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Why the U.S. economy CAN'T “recover” 11 comments
The U.S. propaganda-machine now reports on a daily basis that a “U.S. economic recovery” is underway – despite not one piece of evidence to support this “bold assertion” (shameless lie?).
Let's start with a definition of “recovery” suitable to the current, economic context: economic “recovery” means the economy is returning to (or “recovering”) a previous level of economic activity. In other words, with an economy which has shrunk by more than 10%, a “recovery” could only be occurring if the economy is already growing.
There is still absolutely no evidence that the U.S. economy is growing. Granted, the propagandists already know that the Treasury Department will report “economic growth” this quarter – regardless of what is actually happening in the real world. However, contrast this with the extremely cautious attitude of the same “experts” and “economists” when the U.S. economy started its collapse. Despite enormous volumes of evidence showing that the U.S. economy had started a serious collapse, these shameless shills refused to declare a “recession” had started for many months after that fact was obvious to the entire world.
When asked to justify their reluctance to apply the label of “recession” to this economic collapse (which is, in reality, a Greater Depression), the reply was the same: formally declaring a “recession” was something which was done in hindsight – after enough data had accumulated to justify that backward-looking prognosis.
What a surprising coincidence that these same U.S. market-pumpers see absolutely no reason to exercise any caution at all when declaring a “recovery” has begun!
One of the chief propaganda tools of these shills is the index of economic “leading indicators”. Even if I were to concede these “indicators” were a persuasive tool for predicting future economic activity (which I don't), this particular statistic only has relevance if the economy is operating within something close to normal parameters – which it isn't.
We have just spent a year watching the same buffoons who couldn't see this collapse coming telling us about all the “unprecedented” and “unconventional” measures that have been taken to attempt to resuscitate the global economy, in general, and the U.S. economy, in particular.
Why have they had to engage in so many “unconventional” measures (like 0%-1% interest rates around the world) to try to breathe life into the economy? Because the economy did not respond to traditional stimulus – as it always has in the past. If the economy isn't responding to stimulus in a predictable manner, how can these “experts” and “economists” know that the “leading indicators” they crow about are actually predictive of a “recovery”? Obviously they can't.
This becomes even more obvious when we look at some of these “indicators” individually. Rising stock prices are one of them. Gee, if stock prices are going up, that must mean that a “recovery” has started. After all, “bear-market rally” is a phrase which I just invented, this moment. Who cares that insiders have been dumping their own holdings at an accelerating rate for the last six months?
Another “indicator” is “consumer confidence”, or as I labeled it in a previous commentary (see “Time to rename U.S. Consumer Confidence index”) the “consumer gullibility” index. For the first six months of this year, the propaganda-machine deluged the world with report after report that “a U.S. economic recovery” was on the way. For the last three months, all we have heard is that the economy is “about to recover” and more recently “the recovery has already started”.
These propagandists couldn't justify continuing to take their pay-cheques if they hadn't managed to brainwash a large chunk of the population. Of more relevance, as I pointed out previously, it doesn't matter how “confident” Americans are if they have no jobs and no access to credit – to fuel this consumer economy. Currently, consumer credit is collapsing at the fastest rate in history (see “Record Plunge in U.S. Consumer Credit in July”). Is this something which would/could/should happen in a “recovering” economy?
“Housing starts” are another leading indicator. However, as I have repeated again and again, there is something seriously wrong with this number – as for nearly two years, “housing starts” have exceeded “new home sales” by anywhere from 50% to 100% every month. There are only two possibilities here: either this number has been grossly inflated (and thus is meaningless) or U.S. home-builders are simply accumulating more and more unsold inventory. Either way, this “leading indicator” has no merit.
However, the most persuasive means of showing that the U.S. economy is not recovering is to show that it cannot recover. For this, I will offer thanks to Steve Keen (and his “Debtwatch”blog) for two, extremely effective metaphors (not to mention the analysis behind it). These effectively point out that the Obama regime has not only failed to acknowledge the real problem with the U.S. economy, but also chose the least-effective form of “stimulus” available.
With respect to the latter point, Mr. Keen observes that there were several choices about which location in the “economic pipeline” Obama could choose to inject his stimulus. Under normal conditions (i.e. the “borrow-and-spend” paradigm, where “deficits don't matter”), stuffing money into the vaults of the banksters was the most-effective option – since these reckless gamblers have always lent-out at least $10 for every $1 they actually hold.
The problem is that this economic collapse was caused by providing the banksters with too much “easy money” and then allowing them to leverage that debt by an average of 30:1. Even the greedy banksters, themselves, know they have no choice but to de-leverage. Thus, when the Obama regime stuffed trillions into the vaults of the same banksters who caused all the problems – all the banksters did was “sit on” most of that money to reduce their leverage. Last I heard, the banksters had over $600 billion sitting in a “savings account” with the Federal Reserve – collecting 1% interest. Wow! That will sure “stimulate” the economy.
