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Michael Clark
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Michael J. Clark was born and raised in Sinclair, Wyoming. He is a poet, novelist, artist, historian, and market analyst. His fine arts portfolio can be found at the following address: http://www.hoalantrangallery.com/MJC2.htm His writing portfolio can be found at:... More
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Clark's Gate Timing System ©
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TURN OUT THE LIGHTS
  • IT'S PRIVATE DEBT, NOT PUBLIC DEBT, THAT GOT US INTO THIS MESS 5 comments
    May 7, 2012 5:40 AM

    PRIVATE DEBT NEEDS TO BE DESTROYED MUCH MORE THAN PUBLIC DEBT -- PRIVATE DEBT IS NOW BEING DESTROYED BY SELLING IT TO THE PUBLIC

    I came across a GREAT chart this weekend while surfing the internet:

    The arguments that the American Government caused this crisis through overspending on entitlements -- serving the so-called losers of society -- this is the standard line of the Far Right -- doesn't show up in this chart.

    Government debt vis-a-vis Gross Domestic Product is not astronomical, according to this chart. It was not high in 1929 either, the last time the global economy had a heart attack and died. Public Debt is, in fact, at the time of this chart at least, lower than in 1945, when the public financed American involvement in World War II.

    The Far Right illusion is that if government just 'gets out of the way' of private enterprise, the world will fix itself. But this chart gives a different picture of reality.

    This chart says it is PRIVATE DEBT that is at astronomical levels vis-a-vis GDP. Private Debt in America was at 240% of GDP in 1929, before the global economy crashed then; and Private Debt in America was at 300% of GDP in 2009 -- and is still at 260% of GDP now, higher still than in 1929.

    Of course, there was a real estate bubble and subsequent banking crisis in the 1920's. In fact, the asset bubble that began in 1921 caused the massive growth in private debt that destroyed the global economy then also. The web site below examines the housing bubble of 1921-1926.

    www.library.hbs.edu/hc/crises/forgotten.html

    The famous stock market bubble of 1925-1929 has been closely analyzed. Less well known, and far less well documented, is the nationwide real estate bubble that began around 1921 and deflated around 1926. In the midst of our current subprime mortgage collapse, economists and historians interested in the role of real estate markets in past financial crises are reexamining the relationship of the first asset-price bubble of the 1920s with the later stock market bubble and the Great Depression that followed. Limited data on 1920s home prices and foreclosures means that many questions remain unanswered.22 Historical trade publications like the weekly New York Real Estate Record and Builder's Guide, of which Baker Library holds a sixty-year run, allow researchers to fill in the blanks. The implications of early findings may challenge conventional wisdom about the factors that caused and prolonged the Great Depression.

    What this all suggests is that Big Business is refusing to take the blame for the Global Collapse it helped to create through the same mechanism it used in the 1920s pursuing recklessly their own economic empires -- asset price inflation fueled by lower and lower interest rates - and has attempted to shift the blame on to the governments of the world (Big Government being the boogeyman of the Far Right).

    The debt that must be destroyed before the global economy can reach a state of organic growth again is, primarily, private debt -- private enterprise debt and private consumer debt. In fact, the very force that the Far Right says will save us from our current disaster is what caused and is still causing the current disaster.

    Of course, Big Business has now found a convenient method for unloading toxic debt: by selling it at face value or even at future inflated value to the governments of the world. The governments are willing to buy worthless private debt in the hope of keeping themselves in power, of keeping their societies from unraveling into civil war and revolution. Why would Big Business ever concern itself with risk if there will always be a buyer of last resort willing to absorb the crimes and failures of the Free Market in pursuing the demon of Unlimited Wealth?

    Then, of course, this forced ingestion of toxic (criminal?) debt by the governments in question -- in hopes of avoiding civil war -- has been followed by the political gambit of Big Business and the political supporters of Big Business screaming and shaking of fists at the government for taking on too much debt. Well, the 'too much debt' the public was taking on was the disaster debt of unregulated Big Business which made careless business decisions without care to risk or even to crime in many cases (organized crime almost certainly, organized crimes in white shirts on Wall Street).

