Nice "anal" ysis ;-) Karl...
For sure it will "pop"...

Just waiting and guessing where will the dam first burst...
- $, currency market,
- equities,
- forex,
- banks,
- insurance company,
- money market...

HiHi...

Thank you so much Karl.

What will be the end result, if the J6P continues to stop spending? This feels unprecedented to me, yet it seems to be what's happening.

From an economic standpoint where does that lead?

It feels like comparisons to Argentina or Russia or Whathaveyou, don't really have standing when you look at the worlds largest consumer EVER...stopping consuming. Uncharted waters?

Thanks again. Between you and Lew Rockwell I know I've given my brain a gift.

~Anders

200 T with SS/medicare - I really can't imagine that amount of money - maybe grains of sand - but anything else!!

That SS/Medi(s)care figure isn't debt, it's an accounting fiction. A carrot dangled in front of the retarded American population used to entice them to keep paying into the "trust fund" and voting to support the status quo as they approach retirement age.

That debt doesn't exist. SS/Mediscare is welfare, and FICA taxes are just that, a tax. Every dime put into the trust fund was taken out immediately and used to pay the interest on the national debt, bailout banks, buy more useless military hardware so we can fight other nation's wars, etc, etc.

Ok, I see this chart and it's mind boggling ... 110 TRILLION?

http://market-ticker.denninger.net/uploa....

Karl can you list the numbers for the broad categories in this chart? Like Gov, State/Local, Household/NP credit, etc ....

I mean these numbers are scary as hell.

Is this where you pulled this information??
http://www.federalreserve.gov/releases/z....

US GDP 14.2T (2008)
Total Debt 110T (aka 7 years, 8 months, 26.4 days of current GDP)

We're ****ED.

Uh, they're right there in the Z1 guy.

The categories are color-coded at the bottom of the chart. Here's the full-size copy (just click the copy in the TICKER for a full-size version)

There may be an error in that table - I'm going to go back through it.

thanks, chart and basic argument repost with attribution on the ed schultz site. so-called progressives are rather weak in economics. when i announced the onset of recession there (in 11/07) only one trained cpa worked through the logic. the rest were in absolute denial. it would be useful to that community were tickerguy to be interviewed on his show. somehow i doubt the approved ideology allows, though you are putting cracks in a lot of people's walls, and, even better, brains.

Karl,

Your tickers over the last ten days have been extraordinarily good. I have never seen such great analysis of our economy and the financial markets. The graphs are persuasive enough alone but your analysis clinches the argument.

This paints a very bleak picture of our short to medium-term future. I've already made some personal decisions based upon your analysis. This is a scary situation.

How about writing a ticker on what a typical day in America would be like should a serious economic decline occur? I assume that the stories of the Great Depression would be similar.

---------------------------------------

A trillion here, a trillion there and pretty soon you're talking about real money.

I caught a chart-error - re-shooting the video now, and will be updating the charts.

Its not quite as bad in totals, but unfortunately, the double-counting masked something worse - even state and local governments have stopped borrowing, along with corporations.

All that's left is financial "bets" and The Feds. That's WAY WORSE than the alternative, because it means that there's only one place (the federal government) that has credit capacity left.

Ouch.

please advise when re-posted, thanks.

The charts are much better now. The criticism I had (while completely agreeing with your premise) is that when GDP shrank so low you couldn't see the ratio, so you couldn't really compare visually. This new chart makes that much better.

I also think you could consider going back further, to post WWII, when our ratio was at its highest, and explain why its different now. Maybe you explained this in the video (I don't have audio and couldn't listen) but one of the comments I frequently hear when I talk about GDP/Debt ratio is that "well, it was much higher after WWII and we recovered just fine, so what's the problem?"

Sky, the numbers I need on the Z1 from The Fed to do that are not available pre-1951.

Karl, you might like this chart too.



Here the source if you are interested. It's a good read.
http://www.financialsense.com/editorials....

