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See What $1.6 Trillion In Deficits Buys?

See What $1.6 Trillion In Deficits Buys?

Posted by Karl Denninger

Funny how the numbers seem to line up:

Real disposable income decreased 0.6 percent in January, in contrast to an increase of 0.2 percent in December.  Real PCE increased 0.3 percent, compared with an increase of 0.1 percent.

Yeah, we’re not making anything in actual income, but the government is forking up billions in things like unemployment and such.

The fun part of this, of course, is that the only thing that has held up the economy is that deficit spending.  But for it, as I noted in my missive of Feb 23, we’ve borrowed and spent 14% of GDP over the last 18 months – or roughly 10% annualized.

The premise behind all of this is that if you can “prime the pump” it will lead to sustainable growth.

The error in the premise is that borrowing has to pick up but we never destroyed the excessive debt leverage that was in the system originally.  As such there is no borrowing capacity – recall that one must have both a willing lender and a willing and able borrower.

There is no recovery.  Buffett is on CNBS this morning talking about a “slow recovery” but he’s being intentionally misleading – or he’s gone insane.  He talks a good game about “strong medicine” but in point of fact he then says that he’s seen little evidence of an actual turn-up in the economy as a whole.

Well Warren, which is it?  Either there’s no recovery coming – the economy is simply being propped up until the government becomes unable (or unwilling) to continue to spend at double its tax inputs, or you’re wrong.

Me?  I go with the data, which says that not only is the government “stimulus” not working to produce sustainable output gains, it can’t work because the excessive debt that led us into this mess is still there as a direct and proximate consequence of our government refusing to allow those who made bad loans to go out of business – both on the borrowing and lending side.

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