    Comstock Partners issued a report this year in which they found almost exactly the same evidence I am presenting -- that it is PRIVATE DEBT that is the villain, and the cause of our collapse. And Public Debt is now growing as it takes on the burden of absorbing the Private Toxic Debt accrued from 2001-2008, mainly caused by the Housing Bubble (again).

    articles.businessinsider.com/2011-08-26/...

    From the Comstock Report:

    In fact, the eight years between 2000 and 2008 the debt grew from $26.5 trillion (265% of $10 tn GDP) to $54.5 trillion (or $28 trillion from 2000 to 2008).

    The private sector debt that grew the most was the household debt, mostly because of the massive purchases of homes and goods imported largely from emerging economies. This sector of debt was historically about 50% of GDP and 65% of Disposable Personal Income, but by the mid 1980s it starting growing exponentially until it was in a full blown debt bubble. This sector debt rose from $6.5 trillion in 2000 to almost $15 trillion in 2008. This sector is presently de-leveraging and is down to about $13 trillion on its way to below $10 trillion (in our opinion) as the de-leveraging continues to take a toll on the U.S. (as well as the global economy, since the rest of the world needs U.S. consumption). This is very similar to what took place in Japan starting at the end of 1989 (except that the bubble in Japanese debt resided in the non-financial corporate sector).

    Currently, most observers are much more focused on GOVERNMENT DEBT where the debt ceiling was $6 trillion in mid 2002 and just recently President Obama signed a bill lifting the debt ceiling by $2.1 trillion to $16.4 trillion. If you count the unfunded liabilities (or the promises we made to retirees) this debt could be higher than $100 trillion. We believe this debt will have to be addressed thru either inflation (printing our way out at the expense of the U.S. Dollar), or deflating our way out through de-leveraging or defaulting on the enormous debt (we believe the deflationary solution to be the highest probability, at least initially). It is very difficult to inflate out of our present situation since banks will only lend to the best credits and the best credits don't want to take on more debt-this is called a "liquidity trap" and stifles the "velocity of money."

    The problem with all of the above solutions is that they will not be easy to resolve since the government sector debt will have to grow to replace the private debt declines, in order to curtail the collapse of the economy. This is exactly what happened in Japan as their government debt grew to 225% of their GDP as the private debt declined in the deflation. We expect the solution that will evolve in this country will start with deflation. We will show exactly how we view deflation by displaying the chart "Cycle of Deflation" (see attachment) which we have used in many prior reports.

    I am not suggesting that government debt is not a problem. I'm reminding the reader where this crisis began: with the DEREGULATION of Big Business. The proper role of Big Business is to pursue profits; and the proper role for Big Government is to regulate (provide laws and police powers to enforce these laws) Big Business. Where there are no laws -- DEREGULATION -- there will be only criminals, at least until we all pass into the Spiritual Kingdom in which selfishness and greed are no longer human problems.

    We are heading down a long slow path of debt deflation that will peak in the year 2019. Don't listen to those who claim that only American Ingenuity and Free Unregulated Business can get America back on its feet again -- because those are the very same people who just threw America on its back, while pursuing their own economic empires -- the world be damned. There will be a time for the ideology of empire and ingenuity and entrepreneurialism again -- but not until after 2019.

    We are not saints yet. Until we are all saints we need laws and police to protect decent people from the sharks who believe the world should and must be a world of shark-eat-shark only.

    I will save my suggestion that American Bank reform should use the American public power utilities as a model for what banking should become in the future -- I will save this for a future article. Bankers should be technicians and functionaries who serve the public and provide guaranteed stability, not entrepreneurs, not gamblers, who can always count on public bail-outs if their gambles turn to dust. Let the capital gamblers and entrepreneurs work in non-financial industries, such as technology and weapons-production.

    home.mindspring.com/~mclark7/CGTS09.htm

    MICHAEL J CLARK
    Clark's Gate Timing System
    Hanoi, Vietnam

    cgts@mindspring.com

    CGTS

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Comments (5)
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  • rcrowe
    , contributor
    Comments (3) | Send Message
     
    It's called a "balance sheet recession", and it's very similar to what Japan went through in the "Lost Decade" (actually more like 15 years) from about 1990-2005. Go read the work of Richard Koo for a thorough understanding of what we're experiencing.
    16 Jun 2012, 03:49 PM Reply Like
  • Michael Clark
    , contributor
    Comments (8862) | Send Message
     
    Author’s reply » Is Japan out of their recession. I don't think so. They're still hiding debt. You have to destroy the debt. You can't hide it.

