owes everybody else, then kicking the can down the road only works if there's more wealth, more growth, and sufficient economic activity down that road to service the past debts. If any one participant drops the baton in the debt relay race, the absurdity of the situation becomes unavoidable and the cause is lost. When we hold this view, it is abundantly clear that adding more debt along the way only increases the burdens and is therefore ultimately counterproductive, although it does grant the gift of additional time to avoid facing the truth. When all of the most indebted countries are stacked up, we see that all but Russia carry a total indebtedness greater than 100% of GDP and that nine are carrying debt levels higher than any that have ever been repaid historically. (Source) Note: 260% debt-to-GDP is the all time record for repayment, accomplished by England between 1815 and 1900, but required both massive cuts in spending and an industrial revolution. Without mincing words, the world does not face a crisis of liquidity, nor a crisis of insufficient debt, but one of entirely too much debt. That's the entire predicament in three words: too much debt. More debt is only going to compound the predicament, yet that is what the world's central banks and political structures are busy manufacturing. More debt. Of course, debt is only one component of the story; there are also liabilities to consider. The above chart merely graphs the legally defined debts involved. If we bother to add back in the liability components, which are pensions, social security and government medical plans, the predicament is seen to be three to six times larger: Whereas the prior chart showed all debts incurred by all sectors of each nation, the above chart only displays government debt and liabilities. For reference, the red bars, above, are the amounts that you read about in the paper when commentators note that the US, for example, still has a debt-to-GDP ratio that is under 100%. It's a comforting tale, but not an accurate description of the situation. Again, there are no historical examples of any country ever digging itself out from so deep a hole, and yet we find that the entire developed world has bravely pushed itself deep into unknown territory, seemingly without any serious discussions about whether or not this made sense. Where We Are Now So here we are, just a few weeks away from the end of the second round of quantitative easing (QE II) , with massive public debts and liabilities having only grown larger instead of shrinking during the Great Recession, everybody in nearly the same boat, and no clear plan for how all the sovereign debts will be funded from current productive cash flows (i.e., existing GDP). This is why so many commentators, myself included, are convinced that more thin-air money printing is on the way. My thesis, laid out back in early March is that the Fed will stop QE II on schedule and that the financial markets will react exceptionally poorly to this loss of support. Commodities will tank first, then stocks, then bonds; from riskiest and most-leveraged to least. It is time to face the music; the levels of indebtedness now require permanent support from thin-air money in order to avoid a deflationary collapse.
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#1. To: Capitalist Eric (#0)
(Edited)
Good, thought provoking article. And, as a nation and the world, here we are. So how is this all changed?
I want to suggest another perspective, as well. Why do I find ALMOST EVERYONE OF YOUR FUCKING THREADS AND POSTS as though your are an absolute loser? You NEVER offer solutions; you NEVER have a positive idea. You just place your GODDAMNED nose in the mud wallowing on a publick channel on a day by day basis; yet, many of us know your bearing. Since you are such a GREAT CAPITALIST, spill your secrets for the rest of our fine colleagues on LF. Certainly, like "yukon" letting the cat out of the bag about his own personal life, YOU CAN SAY SOMETHING WORTHWHILE.
Chuckles...
America...My Kind Of Place... "I truly am not that concerned about [bin Laden]..." "THE MILITIA IS COMING!!! THE MILITIA IS COMING!!!" I don't think it can be changed. Consider: the derivatives scam perpetrated by the global banking elites, has resulted in paper losses estimated to be ~$1.4 Quadrillion. I sat down once, trying to put that into some semblance of perspective, and came up with this analogy: if that were turned into single American dollar bills, it would cover the Earth with a layer of paper 1.24 inches thick... which literally boggles the mind! In more basic terms, that's the Gross Domestic Product for every country in the world, for the next 23 years. If I owed $2.3M, on a $100k salary (not including normal debts, just the bad bets I'd made with the local bookies), I'd either have to declare bankruptcy, or a "collections agency" would see to it I received the proverbial "dirt nap..." Bottom line- as the article has more eloquently illustrated- is that we're toast. And there's no way to fix the situation... The question that now comes to MY mind is, how do we protect our families, when the economic system collapses under its own weight? Is it gonna' be 1984, or (as some speculate) more like "The Road Warrior"....? Nobody really knows.
