A picture is worth ten thousand words:
The futures this morning are down a massive 32 handles (2.65%) on the S&P and more than 250 DOW points. The trading range last night encompassed nearly 30 S&P points. As I send this out the S&P futures are tanking again, near the overnight lows, headed for a potential lock-limit (at -50) before the open.
Given the overnight range expecting extreme volatility is, of course, the order of the day. But this much is certain: Coming just three years after our Congress and then-President Bush destroyed the value of retirement accounts by refusing to act against the “captains of industry” who had screwed millions of Americans out of their homes, we now have that very same Congress and our new President who tried to cover it all up with “free money” handouts continuing to play games – this time they ran into the wall with the federal government exactly as we did with our personal finances.
A wall that I, and a few others, warned existed and that we were headed toward at full-throttle with a maniacal Federal Reserve ChairSatan driving the bus called “America”, mashing the accelerator pedal to the floor with a chortle claiming that “I studied this stuff and knows how to avoid disaster.”
Well, how’d it work out America? How’d it work out Congress? How’d it work Mr. President?
Bernanke, for his part, even said that one of the goals of QEx was to pump asset prices – that is, make the stock market go up. Unfortunately everything else went up too, except the dollar, which went down. A lot. The fact is that the dollar has been depreciated by about 20% over the last couple of years as a consequence of Bernanke’s actions, which means that the damage to your portfolio is far worse than it appears over the last two weeks in terms of purchasing power. The ChairSatan continues to argue that “inflation is contained” but this is only true if you don’t need to buy energy – like, for instance, gasoline. Nobody needs to buy that sort of thing, right?
You have lost not 15%, but in fact closer to 35% when one counts the currency depreciation!
Welcome to Hell America.
You were led down this path of “easy” solutions (which weren’t) and “no pain” steps forward (which were lies) by a pack of congenital liars who refuse to speak to the very simple fact that any time two compound – that is, exponential – functions exist, and one has an exponent larger than the other, the larger will inevitably run away from the smaller.
That is: Debt, either in the system as a whole or in any specific subsector of the economy – can never grow faster than productive output does.
If you allow that to happen on an continual basis you will always wind up with a disaster.
This is a mathematical fact.
I have long challenged any so-called “economic wonk”, no matter their credentials, to argue against this fact. I further challenge anyone who presents a “solution” or “path forward” to put the outcome of their plan against this mathematical fact and either show that the condition will not exist or mathematically disprove the fundamental nature of exponents.
As I pointed out with a nice spreadsheet on 7/15 (and have written about for four years straight) this is an inevitable outcome any time debt grows faster than GDP. We merely argue over how long we have before we blow up – not whether we will. (The spreadsheet is here; copy it to Excel and play with the assumptions on the top right to your heart’s desire – you cannot change the outcome if debt grows faster than output – only how long it takes to blow up.)
Any “economist” or other policy wonk, no matter who it is – Federal Reserve Chairman, President, Senator, Representative, PhD in economics or otherwise – that is unable to do so is intentionally putting forward a claimed path for our society and nation that they know will lead to its destruction.
That, my friends, is a fact.