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Guest Daddy Bear

The Truth

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Guest Daddy Bear

A very important graph !!

debtcontributionsmallah9.jpg

A very important explanation

What Bernanke and Hank Aren't Telling You

Ben and Hank have both told you that the critical issue for the economy is for "lending to resume", stating that it has dramatically contracted.

If this was the truth, then Ben and Hank would have come to you for $700 billion in the TARP, but instead of TARPing the money, they would have asked for permission to use it to capitalize 10 new banks which would be immediately IPO'd off to the public with the stake being in the form of some kind of super-senior debt that held a coupon high enough to encourage immediate (or nearly-so) replacement with private capital.

This would have resulted in an aggregate of seven trillion worth of new lending capacity in the economy, an amount that, incidentally, would allow the full replacement of Fannie and Freddie as holders of housing debt with about $2 trillion left over for credit cards, auto and business loans.

That would have immediately solved the "credit freeze" problem.

So why wasn't this proposed?

This is the reason:

In short, it wouldn't have done anything because the economy only grows at a rate of about 20 cents for every dollar of debt taken on. That is, it takes five dollars of debt to generate one new dollar of GDP.

The bad news is that once you reach the "$1 for $1" level you are no longer able to finance growth with debt, and it becomes inevitable that you will begin to finance debt with debt.

That, of course generates no GDP at all but precipitously tightens the spiral.

We crossed that Rubicon roughly around 1968, and you have had this fact concealed from you.

Congress, please listen:

The Truth is that we now require about $5 of debt to generate $1 of GDP.[/b]

The Truth is that the reason you were not asked to approve $700 billion to capitalize 10 new banks, thereby creating seven trillion in lending capacity is that the economy cannot soak up that new lending capacity; each dollar of new debt generates almost no aggregate GDP. If this were not true then that would be the logical and effective cure for the 'credit crunch" - if the borrowing capacity and impact on GDP necessary to help existed. They do not.

The Truth is that you were lied to about the purpose of the TARP/EESA, because what you were sold was mathematically impossible. It is supposed to be unlawful to lie to Congress.

The Truth is that the purpose of the EESA/TARP is to rescue the bankers on Wall Street and elsewhere who have made imprudent loans, all of whom are aware of the declining value of a dollar of debt in the economy - a fact they have intentionally concealed from you. The bankers (including Hank and Ben) all know how to do this math, and they are well-aware that the best they can do at this point is to "Rob every dollar you can while the getting is good, and hope they don't figure it out before you get the cash."

The Truth is that once you reach a level where a dollar in debt will not support a dollar in GDP you must inevitably either pay down or default that excess debt. Unfortunately, in this case we must pay down or default approximately 80% of the aggregate public and private debt in the United States in order to return to a standard were $1 in debt will generate $1 in GDP. Defaulting or paying down less will "turn the clock back" to a degree, but does not change the ultimate outcome. Only returning to $1 of debt returning $1 or more of GDP, and holding the total level of debt outstanding at or below that level, results in a stable monetary system.

The Truth is that the monetary and banking system is inherently unstable until and unless this is done, and as the "zero point" is approached it becomes more and more unstable, producing more and more violent dislocations. This is why every crisis since 1968 has been more serious and required larger and more intrusive interventions to calm, including the 1970s/80s energy shocks and inflation crisis, the 1987 market dislocation, the LTCM crisis, the Tech Implosion and now the Credit Bubble/Housing crash.

The Truth is that the absolute worst thing you can do when "in the hole" like this is to spend even more on a deficit basis, thereby driving the debt ratio higher and return-per-dollar-of-debt in GDP lower. The last eight years have been disastrous in this regard.

The Truth is that the TARP/EESA and other "stimulus" and "rescue" packages, which now total more than $1.6 trillion dollars, have dramatically tightened the spiral depicted above. The above graph does not include the impact of the Fannie and Freddie rescue nor of the EESA. Both will move the return-per-dollar-of-debt meaningfully lower.

