Even Jerome Powell, the chair of the Federal Reserve, has acknowledged this unsettling truth: by definition, the growing gap between debt and GDP is unsustainable. As in, someday the entire system will break down if it is not first self-corrected by brave and noble leaders willing to speak truth to the populace.
On the lower dotted line, you’re looking at US GDP, a measure of our collective economic growth and health. On the upper solid line, is total credit market debt (TCMDO in Fed geek), which has been compounding at more than twice the rate of GDP. This isn’t just federal debt, which is often the focal point of public concern, but a comprehensive look at all credit market debt. It’s a trajectory that can’t continue indefinitely without serious repercussions.
As the late Charlie Munger wisely said, “Show me the incentives and I’ll show you the outcome.” We’ve heavily incentivized the debt-laden path to growth, which has always had a built-in math problem, and now we’re starting to see the cracks in this foundation. Grant Williams takes us through his interpretation of all this as only he can.
On a deeper level, our collective leadership has revealed themselves to be an astonishing group of midwits, unable to even conceptualize what the problem is let alone proffer any solutions. Tune in to an incredible conversation about this and many other related subjects.
To mix metaphors a bit, Grant is one of my favourite “weathervanes sitting on the overton window” :>
I often catch him trying to broach the darker sides of what is happening in finance and politics without triggering his listeners too much.
We all want everyone to go full Dave Collum on this situation but there is huge value in very mainstream sounding guys like Grant reaching out to the people on that side of the street.
Great to hear from Grant Williams, have been a fan for years. Particularly enjoyed his observation in this talk about where 30 seconds on climate change disrupted (for some) the other hour+ of good data. I see this happening here at PP lately (or more generally in the net world at large) where people seem to expect nothing less than 100% agreement with their world view from those they listen to. Seems to be a tactic in use by the propagandists at large in sowing divisions as well… anyway…
Been meaning to ask Chris to consider using earphones such as Grant (and many others) are using as I’m one of those CT guys that think sticking bluetooth things in your head (just maybe!) may not be good for your long term health, especially for those that use them regularly, like Chris.
Noticed the chart of total private and public debt vs GDP in the 80’s. Why are folks only starting to scratch their heads now? There will be only fewer chairs left when the music stops as time goes on.
“Why are folks only starting to scratch their heads now?” Why? Because humans like the idea of having a free lunch, even though there ain’t so such thing, and when confronted with that fact they will kick the can down the road. You know, in case there happens to be a free lunch further down the road.
It cannot continue? So, what is the end point? David Webb (The Great Taking) offers a view of the end point. A free book that is well worth reading. I use Verbose to convert it into an oral track so I can listen instead of read the book. His point is that ownership of financial assets is no longer personal property because government has arranged for the the Custodian to take posession of the asset due to its now legally superior claim on the property. The purchaser is relegated to an unsecured creditor with only beneficial ownership rights. The Depository Trust and Clearing Corporation (DTCC), a legal contrivance, in combination with a “to big to fail” custodian can simply take the assets as part of bankruptcy, sell the asets, and do so without judicial interference (as occurred with Lehman). With that now part of banking knowledge, thanks to Webb, if or when derrivatives counter parties do not make good and the lack of capitalization puts the DTCC subordinate institutions CCPs, in solvency difficulties, then this section of the Commercial Code can be used to protect the CCPs and parent, the DTCC. The DTCC can take legal ownership of not just the assets under question, but all the assets in the system and proceed to sell them off to meet solvency needs. Of course, simply initiating that action would completely freeze the derrivatives markets and literally all the stock exchanges.
People need to segregate what is going on with the sun cycles versus what is going on Earth. They are two different stories. It is like a boy scout circling the camp fire. He may be putting on a little bit of clothing each time he circles the fire because he is cold, but the camp fire maybe be going out faster than he can keep warm!! The limited amount of clothing he has may not have any effect if he freezes to death
The analogy I have in my head is a black jack table in Vegas.
First, because the Fed purposely engineers inflation one cannot simply sit off to the side with one’s chips. You have to play the game or you are guaranteed to fail.
Second, the house always skims from the pot.
Third, the house has a side deal going with the players to your left and to your right. As long as they are winning their hands you are allowed to keep your winnings too. However, should the house get in big trouble, you are forced to bail them out. Also, if one of the other players to your side happens to have a side (or derivative) agreement with either the house or another player and they lose big on that bet, then your chips are part of the pool used to make them whole again.
Don’t like it? Too bad, them’s the rules.
Just A Little Red Flag About Milei And His Choice Of Finance Minister
Caputo served as Chief of Trading for Latin America at JP Morgan between 1994 and 1998, and he held the same position for Eastern Europe and Latin America at Deutsche Bank between 1998 and 2003. From that year until 2008 he was chairman of the Argentine branch of Deutsche Bank.
Absolutely correct! Those are the rules. Hell is paved with good intentions. I am the government and I am here to help you. Elected representatives work for the people. Etc.
We just have to work through all the artificial constructs we humans love to establish.
