A Malthusian Catastrophe, Black Swan Event in the Forth Turning during a Kondratiev Winter skipping down the Road to Serfdom

[Melidan]

(Ignore all the asteriks, stupid iPhone)


Are you enjoying the "jobless recovery?" Wall Street sure is, the Dow is at 10,000 now, so we can all rest easy.. CNBC is right, they've been right all along.. Like back in 2005, 2006 and 2007 when Ben Bernanke repeatedly stated on TV that there was no housing bubble and zero risk of recession.

It appears that both inflation and deflation are occurring at the same time; that the US gross domestic product and consumer spending are declining while stock prices are rising; that government spending is rising while tax revenues are falling; that consumers are deleveraging and that the flow of credit has slowed while the total of debts and liabilities in the US economy continues to rise; that the US dollar is falling while price inflation remains nominal; that interest rates are near zero for banks but rising for consumers.**The seemingly contradictory facts indicate economic distortions and therefore developing systemic instabilities.

They are losing control and the shell game wont go on forever..

According to the Federal Reserve Bank of*St. Louis, the monetary base (MB) has approximately doubled in roughly the past 12 months.**The increase appears to contradict the fact that deflationary pressures impacting US banks continued virtually unabated.*Mortgage and credit card defaults have resulted in 170*US*bank failures since 2007.*A recent Bloomberg*article*indicated that the number of lenders that cannot collect on 20% or more of their loans hit an 18-year high, signaling more bank failures ahead.*Evidently, fewer bank failures have taken place than would have occurred otherwise had it not been for the massive interventions of the*US*government and the Federal Reserve.

But mainstream economists all agree, the recession is over.. Right?

Economic recovery cannot take place in a deflationary environment simply because money is less available to individuals and non financial businesses.**In particular, small businesses provide roughly 2/3 of all jobs in the*US*economy and the flow of credit to small businesses has been sharply curtailed.*The reduced availability of credit to consumers and non financial businesses has had a strong dampening effect on the broadUS*economy.**At the same time, consumer credit card interest rates have gone up sharply in advance of the*US*consumer-protection law slated to go into effect in February 2010 despite a prime rate near zero.**Consumers are deleveraging (paying off debt) and non financial businesses, hesitant to borrow in the face of declining revenues and economic uncertainty, are cutting costs as well as jobs.**Unless banks issue new loans, deleveraging is, in effect, a deflationary force in the broad*US*economy outside of the banking system.

ORLY?

Another interesting difference in the present situation compared to the Great Depression is that stock prices no longer appear to accurately reflect business performance, e.g., the S&P 500 average price-to-earnings (P/E ) ratio is currently a multiple of the overall historical average.

Unsustainable P/E ratios are typically the result of a stock price bubble.

The current rally is a bubble, inflated by cheap money provided by the federal reserve, low interest rates and mark-to-model accounting rules (aka mark-to-make believe, implemented by the FASB in April.. When did that stock market rally begin...???) that allows banks to value toxic assets at whatever price they want, regardless of what its really worth. **

At a glance, it seems that US GDP, while in decline, remains near an all-time high in nominal terms.**Interestingly, the GDP growth curve mirrors that of cumulative CPI, which is directly a function of inflation.

Whether nominal GDP indicates sustainable economic growth depends on the levels of inflation and debt in the economy.**Specifically, if nominal GDP growth is accompanied by a disproportionate rise in debt, GDP growth is unsustainable at best and illusory at worst.

Measured against the Euro, real US GDP has declined 29% in the last 9 years. *Do you think there is a problem with the dollar?

What about debt?

A closer look at debt levels in the*US*economy suggests that debt levels may not be sustainable and that points to further bank failures ahead.

Woah sparky, got any numbers to back that up?

The current*US*national debt is roughly $11,813,000,000,000 (equal to roughly 90% of official GDP) or $38,400 for every citizen (excepting approximately 11 million illegal aliens).