List of those unable to think: Bumper sticker on DwarF's car: There's a word for this, in psychology circles: "projection." Look it up. Get serious. You understand the point of the article. Exactly WHAT solution do you propose? Write a check? Pull out your wallet, and throw a few bills down? There AREN'T any solutions. There won't BE any solutions. The game is OVER. The nanny-state, after combining forces with big corporations in a corrupt symbiosis- much like the corporatist-Fascism under Mussolini- has cleaned US OUT. You want a solution? Fine: Do what you can, to protect those people you care about. The solution I offered above, says EXACTLY what my bearing is: making people understand what's coming, so they can protect themselves as best they can. I already have. For your sake, I hope you listen. I really do... I have no particular beef with you, never met you, and don't particularly care where you are, or where you call "home." None of that crap really matters, does it? FAMILY matters, close friends and community matters... the rest of it- the politics, the police-state tactics, the other BS the government tries to ram down our throats, as their grip on "control" slips away- doesn't matter. You'll have the shills of the forum, posting propaganda about how "good" we still have it, even as entire cities are boarded up, and society slowly devolves into chaos... You'll have other shills that push their particular flavor of politician, saying how "MY political whore is better than YOUR political whore..." You'll even have people posting how the government will fix ALL our ills, if only we raise taxes a bit more here, or cut Social Security some there... it's all bullshit. The world we've lived in, and known all our lives, is slowly disintegrating before our eyes... Can you see it? Can you feel it? Would you have guessed that we'd have TSA thugs fondling our wives/daughters/mothers, and that we would stand by and do nothing? Would you have guessed 20 years ago, that the government would rob the American people of $800 BILLION to give to their croney banker friends, and that nobody would go to jail for it? Would you have guessed even 10 years ago, that the POTUS would now have- and USE- full dictatorial powers, to "disappear" anyone he so chose? How 'bout the "no-knock raids," where SWAT teams bust into your house, and shoot you or your kids dead, for NO REASON? I post this stuff, not because I like it... But because I HATE what our government is doing... Clear?
List of those unable to think: Bumper sticker on DwarF's car: Consider: the derivatives scam perpetrated by the global banking elites, has resulted in paper losses estimated to be ~$1.4 Quadrillion. I sat down once, trying to put that into some semblance of perspective, and came up with this analogy: if that were turned into single American dollar bills, it would cover the Earth with a layer of paper 1.24 inches thick... which literally boggles the mind! In more basic terms, that's the Gross Domestic Product for every country in the world, for the next 23 years. If I owed $2.3M, on a $100k salary (not including normal debts, just the bad bets I'd made with the local bookies), I'd either have to declare bankruptcy, or a "collections agency" would see to it I received the proverbial "dirt nap..." Bottom line- as the article has more eloquently illustrated- is that we're toast. And there's no way to fix the situation... The question that now comes to MY mind is, how do we protect our families, when the economic system collapses under its own weight? Is it gonna' be 1984, or (as some speculate) more like "The Road Warrior"....? Nobody really knows. OK. So, why are you here? You have no optimism. You have no plan. You have no background to suggest you KNOW WHAT THE FUCK YOU ARE TALKING ABOUT. And yet, I see you posting daily as though you KNOW some sort of outcome. If you know an outcome or result based on ALL your personal knowledge comprised of education, experience and data why can't I see some solutions as opposed to moving into a mudhut? I want to go back to your record on LP. Didn't you suggest that you were hired in NYC within the financial market? Your own record of posts establish your personal record whether here or anywhere upon the Internet. So now that you live in NYC making your 100K+ salary to pay for an apartment and eating hotdawgs, where are your solutions to offer the forum? C'mon, spill the beans! Almost everyone of us are looking for solutions not more woe. And since you have publically admitted that you are in the financial markets, perhaps you can take a moment to tell ALL OF US about your own plans for self and family and friends without too much detail. Am I asking too much?
Exactly what are your thoughts? You are a self-proclaimed puff-daddy in the financial markets so, tell us how you intend to cover your own ass. BTW, get rid on your tagline, you are sucking BW like a cheap whore on this poor wittle chit-chat server called LF.
I've already posted them... and normally wouldn't bother reiterating. But I will make the assumption that you're asking a serious question... I've put my money into physical silver, shooting-irons, reloading supplies, stocked up on foods and fuel. Metal-work equipment and tools. Extra clothing for my entire family.. Installed extra security measures in my home... extra computers... medical supplies... goods that would are nice to have a stash of now, but would be very valuable in a barter economy (should it get to that point)... and so on. Neither I nor my wife have any skills in growing food, and we don't have enough land to do so, even if we did... so I'm still considering other options for that... I'm trying to cover all the bases as much as I can, but there are still no guarantees... so all I can do is what I can do, yeah? The primary savings is in physical silver. Even with the recent decline in spot-price, I'm still "up" from where I was, and if all goes according to plan, I'll be buying more shortly. The key on this is that both silver and gold aren't really vehicles to "profit" from (especially when dealing with physical, versus futures), as much as a way to preserve purchasing power, even as the Fed prints us into oblivion (which the WILL do). Uh, NO, I didn't proclaim any such thing. The financial markets are one thing, my area happens to be economics. Different animals. And I'm not the "puff daddy," either- there are a lot of analysts out there, that do this stuff day- in, day-out... I just find articles that I can confirm through other data and/or my knowledge of the situation, and post it. I'm no expert on IT... so I'll throw it to AKA Stone... if he says "do it," then I will. Fair?
