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Why Our Economy Is Utterly Screwed

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http://market-ticker.denninger.net/archive...ly-Screwed.html

"That's credit and population growth normed to a base of 1970. Population went from roughly 205 million to roughly 304 million during that time, a 50% increase.

Outstanding consumer credit went from $128 billion to $2,525 billion, or a 1,973% increase - and this is only consumer credit, ignoring mortgages, financial firm credit, business credit, commercial real estate and of course government debt!"

...and this is before we consider the effects of the population aging and boomers are approaching retirement..

"Stop listening to the media idiots - they have not and will not discuss this facet of the crisis because doing so means admitting that their corporate parents are a huge part of how we found ourselves in this mess, along with all the advertising they've stuck in your face for the last 30 years to "go on, buy now, pay later!"

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http://market-ticker.denninger.net/archive...ly-Screwed.html

"That's credit and population growth normed to a base of 1970. Population went from roughly 205 million to roughly 304 million during that time, a 50% increase.

Outstanding consumer credit went from $128 billion to $2,525 billion, or a 1,973% increase - and this is only consumer credit, ignoring mortgages, financial firm credit, business credit, commercial real estate and of course government debt!"

...and this is before we consider the effects of the population aging and boomers are approaching retirement..

Nice article - well, if by 'nice' you mean 'scary as fvck'.

Just to play devil's advocate - if we managed (just) at X amount of credit (aka debt), but can't manage at X+Y (aka 'just before the credit crunch'), why does credit need to reduce to X-Z? Can't it just go back to X?

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Plan A was debt fuelled growth.

Plan B if A failed was to increase the debt further to get growth.

The whole situation is completely unsustainable, the US has ramped up debt hugely since the mid 80's and it's driven world growth. The magic can no longer work, the correction is coming.

Unless we of course find some more magic beans.

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He's got some good points and the simple graphs illustrate them well enough...

"No amount of magical handwaving will change it, leaving us with only two choices: we either force the bad debt out into the open and default it, thereby shrinking both the balance sheets of banks and consumers (at the same time) or we continue to try to "press our bets" and take the risk of a second credit-system dislocation that will be far worse than what we experienced last fall and this spring.

At present we are choosing path #2 - a river that is quickening in pace."

How would we go about forcing this debt into the open & defaulting it (option#1)? And what immediate repercussions of doing that?

I dont understand economics well enough to even imagine how we might go about that course of action...

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Just to play devil's advocate - if we managed (just) at X amount of credit (aka debt), but can't manage at X+Y (aka 'just before the credit crunch'), why does credit need to reduce to X-Z? Can't it just go back to X?

Debt revulsion amongst US Boomers worried about impending retirement?

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He's got some good points and the simple graphs illustrate them well enough...

"No amount of magical handwaving will change it, leaving us with only two choices: we either force the bad debt out into the open and default it, thereby shrinking both the balance sheets of banks and consumers (at the same time) or we continue to try to "press our bets" and take the risk of a second credit-system dislocation that will be far worse than what we experienced last fall and this spring.

At present we are choosing path #2 - a river that is quickening in pace."

How would we go about forcing this debt into the open & defaulting it (option#1)? And what immediate repercussions of doing that?

I dont understand economics well enough to even imagine how we might go about that course of action...

It's catch 22.

Ludwig von Mises describes the endgame brought on by reckless expansion of credit: "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

However there is painless exit.

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http://market-ticker.denninger.net/archive...ly-Screwed.html

"That's credit and population growth normed to a base of 1970. Population went from roughly 205 million to roughly 304 million during that time, a 50% increase.

Outstanding consumer credit went from $128 billion to $2,525 billion, or a 1,973% increase - and this is only consumer credit, ignoring mortgages, financial firm credit, business credit, commercial real estate and of course government debt!"

...and this is before we consider the effects of the population aging and boomers are approaching retirement..

But one dollar in 1970 was worth more than a buck in 2009. To put things in context, you would have to compare the consumer credit of $128 billion in 1970 dollars with the $2,525 billion in 2009 dollars. Off the top of my head, lets say that prices rose 10-fold in the 29 years. That means that the $128 billion in 1970 dollars equals $1,280 billion in 2009 dollars. Adding 50% for population growth, that brings it to $1,920 billion.

Am I making sense?

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It's catch 22.

Ludwig von Mises describes the endgame brought on by reckless expansion of credit: "There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved."

However there is painless exit.

What is the painless exit?

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He's got some good points and the simple graphs illustrate them well enough...

"No amount of magical handwaving will change it, leaving us with only two choices: we either force the bad debt out into the open and default it, thereby shrinking both the balance sheets of banks and consumers (at the same time) or we continue to try to "press our bets" and take the risk of a second credit-system dislocation that will be far worse than what we experienced last fall and this spring.

At present we are choosing path #2 - a river that is quickening in pace."

How would we go about forcing this debt into the open & defaulting it (option#1)? And what immediate repercussions of doing that?

I dont understand economics well enough to even imagine how we might go about that course of action...

The way we have done it in our recent history through debt for equity swaps, for example as with GM. Its certainly not painless, but is a lot more painless than forced bankruptcy etc. However if this were done on a massive scale as needed to clear a lot of the debt overhang, the consequences would still be pretty dire

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But one dollar in 1970 was worth more than a buck in 2009. To put things in context, you would have to compare the consumer credit of $128 billion in 1970 dollars with the $2,525 billion in 2009 dollars. Off the top of my head, lets say that prices rose 10-fold in the 29 years. That means that the $128 billion in 1970 dollars equals $1,280 billion in 2009 dollars. Adding 50% for population growth, that brings it to $1,920 billion.

