[deMolay]

How western countries are just spinning their wheels pumping paper into the economy. Interesting stuff, outside the box. http://economicedge.blogspot.com/2010/0 ... ntury.html

[Blacksmith]

The "you all's" will never get this, they haven't had our experience where servicing the debt cost more than you spend on social programs.

[jbrovont]

That’s $1.9 Trillion spent on interest, most of which wound up in the hands of the central banks and their surrogates. Compared to our $2.2 Trillion in income, interest expense last year nearly took it all. That means that nearly all your productive effort used to pay Federal taxes last year were transferred to the central banks.

[mos6507]

The transition point at 2015 is just in time for peak oil doom if Branson and his PO task force are right.

[Blacksmith]

Breakover for the "Death Panel " here is 75, but can be as low as 18 if you are mentally challanged.

[deMolay]

Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.

This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt.

[Timo]

Back in the early 1960s a dollar of new debt added almost a dollar to the nation’s output of goods and services. As more debt enters the system the productivity gained by new debt diminishes. This produced a path that was following a diminishing line targeting ZERO in the year 2015. This meant that we could expect that each new dollar of debt added in the year 2015 would add NOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATION occurred causing a phase transition with our debt relationship. This is because total income can no longer support total debt. In the third quarter of 2009 each dollar of debt added produced NEGATIVE 15 cents of productivity, and at the end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to add debt into a saturated system, where all money is debt, leads only to future defaults and to higher unemployment.

This is the dilemma created by our top down debt backed money structure. Because all money is backed by a liability, and carries interest, it guarantees mathematically that there will be losers and that the system will eventually reach the natural limits, the ability of incomes to service debt.

I am so glad i read this. What a wonderful way to start the weekend! Now an can sit and stew over just how the financial collapse will manifest itself. Does government simply go way? Do the banks take over the military? Just how will i get my imported kiwis from New Zealand?

Don't get me wrong, here. I don't deny this devololution of our economy at all. It is scary stuff. Just what i needed to make me drink a beer for breakfast. Here's to the weekend! Wa-hoooooo!

[deMolay]

Sorry Timo, it is just a reminder to not drink the SOMA being offered by the spinmeisters who work for the banks and Wall/Fleet street. The debts and bills will have to be payed eventually. Look at Japan 20 years on from their crash. Still on life support. Now go have that beer while you can.

[Plantagenet]

The chart shows that the huge deficits and trillions of dollars of new debt that the democratic Congress and the Obama administration are creating is damaging the US economy rather then helping it.

Shouldn't that be obvious by now to everyone but the democrats?

[Gerben]

The chart shows that there appears to be a trend for debt/gdp vs time. It doesn't explain the causality. There might not be a direct causal link. This might be the result of a third external factor (increasing trade deficit?). You cannot predict the future without knowing why this happening. It's like jumping of a tall building and expecting to keep going faster forever. You might bump into something.

[deMolay]

This table makes clear what is happening. Business, household, and financial debt is trying to cleanse itself, to bring the level of debt back within the ability of incomes to support it. Our governments, armed with people who cannot explain the common sense behind debt saturation, are attempting to compensate by producing prolific amounts of Governmental debt.

They feel they must do this because if they do not, then debt and money – since debt backs our money – would both decrease and that would cause the economy to slow. But by adding money, and debt, they have created a sovereign issue where our nation’s income cannot possibly service our nation’s debt. In just the month of February, for example, our nation took in $107 billion, but spent $328 billion, a $221 billion shortfall. That one month shortfall exceeds all the combined shortfalls of the entire Nixon Administration – one month.

This is like an individual earning $5,000 but spending $15,000 a month. Would you lend your money to such an individual?

Last year we spent just under $400 billion on interest on our current debt, plus we spend another $1.5 Trillion buying down rates via Freddie, Fannie, and Quantitative Easing. That’s $1.9 Trillion spent on interest, most of which wound up in the hands of the central banks and their surrogates. Compared to our $2.2 Trillion in income, interest expense last year nearly took it all. That means that nearly all your productive effort used to pay Federal taxes last year were transferred to the central banks.

Modern monetary theory does not understand, nor does it correctly describe the debt backed money world in which we live. Velocity, for example, slows as debt saturation occurs. This is only common sense, and yet the formulas do not account for the bad math of debt, nor its non linear function. Velocity is blamed partially on the psychology of “consumers.” What nonsense. It is as mechanical as the engine in your car, it was designed that way. Once people, businesses, and governments become saturated with debt, new money/ debt when introduced can only be used to service prior existing debt.

[mcgowanjm]

The Second Post describing exactly what's happening.

The TippingPoint/FEASTA, the other.

At the very least, somewhere between a neg 45 cents
correction per $ and a neg 100 cents correction per $
Debt issued is Full Stop on the Economy.

Meanwhile, the new loans will no longer be non-recourse, so if people default anyway, they're now responsible for the loan with all of their assets, not just the home. Moreover, another huge glut of debt will have been transferred from the banks to the public. And to add insult to injury, the mortgage backed securities everyone's municipality, pension fund and let's not forget the central bank, are heavily invested in, draw ever closer to the economic black hole's event horizon.

In other words, the only parties that are actually helped by plans such as these are the banks.