-US*household debt (mortgages, credit cards, student loans, etc.) is roughly $7,523,000,000,000 or approximately $24,500 for every citizen.
Unfunded*US*government liabilities are roughly $59,000,000,000,000 or approximately $192,300 for every citizen.

-According to Neil M. Barofsky, Special Inspector General for the Troubled Asset Relief Program ("SIGTARP"), bank bailouts, loans and guarantees related to the financial crisis total $23,700,000,000,000 (based on government data), or $77,126 for every citizen.

Wow!

Federal and household debts and liabilities for the entire*US*economy, not including commercial debt, total $332,326 per citizen.*Since there are approximately 2.6 persons per household, according to the*US Census Bureau, debts and liabilities total approximately $862,000 per household.*According to the*Social Security Administration, the national average annual wage is $40,405, thus the average citizen would work roughly 21 years without pay to equal their theoretical share of total non commercial*US*debts and liabilities.**For a household with one income, the wage earner would work roughly 63 years to pay their household’s theoretical share of total non commercial*US*debts and liabilities.**While such estimates include current debt and other liabilities and do not account for changes in wages or the value of the US dollar, they clearly suggest a sobering reality: debt levels in the*US*economy are not sustainable.

Not quite sure I buy it yet, got anymore info?

Considering a scenario where the*US*public debt doubles, as is planned by the current administration, servicing the public debt could result in a situation where it is impossible to balance the federal budget and where the public debt will necessarily increase purely as a function of mandatory spending.**The eventual default of the*US*government and a corresponding crash of the US dollar would be inevitable.

The ongoing inflationary policies currently helping to maintain the balance sheets of*USbanks mean that the total of debts and liabilities in the*US*economy remain excessively high relative to GDP, preventing genuine economic recovery.**Bank balance sheets can be expected to continue slowly crumbling as mortgage, credit card and other loan defaults continue while the recession drags on for what looks to be a period of years.**It seems unlikely that mortgage backed securities, regardless of how they are valued for accounting purposes, will not become liquid in the foreseeable future, thus US banks will remain in a state of decay.**In other words, it does not appear that the policy response will work in the long run.
*
The apparent choice between inflation and deflation may itself be illusory because both assume the US dollar can survive the developing systemic instabilities in the*USeconomy and growing pressure on the dollar.*The*US*policy response does not address the root cause of the problems in the*US*economy: excess levels of debt.**Since monetary inflation is tied in lock-step to debt levels, an inflationary policy response at this point can only produce unsustainable economic distortions.

tl;dr: *We're fucked, I mean big time. *You're being lied to on the most unprecidented scale in human history. *Job and cost cuts do not create real profits and hence, do not make an economic recovery. At least not in an economy that is almost 70% based on consumer spending. *A rising Dow Jones, coupled with rising unemployment do not make a recovery. *The stock market is not a leading indicator, jobs are.

When you really think about it , you know its all bullshit! *If the consumer isnt spending, and the US manufactures almost nothing to sell to foreign countries... Where is the recovery coming from?? *

You are being conned into thinking its over.. They want you to go back into debt, in order to continue expanding the economy.. Buy consumer crap and be sure to start pumping money back into your GE, AIG, BankOfA, Citi stocks... They need YOU to buy so that they can SELL; (CNN Money - "Insiders sell like there's no tomorrow." *http://money.cnn.com/2009/09/10/news...ales/index.htm)

We need deflation as it will erase the debt.. This will cause a depression, which the Fed will never allow. *Years ago, Fed head Ben Bernanke personally said he would, "Drop money from helicopters" in order to prevent a deflationary depression. *He is doing just that.. Inflating and destroying our dollar. *The fault lies with the Federal Reserve and the government, Republican and Democrat.

While I believe inflation will get worse, I dont believe deflation can be prevented, it will come eventually.. The only thing now is that the severity will be much worse.

Do you wonder what those things in the topic title are? Wiki them.. Welcome to your future.