Am I making sense?

You're making sense, but CPI in America has risen by about 5.5-fold since 1970. By leaving out inflation he is overstating the point, but the real value of the debt is still 3.6-fold higher in 2009 than in 1970. Have real wages increased 3.6-fold since then? Erm, nope, they are probably up about 20-25% adjusted for CPI. The debt is much bigger now in real terms or compared to GDP or wages, that much is undeniable.

Edited by bearly legal

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You're making sense, but CPI in America has risen by about 5.5-fold since 1970. By leaving out inflation he is overstating the point, but the real value of the debt is still 3.6-fold higher in 2009 than in 1970. Have real wages increased 3.6-fold since then? Erm, nope, they are probably up about 20-25% adjusted for CPI. The debt is much bigger now in real terms or compared to GDP or wages, that much is undeniable.

To be sure, debt as a proportion of income is far greater now than in 1970.

Coming from a market research background, I like to compare apples with apples. Although the author is making a good point, it is a little misleading to compare the raw dollar amounts without factoring in CPI and wage and asset inflation.

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Nice article - well, if by 'nice' you mean 'scary as fvck'.

Just to play devil's advocate - if we managed (just) at X amount of credit (aka debt), but can't manage at X+Y (aka 'just before the credit crunch'), why does credit need to reduce to X-Z? Can't it just go back to X?

If you spend way beyond your actual income

At some point in the future you will have to spend far less than your actual income in order to pay back the debt accumulated.

This applies as much to Governments as it does to individuals

If the economy and public sector have expanded to absorb the 'wealth' generated in the 'boom' then when debt has to be repaid, both the economy and the public sector will contract far beyond a level that could be supported by peopls's actual income.

Basically we are F*cked for at least a generation.

:blink:

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Im currentl;y reading 86 biggest lies on Wal Street. In it the author John R Talbott (off top of head) states that Amercian wage growth hasnt grown at all in last 25 years, though does not provide source.

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Oh and thanks to Labours lunatic immigration policy

We now have a population boom which will mean that less money is going to have to pay for even more public and private sector services.

We will need

More Schools and teachers

More Hospitals

More housing

More food production

More water production

More transport infrastructure

More power generating capacity

After 4 Conservative terms in office we were one of the richest countries in the World

After 10 years of Labour the country is facing utter ruin.

:angry:

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Oh and thanks to Labours lunatic immigration policy

We now have a population boom which will mean that less money is going to have to pay for even more public and private sector services.

Strictly speaking that should help.

More population = more taxes and income generation. Unless they are bringing a ton of debt with them which is unlikely. Also immigrants are generally younger.

The problem is that many immigrant jobs are McJobs which pay poorly and they end up eligible for working tax credit. So any tax take isn't sufficient to fund the additional strain on front line services, education, midwives, health and translators etc.

Edited by HostPaul TAFKA Rover2000

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http://market-ticker.denninger.net/archive...ly-Screwed.html

"That's credit and population growth normed to a base of 1970. Population went from roughly 205 million to roughly 304 million during that time, a 50% increase.

Outstanding consumer credit went from $128 billion to $2,525 billion, or a 1,973% increase - and this is only consumer credit, ignoring mortgages, financial firm credit, business credit, commercial real estate and of course government debt!"

...and this is before we consider the effects of the population aging and boomers are approaching retirement..

Was going to mention that the currency is worth less than a twentieth today, but this argument has already been submitted (and ignored, as usual, by the toilet paper is king crowd)

PS Look at gold recently. WOW!

Edited by Where is my pen?

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Strictly speaking that should help.

More population = more taxes and income generation. Unless they are bringing a ton of debt with them which is unlikely. Also immigrants are generally younger.

...

The problem is there is no population boom and even less of an immigrant "boom" - the gently rising number of people reflects the fact people are living longer. The old people are taking up an ever increasing amount of resources that cannot be paid for. This is known as the "demographics time bomb" and has been talked about for years.

The latest ONS figures also show an increased birth rate or mini "baby boom". None of these cute wee fellows are paying tax either, but ma and pa are getting their family tax credits - that's for sure.

Working immigrants (like the Poles) would be a bolster to the UK economy. Sadly they are more intelligent than your average Brit and are going home :D

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At some point in the future you will have to spend far less than your actual income in order to pay back the debt accumulated.

...

Basically we are F*cked for at least a generation.

Agree with the first point, but point 2 seems a pessimistic way of looking at it. It would be like saying "I just bought a house with a mortgage, which means I'm F*cked for 25 years"

We need to spend the rest of our lives paying back the debts, but equally our country is awash with goods that we have bought with all that debt - think how much "Made in China" stuff we have. (Debt due to HPI just transfers wealth within the UK, so on a national level cancels out).

Now don't get me wrong, there has been plenty of poor government over the last 10 years. Not all the debt has been accumulated on useful stuff. The future is one of less stuff - but that was always inevitable; the Chinese can't be our slave labourers for eternity.

Our total lifetime consumption from 2000 - 2050 will be unchanged, it has just been biased towards the first 10 years (a period which we at least have been fortunate to experience: our children will get the hangover without the party)

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