Sky,

Over the many years of investing, I've seen a lot of scary looking debt graphs. Is this the big enchilada? Who knows, but it wouldn't surprise me if we limped along for years with our standard of living on a glide path to zero. After WWII, despite the widespread debt, tens of millions killed and half of the World wrecked, the Anglo Saxon economies made a spectacular comeback. So who's to say what will happen. We've probably already had our panic, now its the back to a time honored cure for debt: confiscation by inflation. They have no choice.

I wonder how the growth in aggregate debt compares with that of pension funds and deferred retirement funds over the years.

Reza - nice chart. According to Ben, in the 193o's the government didn't spend enough. I assume we go much higher.

Reza, I have another version of that chart from The Depression that tops it around 230% of GDP.

That's one of the problems - the data sources are thin from that era.

But they're not thin now, and the split is just plain NASTY. There is no private credit demand left - which means we either have to boost wages dramatically, dramatically increase exports (good luck with that one when labor overseas is 5% of our labor cost) or decrease leverage (debt to GDP ratios) by cutting the debt.

The first two look impossible.

So what happens next?

More taxes?

Default on Fannie and Freddie?

Default on US Treasuries?

Confiscate retirement accounts?

Let the banks go boom?

Hide under the desk.

One of the concepts often talked about by the Gold Bugs is "Sound Money", generally accepted to be PMs. I am going to take a flyer here in an attempt to explain why PMs are no more sound as money than fiat or debt money is. I am SURE to be evicerated by the Gold Bug community for this analysis, but that hardly matters to me. LOL. I will also no doubt be slammed by those enamored of Capitalism, but also not a real issue in my book. :-)

In several of my recent posts, I have tried to demonstrate how the monetary system we use has been dependent on overall growth in the economy (and concurrently the population), and how the concept of interest based on growth cannot support a Capitalist paradigm once growth ceases, or in fact goes into decline. Its fairly obvious why this won't work in the case of a fiat system, since a debt obligation in the fom of Interest is accrued on each loan or investment made, the percentage being determined by perceived or real risk involved in the loan. In essence, unless further debt obligations are taken on down the line, original debt obligations cannot be paid off. So you create a Ponzi here in this means of using such vehicles as Joint Stock Companies to consolidate capital and then loan it out for new ventures. As long as you have perpetual growth, originators of the debt can continue to be paid off here. You never really need any type of "basis" for such a currency system, which Isaac Newton as Master of the Mint was quite aware of. For the puposes of getting buy-in from the Hoi Polloi, you did nominally have to attach currencies to something of "universally" accepted value, and this always was done with Gold or Silver.

The question here is, why do Gold and Silver have the same problem as Fiat money does once growth stops or goes into REVERSE? The reason is because of their relative small supply with respect to the population, and the tendency of such a supply to congregate. Let's look at the period when Gold really was directly related to Growth, which would be in the early period of Colonial expansion into the New World. Spain became extraordinarily "rich" at this time relative to counterparties like England and France, because they stole more Gold from the New World earlier and faster than either of the other two did. There was of course a good deal of risk involved in stealing that Gold, many a ship loaded with Gold went down, and not a few were Pirated along the route. Overall however, they did pretty good for so long as Gold came flowing out of mines in the New World, and for so long as it was valued as a representation of wealth.

Meanwhile, England had a serious deficiency of Gold, and an essentially bankrupt treasury of this commodity in 1692, but they DID have control over a very large portion of the North American continent, which while not producing much Gold WAS a nice place for a grwoing population to migrate to. How to facilitate that with no real supply of Gold? How to capitilize the Growth? FIAT MONEY was BORN!

There was of course a great battle between those who labored on the NA continent to STEAL it from the original inhabitants and those who capitalized the adventure in England, which played itself out in the Revolutionary War in the Americas. However, as the society built and flourished, they needed a currency system to do that with, which the same folks who ran the system in England were eager to supply them with, and so they did. Thus the fledgling US became captured into the same system based on perpetual growth that England was based on, run by pretty much the same bunch of people also.

