It’s Not Going To Work


Contemplate this chart a bit.

This shows you what the stock market (S&P 500) did, along with the expansion in both GDP and debt (leverage) during that time.  The debt expansion was a geometric series from roughly 1990 forward until it hit the wall in 2007.

It may not be intuitively obvious when you look at that chart, but this is what was happening.  The data is a bit “noisy” as the granularity is quarterly, and of course there are small recessions and such in there, but on balance this entire “expansion” was in fact false — during this entire period, from 1980 forward until the crash, we did not have one three month period where economic growth occurred at a faster gross dollar amount than did new debt.

To make it easier to see, I took the data and slightly rearranged it.  This is what the data looks like if you take a five year average for both GDP expansion and debt growth, starting with the period ending in the 4th quarter of 1977 and progressing forward in 5 year increments until the end of 2007.

This is the average quarterly growth in debt and GDP during each of those five year periods, and is exactly what happens every single time you try to run two compound growth functions (in this case, GDP and Debt) over a period of time — the larger growing one always runs away from the slower.

The next point in that series is some $950 billion dollars in new debt per quarter, or roughly $3.8 trillion per year.

The Federal Government has been adding more than $1.2 trillion in new debt per year in an attempt to prevent recognition of the ponzi-style debt bubble that it, our Federal Reserve and our commercial banks all conspired to blow in the economy.  The same Ponzi Scheme, run by a private enterprise (e.g. Madoff) will and does result in long prison sentences.

It is not going to work folks; the $1.2 trillion that our government is taking on is one quarter of what would be necessary on average for the next five years, and for the five following that we’d need to double it again, to more than $7.5 trillion annually.

The Ponzi Scheme has run into the wall.  We, as Americans, the people of Europe, and our respective governments have only two choices:

  1. Face reality and cut back government spending to that which we can tax, allowing the credit bubble to deflate entirely.  This will produce a massive but short-term economic contraction back to sustainable levels.
  2. Continue to refuse to accept reality and as the futile and ever-larger attempts to prop up that which cannot be propped up are continually attempted and fail the percentage of contraction that we must withstand both in government and the economy will, as a matter of mathematical inevitability, grow larger each and every day until both economies and governments collapse.

This is the beginning and end of it folks.

There are no other options.

The Market-Ticker

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