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Politics : Welcome to Slider's Dugout
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From: jim_p6/11/2011 11:47:03 AM
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This is probably the most important chart you will ever need to understand.

1. Economic growth is a function of a change in the growth of the money supply and the growth in energy production. In other words you cannot have economic growth without an increase in both money supply and energy.
2. The money supply is a function of both an increase money and credit. Increased credit is the primary way to increase in the supply of money.
3. We are only 15-20% through the process of decreasing leverage, in fact sovereign debt has increased dramatically in a failed effort to avert a depression. Over 5 trillion in borrowed funds has been spent to “kick the can down the road”.
4. As you can see by the above charts the supply of energy has been flat for over six years now despite record oil prices. This has never happened before in history. Historically whenever there is a spike in oil prices there follows a spike in supply several years later.
5. Sovereign has now reached a level where most of the developed countries are for all practical purposes bankrupt and can never repay their debts without serious inflation.
6. As the deleverage process continues in the private sector and local and state governments over the next decade the supply of money will decrease since the ability of sovereign debt to further increase debt has reached its practical limits.
7. Without an alternative to oil and gas supply GDP will have to contract over the long term and as the deleverage process continues GDP will also have to contract over the long term.

The bottom line is nothing has been solved over the past four years. Sovereign debt has increased to levels of insolvency in an effort to compensate for the decline and the destruction of credit over the past four years and is now reaching the end of its limits. Energy supply is flat despite record prices and alternative energy sources so far have supplied a very limited amount of energy. The next decade or two will not be very pretty with declining growth and sovereign debt at unsustainable levels.

Greece will most likely default within the year and will cause another credit crisis. The US banks have a small exposure to the direct debt, but have guaranteed over $120 billion through credit default swaps of debt of Ireland, Greece and Portugal owed to European banks. Once the first of the insolvent countries defaults it will cause a run on the rest of the countries deemed to be insolvent.

That’s the bottom line as I see it. Comments welcome.

Jim
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