As Keen puts it, the Obama regime is using the wrong “pipe” in the economy. Because it was inevitable that the banksters would use any hand-outs to de-leverage, the “pipe” which pumps money from the banking system into the broader economy has effectively shrunk. This means no matter how much or how fast money is funneled to the banksters, the amount of “stimulus” which actually reaches the economy is now severely constrained. “Stimulus” dollars, says Keen, would have achieved a much greater effect by being provided to the debtors rather than the lenders, because those “pipes” in the economy had not “shrunk” by nearly as much (since neither U.S. businesses nor U.S. consumers were greedy and/or reckless enough to leverage themselves by 30:1).
Put another way, it was always completely obvious that any and every “stimulus dollar” given to the banksters would help only the banksters.
However, as both Keen and myself continue to reiterate regularly, the main problem with measures to fix the U.S. economy is that only the symptoms are being treated – not the “disease”. Keen equates the humungous U.S. debt-load with a “malignant tumor” - a perfect metaphor. It is something which is rapidly growing in size, and guaranteed to kill the patient unless removed.
Yet, instead of removing the tumor, the “cure” being pursued by the Obama regime is the equivalent of “tumor implants” - it is adding more tumors (i.e. more debt) to the (dying) patient, to try to improve the cosmetic appearance of the patient.
Just as transplanting tumors into a patient whom is already dying from a malignant tumor is obviously harmful, rather than beneficial, massive debt-injections into an economy literally drowning in debt can only increase problems rather than reduce them.
In response to this, the Obama regime, the Federal Reserve, and the propaganda-machine are all reading off of the same script: at some point in the distant future, the U.S. will actually start repaying all this new debt – so it's not a problem.
This is utter nonsense! The U.S. economy currently has a “structural deficit” in excess of $1 trillion per year – meaning that is the minimum amount of new debt the U.S. will incur with the economy operating at full capacity. This is about double the level of debt which officially constitutes a “debt crisis” - in an economy with real GDP of less than $11 trillion/year.
If the U.S. was actually serious about achieving a “balanced budget” the time to start is today, and not after trillions more in debt is piled on top of the existing $57 trillion in total public/private debt (not including $70 trillion, or so, in “unfunded liabilities”). The Obama regime, itself, claims it will add on another $9 trillion in debt – before it will (supposedly) achieve a balanced budget.
An economy which could not balance its budget during the peak of the recent bubble-based “economic boom” will supposedly be able to do so – after doubling the national debt. As if that proposition isn't ludicrous enough already, we have the historic pattern of the U.S. government only reporting half of the actual increase in the “national debt” when it reports its “official deficit” (see “Obama continues peddling fantasy-deficit numbers”). Thus, when Obama tells Americans he plans on heaping another $9 trillion of debt onto the shoulders of their children, what he really means is that another $18 trillion (or more) is on the way.
Forget about economics, this is all about arithmetic. Every additional dollar of debt heaped on top of the largest mountains of debt in the history of our species, permanently removes several pennies from the U.S. economy. It doesn't sound that bad – until you multiply that by a trillion. If an economy with a measly $11 trillion per year in GDP is permanently squandering over $2 trillion per year just paying interest on $57 trillion of debt, the best-case scenario is to simply “tread water” (i.e. just try to avoid any further shrinkage in the economy).
It is mathematically impossible for this debt-saturated economy to generate real economic growth through new debt. The propaganda-machine can churn out any fantasy-numbers it wants. In the real world, all we will see are more job-losses, more foreclosures, and more bankruptcies. Not much of a “recovery”.
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This post has 11 comments:
Meanwhile, across town, a suburban development five times the size of the two I've already mentioned is also getting its infrastructure installed, and probably faces the same fate. If "housing starts" count from the moment the infrastructure is ready for a spec builder to come on site, and this foolishness is being repeated nationwide based on nothing more than inertia in the housing industry, that explains the discrepancy. It takes several years to slow down the freight train of signed contracts, and now the banks will take another bath on all these empty lots.
I think it's important to understand how unfair the debt based money system is an how it differ from a permanent money system.
When new credit is created in a debt based money system an asset and a debt on the same amount are created. Someone is holding an asset on X dollar and the counterpart is holding a debt on the same amount (X dollar) – together they cancel each other (=0).
Let’s divide the population into two parts:
1) One part holding the debts
2) The other part holding the corresponding dollar assets
These two parts are, in mathematical and monetary aspect, equal in size since all created credit equals the total amount of debt. If all debt are paid all the created dollar will cease to exist (=0).
