Democrats & Liberals Archives

Where IS the Bottom of the Economy?

There are lots of ideas being thrown around about when we will hit the “bottom” of the current recession - end of 2009, sometime in 2010, maybe beyond that.

While the speculation is large on when the we hit the bottom, that does not necessarily indicate the beginning of the recovery. In fact, it is entirely possible that we could muddle around in the muck for some time - even years. Depending on where the bottom is also impacts how long it takes to get back to some sort of stability and growth.

First, we are still falling by all accounts, and so is the rest of the world. According to Klaus Schmidt-Hebbel (chief economist for the OECD), the global economic projections are worse than formerly thought:

"The shape of it will be a significantly deeper recession than what was forecast by the IMF in January, at all levels," said Schmidt-Hebbel. "(It will be) significantly deeper and more protracted -- meaning longer than what is embodied in the IMF forecasts of late January."

Another indicator that we are not even close to the bottom is the scheduled resets on an array of Adjustable Rate Mortgages (ARMs). An excellent discussion of this issue was published at Scoop on February 4, 2009, and the following chart is from that article.

mortgageresets.png

As you can see, there is another set of mortgages resetting in the middle of 2010 and an even larger peak in the middle of 2011. While not all of these are "sub-prime," many may be equally weak (Alt-A is incomplete documentation, Agency is government backed loans - Fannie and Freddie primarily, Option is flexible terms including interest only). Given that 20% of homeowners are currently upside down on their mortgages, and the housing values are still dropping, getting in front of this is a major problem.

Add to this growing unemployment, and the credit card hit that has been discussed by others (such as Huffington Post, Time, ABC News), the suggestion that "Hedge Funds Pulling Most of Their Money Out of Market at the End of Each Day," and the indicators point to a fast decline, followed by a another decline, and then perhaps another before we "hit bottom." What is left at the end of this is anyone's guess.

Looking at the various news and articles coming out, I scratch my head when I hear "Things will pick up towards the end of the year." Invariably, these people (including from the Federal Reserve) do not say what they are basing such statements on.

The hope, of course, is that the various stimulus, bailout, and mortgage interventions will have significant positive impacts. Further, that other nations are also successful at slowing and reversing their economies as well. We are not in a world where any nation is likely to recover without others also recovering.

Then there is option 2. As most are probably already aware, a significant part of the U.S. and global economy is actually massive amounts of crime and drug cartel money (see Petras for example). Therefore, I was not completely surprised by Mark Heinrich's Reuters article "Mafia millions buoying banks: UN," or that California is considering legalizing and taxing marijuana. When the economy fails, then the shadow economy comes into the sunlight. I have to wonder if the exigencies of a global economic crisis will result in a new look at the "war on drugs" for example.

______

Background information
What follows is an addendum to my article. It provides additional information that may be of interest.

In trying to make sense of the economic mess, I feel like I am engaging in a self tutoring in economics, the stock market, and the arcane world of finance. I will try to share my "lay person's" understanding of the concepts and terms and how they fit into the bigger picture.

As nations throw money at the banks, the financiers, and finally at "stimulus," it has not seemed to have much effect. Sometimes pictures are worth a thousand words. Here is the M1 Money Multiplier as an ALFRED Graph from 2/11/2000 to 2/11/2009 (the last date for which the graph is currently calculated and also available at this link).

ALFRED021100_09.png

If you want to wade through the actual formula for the M1 Money Multiplier, it is elaborated here. As I understand the M1, it is the amount of money available for each dollar in reserves (or the monetary base). In other words, if the M1 is 1, then for each dollar put into the system one dollar comes out. If the M1 is 2, then for each dollar into reserves two comes out. The ALFRED was started in 1984 and is produced by the St. Louis Federal Reserve. Here is a more extended graph (also available here).

ALFRED842009.png

So the M1 reached a high of about 3.1 in about 1987, and has trended downwards since then. In fact, it dropped off a cliff the end of 2008, and actually dropped below 1 in January 2009. In other words, we clearly are in very different territory. In January, for every dollar that went into the reserve system less than a dollar came back out.

Implicated in the current economic collapse is the issue of leverage. The best definition I have found is a "lesson" at My Critical Capital. Essentially, leverage is debt and a mechanism for extending earnings or value. This is the way that business gets expansion capital, and folks get homes. Another form of leverage is "stock option leveraging." In this type, investors purchase the right to buy a stock at a fixed price under the hopes that the stock will go up and they can sell the stock at a profit. In the foundations of the current situation, both forms of leverage are implicated, but greatly magnified by the creation of new forms of investment based on collateralized debt obligations (CDOs). The following is from "The New Face of Leverage in the Financial System" by Dwight Asset Management Company in their 2007 first quarter report.

"... collateralized debt obligations (CDOs) buy debt securities, pool them together, and issue new securities backed by the pool of debt. In the asset-backed market, CDOs have typically purchased mezzanine classes of asset-backed deals, specifically the tranches rated BBB by the rating agencies. Some CDOs even buy the mezzanine tranches of other CDOs (those deals are often referred to as "CDOs squared"). The diversification achieved by purchasing bonds from different deals sold by different issuers, coupled with a senior/subordinated tranching structure, allows these CDOs to create large senior classes of securities rated AAA. But the lower-rated classes are again levered to the performance of the underlying collateral--in this case, securities that are themselves already a form of leverage. And if correlation in an asset class is high, the diversification doesn't help much.

Later in the report ...