List of those unable to think: Bumper sticker on DwarF's car: For this last response, I will treat you with a semblance of courtesy. If you can't match that, than fine, and I'll just blow you off going into the future. Actually, I DO. I went rounds with Nebachudnezzar for damn-near a year, just on the question of deflation vs. inflation. Clearly, we're seeing inflation, which I have steadfastly predicted. NOT because I have a crystal ball, but because I understand the nature of how central banks work, and the nature of politicians who will throw their own MOTHERS under the bus, if it keeps them in power for even a few hours longer.... THAT is freely available to you, right on this forum. You don't believe me? LOOK IT UP. Well, hey, if that's what you want to believe, than have a happy. I wish you good luck, finding a post anywhere on the internet- EVER- saying that I was involved in the financial market, OR lived in NYC. Extrapolating on a false premise, can yield some truly bizarre results... As to what I make, I used the $100k as an example, because the math was easy. What I actually make, is none your damned business. It's clear you don't pay attention to where I live- and that's fine, 'cause it really doesn't matter. I'm in the L.A. area. I have a nice house, a pool and hot-tub, two lovely daughters, and I'm building an old-school '68 Camaro in my garage... It'll run a 468 BBC, Super-T10 4-speed, and I haven't decided what gears I'll be running in the Ford 9" hanging out back... I don't eat "hot-dawgs." It was a 12-ounce steak for lunch. Time to go home. Later.
List of those unable to think: Bumper sticker on DwarF's car: Probably WW3, it gets rid of the unemployed, and stimulates the economy. There must be some more governments that are not democratic enough, or are mean to some people that we can attack. Let's call it "humanitarian partial kinetic action", so the president doesn't need to get a declaration of war from congress. "The Constitution's just a God damned piece of paper" ~ George W. Bush Stroke of the pen law of the land! ~Slick Willie
Obama's watch stopped on 24 May 2008, but he's been too busy smoking crack to notice.
Our entire system of money, and by extension our sense of entitlement and expectations of future growth, were formed during and are utterly dependent on exponential credit growth.
#2. To: Capitalist Eric (#0)
#3. To: buckeroo (#2)
--GW Bush
--Sarah Palin's version of "The Midnight Ride of Paul revere"
#4. To: buckeroo (#1)
(Edited)
So how is this all changed?
mcgowanjm, ferret mike, skippy, fartboy/yukko, white sands, bucky, lucys idiot mom, e_type_jackoff, go56, badlie, wreck, calCON, mininggold, war, Banjo Boris, Biff, Godwinson and meguro. If you're on the above list, you're too fucking stupid to hold a real conversation.
#5. To: buckeroo (#2)
Why do I find ALMOST EVERYONE OF YOUR FUCKING THREADS AND POSTS as though your are an absolute loser?
You NEVER offer solutions; you NEVER have a positive idea. You just place your GODDAMNED nose in the mud wallowing on a publick channel on a day by day basis;
yet, many of us know your bearing.
Certainly, like "yukon" letting the cat out of the bag about his own personal life, YOU CAN SAY SOMETHING WORTHWHILE.
THAT IS MY "BEARING."
If you don't like it, then don't read what I post.
mcgowanjm, ferret mike, skippy, fartboy/yukko, white sands, bucky, lucys idiot mom, e_type_jackoff, go56, badlie, wreck, calCON, mininggold, war, Banjo Boris, Biff, Godwinson and meguro. If you're on the above list, you're too fucking stupid to hold a real conversation.
#6. To: Capitalist Eric (#4)
I don't think it can be changed.
I don't think it can be changed.
#7. To: Capitalist Eric (#5)
Get serious. You understand the point of the article. Exactly WHAT solution do you propose? Write a check? Pull out your wallet, and throw a few bills down?
#8. To: buckeroo, A K A STONE (#7)
Exactly what are your thoughts? ...tell us how you intend to cover your own ass.
You are a self-proclaimed puff-daddy in the financial markets...
BTW, get rid on your tagline, you are sucking BW like a cheap whore on this poor wittle chit-chat server called LF.
mcgowanjm, ferret mike, skippy, fartboy/yukko, white sands, bucky, lucys idiot mom, e_type_jackoff, go56, badlie, wreck, calCON, mininggold, war, Banjo Boris, Biff, Godwinson and meguro. If you're on the above list, you're too fucking stupid to hold a real conversation.
#9. To: buckeroo (#6)
You have no background to suggest you KNOW WHAT THE FUCK YOU ARE TALKING ABOUT.
I want to go back to your record on LP. Didn't you suggest that you were hired in NYC within the financial market? Your own record of posts establish your personal record whether here or anywhere upon the Internet.
So now that you live in NYC making your 100K+ salary to pay for an apartment and eating hotdawgs...
mcgowanjm, ferret mike, skippy, fartboy/yukko, white sands, bucky, lucys idiot mom, e_type_jackoff, go56, badlie, wreck, calCON, mininggold, war, Banjo Boris, Biff, Godwinson and meguro. If you're on the above list, you're too fucking stupid to hold a real conversation.
#10. To: buckeroo, *The Two Parties ARE the Same* (#1)
So how is this all changed?
"We (government) need to do a lot less, a lot sooner" ~Ron Paul
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