     

    Deflations are supposed to last 18 years. Their deflation is lasting longer because they hiding private debt inside of their public debt, which is what America and Europe are trying to do now. Not a nice picture.
    16 Jun 2012, 11:57 PM Reply Like
  • rcrowe
    , contributor
    Comments (3) | Send Message
     
    "Hiding private debt inside public debt" is an interesting phrase, but what does it mean? And where does your "18 years" number come from?

     

    After the collapse of Japan's 1980's asset bubble, private debt that previously looked fine on balance sheets was suddenly a huge problem, because the assets on the other side were worth much less. Companies that were otherwise thriving and earning profits suddenly started paying down debt in an effort to restore their balance sheets to health, causing a "balance sheet recession". Companies stopped taking loans, and money flowed back into banks, who had a very hard time loaning it to anyone, even at near zero interest. That would have led to a deflationary spiral, with the money supply shrinking as money was bottled up in banks. Massive monetary policy (the supply side of the debt market) had very little effect, because the demand side of the debt market was extremely weak.

     

    Fortunately the Japanese government stepped in and made up the shortfall by taking the debt that the companies didn't want while companies paid down their debt. That public debt did lead to deficits, but it also kept the economy afloat until companies could recover. Unfortunately many politicians didn't understand what was happening, and tried to reduce the deficit before companies were ready to get back to normal borrowing. The Hashimoto and Koizumi administrations both tried to reduce the deficit, and in both cases the result was higher deficits when the economy slipped back into recession, and lengthening the overall recession as profits fell, resulting in less money for companies to pay down their private debt.

     

    The Japanese have accumulated public debt, and more of it than they needed to if they had fully understood the problem and avoided the mistakes of the Hashimoto and Koizumi administrations, but they still have a thriving economy. If they had stood back and let the deflationary spiral take its course, their economy would have been devastated. They will need to pay down their public debt, but they have a thriving economy providing tax receipts to do that with. This is one of the rare cases where running a deficit was necessary, but in normal times it's important to run a surplus or near neutral in order to have a sound public debt position for emergencies like this.
    17 Jun 2012, 01:40 PM Reply Like
  • Michael Clark
    , contributor
    Comments (8862) | Send Message
     
    Author’s reply » Japan was fortunate to have the first leg of their deflation occur while the rest of the world was getting richer and richer and willing to still buy their products. Now, however, the entire world is entering the depression together. The 'thriving' Japanese economy is highly dependent upon the thriving wealth of the rest of the world, so they can buy Japanese products. As the Depression grows, the true nature of the Japanese economy will be shown to be moribund.

     

    Sometimes one must go through economic devastation -- economic winters -- in order to destroy bad debt (not hide it) and pave the way for a real recovery (spring).

     

    Japan is not growing. They are declining slowly. But the decline will gain momentum soon, as export markets begin to collapse.

     

    The 18 year figure comes from my study of American historical cycles of inflation (expansion, growth) and deflation (contraction, rest).

     

    http://bit.ly/uPljkl

     

    Plato wrote: "The Laws of Nature and the Thoughts of God." And: "The Mind of God geometrizes." Keplar wrote: "The Universe is the thought of God's geometry."
    19 Jun 2012, 04:39 AM Reply Like
  • Common_Denominator
    , contributor
    Comments (16) | Send Message
     
    THIS is a total misunderstanding: PRIVATE debt is not an issue. It will be resolved case by case. Lots of that debt is actually backed by assets and by the ability to work of the individual who contracted the debt.

     

    GOVERNMENT debt, on the other hand, is a gigantic problem, because the only way to pay it back is by further robbing people who had nothing to do with it.
    1 Jan 2013, 09:21 PM Reply Like
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