One can see where this is going. Leveraged investors buy levered bonds, which are backed by different levered bonds, which are backed by levered assets. This scenario leaves a razor-thin margin for error. But while financial innovation has amplified some of the risks associated with traditional investing, it has also created the means to hedge those risks. Credit default swaps, for example, allow investors to buy protection against defaults on the securities they own. As the mezzanine classes of CDOs and asset-backed securities plummeted during the first quarter, credit default swaps referencing those types of securities soared.

And so investors "hedge" their bets - in part via "hedge funds" - private, largely unregulated investment firms that cater to the big investor (in excess of $1 million) and aim for a high rate of return. So the hedge funds were intimately involved in the highly leveraged CDO market, but they in turn tried to reduce their level of risk by taking out insurance on their "investments." One of the major players in this specific form of insurance was AIG (American International Group) whose London office sold Credit Default Swaps (CDS) of CDOs - insurance on CDOs. This is a major reason that AIG has been such a money sink - and likely will continue to be.

****
Here is an extended discussion of money availability, the M1, and other issues - "Printing money to boost asset prices?. Choong Huat Hock, The Star Online. 2/16/2009.

AIG: The Tally Mounts (And Gets Murkier). Paul Kiel. ProPublica. 3/02/2009.

Posted by Rowan Wolf at March 5, 2009 9:53 AM
Comments
Comment #276859

Rowan you are not painting a warm and fuzzy picture here. However I have to say your post here is excellent. Thank you for the links and the information. Your series of articles on the financial meltdown has been and continues to be excellent.

Posted by: j2t2 at March 5, 2009 11:46 AM
Comment #276869

Some great graphics you found there, Rowan, thanks.

Posted by: gergle at March 5, 2009 12:37 PM
Comment #276870

Quite a school-housin’…thanks…the murky thin air of the stratosphere of high-finance…the community of no-value. Trillions and trillions in transactions, backed by a couple of trillion in real value. Anybody want to guess why the melt-down?

Posted by: Marysdude at March 5, 2009 12:39 PM
Comment #276882

Thanks all. The further I I dig into the arcane world of finance, the more frustrated I get. I swear that it is intentionally obtuse. I have spent weeks (by now) just “schooling” myself so I can get some handle on what has (and is) happening.

However, there may be cosmic justice:

3/05/09 Reuters, Former Merrill execs invested in Madoff funds: report

Posted by: rowan at March 5, 2009 2:26 PM
Comment #276888

Unlike insurance companies regulated by the State Governments which require an insurance company to retain premiums as a reserve to cover claims, AIG for all intents and purposes, being unregulated, pocketed the premiums and assumed they would NEVER have to pay off on claims in excess of their monthly cash flow. Hence, when the claims came in, the AIG stockholders, exec’s, and employees walked away with the benefit of all those premiums in salaries, dividends, and bonuses, leaving their insured customers and now tax payers to cover the claims or let the financial industry fail. Our choice.

This is precisely why Republicans with their laissez faire free enterprise ideology are dangerous in control of government. Their ideology prevented them using government and regulation to look over the private sector’s shoulder and regulate and mandate sound financial practice. Government they say, does not understand business and therefore can’t regulate it effectively. And they brow beat Democrats for trying.

This is one of several reasons Republicans cannot be trusted with power in government. They will, everytime, step out of the way of the private sector to reap all the profits their expertise can generate. In the case of Financial Insurance entities like AIG, that meant Republicans refused to require them to maintain reserves equal to a potential run of claims on the assets they insured.

The hubris is humongous. The arrogance even greater. Republicans acted as if there was no need for oversight and regulation BECAUSE they were in power. We the people should have known, as many did, that the exact opposite is the case.

When Republicans are in power, that is when private sector oversight and regulation are most desperately needed. Republicans don’t like to send their supporters to prison or take their ill gotten gains from them, which can be funneled into GOP campaign contributions.

Sure they talk a good game about regulation and oversight now that they have been removed from power. But, their ideology regarding government being the problem, not the solution, and free enterprise means the private sector needs no costly regulation as the private sector knows better than government how to make a buck, remains fully intact. One only needed to watch the CPAC speakers to acknowledge the truth of this.

Posted by: David R. Remer at March 5, 2009 3:47 PM
Comment #276889

BTW, Rowan, this is one of the most informative and well laid out articles I have seen on WB in quite awhile. Great job tackling a very complex and difficult topic.

Posted by: David R. Remer at March 5, 2009 3:49 PM
Comment #276893

Rowan:

Very nice job!

Posted by: submarinesforever at March 5, 2009 5:13 PM
Comment #276916

David, great addition to the dialog. The modern day Republicans are different from the ones I grew up with. It seems that ideology has joined with corporate interest in damaging and dismaying ways.

Thanks also for the props. It is taking a lot of time and effort to get financier concepts and terminology and turn them into something resembling coherent English ;-)

Posted by: rowan at March 5, 2009 9:14 PM
Comment #276917

What was a downturn is quickly being turned into a complete meltdown because we elected Obama. He is not a centrist and he is not interested in stabilizing the economy. In fact, the crisis is to his benefit (Rahm even confirmed this) as it will allow him to push through the radical agenda of “fundamentally transforming America”.

Higher taxes, higher energy prices, cap and trade, universal healthcare, trillion dollars spent in the first month of his presidency(!), is it no wonder that the markets continue to fall and businesses both small and large are expecting the government to continue to pile on new costs and regulation ad infinitum?

Instead of calming things Obama is creating the perfect storm which may just sink everything.

Posted by: eric simonson at March 5, 2009 9:55 PM
Comment #276918

Eric,
Then again, it could be because eight of the largest 24 commercial banks are technically insolvent, investment banks no longer exist, and AIG alone has trillions of dollars of losses.

