"Endless Growth" Is the Plan & There Is No Plan B

After five years of aggressive Federal Reserve and government intervention in our monetary and financial systems, it's time to ask: Where are we? 

The "plan," such as it has been, is to let future growth sweep everything under the rug. To print some money, close their eyes, cross their fingers, and hope for the best.

On that, I give them an "A" for wishful thinking – and an "F" for actual results.

For the big banks, the plan has involved giving them free money so that they can be "healthy." This has been conducted via direct (TARP, etc.) and semi-direct bailouts (such as offering them money at zero percent and then paying them 0.25% for stashing that same money back at the Fed), and indirectly via telegraphing future market interventions so that the big banks could 'front run' those moves to make virtually risk-free money.

This has been fabulously lucrative for the big banks that are in the inner circle. As we've noted somewhat monotonously, the big banks enjoy "win ratios" on their trading activities that are, well, implausible at best.

Here's a chart of J.P. Morgan's trading revenues for the first three quarters of 2013, showing how many days the bank made or lost money:


Do you see the number of days the bank lost money? No? Oh, that's right. There weren't any.

Now, for you or me, trading involves losses, or risk. Sometimes you win, and sometimes you lose. There appears to be zero risk at all to JP Morgan's trading activities. They won virtually all of the time over this 9-month period.

That's like living at a casino poker table for months and never losing.

Of course, Bank of America/Merrill Lynch, Goldman Sachs, and a few other U.S.-based banks were able to turn in roughly similar results. Pretty sweet deal being a bank these days, huh?

So one might think, Well, that's just how banks are now. Bernanke's flood of liquidity is allowing them to simply 'win' at trading. If true (which it appears to be), we can't call this trading. The act of "trading" implies risk. And it's clear that what the big banks are doing carries no risk; otherwise they would be posting at least some degree of losses. We should call it sanctioned theft, corporate welfare, cronyism the list goes on. And it is most grossly unfair, as well as corrosive to the long-term health of our markets.

Therefore, sadly, I have to give Bernanke an A++ on his objective of handing the banks a truly massive amount of risk-free money. He's done fabulously well there. 

But will this be sufficient to carry the day? Will this be enough to set us back on the path of high growth? 

And even if we do magically return to the sort of high-octane growth that we used to enjoy back in the day, will that really solve anything?

Endless Growth Is Plan A Through Plan Z

The problem I see with the current rescue plans is that they are piling on massive amounts of new debts.

These debts represent obligations taken on today that will have to be repaid in the future. And the only way repayment can possibly happen is if the future consists of a LOT of uninterrupted growth upwards from here.

It's always easiest to make a case when you go to silly extremes, so let's examine Japan. It's no secret that Japan is piling on sovereign debt and just going nuts in an attempt to get its economy working again. At least that's the publicly stated reason. The real reason is to keep its banking system from imploding.

After all, exponential debt-based financial systems function especially poorly in reverse. So Japan keeps piling on the debt in rather stunning amounts:


That's up nearly 40% in three years (!).

It's the people of Japan who are on the hook for all that borrowing, now standing well over 200% of GDP. So here's the kicker: In 2010, Japan had a population of 128 million. In 2100, the 'best case' projected outcome for Japan is that its population will stand at 65 million. The worst case? 38 million.

So...who, exactly, is going to be paying all of that debt back?

The answer: Japan's steadily shrinking pool of citizens. 

This is simple math, and the trends are very, very clear. Japan has a swiftly rising debt load and a falling population. Whoever it is that is buying 30-year Japanese debt at 1.69% today either cannot perform simple math, or, more likely, is merely playing along for the moment but plans on getting out ahead of everybody else.

But the fact remains that Japan's long-term economic prospects are pretty terrible. And they will remain so as long as the Japanese government, slave to the concept of debt-based money, cannot think of any other response to the current economic condition besides trying to shock the patient back to vigorous life by borrowing and spending like crazy.

If, instead, Japan had used its glory days of manufacturing export surpluses to build up real stores of actual wealth that would persist into the future, then the prognosis could be entirely different. But it didn't.

