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Strategies & Market Trends : US Economic Trend Analysis
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From: gpowell4/17/2007 1:25:37 PM
of 97
 
Zero Hour?

Saw this concept mentioned in a post by Mish [ Member 7987883 ]. Here: Message 23456256

Zero hour is defined as the moment when credit growth stops having an impact on gdp. The concept is wrong headed, because credit growth is not a casual factor of gdp growth; it is, in fact, a consequence of the same factors that cause gdp growth, i.e. humans actively seeking to maximize an economic return.

Recalling our assumption that the main constraint on growth is knowledge creation, i.e. the knowledge to turn pure resources into valued output, we can think of the accumulated and still current knowledge base as being embodied in a societies capital structure (whose “size” is measured as the magnitude of a vector). Each increment of knowledge creation adds to this “base” – which then produces output at an observed pace of about 2.5% per year (for capitalistic societies).

Credit levels are a function of the total base, modulated by several factors (such as risk, regulatory constraints, time preference), and not on the incremental additions. Consequently, the “Zero Hour” concept is not terribly more enlightening than charting total GDP against annual GDP growth. You’ll get the same general relationship, but would anyone really portend a potential economic collapse from the latter relationship?
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