Rowan,
One critical piece of information I never see. How much in total losses exist? I realize part of the problem is that the CDO’s and CDS’s were specifically exempted from oversight and regulation by Phil Gramm’s legislation; and part of the problem is that the CDO and CDS markets are illiquid; and finally, financial organizations want to conceal the size of the losses, in order to be forced out of business, an agenda the federal government agrees with.

According to one estimate the derivatives market carried a notional value of $62 trillion at the beginning of 2008. (And there are several potential flaws in that statement!).

The question remains: how much as been lost?

Rowan, any guesses?

Posted by: phx8 at March 5, 2009 10:08 PM
Comment #276922

phx8,
That is the trillion dollar question. Since the market has been intentionally kept out of sight, all we get are estimates. Those estimates run from a low of $64 trillion to a high of 1 quadrillion. Even at the low range we are talking about a figure that exceeds the GDP of the planet. Now how much of that has been “lost” is in question,but another question is how much of that are we “repaying?” This is one of the problems that AIG is facing as they insured a number of the “investment instruments.” Thus far we (not counting what the EU and China may have thrown in) have put at least 185 billion and that looks like only a down payment on the insurance calls.

The other unknown is who is cashing in (or out as the case may be).

This is part of what makes trying to make sense of exactly what is going on. Namely, that the center of the web is effectively invisible. You can trace interconnections and transactions to a certain point and then they disappear down the rabbit hole.

Posted by: rowan at March 5, 2009 10:36 PM
Comment #276939

After 1929, bank failures played a major role in creating and prolonging the Depression. It marked an end to the conservative philosophy of Coolidge, Hoover, and others. During the Reagaon/Bush #41 financial deregulation, the savings and loan crisis occurred, and since it was a less severe downturn, the conservative philosophy survived. Here we are again, with bank failures playing a major role in creating another Depression, a direct result of a conservative philosophy of deregulation, and once again occurring under the GOP watch.

This is a dead economy walking. No one wants to face it- we went broke last fall. And by “we”, I mean a handful of investment banks, commercial banks, & insurance companies, who blew trillions upon trillions of dollars on bad investment vehicles.

It’s pretty amazing. Amazingly stupid, but nevertheless, amazing. I don’t know of any historical example that can match the economic stupidity on the part of Wall Street. Seriously, can anyone think of a comparable example in the history of the world? The results are clear. No one holds a candle to American bankers. It turns out the US financial sector was the stupidest one in the history of the world. That’s quite an achievement.

Posted by: phx8 at March 6, 2009 1:31 AM
Comment #276952

If you want to blame Republicans for the great depression, the place to blame them is for their support of the Smoot-Hawley Tariff Act which Hoover signed. And that was protectioism of the kind of that today’s unions would love. It’s definitely not the kind of policy that Republicans are known for today.

Phx8, just like the current mess, the great depression had a whole lot of causes and it doesn’t make sense to cherry pick them to make one political party look good and the other look bad. Unless that’s what you’re interested in instead of the truth. You oughta read up on the depression a little.

People oughta be careful when talking about the economic stupidity of Wall Street. It’s like talking about the stupidty of NASA. Yes, there have been a number of disasters in NASA’s history, but it comes with the territory. Wall Street has been one of the engines for our American standard of living for generations. You can’t have the highs without the occasional lows. But if they’re so stupid, why give them bail-outs?

Posted by: Liam at March 6, 2009 10:40 AM
Comment #276957

Liam,
Republicans being wrong doesn’t make the Democrats right. I hope Obama and the Democrats do get this right, and save the economy, or at least mitigate the pain. However, I don’t think they will succeed. Sorry to be such a downer, but I think success will require something much more dramatic and radical, and we don’t have a system that allows for that. We don’t have it in us.

I don’t think Wall Street should be bailed out. It should be nationalized. We’re incapable of doing what people like Greenspan and Ben Stein have already recognized is necessary, with nationalization and negating the mortgage “investment” vehicles. Bandaids- even very big bandaids- won’t save the economy, at least I doubt it.

Saying Wall Street did a lot of good before they, you know, lost more money than exists in the entire world, well, that just doesn’t cut it.

“Free trade” is not the same issue today as it was in the Depression. “Free trade” today is a smokescreen for outsourcing jobs and offshoring companies so that they can avoid taxation, and enjoy free rides on the American work force and consumer. Most people would agree international trade itself is a good thing, as long as everyone plays on the same level field.

Posted by: phx8 at March 6, 2009 11:37 AM
Comment #276959

I’m not as interested in the ideological stuff about regulating and nationalizing vs. free markets as I am in what works. So I have no idea where this idea comes in that nationalizing the banks will help anything at all.

Why is the government running something better than having private folks run it? If there are such economic geniuses working for the government, it’s too bad that the banks don’t just hire them. The individuals would make a lot more money themselves and the banks would be doing better too.

I’m a Baltimore Orioles fan. They tanked out at the bottom of their division last year. I’d like to have somebody explain to me how having the city of Baltimore take them over would improve their record. Or why if it’s not true for one private company like a ball team it would be true for another private company like a bank. A bank, by the way, is a hell of a lot more regulated already. I’m very serious. Explain it. This bottomless faith in the wisdom of government officials befuddles me.

Posted by: Liam at March 6, 2009 12:17 PM
Comment #276960

Eric, Wall Street and some of its biggest players like AIG were major players in bringing our economy to its knees. Wall Street leveraged its stock prices far beyond what actual business assets would support over the long term. Wall Street is now having to adjust for all that leveraging. Wall Street is responsible for what is happening to Wall Street, though other players like the government, Clinton and Republican Congress and Bush, and the mortgage industry also had major roles to play.