The Truth is that $7 trillion in new lending capacity, if it was put into the market and utilized, might well push the aggregate rate of return for $1 in debt below zero - that is, force it to a negative rate of return. Ben and Hank know this, which is why they didn't propose that solution, and why they did not force the bankers (under law) to lend out the recapitalization they provided.

The Truth is that if we reach the point where a dollar of debt has a NEGATIVE impact on GDP The United States monetary system and government will implode. The reason for this is mathematically obvious - each additional dollar of borrowing beyond that point actually contracts GDP instead of growing it; this is, for all intents and purposes, a "black hole". It is that event that has led to the implosion of other monetary systems such as the hyperinflationary implosion of Argentina.

The above are mathematical facts, not my or anyone else's opinion.

It is your job to safeguard this nation and prevent this outcome, even if you are lied to or have these facts concealed from you by people who know better.

We are dangerously close to that event horizon and your actions are bringing us closer to it, not moving us further away.

Debt that cannot be serviced must be defaulted. While it sounds counter-intuitive, the "bad mortgages" must foreclose, not be reworked. All of them.

House prices must fall to no more than 3.5x incomes on a median basis.

Corporate debt (e.g. LBOs, etc) that cannot be serviced under existing terms must be allowed to, and indeed encouraged to, default.

The contraction in outstanding debt that this will produce must occur, and the economic impact that results from it, while painful, is far less painful than a monetary system failure.

A monetary system failure is inevitable if we reach the point where one dollar of new debt no longer supports a positive contribution to GDP.

Again: This is mathematics, not social science or politics. It is not subject to your or anyone else's desires or political aspirations. It is as certain mathematically as is the fact that 2 + 2 = 4.

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When you quote you should state where it came from.

Looks like an an old one by Denninger

Yeah I think it's from the tickerforum. I've seen the chart before on there quite a few times. I don't fully understand what it shows though.

Edited by self

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Yes, state your source next time.

I would have more faith in Denninger's oft-repeated "the math doesn't lie" mantra if I hadn't seen him produce an "annualised" contraction figure by multiplying the monthly percentage by twelve.

Still, the declining GDP return on new debt makes sense, though you would think that it depends on the prevailing servicing costs too.

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daddy bear, am i right that you purchased a house as an inflationary hedge or because of fear of bank instability or both?

best of luck, each person must do what they think is best for their circumstances and pain threshold.

but what if things get so bad that the state finds a way to take your freehold property off you if you dont either pay some new tax or if they just damn well feel like it?

how outlandish is that? very. but nothing's impossible if they say right we need lots of wad to fund our mess, council tax goes up x10 for property owners or we seize a charge on the freehold.

in any case, freehold is still just a lease from the country that doesnt have an expiry date, its not your land as such if they really want to split hairs, or thats what i read about freeholds. so there could be a loophole in there or heck they just go and change the rules all they like as they have with qe and zirp and every other rule book they've torn up.

you just never know what kitty will do when she's against the wall with a load of barking dogs in her face.

just a thought - sorry if it spooks ya ;)

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Yeah I think it's from the tickerforum. I've seen the chart before on there quite a few times. I don't fully understand what it shows though.

Diminishing returns on debt increasing GDP I think i.e. gets to the point where spending does not help economy

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Not again :(.

This is getting really tiresome. Post after post, thread after thread all preaching the same mantra.

The OP is on a mission to scare anyone holding cash into the housing market and is obviously working to some agenda.

It doesn't take a genius to see the danger of inflation, anyone holding a substantial amount of cash will be acutely aware of that spectre. However, this recent bout of frenzied posting is reminiscent of an estate agent trying to drum up business.

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Not again :(.

This is getting really tiresome. Post after post, thread after thread all preaching the same mantra.

The OP is on a mission to scare anyone holding cash into the housing market and is obviously working to some agenda.

It doesn't take a genius to see the danger of inflation, anyone holding a substantial amount of cash will be acutely aware of that spectre. However, this recent bout of frenzied posting is reminiscent of an estate agent trying to drum up business.

He is an agent of the state, trying to drive money from cash to assets - where it can be destroyed.

