Debt Rattle Jun 26 2014: I Give You: The GDP of Sillyland
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Dorothea Lange Oklahoma drought refugee family near Lordsburg, New Mexico May 1937 I had seen the reports on Italy and Britain preparing to add heroin
[See the full post at: Debt Rattle Jun 26 2014: I Give You: The GDP of Sillyland]I don’t think debt diminishes “growth.” These GDP numbers should be assumed to have wide margins of error. With a guess about inflation thrown in, 5% as the margin seems reasonable. Debt is pulling demand forward. Without it, activity decreases and deflation hits. Just like TAE says.
Ken is missing the point but such ideas are not that easy to become comfortable with. It isn’t that debt diminished growth, not at all. Firstly it’s better to discuss this in terms of the expansion of credit, credit being the obverse of debt.
Credit expansion has defined the business cycle since perhaps, ever. Expanding credit is,or at least has always been, not synonymous with ‘growth’ it is a determinate of growth.
The issue is the amount of growth each dollar of credit produces. This chart is only up to 08.
https://www.tradingfloor.com/images/article/max608w/50f66bc3-ef54-4a24-b89c-765ad8978d98.pngI don’t accept this as the final word but the trend is what counts. There can be no possible question that each unit of credit is producing less growth. Now in the US credit is expanding smartly at well over $2TN a year. Let’s say at 10% of GDP. With growth negative again, as in 08 the curve goes negative.
It isn’t just here
“The rise in Chinese debt from 130% to 220% of GDP in only five years shows that debt has risen by 18% of GDP per annum beyond the increase in GDP during that period. However, Chinese growth has averaged only 8.9% in those five years. It therefore follows that growth in debt during the period was double growth in real GDP. In other words, net of the increase in debt, Chinese GDP in 2008-13 shrank substantially.”
https://www.prudentbear.com/2014/06/the-bears-lair-china-may-soon-take.htmlHow is debt supposed to be paid back if there is no growth?
“How is debt supposed to be paid back if there is no growth?”
The Fed will all the bad debt with new base money, as this is the only expedient political solution.
Well said, Boogaloo. With the buck no longer tied to any commodity, deflation is impossible. In fact, it is rapidly losing it’s last anchor, to a consumable commodity, oil, which couldn’t function as money anyway, because it is burned.
The rest of the world is getting weary of the dollar, and is growing tired of demands made by the Prince’s in Washington, DC.
Bernanke was just another apparatchik in the order of International Social Engineers, but he was right in his declaration that “Deflation can’t happen here”,,,but failed to qualify that with “as long as there is a Federal Reserve Bank.”
When the Fed folds, that will be the turning point.
I think we may be entering that time in the cycle to dump cash and buy tangibles again. Even “Dove Man” Bullard is making Hawk sounds at the Fed. Does he see a bond vigilante lurking in the bushes? Or maybe a dash for liquidity in China? Japan? One resulting in a T-paper sell off? Or, for that matter, simply a reduction in purchases?
It’s getting interesting, as the plot thickens. Especially now that folks are waking up to the fact that .gov statistics have always been manipulated to some degree, especially in election years, mid term or otherwise.
On “confidence” I’m confident of one thing. The dollar will be devalued. Heck, it’s devaluation is accelerating right now.
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