One more snip from the Mogambo Guru
[Mish note: he is so preoccupied with his view of inflation that he misses the big picture even when he reports on it. Here it is]
Mr. Freeman is one of those guys who are, like me, still under the impression that the output of the country should be concerned with people making and buying and selling things that they want. How old fashioned we are! Quaint, even.
Mr. Freeman goes relentlessly on, even as we beg him to stop, and thus end our torture. In the '80's "For every dollar of increase in productive GDP - which we here call real GDP - there was a $4.25 increase in debt; throughout the 1990s, for every dollar of increase in real GDP, there was a $13.90 increase in debt. However, in the 2001-03 period, when real GDP, even in its statistically massaged form, stagnated while debt grew hyperbolically, each dollar of increment in real GDP required a $63.51 increase in debt."
But not content with that, Mr. Freeman extrapolates beyond that, and notes that this whopping increase in GDP brought about by juggling the numbers and making assumptions about quality, "This signifies something else: The U.S. economy's current indebtedness can never be paid off out of the real productive portion of the economy."
But the amount of money necessary to just pay the interest on all this debt at the end of the month is a big wad of cash. He notes that "This debt service of $8.09 trillion and rising, cannot be paid. Were it to be paid out of GDP, it would require siphoning off three-quarters of the national product. Moreover, it would require siphoning off the equivalent of 2.5 times the productive portion of GDP (real GDP). The debt service requirements are so large that they could not be met: There would not be enough GDP left over to sustain human existence, by providing the market-basket requirements of enough clothing, housing, food, etc., and a sufficient amount to pay the debt."
So what does this mean to you and me? "A system is bankrupt when the debt-servicing requirements exceed its wealth generation, so that an individual or entity cannot pay back the debt service and meet the needs of human existence at the same time. The United States is bankrupt." Now if it was me, I would have inserted a long pause for emphasis, thusly: "The United States is (pause) bankrupt."
But bankruptcy is not an automatic thing, since hotshot managers and desperate executives will find ways to keep the thing going as long as they can. To that extent, "Some of the debt will be 'rolled over' i.e., refinanced with new debt, which swells the debt bubble even further. However, the Wall Street financiers can, and do, take measures to collect a significant portion of the debt service through extraction: They loot the population through fierce austerity; they do not replace run-down plant and equipment, etc. This is destroying the underlying physical economy upon which life depends. As the world financial disintegration increases instabilities, a spike in U.S. interest rates, a wave of defaults on over-priced homes, will ignite the $36.85 trillion debt into conflagration. The debt bubble has built into it the causes of its own destruction. The debt bubble's upward flight is nearing an end."
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Sounds like a deflation trap to me
Mish |