That said, stock market indexes are not the measure of our economy. They are a measure of responsible business management. The measure of the health of the economy is employment and the productivity and consumer activity.

Obama is in NO WAY responsible for where the Stock Market is. Obama has been in office 6 weeks there is no plan or spending program Obama could sign in that 6 weeks that would have rescued this economy from the deleveraging of inflated assets on the private sector’s books.

Your blame is entirely illogical and blatantly and partisanly false for the reasons I cite above.

Now, if, at the end of this year, the decline in the economy has not abated, THEN you may lay some of the responsibility at Obama’s feet, and I will be laying responsibility at his feet along side you.

Your comment is pure partisan sour grapes, and empirically and demonstrably so.

I do however, have to commend the Republicans and Blue Dog Democrats for arresting the passage of the Omnibus appropriations bill left unfinished under the Bush administration, due to its 7 plus billion in earmarks. Regardless of motives, Republicans in Congress finally accomplished something worthy of commendation.

Posted by: David R. Remer at March 6, 2009 12:22 PM
Comment #276961

Liam said: “So I have no idea where this idea comes in that nationalizing the banks will help anything at all.”

Here is how and why it comes in, Liam. These corporations, if allowed to bankrupt, would not receive any discount buyers in the current credit environment and with their enormous overvalued assets. If they languish without bidders in Bankruptcy court, the many other corporations who lent them money, would in turn be forced toward bankruptcy due to writing off their loans as assets to zero. And a cascade of private sector bankrutpcies would ensue.

The federal government - tax payers - are the only entity with the borrowing and money printing capacity to step in and prevent such cascade of bankruptcies from occurring which threatens turning our recession into a depression by either definition of the term, resulting in a vast increase in both number and rate of unemployed persons, which in turn, would more seriously contact consumer activity, which in turn would cause dramatically more unemployed, etc. etc. etc.

Now, let’s be clear, when the federal government takes over these corporations, they do not put some public servant with an associates degree in business in the position of conservator to run and manage the corporation. They will either allow qualified persons within the corporation to move up to management conservator management or bring qualiified management in from outside the corporation.

So, you can lay a lot of your fears aside on this issue of nationalizing defaulting corporations. One more assurance to consider, the Obama administration and Democrats in Congress are committed to as short a temporary conservatorship as possible. Nationalization means temporary, in this case. Not like what takes place in Venezuela or China.

Posted by: David R. Remer at March 6, 2009 12:34 PM
Comment #276972

Liam,
In a nutshell, greed motivates people regardless of whether they work for government or in a free market. The difference is that government swaps market efficiency for oversight and regulation. Without oversight, greed drove the investment banks to literally destroy themselves with bad investments- investments that were bad for the banks and everyone else, but wonderful for the bankers. Government ownership runs risks with corruption, of course, but oversight and regulation should be able to prevent that kind of destructive greed.

Like you, I want to see something done that works. I don’t care what it is called. I don’t know of any political philosophy which has public ownership of the financial sector high on its wish list. Leftists like myself, and socialists, want to see universal health care and publicly funded education though university level. The idea of paying funds that could have been used for health care and education to bankers, precisely the people most opposed to that kind of thing in the first place, because of their greed and incompetence, is galling. They need to be fired, NOT paid bonuses and NOT allowed to keep their jobs.

Enough ranting. Obama is doing what he thinks is necessary, and although I’m pessimistic, I really hope he somehow succeeds.

Posted by: phx8 at March 6, 2009 2:15 PM
Comment #276976

Remer writes; “Now, let’s be clear, when the federal government takes over these corporations, they do not put some public servant with an associates degree in business in the position of conservator to run and manage the corporation. They will either allow qualified persons within the corporation to move up to management conservator management or bring qualiified management in from outside the corporation.”

From the Wall Street Journal; ” Freddie Mac’s chief executive, David Moffett, announced his resignation from the U.S. government-backed mortgage company six months after being installed in that post by the company’s regulator as part of a federal rescue.

The resignation resulted partly from Mr. Moffett’s frustration over the need to consult with regulators on all major decisions and follow public-policy mandates that he didn’t necessarily see as good for the company, according to people familiar with the decision. The resignation signals the challenges the Obama administration will face in finding highly experienced bankers to head financial institutions and do the government’s bidding without huge pay …”

I wonder how Mr. Remer can seriously consider that any nationalized entity, being micromanaged daily by congress with all the differing political aims, can ever succeed.

Just imagine…”The First National Bank of Barney Frank”, or the “Harry Reid, Robert Byrd, and Ted Kennedy Memorial S&L”. We could also experience the “Nancy Pelosi United Gay and Lesbian Brokerage and Real Estate Investment Trust”

Posted by: Jim M at March 6, 2009 3:57 PM
Comment #276977

I am not that intelligent but I do know the bottom is when Mr Obama steps down and acknowledges he has no earthly idea how to run a country and God really help us!!!!

Posted by: Fran at March 6, 2009 4:00 PM
Comment #276983

Jim M perhaps the problem is this:
“President Bush created FHFA this week when he signed a sweeping housing rescue bill into law. The agency merges three existing federal entities into a new, tougher regulator for Fannie Mae and Freddie Mac. The agency will also oversee the nation’s 12 Federal Home Loan Banks, which, like Fannie Mae and Freddie Mac, were chartered by Congress to improve the nation’s housing capacity.”