Now lets say an additional amount of dollars (Δx) are going to be created. This can only be done by putting someone in debt in a debt based system (obviously). But those already holding enough dollar assets don’t need to borrow any money so the only option is to indebt those with small dollar assets or those already in debt. If those already holding debts take loans they will get deeper into debt. If those with small dollar assets take a loan they will move from the asset part of the population to the indebted part of the population. Hence: fewer people will be left on the asset side and more people will be on the debt side even more indebted.
If additional debt money is created the scenario above repeat itself creating a situation where more debt leads to greater an greater inequalities (which is also empirically easy to show).
Further more:
Lets say a politician wants to redistribute (by taxation, “trickle down” or what ever) so that the indebted part of the population can pay their debts by taking Δx dollars from rich people. But this means that an equal amount (Δx) of the money supply will be destroyed (since killing the debt equals killing the same amount of money). Hence: any attempt to redistribute in the debt based money from those who have money to those in debt would destroy part of the money supply. So politics is trapped in an undemocratic situation where it can’t do anything about the inequalities without destroying the money supply - no matter if it's right or left wing politic.
All this is avoided by the permanent money AMI suggest. Permanent money (as Lincolns Greenbacks) don’t need anyone going into debt – it should avoid dividing the populations into debts slaves and those holding corresponding assets (where the debt slaves are desperately trying to get hold on the fewer and fewer rich peoples money in order to pay their debts). Permanent money can also be redistributed without destroying the money supply.
Thomas Jefferson (with a series of letters discussing the area of interest-free currency and the belief that banks are an anathema to personal well-being).
Abraham Lincoln who turned down the banks’ offer at that time of a loan at thirty-nine percent on the money needed to conduct the North’s side of the Civil War and created an ‘interest-free’ currency called ‘The Greenback Dollar’ which served sufficiently enough to carry the war to its end.
(but only for the duration of the Civil War after which, when it became evident the 'Greenback Dollar' would remain, he was assassinated – and the ‘Greenback removed from circulation.).
Adolph Hitler, using Sovereign curreny, brought Germany in four years – 1933 to 1934 – from complete bankruptcy and zero credit to the most powerful economy in Europe (during the Great Depression). The Jewish community of bankers declared war on him in 1933, before he even got into office, demonized him and created a race of victims blamed on him. Any examination of ‘The Holocaust’ will reveal its monetary basis.
J.F. Kennedy (who, under Executive Order number 11110, created a Sovereign currency called the Silver Certificate in the same circumstances as Lincoln’s Greenbacks and Hitler’s Deuschmark: “One Mark will be issued for every Mark’s worth of work done”.
Kennedy issued just under five billion dollars – enough to cover the U.S. budget at that time - backed by silver.
JFK was assassinated five months after the Silver Certificates went into circulation.
Immediately, the Silver Certificates were withdrawn from circulation and the U. S. went back to the privately-owned for-profit Federal Reserve system.
Capitalism’s history reveals an interesting pattern:
On average, every forty-six years, (plus the 9-year gap between market peak and market crash = fifty-five years) for the last three hundred years since the collapse of the South Sea Bubble in the second decade of the1700s, there have been five more commodity peaks in the world's stock markets, followed by a crash, followed by a depression (and the theft of another generation's wealth.)
Read from page 146 of "The Great Reckoning" by eminent economists James Dale Davidson and William Rees-Mogg, Sidgwick & Jackson, published in 1993, when by then we should have known. (Actually, read the whole book)
There has been a clockwork nine-year gap between commodity peaks and market crashes over the last five generations and a boom-bust cycle twice every hundred years or once a generation, meaning every generation of working and middle-class citizens, for the last three hundred years has been good and truly and thoroughly plucked:
· First Time: Commodity prices peaked in London in 1711 The South Sea Bubble burst exactly nine years later in 1720.
Depression followed.
· Second time: Producer prices peaked in London in 1763. The London stock market crashed again in 1772 (nine years later).
Depression followed.
· Third time: Commodity prices peaked in London in 1816.The London stock market crashed in 1825 (nine years later).
depression followed.
· Fourth time: Wholesale prices peaked in New York in 1864. A worldwide assets crash began in May 1873 (nine years later).
Depression followed.
* Fifth time: Then followed our beloved Great Depression in the 30s, about which much has been said, from which, little learned.
Sixth time: Commodity prices peaked some fifty years later in Tokyo, in 1980. The Tokyo stock market crashed in 1989 (again, nine years later). The depression following that crash is now upon us:
My interpretation of the Davidson, Reese-Mogg observation of these last six economic Tsunamis is that they were deliberate, organized, planned serial orchestrations of theft by the banking cartels:
Once is an accident, twice is a coincidence, and three times is a Declaration of War.
Four times is the realization that the Declaration of War fell on the deaf ears of sleeping fools, five times is simple daylight rape and plunder of the same fools' children – the sixth time, this time, Grand Theft, Planet©, is perhaps, hopefully, a lesson finally learned, and do we wake up?