Chris, there are only a few BWR 5 designs running in the USA. I think you would be surprised at the variety of plants currently in operation today.
Palo Verde is a System 80 Combusion Engineering plant (PWR) west of Phoenix. None of the three plants at this site have a PORV (pilot operated relief valve). This means that there is no success path of preventing a big accident during a loss of feedwater event using feed/bleed. At most other PWR plants, the option to use “feed and bleed” with the ECCS (emergency core cooling system) injecting and PORV open is a success path to avoiding a care damaging event.
I once attended a probabilistic risk assessment course taught by a bunch of BWR fan boys. After days of listening to them slam PWRs, I asked them a simple question. I asked “BWR vs PWR, which technology has the most completed plants in operation and then asked which technology has had the most meltdowns?”. Instead of honestly answering the question, I got the nonsense “Fukushima was beyond design basis!” Bullcrap.
The point of all this…BWR/PWR. It matters little to me. They are both LWR technologies that were the wrong design choice.
I am cautiously optimistic that we will a mass adoption of nukes.
You are correct Chris. The free lunch might have elements of greed or the Las Vegas mentality. But playing Russian roulette and putting more than one bullet is boarding a pathogenic state of being. We had all the warning signs even in the 1980’s. Interest rates at 19% and inflation at 15%.
There was the big tech blowup, where these companies had shady book keeping. There was MF Global with the comical testimony in front of Congress, and on and on. Massive corruptions almost on a daily basis. Reading “Wall Street On Parade” would make the San Quentin crowd cringe.
This all reminds me of how one catches monkeys in the jungle. You attach a coconut with a chain to a stake in the ground. You make a hole in the coconut, size depending on the size of the monkey you wish. Then you drop rice into the hole. All the monkeys are watching and climb down as soon as the coast is clear. When they grab the rice they have a fist inside the coconut and they will scream and will run circles while they are being captured because they will not let go of the rice.
Here’s a chart of TCMDO as a percentage of GDP. Right now there are about 3.5 units of debt for every unit of GDP. Roughly that ratio has remained in place (minus “pandemic crazy”) since 2011.
I suspect: this is an energy issue. We haven’t seen cheap energy since 1980. And “someone” won’t let the little people have cheap non-fossil fuel energy sources. “they” are strangling human society of energy resources - slavery via debt. Its why we can’t buy houses on one person’s salary for a long time now. No Cheap Energy For You, little people. (Now where did I put that Private Jet again?)
Oligarchs gonna Oligarch. By 2030, You Will own Nothing. https://peakprosperity.com/wp-content/uploads/2023/12/tcmdo-gdp-pct-1703852684.6175.png
Ikr, grouping them together is a massive tell that someone hasn’t researched the subject. All one has to do is look at GameStop’s balance sheet, see the zero meaningful debt, the $1+bn cash reserves & within a hair breadth of a profitable year. Plus excellent management.
AMC is loaded with debt & a million miles from profitability. And very different management styles.
Disclaimer: heavily invested is GME, never selling, I get serious Berkshire Hathaway vibes.
Other than that, really excellent chat, loads of good info. Thank you, enjoyed it a lot.
“fun” Fact Higher Interest Rates And The Staggering Pace Of New Debt
Higher Interest Rates and The Staggering Pace of New Debt In 2023, the government’s interest payments on the national debt reached $659 billion, as reported by the Treasury Department. To understand the scale of this figure, consider the Apollo moon missions, which cost the United States $25.8 billion from 1960 to 1973. Today, we spend over twice that amount – about $54.9 billion – every single month, just to cover the interest on our national debt.
"30 seconds on climate change disrupted (for some) the other hour+ of good data. I see this happening here at PP lately (or more generally in the net world at large) where people seem to expect nothing less than 100% agreement with their world view from those they listen to.
Yes, I see that too. If people you generally respect then offer you a different take on a subject, I recommend you listen really hard. You may learn something! The great ah-ha of the enlightenment was NOT how to find the Truth. It was: the powerful are probably wrong and you, my friend might be wrong about some things too, AND horror of horrors, I am absolutely wrong about some things. And I will never be better if I’m so childish I can’t listen with interest to generally responsible people who have a different take on an issue.
Whenever you have that immature “they are absolutely wrong” reaction to an otherwise reasonable person, it’s time to ask yourself, what am I missing? And you seldom have to change your entire universe. We still use Newton to go to the moon, although Einstein showed us the limits to that model in the context of a broader view of the universe.
Learn to listen for nuance and context. You will absolutely learn new things.
The Models Showing Possible Ice Age Have Been On The Table For Years
I’ve seen NOAA models from the early 80’s that showed a non-zero possibility of a heating period being followed by a rapid cooling. There is some evidence from ice cores, etc. that is has happened before.
I saw these in the context of the offshore oil industry trying to figure out how to harden offshore platforms to withstand what looked like increasing probability for massive gulf storms. NOAA was working with the industry and local universities to model extremes. One of the extremes was rising sea level and massive storms. Another, less probable model showed a possible ice age.
Of course the folks who were making money from green energy subsidies forced the researchers to shut up about that possible outcome.
