The crisis explained in one chart: Debt-to-GDP

Great article.  Interesting concept.  We borrow & spend thus creating a higher GDP.  With a higher GDP our debt to GDP ratio is lower, making us more credit worthy.  Good time to buy US Treasuries I guess:<)  (Yes that’s a joke)
The article states how unbelievable it is that people didn’t see this coming.  I read countless articles from people who saw this coming including, Warren Buffet, Jim Rodgers, Nouriel Roubini & Peter Schiff to name just a few. Warren bet against the dollar.  He was 100% right by his style of investing he just didn’t count on the new style market manipulation we see today.  Rodgers hit the nail on the head.  He predicted a suckers rally.  I sold 400k in euroes at 1.57, missed the bottom by a little & bought the euro back at 1.34.

The next phase of this crisis isn’t far off and everyone should see it coming.  Yes Bond market troubles.  Once the economy crashes & equities crumble, people have problem paying their debts & so do corporations & so do governments.

The stock market crash of 1929 led to the bond market crash of 1931.  That was when the great depresssion got really bad.

Good news though.  Governments are working together to print money like crazy now.  This will create a wave of mega inflation thus reducing debt to earnings ratios & people can start borrowing & spending again.

I have just explained what is going to happen to you ahead of time.  Don’t buy bonds with a fixed rate of return. Dont keep any more money in your bank account than you dare.  Taxpayers will pick up some of the tab for this scam but the rest of the tab will be paid for by the holders of fiat currencies.

Turn your money into real stuff…soon.  You may have till fall at the latest.  It looks like the inflationary period is already beginning.

 

 

There is no real way to print or talk our way out of the fact we have been sending the world pieces of paper & they have been sending us stuff for nearly 40 years.
A couple of options are available although I’m not so sure they are less dire.

War

Intentionally let the problem get so bad we are the last man standing

Never forget.  They new what would happen when they flooded the markets with as much money as they did.  This is not an uncontrolled event.

Think about it for a moment.  What is the problem?  Workers of the world can make more than they can afford to buy.  The workers of the world go to work every day and build 10 cars and are paid enough to buy 9 of them. The 10th car is sold on credit.  Through globalization, the workers of the world have had to compete at levels never before seeen.  To make the econom function, governments have forced banks to loan at ever increasing levels to get that 10th car sold.

Forgetting, New World Order or other options I mentioned above, Inflation is the way out.  Under the current system, ever increasing debt is required (look at the chart if you doubt).

This is not just happening in the US either.  It is a worldwide phenomenon.

Look at it from a global picture.  Banks put 100 into the world global money supply.  They demand the 100 back plus interest.  For example if 150 dollars needs to be paid back where does the other 50 come from?

It comes when the Goverment prints it which is what is happing now. This has happened before with inflation rates to the tune of 10 - 15 percent.  You’ve seen the graph, what kind of inflation are we looking at this time.

My prediction.

The banksters are about to create a globlal currency.  They are no longer afraid to debase the US dollar.  They will use the US dollar for a time (few years) along with other currencies to back the global currency to avoid a major meldown.

I’ve got a feeling I’m right on this one.  If you’ve got insight on any topics email me at amoles@minitecframing.com

All this stuff we want to buy must be fueled by debt.  Don’t forget we are the ones who go to work everyday and make all this stuff.Year over year productivity has far outpaced year over year pay. THIS IS THE PROBLEM.  WE MAKE MORE THAN WE ARE PAID TO BUY. To get the rest sold we are lent money.
I challenge anyone to refute this most common sense statement from an engineer.  I’ve recently become interested in economics and it looks to me like people need to throw all the garbage they read out the window & think like enginneers.  It especially reminds me of thermodynamics with energy in & energy out.  Energy is never created or destroyed, it merely changes form.  I think we are experiencing more of an entropy problem.

I believe the differnce between debt growth & credit growth is interest on loans.

Sounds like you’re betting on infaltion as I am.  What investment strategies are you using?  Email me at amoles@minitecframing.com

Lately, we’ve heard a great deal about the federal debt/GDP ratio. This surely is one of the strangest ratios in economics, because it involves unrelated measures, questionable definitions and different time periods – the classic “apples/oranges” comparison.
Federal “debt” is the net amount of money the federal government ever has created in our 200+ year history. GDP is the total dollar value of goods and services creating in America, this year. The two are unrelated.

