(News & Editorial/ Our brave new world of debt)
A. The insanity of US government debt
27 March 2013, BayouRenaissanceMan, by Peter
Pasted from: http://bayourenaissanceman.blogspot.com/2013/03/the-insanity-of-us-government-debt.html
A single chart in a recent Bloomberg article sums up just how insane our government’s handling of debt and expenditure has become. The chart is from Drew Matus, the Deputy Chief US Economist and Managing Director at UBS Investment Bank in New York. He comments: “The Fed is set to absorb almost all of the supply of U.S. Treasury debt this year, just as they did last year. Even a modest reduction in the rate of buying could have a disruptive impact on interest rates and the economy.”
That chart is absolutely mind-boggling. It shows clearly how little US debt (i.e. Treasury bonds, issued to pay for US government expenditure that isn’t funded by tax revenue) is currently being purchased by independent investors or other countries. They’ve largely stopped buying Treasuries, because they can see the fiscal writing on the wall. To take up the slack left by their departure from the market, the Federal Reserve is simply ‘printing money’ (or, in reality, tapping ones and zeroes into a computer keyboard to artificially create money, with nothing of any value underlying or backing this fiat currency) and using it to buy these bonds. It’s a gigantic paper chase. The Treasury decides it needs an extra (say) quarter-trillion dollars, so it offers that value of bonds for sale. No-one buys them, so the Fed steps up to the plate and prints another quarter-trillion dollars, which it uses to buy those bonds. The Treasury then spends that ‘income’ until it’s all gone, when it issues more bonds, and the cycle repeats itself.
This is precisely and exactly the same as if I were running my household budget on fantasy, rather than income. I look at my anticipated bills for the year, and find that they total (say) $50,000; but my income for the year, after taxes, is only going to be $30,000. I can’t get any bank to extend credit to me; so I say to my wife, “Darling, write me a check for $20,000 on our joint account, please, payable to me.” She does so; I deposit it right back into our joint account; and the bank honors it as a deposit, increasing our balance by that amount. In reality, of course, that would never happen – instead, the bank would freeze my account and begin proceedings to charge me with fraud! Nevertheless, that’s exactly what our government is doing, day in and day out. That chart proves it.
This government debt is what some liberal economists (e.g. Paul Krugman) are telling us ‘doesn’t matter’. I think that’s insane! So do many other more conservative economists (e.g. Steven Rattner), and the debate over its true significance is raging unabated. However, I think that when we put it in terms of a household’s spending, rather than a nation’s, it tends to put it into proper perspective. Our national household has been – and is still – using money it doesn’t have, and is making up out of thin air, to fund its excessive expenditures.
Every year, the nation’s accumulated deficit grows. When will it be too much? Was it too much at $10 trillion? We reached that figure in 2009. It’s currently at over $16 trillion – 106% of our GDP. In other words, our federal government now owes more money than the entire US economy makes in a year – and that’s just for its routine annual expenditure, ignoring future liabilities for programs like Social Security or Medicare, which total many tens of trillions of dollars more. Within a matter of a few years – certainly by the end of President Obama’s second term, unless he changes his policies or the Congress and the Senate refuse to fund them – the deficit will exceed $20 trillion. When and where do we stop?
“Someday” might come sooner than you think.
B. Insanity Cubed
9 May 2013, Gold-Eagle.com, by Jeff Nielson
Pasted from: http://www.gold-eagle.com/editorials_12/nielson050913.html
Definition of insanity: performing the same act again and again, but expecting a different result.
Obviously this is a colloquial “definition” of insanity. However, at the very least it is an unequivocal demonstration of abject stupidity. Choosing to repeat failure is utterly indefensible behavior.
What do we see with our politicians, bankers, economists, and media talking-heads? Bludgeon your way through all of the obfuscation; and we see that most of our economic problems are derived directly from two, failed policies: excessive money-printing and excessive debt.
Yet what are the only two “solutions” for these problems being proposed by Western governments (and their apologists in the Corporate Media) today? Even more-extreme money-printing, and even more-extreme debt-creation. Putting out the fire with gasoline. Insanity.
Has anyone actually paid attention to any of the so-called sovereign “bail-outs” which have occurred over the past five years? In every instance it has involved lending vast sums of money to hopelessly insolvent governments.
Supposed I owe $10,000, but require a “bail-out” because I can’t service this debt; and my Rescuer lends me another $5,000. Please explain to me how I’ve been “bailed out” when I now owe $15,000? Obviously if I couldn’t make payments on my debt when I owed $10,000; it’s mathematically impossible to do so when I now owe $15,000.
I haven’t been “bailed-out.” Instead, my bankruptcy has been temporarily delayed, but at the cost of a much larger bankruptcy down the road. This is precisely the opposite manner in which this is handled in the private sector.
In the private sector (unless you’re a Too Big To Fail bank); insolvency is resolved as quickly as possible – with either a genuine “restructuring” (i.e. less debt rather than more) or a formal bankruptcy proceeding. It is universally understood that this is always the process which minimizes economic losses (and the misallocation of resources).