The U.S. Is No Different

Except for some timing differences, the U.S. is largely in the same place as Japan twenty years ago and following a nearly identical trajectory.  Currently, it's an economic powerhouse, folks are generally optimistic on the domestic economic front (relatively speaking), and its politicians are making exceptionally short-sighted decisions. But the long-term math is the same.

There's too much debt representing too many promises. The only possible way those can be met is if rapid and persistent economic growth returns.   

However, even under the very best of circumstances, where the economy rises from here without a hitch say, at historically usual rates of around 3.5% in real terms (6% or more, nominally) we know that various pension and entitlement programs will still be in big trouble.

Worse, we know that the environment is screaming for attention based on our poor stewardship. Addressing issues such as over-farming, water wastage, and oceanic fishery depletion to say nothing of carbon levels in the atmosphere - will be hugely expensive. 

Likewise, a complete focus on consumer borrowing and spending at the exclusion of everything else (except bailing out big banks, of course), along with a dab of excessive state security spending, has left the U.S. with an enormous infrastructure bill that also must be paid, one way or the other. That is, short-term decisions have left us with long-term challenges.

But what happens if that expected (required?) high rate of growth does not appear?

What if there are hitches and glitches along the way in the form of recessions, as is certain to be the case?  There always have been moments of economic retreat, despite the Fed's heroic recent attempts to end them. Then what happens?

Well, that's when an already implausible story of 'recovery' becomes ludicrous.

If we take a closer look at the projections, the idea that we're going to grow even remotely into a gigantic future that will consume all entitlement shortfalls within its cornucopian maw becomes all but laughable.

Of course, the purpose of this exercise is not to make fun of anyone, nor to mock any particular beliefs, but to create an actionable understanding of the true nature of where we really are and what you should be doing about it.

In Part II: Why Your Own Plan Better Be Different, we examine more deeply the unsustainability of our current economic system and why it is folly to assume "things will get better from here."

Given the unforgiving math at the macro altitudes, the need for adopting a saner, more prudent plan at the individual level is the best option available to us now.

Click here to access Part II of this report (free executive summary; enrollment required for full access).

This is a companion discussion topic for the original entry at https://peakprosperity.com/endless-growth-is-the-plan-there-is-no-plan-b/

I can feel the outrage, but consider this:-
We may be observing the demise of the concept of money. This is exactly what I think Asimov was trying to convey. A society without money.

How could that be more than a utopian fantasy? Asimov argued that the only free societies were slave owning ones. Their existence required no effort from themselves. Physical delicacy was the mark of the aristocrat and money was considered a vulgar topic of conversation.

But where are the slaves? In China, India and increasingly 3d printing and robotics.

Please also be aware that this is not the 18 th century anymore, and physics is moving ahead. Many of us here may be exhibiting symptoms of Toffler's Future Shock.

The economy that I am most concerned about is the Primary economy. The life support system of this incredibly small, beautiful and precious planet.

Another quotation by Arthur C. Clarke I love and find so appropriate for our world today is:                             "Because politics is the art of the possible, it appeals only to second - rate minds. The first raters…            (are) only interested in the impossible." 

If I understand this correctly, there is very little coin or cash that represents dollars. Most dollars are represented by debts that exist as numbers in computer files somewhere and there are near 60 trillion of them. A large fraction of them represent lending by the biggie banks. To keep the biggies solvent, enough interest needs to generated each year to pay the interest on their previously extended credit. When that fails, as in 2008, life becomes difficult for them (and other lenders as well).
The public debt taken on by TARP staved off bankruptcy for the biggies for a time. Since then the Fed has simply given them money and expanded its own balance sheet by enough to keep the biggies solvent. The only part of this for which the public is presently on the hook is the government's own deficit spending. The biggies have taken some of their free Fed money and bought government debt with it.

As long as there is no real economic growth that is represented by tangible products and services, the increasing supply of money that the Fed is creating ought to be inflationary. But a trillion dollars or so per year does not represent a large rate of inflation of the already existing 60 trillion dollars.

