Posted on 06/05/2010 12:06:38 PM PDT by blam
Prepare NOW: They "Get It"
Saturday, June 5. 2010
Posted by Karl Denninger in International at 12:14
Anyone who doesn't believe that "they" (the powers that be) "get it" at this point needs to remove their head from their ass:
G-20 central bankers and finance ministers agreed in a joint statement today that “within their capacity, countries will expand domestic sources of growth.” At the same time, European Central Bank President Jean-Claude Trichet told reporters that Europe’s best contribution to the global rebound is to achieve fiscal sustainability.
Those two are polar opposites. You just heard Trichet admit that what everyone wants they cannot have.
Look folks, if you currently spend 11% of GDP by borrowing money and blowing into the economy to prop it up and you achieve "fiscal sustainability" (defined as not doing that any more) GDP will inevitably contract by the amount of stimulative borrowing you withdraw.
Geithner said at a press briefing today that “credible commitments to fiscal sustainability over the medium term” are needed to generate a durable recovery. Spain’s Finance Minister Elena Salgado said at a separate European press briefing that deficit reduction should come “no later than 2011.”
Game's up folks - that's six months out.
Look, let's be straight with everyone here. This is the current deficit additions for the first five months of 2010 (click for a larger copy):
That's nearly $700 billion in five months. Annualized it's $1.68 trillion. Last year's total was $1.647 trillion.
Ignore the CBO and other government claims. That which is borrowed is that which is owed, and the increase in that which is owed over a year's time is the true deficit in the budget, irrespective of all claims otherwise.
This comes out to roughly 12% of GDP. If we contract that deficit spending in 2011 to the European standard of no more than 3% of GDP then either GDP contracts by the difference (8-9%) or the government extracts that from you in the form of taxes.
Either way you don't have it - it is either not produced and thus not paid or it is produced and stolen. Irrespective of how it is achieved you are going to see roughly 10% of your "standard of living" come out of your hide.
It would be nice if it stopped there, but it both won't and can't. That which you don't have you can't spend, which means that the "excess capacity" in the economy goes up, not down. Employment will not increase, it will stagnate or get worse. Budgets will have to be slashed at state, local and federal levels - like it or not.
Rather than you taking it in the chute what should happen is what I described in my last post - that is, the fraudsters and scammers in the banking and "finance" industry who sold you, and the nation, on the premise of ever-increasing debt being sustainable, should be the ones who are put out of business at the same time.
Unless we the people demand that this happen it of course will not. The consequences of such a refusal will be profound and extraordinarily unpleasant, while those who caused this mess by their intentional and willful acts will continue to keep their ill-gotten gains.
Remember one thing folks - political promises are not debts. They have no standing in the line other than the willingness and ability to fund them. When that disappears, and it will, you will discover that the so-called "promises" you were made have the value of used toilet paper.
This is unavoidable, and no amount of bleating will change it. I wish there was a solution to this problem, but there is not. The promises made cannot be kept, not due to lack of political will but inability to continue to compound debt upon debt upon debt any longer.
We entered this downturn because people could not pay the debts they owed. We are still in this mess because people still cannot pay. The government attempted to shift those debts to itself, and now it is in danger of being unable to pay.
The Federal Reserve Z1 will be out on the 10th, and I will be updating the charts showing total systemic debt on that day. I expect they will continue to show contraction, despite the efforts of government to stimulate credit demand and thus continue the expansion.
That is the end game that leads to the Mises-style "adjustment" and there is nothing that can be done to prevent it.
The government has spent two years trying to stop the contraction by replacing private credit demand with public. The attempt to re-ignite private credit growth has failed, exactly as I expected it to and have repeatedly stated it would here on these pages.
All that has happened is that governments have now started to be unable to meet their debt commitments - so instead of businesses (and banks) going under, we now have the risk of governments going under.
The idiots in Washington DC and indeed around the world refused to recognize that they are the gnat on the horse's ass. If you look at the above chart you can see it clearly - Federal Debt is a small fraction of the total in the system. It is therefore mathematically impossible for The Federal Government to supplant and replace private credit demand and ability to pay. Something that is 20% of the whole cannot support the whole - it's that simple.
The sustainable long-run percentage of debt in the system is about half of what is now present. If we were to shrink "financial instruments" and "non-financial business credit" by 60% and household credit by about half we'd be in the upper part of the sustainable range.
That's where we're headed - whether we like it or not - as the government is reaching the end of its ability to prop this thing up.
The knock-on effects to GDP that will engender will be hideous. Just to go back to 2000's GDP would knock forty percent off. To return to a sustainable debt ratio on a $10 trillion GDP would require us to contract credit outstanding by some 55% - and that would put us at the top of the range.
I said when I began writing The Ticker that had we taken our medicine in 2001 we would have had to suffer a mild Depression - a 10-12% correction to GDP. In 2007, we would have had to suffer a 20% correction to GDP - roughly equivalent to The Great Depression of the 1930s.