But this is only the foundation for our insanity. On top of this initial layer of insanity; we have multiplied this quest for self-destruction with (arguably) even greater insanities.
What is the only, possible valid reason for repeating a strategy which has already failed repeatedly? We conclude that “the Plan” itself was valid, but the execution of that plan was faulty. In which case, the only sane course of action is to get different people (hopefully better) to attempt to execute the Plan.
What do we see instead? Employing the same Cast of Clowns (Criminals?) who have already failed repeatedly to remain in charge of executing the Plan – expecting that this time the Clowns will perform admirably. Employing the same Cast of Clowns to repeat a failed strategy which is universally understood to be the precise opposite of what they should be doing.
Alternate definition of insanity: expecting the same people who screwed things up originally to “fix” their mistakes…by continuing to make the same mistakes.
In mathematical terms, we are now at “insanity squared”: repeating a failed plan, with the same group of Failures put in charge of repeating failure. But it gets much worse than this still – as is always the case with any multiplication function.
At this point, many readers are arguing that nothing could be worse than this: repeating a failed strategy (again and again) with the same group of Failures in charge – when we know they are doing precisely the opposite things that they should be doing. For those readers; let me introduce you to the exponential curve.
Readers are generally familiar with “linear” functions (or charts): these are mathematical progressions where the rate of change remains relatively constant. Conversely, only those with a background in mathematics are generally conversant with exponential functions.
This is a mathematical function which doesn’t merely accelerate over time; but where the rate of acceleration itself continues to accelerate. Exponential curves are the mathematical representation of the concept of “unsustainability”. Put more bluntly, all exponential curves end in disaster, and there can never be an exception to this.
Examples will quickly illustrate this point. In the animal kingdom; when any animal population begins an exponential decline, it is 100% certain that it will become an “endangered species” in the near future. From that point (and despite our best efforts) it is nearly 100% certain that the species will become completely extinct.
Lest anyone suffer from the delusion that only downward-pointing exponential curves lead to disaster; what happens on the rare occasions when animal populations experience an exponential growth? Massive over-population. Rapid destruction of the entire food supply. Followed by mass-starvation.
Want an example of an exponential curve in the world of human commerce? Can anyone say “bubble”? Bubbles generally feature two exponential trends: exponential increase in prices, and exponential increase in the level of ownership of that asset. Can anyone provide an example of a bubble which ended well?
Now let’s have a look at two more exponential trends:
The first chart shows the exponential increase in the U.S. money supply; the second chart shows the exponential increase in debt.
An exponential increase in the money-supply must result in hyperinflation. An exponential increase in the level of debt must result in bankruptcy. Period. Put into even more stark terms; policies which have already proven to have failed can now be conclusively shown to be plainly suicidal.
Readers will note that the exponential curve in the second chart is less-extreme than the first. There is only one reason for this: since 2008 U.S. interest rates have been fraudulently maintained at 0%. With the U.S. sitting with the largest debt in the History of the World, and on a clear/obvious/mathematical road to bankruptcy; the chart above is proof that these interest rates are fraudulent.
Had U.S. interest rates been normalized during this time; the U.S. government would have spent $trillions more on interest payments alone – and the second chart would be as insanely steep as the first.
Alternate definition of insanity: engaging in behavior which is knowingly self-destructive, yet refusing to acknowledge that such behavior is suicidal
We are now at “insanity cubed.”
1) Repeating a failed strategy again and again.
2) Employing the same Failures to continue repeating that failure.
3) Continuing to repeat the same Cycle of Failure even after we have conclusive, mathematical proof that this is now economic suicide.
In our original definition of “insanity”; it was conceded that this could be interpreted as (mere) stupidity instead. Likewise, instead of concluding that our political leaders, bankers, economists, and media talking-heads represent the most-deranged group of Lunatics in history; there is another conclusion consistent with the facts.
Massive, endemic corruption. With money-printing stretched to the brink of hyperinflation, with debt-creation taking us all to the brink of bankruptcy; what are we now being told by our Traitor Politicians?
Bail-outs are out. “Bail-ins” are in. With nothing left to be plundered in our Public Treasuries, the intentional insolvency created-and-increased by the Traitor Politicians is now their pretext for stealing (paper) assets directly from the private accounts of individuals…except for the Very Wealthy. As we have seen with the Cyprus Steal; the Oligarchs receive timely “warnings” well before any plundering takes place – so their wealth can be shifted to safety.
Readers have two, rational conclusions open to them: our leaders are a collective group of deranged Lunatics; our leaders are a collective group of (bought-and-paid-for) Traitors. There are no other conclusions which are consistent with the facts. Given that new, massive, financial crimes are being reported every day; I’ll leave it to readers to decide which conclusion is the more plausible.
“When men yield up the privilege of thinking, the last shadow of liberty quits the horizon.”
[We are individually no more than mere shadows of people when compared to the Mayflower 1620 Pilgrims who settled this continent, and the hearty men and women who founded and later brought prosperity to our people as a nation.
Welcome to our Brave New World, where so many enjoy subsidized uniqueness and individuality. Mr. Larry]