For example, let’s say that in its first year, a government runs a $10 trillion deficit (i.e., creates $10 trillion), and in the twenty subsequent years runs $0 deficits. What would be the national debt? Answer: $10 trillion. The national debt would remain at the same $10 trillion level for all twenty-one years.

But the debt/GDP ratio would change every year, depending on that year’s GDP. Assuming money creation has some effect on GDP, presumably more recent events have a stronger effect. That is, the more recent balanced budgets surely would have a stronger effect on GDP than did that original deficit of twenty years ago. Yet, that strength would not be reflected in the debt/GDP ratio, which would continue to use $10 trillion as the numerator of the fraction. In measuring federal debt, what happened many years ago is identical to what happened yesterday.

Also, the amount of money in the U.S. presumably has more effect on GDP than does the amount of money outside the U.S. Yet, the debt/GDP ratio does not take this difference into consideration. In measuring federal debt, the location of money is irrelevant.

Finally, the government creates debt first by creating T-securities out of thin air, backed only by full faith and credit, then selling these securities for dollars it previously had created from thin air. The government just as easily and as prudently could create dollars from thin air, also backed only by full faith and credit, and dispense with the creation and sale of T-securities. That would reduce and ultimately eliminate federal debt, and over time the debt/GDP ratio would = 0. Perhaps that would make the debt hawks feel better, but fundamentally nothing had happened. The three-step method for creating money merely had been reduced to a one-step method.

Today, Japan’s ratio is close to 200%, the U.S. is close to 100% and has been much higher. By contrast, Russia’s, Chili’s, Libya’s, Qatar’s and others are below 10% – which tells you nothing about their economies.

And that is why the debt/GDP ratio is meaningless.

Rodger Malcolm Mitchell
http:www.rodgermitchell.com

The Black Swan is WarCool This is not really a response to your writings, more just my own ramblings!)
Since the last market crash in 2000 2001 the fed has been reinflating, but now they inflated away 30 years of growth in just 6 years. This entire market move to 15 000 dow was an illusion built on nothing more than monopoly money. The money changers are still running this country and they got a large bonus for doing such a fantastic job to boot.

I think the great minds of wallstreet and government came to the conclusion back in 2000 to create a massive arms development program so that they could spend away this dollar as fast as possible and build out their war machine at the impending thrashing of the dollar and eventual move to a single north american currency! Now as it stand the US has a well trained large army with tremendous technology advantage over many other nations. This is no coincidence going into the all painful ‘payment’ stage of bubble economics. This bubble was so large and so widespread that people are not going to want to pay these debts. They will walk away in droves.

Because we are already seeing smart debtors simply walk away from assets that can be paid! This is going to be a mass exodus out of assets and banks to cash in the mattress. This becomes worse at every turn with lowering wages, increasing unemployment and riots in the streets as families get hungry. So called well meaning elitist politicians start discussing tearing down homes once again, and yet families are left homeless.  Civil rest is already occurring in many parts of the world, and will only really be understood here when California falls soon.

This debt repayment phase may not go as well as paid, since the bankers are not required to pay for their bad loan practices neither should well intentioned and mislead Americans.

I believe that once hunger strikes more americans will hit the streets and give up the middle finger to those that have and to governements that have destroyed their future with lies and deceipts.

War being the fourth becomes easier and easier as the bottom rung feel defeated and lose hope. These individuals are a growing segment of the population, and as their numbers grow so does their strength. No matter how neurotic their ideals become, locally they become the dominant force ready to join the cause, any cause.

In Africa we see all the time the ill effects of no food or hope, and that is war. How this could happen is infinite in possibilities, but it could simply be a spread of war in the middle east to Iran and then Russia. Ideally as far away from China as not to upset them, and why not take out Venezuela while their at it. Protect them from the tyrrany of evil as well. Anything to keep peoples minds of their lack of quality of life and dreams they once enjoyed. In other words a reset of the mind to lower expectations so once again men can be happy with less. Human expectations if renewed every so many years is a great tool for slavery of the debt tool once again.

Earlier someone said that a default of the debt would threaten war, absolutely a real possibility. It would hardly matter with that many nukes and large airforce and navy.