Viewed in this way, it seems to me that the Fed can kick this can down the road for a long, long time, but it can't last forever. Can someone explain to me how the Fed can ever unwind its balance sheet?

Here is a clip from the latest episode of Global Public Square on CNN.

It looks as if they are adjusting to an aging economy rather well and have a few lessons share.


[quote=David Phillips]Here is a clip from the latest episode of Global Public Square on CNN.
It looks as if they are adjusting to an aging economy rather well and have a few lessons share.
I agree that Japan has a good shot of adjusting better than most societies.  I was struck by how well they managed the earthquake as a culture in sharing food and cutting energy use…but not Fukushima, also for cultural reasons.  
From the article you linked:

Now look at growth per capita – growth per person. This is a number that gets less attention. The table is inverted. The U.S. and France are near the bottom, but Japan is at the top. This is because individual incomes are actually rising while the population is declining. It would follow that people are actually better off. Not bad for a country everyone seems to have written off.
I am in agreement that per capita economic health is a good way to view things.  However the other side of that story has to be that for the very same reasons, a shrinking population being divided by an economic variable, the per capita debt story is climbing a whole heck of a lot faster than per capita GDP. It's the same failing that the US falls into which is counting economic growth as the same whether it comes from rising organic demand, or simply was borrowed demand.  So, yes, Japan has a lot to teach us, and I hope we can learn, but one area that Japan is doing just as badly at is piling up the debt and hoping that somehow everything works itself out later on.

Chris,How do you feel about Ronald Reagan stating that deficits don't matter, after he tripled the national debt?
Not that I agree,  I am just trying to figure things out.  You help a lot.  Thanks for keeping me informed over the years.

When China embraced the market process, it maintained state control.  In a nationwide documentary several years ago, China explained to its people that western-style empires have risen and fallen repeated throughout history and therefore a path to failure.  Therefore, China is more about competing than ruling.  There was special emphasis placed on the need for properly regulated markets.  Perhaps the Asian world will be able to avoid the ultimate fate of empire because it avoids the empire cycle itself.  Their ancestral history has had less war than the west and with a whole lot more people.  If I were given a choice between living in greed-based Rome or reasoned-based Confucius China, I would go with reasoned-based China.  Perhaps the west's greed is it own worst enemy.
Enlightenment thinkers such as Voltaire and American's founding fathers drew inspiration from Confucius China for their very own reasoned-based democracy.  A reasoned-based democracy should come first, and a properly regulated market second.  Not the other way around where profit rules over reason.

Here are some words I had to say about China's future the other day:
"I think the Chinese have overlooked a vital problem in their plan for their “future”, in that their new infrastructure is totally dependent on burning fossil fuels which are running out (they are doing good tings with renewables but this is vastly overshadowed by FF’s). China imports half its oil, as does the US, so they will be running account deficits to maintain their future prosperity. Will that oil trade deficit be offset by exports of manufactured items? Maybe, but I have my doubts, as per below…
China’s economic advantage has been based on one thing only: the ability to manufacture (copy) cheap items without regard for social and environmental externalities. And because it didn’t trade the Yuan internationally, it could continue doing so “indefinitely” at low prices, in the process stealing the manufacturing industries of the west (of course the US was complicit in this transition as it wanted cheap toys to buy for free). There is no way the Chinese economy could have grown that fast if the rest of the world’s economies weren’t being drained equally fast.
When its economy / currency gets revalued higher (i.e. when the US Dollar system ends)  that advantage China enjoyed of cheap manufacturing will instantly vanish. Then what economic advantage will it have? The only one I can see is a stockpile of 10,000 tons of (revalued) gold. That will last for a while but with an account deficit necessary to secure the energy requirements to power all their spanktabulous new infrastructure it will get drained.
China does not have a culture that fosters innovation like the US does; its manufactured products are not trustworthy (I work in engineering and in specifying components it goes without saying that Chinese products are always explicitly forbidden because they are dangerous), it is an environmental nightmare and it is gobbling up prime agricultural land for industry. It is corrupt (although so are most other countries these days…) It’s going to have huge unemployment problems when its currency gets revalued and its manufactured items shoot up in price. And who is going to buy their stuff? Globally, consumption of “stuff” is going to tank once real things of value like energy and resources get revalued higher to where they should be.