I also said that if the government did what they've now done, the damage could easily be twice that bad, with a potential 40% decline in GDP in the cards.
Is there a guarantee that things will get that bad? No. But is it entirely possible? Yes, and if you believe not and want to expound on that in public you need to explain how your scenario can come about, given the clear mathematical evidence.
I contribute nothing.
I earn nothing.
I demand and receive entitlements.
I consume everything available.
Instead of being productive enough to support myself, my family, my employees, and a dozen full-time bureaucrats as I have been doing my entire life, I am now a number with a bold minus sign representing a net loss to the System.
I am nearly completely self-sufficient, but am saving those assets until the government cheese runs out. I'm saving my batteries until the power goes out. Until then, I'm sucking wall current with the AC on and the doors open.
I have sworn to be a burden to the government at every turn and in every area I can. And I will continue to do so until some semblance of Constitutional government returns to DC (which, frankly, I don't see happening until after the upcoming Mad Max-style collapse).
Time to Alinsky the Parasite King's minions, and Cloward-Piven the Man.
I encourage everyone to follow my lead.
As as taxpayer, I would like to thank you from the bottom of my wallet.
As a former taxpayer, I probably paid for your state's highway system.
I've done my part. And now, I refuse to fund the Muslim Gay Pride Parade and Free Abortion Central Bank any longer. And I hope your sense of decency prevents you from do so as well.
You da man, well done.
Cloward-Piven works both ways. I wonder whom it will hurt the most in the end, the industrious, independent and self-sufficient types or those sucking on the government tit?
The parasites will die off very quickly once the free groceries run out. You and I and all the capitalist pigs are sick to death of singing lullaby's to tapeworms who spit on our flag and kick us in the gonads every chance they get. We'll be fine. They'll be extinct, and would be already if we weren't forced to feed them with our bread.
They wanna drive the car they stole from us, and are pissy that we won't let them use our credit card to gas it up.
Forget it, baby. You've got the wheel now, and I'm not getting my car back, so here's the deal: I'm cutting the brake lines, slashing the tires, and putting sugar in the gas tank. Crash, you thieving bastards. Crash.
Stock up.
Drop out.
Resist.
LOL, I got the impression from the last jobs report that our numbers are increasing. Seems they don't understand why so many people are dropping out of the work force. I've went from paying taxes in the six figure range to waiting on checks from the government in the five figure range. I do my own maintenance, dropped pay TV, make my own electricity (with help from the sun), and grow, raise, catch our own food. DIY gives one a feeling of accomplishment that writing a check to the IRS for a third of your income for the year doesn't.
I’m not sure I follow what’s being said here, it doesn’t make that much sense to me. It seems like he’s saying that “stimulative” spending is propping up the economy and if it’s slashed GDP will contract by the difference between the slashing and what’s still spent.
This premise seems to be somewhat mainstream, that we need the government to spend to keep the economy from collapsing, but I don’t agree with it for a couple of reasons.
First is that economic activity today is a refelction of expectations for the future, and the more spending the government does the higher the expectation for sub-optimal growth and higher taxes to support it. The TIPS spreads are an excelent indicatior of where the markets think we are headed, and they contracted by almost 2% last month - which shows there isn’t a lot of confidence that our economy will come roaring back any time soon.
Government, by itself, has no wealth and it does not create wealth by borrowing and spending. All that does is cause money to circulate, like the little boy who breaks the shopkeeper’s window with a rock, but what it spends will have to sucked back out when the piper comes calling. Government spending does not prop up the economy, it makes future expectations look not so rosy.
There is also something about this that is neglected when folks talk about stimulus being somehow beneficial. Any hope of reinflating a deflating economy with fiscal policy can be counterbalanced by the Fed. If the Fed is set on a ~1% inflation target which it seems to be, and interest rates are only one of many tools for carrying out monetary policy, it means we get almost no intended benefit if there was any to be had in the first place.
Ronald Reagan atriculated these ideas best and I think he had a track record to back up his claims that no one can be as economicly productive as the people. Government needs to get out of the way, stop taking our money and let us do what we do best if we want to have a bright future.
‘The markets can no longer afford the debt that was issued during the voluntary mania and will not be able to service recent excesses that have been coercively imposed. All five previous post-bubble contractions changed the world and this one will continue to the point of forcing a bear market in ambitious government. Think of it as a bear market for epicurean governments.’
Exciting times ahead.
Good article; great thread. Thanks to all posters.
Translation please.
“Hope such never happens of course but this chicken little shit panic is getting deep”
.
And the more tricks they pull to try to stave it off, the harder it hits when they lose their grip!
.
“within their capacity, countries will expand domestic sources of growth.
Translation please. “
Bananas are 26 cents a pound in Malaysia.
It’s bull $hit.
Agree........I think that is the plan. Make it so bad we can NOT recover from the damage for a long time.
Very good point ES !
stay safe !
Good man.
BTTT
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