When we have conservatives trying to get government right we always end up in a mess. Just look at the last 8 years. After the housing meltdown which all agree was due to lax regulations and enforcement it would seem Mr. Moffett is a little naive to expect less than over reaching on the part of the regulators. Does that mean we go back to the way things were because all of a sudden the mortgage market can do it right. Ya right that sounds ridiculous doesn’t it?

Posted by: j2t2 at March 6, 2009 6:52 PM
Comment #276994

The M3 Money Supply grew from 135 Billion in 1950 to $10.15 Trillion in year 2005.

90%-to-95% of all U.S. Dollars in existence in the U.S. exists as debt, because the Federal Reserve creates new money at a steep ratio of 9-to-1 of debt-to-reserves. Banks are getting new money created out of thin air and lending it at usurious 20%-to-35% interest rates, and jacking up interest rates on mortgages. Greedy banks are largely the root problem of the nations problems. They created massive toxic debt, rated it AAA, and then fraudulently peddled it to the rest of the world. Cha-Ching!

More abuses …

At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

Posted by: d.a.n at March 6, 2009 10:21 PM
Comment #277003

d.a.n, there is no question about the inflationary threat of our growing money supply. That is a topic that continues to plague the board members of the Federal Reserve and causing them to constantly revisit the question: what will be the earliest economic signs that the recession is beginning to abate so that efforts to contract the money supply can be metered out without delay, and in what amounts.

Reminds me of triage training in combat medic school. We were taught that triage is a clear example of the idea of infinite demand and finite resources, in which the medic must survey mutliple patients and wounds, prioritize them in order of which will receive immediate attention and by how much, making way for attention delivery to less life threatening wounds which can potentially become life threatening with too much delay, and so on.

This recession, if allowed to protract and deepen, will collapse our economy and exacerbate government deficits as a known certainty. Inflation is NOT a problem in the present, ergo, saving this economy from this recession has a higher priority than fighting future inflation which will result if the money supply is allowed to continue to grow or remain at current levels going forward in time.

The Obama administration and Fed Reserve are participating in economic triage. One can argue till one is blue in the face that a military conflict never should have taken place, but, that does nothing to treat the wounds of the soldiers lying there suffering and dying while the Medic debates the necessity for the war.

Our government must treat the recession, and then treat the future inflation that will result. To reverse this order would mean the economic patient dies.

Posted by: David R. Remer at March 7, 2009 12:46 AM
Comment #277004

Jim M, if corporations and their shareholders do not like the idea of being micro managed by public policy, perhaps they should insure their corporations do not fall into conservatorship, eh?

What? They should be bailed out by tax payers and remain free to elect to continue operating their corporation in the same way that sent the corporation into insolvency in the first place?

Your argument defies logic, and the common sense that elected Obama to deal with these crises these insolvent corporations created, Jim M.

Posted by: David R. Remer at March 7, 2009 12:53 AM
Comment #277005

David,
“Our government must treat the recession, and then treat the future inflation that will result. To reverse this order would mean the economic patient dies.”

Exactly right. The really worrying thing about this recession is that it is not like other recessions. Most people think it will be like the ones most of us have lived through, and that it will be over later this year, and we’ll go back to arguing about Gay Marriage or some such foolishness. Few of us have ever experienced anything like this. Asset deflation is the most dangerous economic situation out there, and there are only a few examples of nations successfully overcoming it. Sweden pulled it off, but there are a lot of unique factors there. Japan failed to pull it off; again, unique factors worked against them.

If we suffered an equivalent to the Japanese experience, imagine this: losing an additional third in the value of stocks, bonds, and real estate, and then staying down at that level for 15 years.

Posted by: phx8 at March 7, 2009 1:10 AM
Comment #277009

I think it’s time to consider just how lucky we all are…this meltdown occurred when several mortgages failed and the financial system went into a tizzy because none of the houses of high finance wanted to bear the brunt of the losses, so the bottom fell out. We may or may not recover from their greed and excesses…but think about how much worse thing would have gotten if those mortgages had delayed failure for a couple of years.

If this meltdown had happened in 2010, for instance, John McPain would likely have been the steward seeing us through the crisis…AIG, et al, would have had time to build countless more valueless bundles of toxic debt…instead of seven or eight trillion, it could have been double or triple that figure, and we’d have had a weak, frightened old man to ferry us through.

Doesn’t the thought of that just ‘make your day’?

Posted by: Marysdude at March 7, 2009 5:28 AM
Comment #277011

where is Paul Volker http://www.fundmymutualfund.com/2009/03/new-york-post-where-is-paul-volcker.html

Posted by: Rodney Brown at March 7, 2009 8:54 AM
Comment #277014
Jim M, if corporations and their shareholders do not like the idea of being micro managed by public policy, perhaps they should insure their corporations do not fall into conservatorship, eh?

Well, actually what they’ll do is pack up and go overseas. There are a lot of countries now with a lot more business-friendly environments than the one Obama is set on creating.

Obama is in NO WAY responsible for where the Stock Market is. Obama has been in office 6 weeks there is no plan or spending program Obama could sign in that 6 weeks that would have rescued this economy from the deleveraging of inflated assets on the private sector’s books.

David, apparently you don’t know what the stock market is. The stock market is about predicting where things are going in the market. It’s not a yardstick for things that have already happened.

I don’t know if the stock market is right or wrong in demonstrating absolutely zero confidence in Obama’s economic plans. Perhaps investors are wrong. Time will tell. But it’s folly to say that the stock market is not responsding to Obama because it’s responding to everything that investors think about the future. Some of that has to do with Obama, some of it has to do with other stuff.