Remember also, that each depression was surrounded by war, including the ones today, the most expensive ever.
In the context of what I’ve identified, 1980 plus 46 years means the next commodity peak should be around 2026 and the next crash exactly nine years later, in 2035.
(If this isn't the last time in which they just make off with everything left).
Butf you’ve followed my reasoning, and things continue 'as normal' you can start planning for your childrens' extremely wealthy retirement, because if the goldsmith banking system is not dismantled in favor of local (or nation-wide) Sovereign currencies, the boom-bust business will continue as usual, but at least your kids may not get ripped off.
On Sep 23 03:22 PM NickelMan wrote:
> Once again your FEAR that the recession is OVER and it hasn't pushed
> GOLD and SILVER prices high enough is showing.
>
> You take, you spin and you churn numbers of every sort to try and
> push your doomsayer & Financial Armageddon philosophy. You take
> as all the USA says as Lies and all that China says as truth. <br/>
>
> Let not the casual reader believe you are un-bias and in-perspective
> in your so called "Writings" All your articles concentrate on 3 angles.
> 1) Bash the USA 2) Kiss China's Butt 3) Pushing Gold & Silver
>
>
>
> Nick KrahS
Now I'm faced with another choice. I'm coming into some money in the next few years. My friend is trying to get me to invest it, but I am adamantly against giving the investments banks and stockbrokers a single penny. I'd rather buy rental real estate since here in the Northeast we need to live indoors....
On Sep 25 04:04 AM Nils2 wrote:
> Your writing makes sense and I think you write it in a crisp and
> clear language. But I don't endorse gold and silver replacing the
> current debt based monetary system - we might differ some in that
> respect. I endorse American Monetary Institutes (seekingalpha.com/symbo...)
> idea of creating a new permanent money supply based on how Lincolns
> Greenbacks worked.
>
> I think it's important to understand how unfair the debt based money
> system is an how it differ from a permanent money system.
>
> When new credit is created in a debt based money system an asset
> and a debt on the same amount are created. Someone is holding an
> asset on X dollar and the counterpart is holding a debt on the same
> amount (X dollar) – together they cancel each other (=0).
>
> Let’s divide the population into two parts:
> 1) One part holding the debts
> 2) The other part holding the corresponding dollar assets
>
> These two parts are, in mathematical and monetary aspect, equal in
> size since all created credit equals the total amount of debt. If
> all debt are paid all the created dollar will cease to exist (=0).
>
>
> Now lets say an additional amount of dollars (Δx) are going to be
> created. This can only be done by putting someone in debt in a debt
> based system (obviously). But those already holding enough dollar
> assets don’t need to borrow any money so the only option is to indebt
> those with small dollar assets or those already in debt. If those
> already holding debts take loans they will get deeper into debt.
> If those with small dollar assets take a loan they will move from
> the asset part of the population to the indebted part of the population.
> Hence: fewer people will be left on the asset side and more people
> will be on the debt side even more indebted.
>
> If additional debt money is created the scenario above repeat itself
> creating a situation where more debt leads to greater an greater
> inequalities (which is also empirically easy to show).
>
> Further more:
> Lets say a politician wants to redistribute (by taxation, “trickle
> down” or what ever) so that the indebted part of the population can
> pay their debts by taking Δx dollars from rich people. But this means
> that an equal amount (Δx) of the money supply will be destroyed (since
> killing the debt equals killing the same amount of money). Hence:
> any attempt to redistribute in the debt based money from those who
> have money to those in debt would destroy part of the money supply.
> So politics is trapped in an undemocratic situation where it can’t
> do anything about the inequalities without destroying the money supply
> - no matter if it's right or left wing politic.
>
> All this is avoided by the permanent money AMI suggest. Permanent
> money (as Lincolns Greenbacks) don’t need anyone going into debt
> – it should avoid dividing the populations into debts slaves and
> those holding corresponding assets (where the debt slaves are desperately
> trying to get hold on the fewer and fewer rich peoples money in order
> to pay their debts). Permanent money can also be redistributed without
> destroying the money supply.
You are also right that the phony money created by indebting everyone and everything by book keeping entries far exceed the real money consisting of coin and paper money. The phony money is about 95% (at best) of the money supply, the coins and paper money only constitute 5% (at the most) of the money supply. So if all depositors did a bankrun and tried to withdraw their cash about 95% of the money would never be paid. Thats why the banks need to have the interest so the depositors think that money can grow so they don't check the banks bluff aka known as "promise to pay".
On Sep 25 01:50 PM drp wrote:
> debt exceeds money. the system is built on continuous growth. that
> is one of the essentials of this entire "crisis." under current
> scenario, total debt can NEVER be repaid. you forgot about interest.
>
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Fixed-income investments are totally insane in the current environment, and we can't hold all our wealth in gold and silver bullion.
May 5, 2009
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