[EnergyUnlimited]

How western countries are just spinning their wheels pumping paper into the economy. Interesting stuff, outside the box. http://economicedge.blogspot.com/2010/0 ... ntury.html

I have red that article and it is interesting.
However solution, which they are offering as a measure to clear the mess and assure eternal prosperity of US and other nations is an extremely naive approach.

"Lets a nation/government, not a private bankers, to control our money supply and we are all saved"

What a nonsense...

Soviets have tried it and look what have happened.
It is not only our financial system, what gone bankrupt.
It is our entire global civilization with its growth based economic paradigm, technology, social structures, western values, welfare systems, environmental policy etc, what miserably gone bankrupt.
No bailout on horizon.

Solutions like one on offer there are naive enough to question other more reasonable contents of this article.

[Tyler_JC]

Last year we spent just under $400 billion on interest on our current debt, plus we spend another $1.5 Trillion buying down rates via Freddie, Fannie, and Quantitative Easing. That’s $1.9 Trillion spent on interest, most of which wound up in the hands of the central banks and their surrogates. Compared to our $2.2 Trillion in income, interest expense last year nearly took it all. That means that nearly all your productive effort used to pay Federal taxes last year were transferred to the central banks.

Nonsense.

That $1.5 trillion purchase of mortgages is not an interest payment. It's an investment. We might lose 10%-15% on those purchases but we aren't going to lose 100%.

Remember, most of the TARP money has already been paid back and the Fed/Gov actually made a profit on some of it. The AIG money is a lost cause and so is the Fannie/Freddie/GM bailouts but Goldman Sachs and other investment banks paid back the loans with interest.

The default rate on mortgages is high but it's not 100% and even a default doesn't mean the bank loses everything. Foreclosure doesn't mean the house is burned to the ground (usually). The bank can just sell the house at a big discount and recoup most of its loan.

That blogpost is just fear mongering.

[deMolay]

UE I am not sure what you are referencing in the article. Your response seems a little incoherent. As to TJC's comment, you spent a lot more than 1.9Trillion on interest. Every dollar that is printed is in essence borrowed into existance by the FED. Some of the numbers I have seen for Total Public Debt of the US is 60-80 Trillion in debt. And as interest rates change and start to climb, this will spiral right out of control. The article is about Debt Saturation.

[deMolay]

Casey Research saying much the same. http://www.caseyresearch.com/displayCdd.php?id=381

[EnergyUnlimited]

UE I am not sure what you are referencing in the article. Your response seems a little incoherent.

So read fragments including quote below and go to referenced web site for further details:

....It is an immediate problem and fortunately there is an immediate solution. That solution is called “Freedom’s Vision.” It can be found at SwarmUSA.com .

So we have an immediate problem (financial collapse) and immediate solution.
Go to SwarmUSA.com and read about their freedom visions to find out.

What a nonsense.

[patience]

Debt saturation is the natural result and end point of fractional reserve banking. Each time money is "borrowed into existence", the debt to repay it is greater than the loan, that is, principal + interest = repayment. In a growth economy, this can be perpetuated for a long time, with growth paying the interest. Eventually, however, the result is predictable: the economy, bled to death of capital by interest payments, and owing future interest besides, hits the mathematical "wall" of being unable to repay.

Same result as the homeowners who HELOC'ed themselves rich for a time, spent all the money, then crashed and burned. Our .GOV is now in that position, along with a great many of its' citizens. And who got the money? Why "The Creature From Jekyll Island", of course, as planned.

We have had a debt bubble that is now deflating. You don't have to like it, but it is impossible to argue wth the math. To quote Karl Denninger, "math IS". For the natural result of this scenario, read Mises.

"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." -Ludwig Von Mises"

We are there, folks. It is just a matter of choosing the means of our demise, as is Ghostbusters. But here it is not left to our imagination, nor are there very many alternatives. We can have a deflationary collapse, or a hyperinflationary event followed by a collapse. Both end up the same place, and it is not nice.

Historical examples show that normally governments fail in such cases, followed by whoever promises to alleviate the pain. That is the cue for dictators to arise, and make it all worse.

[Newfie]

Last year we spent just under $400 billion on interest on our current debt, plus we spend another $1.5 Trillion buying down rates via Freddie, Fannie, and Quantitative Easing. That’s $1.9 Trillion spent on interest, most of which wound up in the hands of the central banks and their surrogates. Compared to our $2.2 Trillion in income, interest expense last year nearly took it all. That means that nearly all your productive effort used to pay Federal taxes last year were transferred to the central banks.

Nonsense.

That $1.5 trillion purchase of mortgages is not an interest payment. It's an investment. We might lose 10%-15% on those purchases but we aren't going to lose 100%.

Remember, most of the TARP money has already been paid back and the Fed/Gov actually made a profit on some of it. The AIG money is a lost cause and so is the Fannie/Freddie/GM bailouts but Goldman Sachs and other investment banks paid back the loans with interest.

The default rate on mortgages is high but it's not 100% and even a default doesn't mean the bank loses everything. Foreclosure doesn't mean the house is burned to the ground (usually). The bank can just sell the house at a big discount and recoup most of its loan.

That blogpost is just fear mongering.

Tyler,

Are you taking exception to the entire article or just to this portion? How do you see the economy in the next 5 years? Feel free to point me to the best source if you don't want to make a detailed response here.

Many thanks

[deMolay]

OK UE, now I know what you were reading. But I didn't reference what you are quoting at all. Thanks.