Posted by: Liam at March 7, 2009 9:12 AM
Comment #277015

DR and all
Its time for BHO’s vaulted audacity. The Fed is comming to grips with reality,finally. Its time to nationalize Citibank for starters. Its the only way out at this point and better than the piemeal nationalization lite thats going on now with its multitude of political strings. The stockholders lose according to their positions,depositors are protected,assets are sold off until the “to big to fail” is able to operate prifitably again, at which point a much smaller bank is sold off and re -privatized.
I will agree with Jim M.that the government should not be running banks for the long term but as a temporary measure there are not any other options at this point.There is no other way to restore confidence.
Did you see all the billions financials pumped into politics? I will repeat,the government should not be running banks BUT the converse is also true!

Posted by: bills at March 7, 2009 9:16 AM
Comment #277016

Liam
The stock market is indeed responding however the ghouls of Wall Street are not indicators of what is best for the country. The traders niether sow nor reap. Often the market will improve on higher unemployment numbers gambling on the Fed lowering rates or go up when big oil is sticking it to the rest of us.The Fed cannot go lower! Wall Street is NOT on our side. They do not like the idea of having to personally pay a bit more in taxes and are terrified at the idea of what is known as the Tobin Tax proposals being looked at. That is a transaction tax per trade. Its a good way to raise revenues and a major stabilizing factor.Scares the hell out of those jerks.

Posted by: bills at March 7, 2009 9:34 AM
Comment #277018

Rowan,
You asked where is the bottom of the economy. And why others have attempted to lay blame on one party or another I do believe that if one cares to do their homework they will find that the problem with the Market began when Regulators stopped (as they were told to do) managing Margins and Options. With the Grand Slam coming when the Fed attempted to raise interest rates in 2004-5 and caused the ballon to bust. So to answer your question, the economy will bottom when the Fed can begin to raise interest rates without causing more harm to the economy.

Now where is that? Well, Phx8 asked if anything like this has every happened before in history. And why I am not learned in the details of the problem today or in the 1600’s (I think) when the Dutch Banks had a global meltdown. I do believe that there is more than enough educated folks on this site that can expand on the subject.

However, I do know that why Eric, Jim M., and others want to blame President Obama they should remember that under President Bush the Status Quo kept saying that the President could do very little to effect change in the Economy. So why is now that a Democartic Leaders holds the Office that suddenly the President is responsibile for the Economy?

No, a Simple Man I must ask My Democratic and Republicans a forceful question. Since when has the Banks owned the Economy? For when the Left and Right stop and Think beyond the Status Quo who makes the Banks money. Is it a Business? Is it the Consumer? Or is it the Individuals willing to save their money so that other citizens can borrow it to produce Goods and Services that Humans wants and Needs?

Yes, times they are a changing; however, I do believe that if one looks at the opportunities they are given instead of if their Stocks of the 20th Century can survive the new one there are plenty of ways to return America to normal. Well, as normal as “We the People” will ever be anyway.

First, remove from the DOW and S&P the current 30 Corporations that has long been the standard bearer of our parents and replace them with 30 of the “Green Corporations” and Basic Consumption to include Food and Fuel. Now this could be done overnight once all adjustments needed have been worked out. And yes, the Blue Chips of the 20th Century could and probably would take a hard hit; nevertheless, the Market could than be put on a Solid Foundation with lots of room for growth.

Second, use the Power of the Blog to bring together the necesary Government and Societal Engineers of the 21st Century (i.e. younger than 30) to establish a platform on what “We the People” invision can happan in the next 30-40 years just as the Youth of the 60’s and Silver Spoons of the 70’s did not long ago.

Third, have Commerce and Industry take notes so that they can do for the Children of the 21st Century what the invention of the affordable microwave did for the Children of the 70’s. For if an American Baron and Business Man is truely to be Independent shouldn’t the Banker be working for him and not the other way around?

Fourth, seeing that My Peers (i.e. “We the Corporation”) must remain in charge “We the People” need to Reform Government and Society in a manner that it not permits Our Children to invest in the Common Good and Defense of the United States of America, but encourages them to take Risk for the Sake of Adventure and not always for Profit.

Fifth, Not wanting to see a Governmentail Workforce of over 4 million additional workers I do believe that Every American needs to look back at Our History. For why “We the People” could set and cry about the trillions lost in the blink of an eye. Given American Grit “We the People” could write the next page of history for the next 100 years. For able to become Energy Independent (A Point of Order President Obama embrassed and Senator McCain did not) through the Pickens Plan and an Investment in Our Heritage I wonder what the DOW and S&P would look like in 10 years if “We the People” made the Bad Boys of Detroit and Congress make a Law requiring All Vehilces to be off Foreign Oil and supplied the American Consumer and Small Business Owner through Profit the funds needed to make such a transaction.

For Rowan, how does an Individual, State, and Federal Government make up the lose of more than 50% of Assets (A piece of Gold cut in Half) without Hard Work and Sacifice?

Posted by: Henry Schlatman at March 7, 2009 9:57 AM
Comment #277029

Liam,
“Well, actually what they’ll do is pack up and go overseas. There are a lot of countries now with a lot more business-friendly environments than the one Obama is set on creating.”

I think that’s wonderful, and should be allowed to happen. Fair is fair. Of course, when businesses pack up, that means the entire business. Specifically, that means the owners, board of directors, and upper management go too. They should be pleased to do so, right? If they choose their business over their country, then giving up their citizenship should be acceptable to all concerned. I would love to see that happen.