The inflation theory does not work when velocity of money comes to a screeching hault because of sickening money changer carry trades that steal from the people and pay the banks. Vile anarchists that enslave the working class and syphon off all of their value created by interest and taxation.

The last cycle will not be seen for years, any velocity will be quickly destroyed when fear of not having ones next meal arises. As well any income earned is being grabbed by the Buffets of the world who enslaved large companies with huge arm twisting interest rates.

I am not sure when or if a larger war would occur, but a quick  Reichstag fire in the white house or senate. Perhaps a quick bomb in the senate whiping out the cabinet would allow someone to step in and make decisive actions knowone else could make. This would then give power to a sole individual that could send all of our kids to their deaths.

I may come accross as somewhat over the edge, but all of us here were calling this years ago and we were all conspiracy theorists back then. Now what are we?

I will never bother studying the numbers in depth, the exact nature and how or why doesn’t matter one bit. What matters are the facts that we can simply not afford to repay all of the debt, and all these ideas of no interest on debts etc, only hinder growth and help create a nation of hording zombies moving from town to town looking for a job or a loaf of bread.

The powers that be will not allow a 10 or 15 or god for bid 20 year pay back cycle, tha is far too slow for their greed. War is much faster and much more profitable for those that can avoid it and supply it.

Just my ramblings on the 4th option.Surprised

And one more thing on the large war machine of the US, they have the ability to use their own leverage of living in America to attract a massive number of immagrants.
Access to a huge low paying army with ideals of living in one of the richest countries in the world is at their door step in Mexico. As well by simply offering a green card to those who are willing to fight for their new country could drive possibly 1 or 2 hundred million of age soldiers to the doorsteps of uncle sam. So the fear of China is quite mute if they posess first strike capabilities.

More impaired ramblings on my part, but I enjoy the reading on this site, great thinkers here.

Investment strategies…?  ME!

My strategy is spend everything you’ve got…  on debt first, then essential items like tools, fertiliser, livestock, and a lifestyle that runs on the smell of an oily rag.

Mike

I always hear that, but isn’t that one of those myths?The US government gets their deficit money by issuing bonds?
 
The amount of federal reserve “bunk” on the internet is staggering, but I’m pretty sure they’re not loaning the government anything!

the interest on the bonds will go up?That’s trouble? Right now the Chinese are probably wondering if the US government is taking any of this seriously?
I don’t think they are, which is astounding to me!
It’s like we’re represented by two parties, the Homer Simpson party vs. the Peter Griffin party.
Don’t ask me which one is democrat and which one is republican, what difference does it make?

[quote=TryingNotToBeConfused]I always hear that, but isn’t that one of those myths?
The US government gets their deficit money by issuing bonds?
 
The amount of federal reserve “bunk” on the internet is staggering, but I’m pretty sure they’re not loaning the government anything!
[/quote]
Actually, its illegal for the Fed to deal directly with Treasury.  So, they deal through one of the big dealer banks.  The banks buy the bonds and the Fed buys them from the banks, of course after the banks take their cut.  Its all very cosy and collegial.
Doug

Yes there are other options but the 3 presented here are the more palatable ones. The fourth option is WWIII. Every one forgets all about debt during war. Wealth, land and property (and debt) are redistributed and the banks get richer. Given that the US is a failing power, watch for desperate belligerent politicians who refuse to believe the American Empire has passed its zenith pushing for this option. At the moment the US still has its military toys that it spent all its debt on. Once the funds dry up the military machine will have to be dismantled as you wont be able to afford it any more. The temptation will be to use the hardware before its gone. Failing the 4 options above what else are you hoping for? There are no easy options. The West and the US in particular has been spending more than they earn for years. We have been doing this by spending other peoples money. This has been supported by exploiting cheap Eastern labour. I’m an expat living in China, I see the life the peasants have to live here in order to keep westerners in their privileged subsidized lifestyle. Once they have an alternative you can bet your ass they wont choose to do it out of love for us and why should they. Now America is unable to live beyond its means by spending other peoples money, the people we borrowed from want their money back. Wouldn’t you? And if it was you that had given all your savings to someone else for 30 year, what options would you consider equitable and fair when it came time to repay?