Jet

The Uneasy Relationship Between Debt, Democracy and Capitalism

These kinds of articles and discussions are important and will help define the problem - which is first step toward solutions which actually work.

Derryl. Your observation of how compound interest works is not correct I think. Yes - The $1000 is created out of thin air and spent into circulation where those funds become part of the money supply. As those funds are repaid, the principal disappears back into that same thin air. The Interest paid does not disappear. The Interest is the lender's "gross profit" out of which he pays his labor, other overhead, and absorbs losses on any unpaid loans. The amount of money spent into circulation is exactly canceled out by the repayment process. The amount of money in circulation at any moment is the cumulative sum of all new loans minus the total principal repayments. I believe the system does work mathematically and it is not evil for that reason.... But Derryl this is a common mis perception about lending so you are not alone. In fact there are other but more subtle problems with compound interest and lending. I agree that extreme concentration of wealth in a few hands serves no useful purpose - not even for those who have it. Lending practices and poor use of borrowed funds is a very big problem.

Seems to me that the FT article says the system was in fact pretty well stable and sustainable. I can provide another number which draws a similar conclusion. The US has about $12 Trillion in Home mortgages at 6% would cost around $700 B / yr in interest. That is out of total US wages of well over $7 Trillion. 10% of wages for mortgages seems reasonable.

Also I figure most of that money is owed to retirement funds of some kind. Which means we owe most of it to ourselves....

The job of investment manager is to take retirement funds and try to find something useful to do with all that money. They ran out of ideas years ago.

None of these things are the fundamental problem with the world economy. The underlying problem is we ran out of oil. Price of oil spiked at $150 in July of 2008 after a decade of fairly gradual price increases. The world just could not supply the demand for oil. If we do manage to stop the economic free fall and get world gdp increasing again, we will just run out of oil again. prices will spike again and crash the economy again. Does not mater how well structured the finances are. Weak points will be found and it will fail again and again and again - until we find an alternative to oil which can be produced cheaply and in large quantity.

If we can not replace oil, our civilization is doomed. I give it good odds oil can be replaced with a combination of solar and biofuels.

Can History Show Us the Way Out of This Bear Market?

The '09 Depression has no historical precedent. Oil prices spiked to $150 in July 2008 which instantly crashed everything. The resulting chain reaction is what we are now watching. If they do manage to stop the fall and we see any world economic recovery and growth, oil prices will just spike again and cause the next Oil Crash. This is not a banking or paper problem. The world ran out of oil plain and simple. The only fix is to replace oil with solar energy. We must turn the US into a massive solar collector. The Cost of doing this will be 100% of GDP for 25 years. The cost of not doing it is the end of civilization. Don't get it? Stock markets are not just headed down they are headed for zero...........

2009 Depression Will Be Nothing Like 1929

GM and the Investment Banks all survived '29

In '29 there was still plenty of oil

Yes the Internet will tell us instantly which cities are having riots

Excessive Systemic Debt: The Primary Cause of Our Current Crisis

Yes "Its the debt stupid"

seekingalpha.com/artic...
here is same chart published several months ago

From the chart Normal Debt to GDP is around 150%. We are now at 350%. OK total US debt is then in the range of $50Trillion and about $30Trillion needs to go. This debt ratio can be reduced by Default, Inflation, or Cancellation. This bad debt came from Retirement Savings being pooled and loaned. But there were not enough qualified borrows, so we got sub prime. As socrateazz says many companies and families have borrowed to pay current expenses and used newer debt to make payments on older debt. Bottom line is on average consumers and businesses are insolvent and mathematically can not pay their bills. It will not help to bailout banks and car companies if consumers can not, should not, and will not borrow more or buy new cars.

If they inflate fast enough, we will get hyperinflation
If they do nothing, the world economy will grind to a halt and food will stop moving - Yes that means your food.
The only hope to avoid chaos is some sort of organized debt cancellation - but I give that about 1% odds - odds are 99% we doomed

I predict Dow 4000 and unemployment 20% by The day Obama takes office. The bottom of the Dow could be 2 years away at 1500 or less.

Fundamentals Suggest Oil's Headed Much Higher

irrational exuberance

tulips, oil, dot com, housing, -- energy will be next.

Capitalism has always worked.

www.portfolio.com/view...
this guy says $30 / bbl long term

Nanosolar is shooting for $1/watt solar panels - cheaper than coal.

Oil sands and shale cost about $30 - take time and money to get going.

Capitalism + technology = lower prices for everything --- everything

lower prices = higher living standard - simple.