Posted by: phx8 at March 7, 2009 1:47 PM
Comment #277030

Btw, in Krugman’s column, the “toxic assets” are worth 40 cents on the dollar, according to Geithner in Treasury. However, no one will purchase them at that price. Krugman urges nationalization. Geithner and his crowd think that given enough time, the free market will save everybody’s bacon, and they’re afraid to be decisive and nationalize because they’ll be accused of being ‘socialists.’ Nice.

Buh-bye economy.

Posted by: phx8 at March 7, 2009 1:52 PM
Comment #277031
David R. Remer wrote: d.a.n, there is no question about the inflationary threat of our growing money supply.
By the time hyperinflation is detected, it will be too late, because the massive spending and money-printing that preceded inflation can not be undone by merely manipulating interest rates, and matters will be made much worse by debauching the currency and destroying all savings, pensions, retirements, entitlements, and wages. Also, how will the money supply be reduced if 90%-to-95% of all U.S. dollars in existence in the U.S. exists as debt, because 90% of new money for every new loan is created as debt?

There is no way to create tens of trillions of new money out of thin air without creating hyperinflation. Also:

  • (1) Current inflation is already higher now than what is being reported, due to suspicious modifications to CPI calculations in 1983 and 1998, which increased weightings on items falling in price, and lowered weightings on items rising in price.
    Current inflation is really about 7.8% based on the pre-1983 CPI calculations:

    • ___ INFLATION RATE: (n)ew and (o)ld ___

    • 15%|on——————————————

    • 14%|on——————————————

    • 13%|on————————————-o—

    • 12%|on————————————o-o-

    • 11%|on————————————o-o-

    • 10%|-on————————-o——o—o-

    • 09%|-on————————o-o—-o—-o

    • 08%|-on———————-o—-o-o——-o (7.8%)

    • 07%|-on———-o——-o——————-

    • 06%|-on-o—-o-no—o———————-

    • 05%|—ono-o—n-n-o———————-n

    • 04%|—on-noon—-n———n——-nn-nn

    • 03%|—-n-non——-n——-nn——n-n—n

    • 02%|—-nn-nn———nnn—n-n-nn—n—n

    • 01%|———-n—————nn—-n———-n

    • 00%|____________________________n_(0.03%)__YEAR

    • ____1_1_1_1_1_1_1_1_1_1_2_2_2_2_22

    • ____9_9_9_9_9_9_9_9_9_9_0_0_0_0_00

    • ____8_8_8_8_8_9_9_9_9_9_0_0_0_0_00

    • ____0_2_4_6_8_0_2_4_6_8_0_2_4_6_89

  • (2) The only reason inflation isn’t even higher now is because 90%-to-95% of all U.S. Dollars in existence in the U.S. already exists as debt, because the usurious Federal Reserve and banks create money out of thin air at a steep 9-to-1 ratio of debt-to-reserves (i.e. 90% of loan is new money created as debt, which has created a debt-pyramid that is doomed to eventual collapse when the debt of nightmare proportions can not grow any bigger, at which point the Federal Reserve and federal government will simply start giving away money to everyone possible, most likely resulting in hyperinflation). Member banks receive money from the Federal Reserve at low-to-ZERO interest rates, and then charge usurious rates up to 35% (or higher), and hike interest rates on Adjustable Rate Mortgages (ARMs), despite record-level foreclosures caused by the doubling (or more) of debtors’ monthly mortgage payments. And when the property is finally foreclosed, the bank has essentially converted money created out of thin air into real property and assets. Cha Ching! Now you know why banks continue to hike interest rates, despite 9,000-to-10,000 foreclosures per day.

  • (3) Any way, even using the government’s and Federal Reserve’s data, year-to-year inflation has been rising since year 2002:
    • ____INFLATION RATE based on new (fudged) CPI formulas _____

    • 4.00%|———————-

    • 3.75%|——————xxx 3.85% average for year 2008)

    • 3.50%|——————x— (2008 __ 3.85%)

    • 3.25%|————xxx-x— (2007 __ 2.85%)

    • 3.00%|————x-xxx— (2006 __ 3.24%)

    • 2.75%|——xxx-x——— (2005 __ 3.39%)

    • 2.50%|——x-xxx——— (2004 __ 2.68%)

    • 2.25%|—xxx————— (2003 __ 2.27%)

    • 2.00%|—x—————— (2002 __ 1.59%)

    • 1.70%|—x——————

    • 1.50%|xxx——————

    • 1.25%|__________________YEAR

    • ______2_3_4_5_6_7_2008

  • (4) Where will all of this new money going to come from when it does not already exist?

  • (5) Since when in all of history has nation ever solved a massive debt-bubble with more debt, borrowing, money-printing, and rampant spending?

  • (6) Where does it say in the New Keynesian Economics model, or any other Economics bubble that a massive debt-bubble (i.e. debt levels that are untenable) can be solved with more debt, borrowing, money-printing, and rampant spending?

David R. Remer wrote: d.a.n, there is no question about the inflationary threat of our growing money supply. That is a topic that continues to plague the board members of the Federal Reserve and causing them to constantly revisit the question: what will be the earliest economic signs that the recession is beginning to abate so that efforts to contract the money supply can be metered out without delay, and in what amounts.
Helicopter Ben Bernanke said last week (late FEB-2009) that he was not worried about inflation. Apparently, Ben Bernanke doesn’t think much of the pre-1983 and pre-1998 CPI calculation methods. Based on current CPI calculations, what has fallen in price lately, aside from $4/gallon gasoline and a glut of over-priced houses owned by the greedy banks? I certainly haven’t noticed prices falling on much else (if any). Again, by danger of hyperinflation is that by the time it occurs, it’s too late to do anything about it, because the massive spending and money-printing that preceded it can not be undone. Especially not when the debt bubble simply grew larger.
David R. Remer wrote: Reminds me of triage training in combat medic school. We were taught that triage is a clear example of the idea of infinite demand and finite resources, in which the medic must survey mutliple patients and wounds, prioritize them in order of which will receive immediate attention and by how much, making way for attention delivery to less life threatening wounds which can potentially become life threatening with too much delay, and so on.
I agree completely with the need for “triage”-style urgency and “prioritization of problems and spending.