As per: http://www.housepricecrash.co.uk/forum/ind...howtopic=120427

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The plunging marginal productivity of debt is predicted by some smart guys to rule out hyperinflation, leaving us with a severe debt deflation as bad or worse than the Great Depression

Here's another decent link - Prof Antal Fekete

What has all this got to do with the marginal productivity of debt? Well, once it is negative, any further addition of new debt will make the economy shrink more, increasing unemployment and squeezing prices. Bernanke can create all the money he wants and more, but he cannot make it flow uphill.

Bernanke is risking something worse than a depression

The newly created money will follow the laws of gravity and flow downhill to the bond market where the fun is. Risk-free bond speculation will further reinforce the deflationary spiral until final exhaustion occurs: the economy will collapse as a pricked balloon. Instead of hyperinflation and the destruction of the dollar, you’ve got deflation and the destruction of the economy.

These guys are predicting something quite different to Daddy Bear.

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The plunging marginal productivity of debt is predicted by some smart guys to rule out hyperinflation, leaving us with a severe debt deflation as bad or worse than the Great Depression

Here's another decent link - Prof Antal Fekete

These guys are predicting something quite different to Daddy Bear.

will that mean less queues at john lewis and more parking spaces at brent cross shopping centre, though? thats what the british public need to know and now.

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The plunging marginal productivity of debt is predicted by some smart guys to rule out hyperinflation, leaving us with a severe debt deflation as bad or worse than the Great Depression

Here's another decent link - Prof Antal Fekete

These guys are predicting something quite different to Daddy Bear.

An interesting view.

Hyper deflation may be caused by a total absence of demand for credit.

Many on this site have postulated that hyper inflation is the natural consequence of a massive supply of credit.

I am starting to come around to the view that inflation is much more about the demand for credit than the supply of credit.

I am starting to think that even if there is a massive supply of credit, people who are in dire straits will not be willing to take on more debt which means that the demand for credit will collapse resulting in deflation.

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Daddy Bear: you bought a house too early - GET OVER IT

Or too late ....

Buying before 1984 or after 2014 are not a bad idea ......

The 30 years in the middle will be proved to be a disaster .......

Edited by LuckyOne

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Heads up provided by The Modern Mystic on Youtube...........

OOps, just seen other thread

http://thehill.com/leading-the-news/watchd...2009-07-20.html

IG: Treasury 'failed' to adopt bailout safeguards

IG: Treasury 'failed' to adopt bailout safeguards

By Silla Brush

Posted: 07/20/09 10:47 AM [ET]

The government’s top watchdog over the $700 billion financial rescue package said the Treasury Department has "repeatedly failed" to adopt his recommendations that would make the program more transparent and accountable to taxpayers.

Neil Barofsky, the special inspector general over the Troubled Asset Relief Program (TARP), will tell lawmakers on Tuesday that taxpayers are being left in the dark about what banks are doing with bailout money, don't know the value of the government's investments and will not know the full extent of how the money is invested.

Barofsky said that while the TARP program that Congress passed amounts to $700 billion, the total federal government support since 2007 for the economy and the financial sector could reach a far higher figure of $23.7 trillion. The government has committed significantly more money through a variety of other federal agencies and programs.

Edited by OnlyMe

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The OP is on a mission to scare anyone holding cash into the housing market and is obviously working to some agenda.

Yep, I hear what he says. That's why I'm trickling a four-figure sum each month into investments in less-leveraged parts of the world.

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Yeah I think it's from the tickerforum. I've seen the chart before on there quite a few times. I don't fully understand what it shows though.

It shows a straight line with a wiggly one oscillating around it in a random fashion but with a similar trend descending from right to left, scarey eh? :lol::lol:

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ALL IT MEANS is...

A point will come where Debt keeps growing while the economy is shrinking.

I reckon we are there already !

indeed.

if 90% of your income is paying off loans, that you used to supplemement your income, and you then borrow another loan costing another 10% of your income.. you are finished...you cant borrow anymore...whatever the interest rate. Unless you manage to pay off an old loan.

our deficit spending governments dont do that though, when an old debt is due for repayment, they "roll it over"..ie, get another loan.

Edited by Bloo Loo

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