[quote=David Phillips]How do you feel about Ronald Reagan stating that deficits don't matter, after he tripled the national debt?
Ronald Reagan didn't say that.  Dick Cheney said "Reagan proved deficits don't matter".
Lots of things involved during that time including having a "good" Federal Reserve chairman  Paul Volcker (I'm really loathed to use the term good with anything referring to the Fed, but…).  Here is a bit of a different take on why there was significant deficit spending during the Reagan years:
Did Regan's tax cuts cause those big 1980's budget deficits.
As I told a friend recently who brought up Reagan.  It's been 25 years since he left office.  Isn't it about time we stop playing the blame game on past politicians and maybe hold those currently in power accountable?  Using any past politician as a scapegoat is just an easy way to divert attention from those currently neglecting their responsibilities.  We can't change the past, and besides none of this is any one persons fault, it has taken a concerted effort by all branches of our government to dig the hole we are currently in.  Any of the branches could easily have stood up and said "NO" over the years, but they are all playing the same "ignore reality" game.

Maybe it was "all of the above", most importantly that Volcker increased interest rates by about 5% from 1980 to 82. That would have caused a worse depression if taxes hadn't been reduced and budget deficits weren't increased. Just more tactics used to perpetuate the ponzi scheme while still maintaining the purchasing power of the currency, a delicate balance that only works until the economy can no longer grow.

We are replacing all our florescent tubes with LEDs. That should do away with at least 3 electricians on our site alone. Which has the same effect as the much more glamorous Asimo:- less work for people, more common wealth.
Common wealth that will need to be put in the service of humanity, which implies re-distribution; for the purpose of an economy is to serve humans. As is the purpose of robots. (For now). The pathologically sic (sic) will want to use them to kill, it is needless to point out.

For your amusement and gratification I offer this documentary on the glamorous aspects of the economy.



Wasn't it Dick Cheney who said deficits don't matter? Reagan wanted cuts but not the military. Congress wouldn't cut anything. They're both responsible for the increasing deficits. 

Eternal Sunshine of the Spotless Mind
I call it the eternal relentless search for the unlimited growth paradigm.
Dylan Ratigan used to call it corporate communism.

I have been working on the idea that this system is not just about slave labor and currency exchanges, it's also about the investors and CEO class looking for the elusive idea of unending growth to keep this system going.
They have devised a system where they can grow a region for industry and real wealth and then get them into debt where they will have to give over all their wealth to this syndicate we call global free markets and central banking.
As I mentioned have mentioned before, the global cabal of neoliberalism needs real wealth to suck out the local economies, so they go from country to country looking of the elusive growth on which to feed.
The reason why we are over is not an lack of education or even our culture. It is that the US and Europe were not growing anymore and the "developing" countries had the potential for great growth.
I guess their minds just get erased. The idea of doing things legal sure has.
So they ignore the economies that aren't growing–totally casting aside educated human resources who might need real wages in favor of the slave labor and growth potential of the third world.
That's the system and it can keep on going until oil becomes too expensive, as each country that gets gutted could potentially grow again. Yes, as Kunstler has pointed out, the end of cheap oil is their greatest weakness.
So, round and round the world this process of building up and gutting goes, when does it stop, nobody knows! But I can tell you that Africa will be the new emerging market and they will keep this thing going as long as they're still standing.

We the people are expendable. We'll all be making a dollar a decade.

a 'merican farmer friend of mine is farming in Malawi. on his most recent visit home hementioned that more than 80% of the people coming thru customs were asian. chinese?
new colonialism

Bill Gates is putting huge money into the population there. They are trying to eradicate poverty while making Africa safe for "McDonald's". What I mean is that they are going to fatten it up and then get the people into debt while using them for cheap labor.
Of course, the Chinese want it too.