Why wouldn't Gold have worked here? For the same reason it didn't work for England originally, which is that somebody else HAD the Gold, and there wasn't enough of it to go round to use as a currency in England. Nominally however, Banks were set up that supposedly had enough Gold in the vault to back the currency they issued, but they NEVER did. Not in all the years of fractional reserve banking was it EVER possible to redeem all the Paper Money based on gold into actual Gold Coins or Bars. When France started trying to redeem all its US Treasury holdings in Gold in the 70s, Nixon took the Dollar off the gold standard entirely, basically forcing the Dollar into the position of world reserve currency at that time. We were bankrupted by expenditures on the Vietnam War, and we also transitioned from an Oil Exporting country to an Importing one during this period. To do so, we had to go into an ever increasing spiral of debt accumulation.

The succeeding period has basically been an ever expanding series of debt based instruments and monetary policy designed to keep the game floating for another decade, another year, another month, another week and another day. For all his faults, Alan Greenspan actually did do the job he was charged with doing, which was to keep the American Economy floating one more day. That he did the job by blowing up a bigger bubble of debt is besides the point. Had it NOT been for such bubble blowing, the American Economy would have hit the wall its hitting now back in the 70s. Growth here at that point was finished, because we exhausted the local source of really cheap energy, and had to import most of it. Thus the Petro Dollar and the transfer of wealth to Saudi Arabia which followed that period.

As the world developed from around 1500 onwards, the resources were out there for the taking, and a growth based economic system like Capitalism using Fiat Money was the ideal mechanism for exploiting that resource, and it performed the function extremely well. The underlying flaws in the mathematics have been perpetually obfuscated however, in fact to this day even well educated folks don't really grasp the nature of money very well. Of course everybody is getting a real big WAKE UP call right now, as the Math goes BLOOEY. Without growth, no investments can payoff, and it does not matter whether the monetary system is Gold based or Fiat based, the problem remains the same. You cannot "extinguish the debt" with gold as Antal Fekete writes, because there simply is not enough gold in the world to do that with, really no matter how you value it. The debts can only be extinguished through Default and the legal process of BK, but those with the MOST to lose won't accept their own bankruptcy, and look to the people to bail them out as perpetual debt slaves. It ain't gonna happen. Not because the people would not become enslaved to the debt, they almost certainly would since that is the behavior that is historically validated. The reason is because even working as SLAVES, the people cannot pay off these debts. The monetary system that started back in the time of the Medici is coming to a close here. What will come after it is anyone's guess. However, all which went with that monetary system, including Capitalism, including Socialism and Medicaire and Pensions is ALL destined to go the way of the Dinosaur. That is the TRUTH as I see it. KD will differ with this I am sure. LOL

RE

Quote:

Sky,

Over the many years of investing, I've seen a lot of scary looking debt graphs. Is this the big enchilada? Who knows, but it wouldn't surprise me if we limped along for years with our standard of living on a glide path to zero. After WWII, despite the widespread debt, tens of millions killed and half of the World wrecked, the Anglo Saxon economies made a spectacular comeback. So who's to say what will happen. We've probably already had our panic, now its the back to a time honored cure for debt: confiscation by inflation. They have no choice.

I think there are real reasons why the ratio post WWII, although higher in some ways than present, is different. I read an article on Skeptical Optimist that basically stated not to worry about the ratio; its been worse than now and we recovered just fine. I thought Karl would have much better ideas than me on why he is wrong.

The way they resolved the really high ratio back then was by growing the economy, not by reducing debt. I seem to recall there were two major things that contributed to growing the GDP: one was that interest rates weren't at zero so they had much more room to play around with rates, and the other was that the consumer was not overleveraged - there was room for the consumer to take on more debt. Neither of those two things will work this time around. So I don't think the post-WWII debt to GDP ratio "recovery" is at all relevant to our current crisis. But I really don't know what I'm talking about, and Karl does, that's why I asked if he could address that particular comparison.

Adding the debt-to-GDP ratio to the charts is a great touch. Really makes it crystal clear how out of whack things are now.

http://www.newamerica.net/publications/p....

I am frequently hearing the argument that the way out is controlled inflation (if such an animal existed).

If you already covered this I apologize but I am pretty new to the site so I simple don't know if you have.