According to Erin Burnett a few years ago our troops in Afghanistan were guarding the mines for the Chinese.

This economic model is an abject failure for everyone but the top 2%. That's the top .1% and their minions.


China is not totally dependent upon burning fossil fuels.  It is now creating more renewable energy than any other nation in the world.  They had the long range vision to corner the Rare Earth Elements market, used to build modern electronics like solar panels and laser guided missiles decades ago.  They had the long range vision to build factories to manufacture solar panels for Germany.  And now they are using those factories to manufacture solar panels for itself.  What the eastern culture have that the western cultures lack is long range vision.  The western culture is driven by gold-fever vision.  There is hardly any long range planning at all.  The market values the small percentage of people who just happened to be right at that moment in time and devalues everyone else.  It is the inherent weakness of the market system.  It is not about people and does not even try to predict the future because it knows that it can't.
China is going through the same industrial growing pains that the west went through 100 years ago, only much bigger and faster.  They will get through their pollution problems given time.  In the mean time, they will find plenty of oil from the Middle East (now that we will not be demanding as much).  China has already paid for much of that oil.  For the past decade, China has been financing Middle East development in exchange for future payments in oil, at yesteryear's prices.  There also a Saudi Arabia's worth of oil in the shale of Australia, not far from China.  And it looks like British Columbia will be forced into allowing China to have access to the Canadian oil sands as well.  (Not that it is a good idea.)
China's biggest advantage is that it uses long range vision.  It has also been wise for them to just trade with the Middle East, instead of trying to colonize or control it.  They also have not belittled the religious values of the Middle East as the western religion has done for a thousand years.
Western culture does offer more innovation, but it needs something to give it a longer-range vision.

what is the toxic half-life of those pollution problems China has

Oops…spotted this late today.  I thought the "possible side effects" section offered some interesting commentary/assessments.
Just FYI:



David, the renewable efforts of China are commendable but it's just a drop in the bucket compared with their astronomical increases if FF usage and dependence. If they're trying long range planning, they clearly don't understand energy, resources and carrying capacity. They are cheating. They want the increase in living standard the west enjoyed as a result of a hundred years of industrial development, democracy, and hard work, but they want it over 2 decades. And they want it when the world doesn't have enough resources to support it.
Sure, for the near future, they are probably OK, but in the medium run their Middle Eastern oil prospects are going to dry up unless they turn to US-style military enforcement. This is because of fast growth rates and rising standards of living in the Middle East increasingly gobbling up more of the flat production, lessening exports. This is a real problem in Saudi Arabia which consumes so much oil itself because all they have is US-style freeways. westexas from The Oil Drum used to do a lot of graphs showing the trends in net exports for various oil producing countries and it was pretty amazing how soon the lines cross to being net importers.

BeingThere, your description of the global cabal of parasites roaming the world looking for countries with growth prospects to conquer, well that seems like a good explanation of what's happening here in BC and Canada. I am shocked by the changes we have seen over the last few years. The Conservatives, both provincially and federally, have gained a majority control of the government and can basically do whatever they want. They have gutted government oversight of social and environmental regulations, slashed the regulations themselves, laid off half the government scientists, then muzzled them to prevent them from speaking out; done all of this is the name of "balanced budgets" and of course "future prosperity". The media seems to have been completely captured by it; there is now no legitimate analysis of any meaningful issue in the media. The politics of Canada has become everything we used to enjoy criticizing the US for, but worse. It's amazing how fast this thing has fallen apart, and I attribute it to Canada's oil and mineral resources, and the fact that SOMEONE wants to make a lot of money off them, but needs to convince the Canadian people that selling out our sovereignty over our own resources and country is the way to do it.

I mean, you read the PR releases from the BC Liberal party (they are right wing here; not left-leaning like in the US) and it sounds like it was written by the Canadian Association of Petroleum Producers. At least Neil Young is speaking out.