The nation needs CPR now.
Unfortunately, that it not happening.
There are MANY things that could be done to help most Americans, which few (if any) are being done (such as stopping these 10 major abuses), and not all of them require a lot more spending.
Growing the debt-bubble of already-nightmare proportions bigger with tens of trillions of more debt is not a wise strategy, since it will lead to more inflation and most likely another economic terror:

  • Hyperinflation

David R. Remer wrote: This recession, if allowed to protract and deepen, will collapse our economy and exacerbate government deficits as a known certainty.
True.

All the more reason to not make it worse with hyperinflation.
The federal government needs to spend its current $2.4 Trillion in federal revenues much wiser; not run $1.7 deficits.
We’ve already had 52 consecutive years of deficit spending and positive inflation.
Inflation is still a problem now (actually 7.8% now based on pre-1983 CPI calculations).
GDP has actually been declining since late 2006 or early 2007.
GDP has dipped the largest amount ever in the last 100+ years (if not ever).
This nation has a gargantuan debt-bubble and growing it larger with more borrowing, debt, money-printing, and rampant pork-barrel spending will only make it much worse.
The federal government needs desparately to prioritize and stop the rampant waste, bloat, and pork-barrel now.

David R. Remer wrote: Inflation is NOT a problem in the present, …
Not true. See charts above.

Inflation based on pre-1983 CPI calculations is 7.8% today.
Do you really believe that inflation is nearly ZERO percent today?
Sure, houses in some places are worth less then before (since they were so over-priced), but many are still over-priced.
Sure, gasoline is less than it used to be (e.g. down to almost $2.00 from over $4.00).
But those two bubbles do not mean there is deflation (overall).
We have not had deflation in over 52 years.
Who has a motive to fib about deflation?
Who had a motive for 52 consecutive years of incessant inflation?
Have you seen grocery prices falling lately?
Have you seen education costs falling lately?
Have you seen prices on much of anything else falling?
Did it ever occur to you that the federal government and the Federal Reserve are lying about the real levels of inflation, GDP, debt, and unemployment?

Remember, by the time hyperinflation is detected, it will be too late, because the massive spending and money-printing that preceded inflation can not be undone by merely manipulating interest rates, and matters are made much worse by debauching the currency and destroying all savings, pensions, retirements, entitlements, and wages. Also, how will the money supply be reduced if 90%-to-95% of all U.S. dollars in existence in the U.S. exists as debt, because 90% of new money for every new loan is created as debt?

David R. Remer wrote: … ergo, saving this economy from this recession has a higher priority than fighting future inflation which will result if the money supply is allowed to continue to grow or remain at current levels going forward in time.
The money supply should be allowed to grow if the population grows, but not such that it creates high inflation or hyperinflation.

Again, current inflation is actually higher than the currently reported 0.03%.
By pre-1983 CPI calculations, inflation is currently already 7.8% and climbing.
And even by the government’s fudged data, year-to-year inflation has been rising since year 2002 (see chart above).

David R. Remer wrote: The Obama administration and Fed Reserve are participating in economic triage.
No. They are participating in economic malpractice.

The Federal Reserve and the banks are largely the blame for this massive debt-bubble.
The debt-bubble is not only a federal debt bubble, but a $67 Trillion nation-wide debt bubble.
The Federal Reserve and the banks defrauded the entire world via Enron-style book-keeping, cookin’ the books, peddlin’ toxic debt rated as AAA securities, usury, a steep leveraging of debt-to-reserves (e.g. 9-to-1), creating a $62 Trillion Credit Default Swap/Derivatives bubble, and causing 9,000-to-10,000 foreclosures per day by hiking Adjustable Rate Mortgate (ARMs) rates (i.e. doubling or tripling monthy payments), while also receiving money at low-to-ZERO interest from the Federal Reserve (money created out of thin air at a steep ratio of 9-to-1 of debt-to-reserves), among other abuses in league with a Congress that is FOR-SALE, and recently rewarded itself for all of it with their 10th raise in 12 years and $93,000 per Congress person for petty cash and expenses. Cha-Ching!

No nation so ridiculously deep into debt has ever solved its massive debt-bubble with more debt, borrowing, money-printing, and rampant spending (especially irresponsible spending). See 20 more reasons below.

David R. Remer wrote: One can argue till one is blue in the face that a military conflict never should have taken place, but, that does nothing to treat the wounds of the soldiers lying there suffering and dying while the Medic debates the necessity for the war.
Yes, but worse is making the situation worse by trying to treat the wounds with only a bandaid and letting wounds fester and become gangrenous.
David R. Remer wrote: Our government must treat the recession, and then treat the future inflation that will result. To reverse this order would mean the economic patient dies.
Not if inflation is already untenable.

Here are twenty reasons why the current debt is already untenable, and making the debt bigger only makes it more untenable:

  • (01) No one seems to really know if it is untenable already. Could some know it is probably untenable, but don’t know what else to do? Other nations have followed that same path with disastrous results. There’s no one here or elsewhere that can even say with any credibility whether the massive debt (both federal and non-federal) is now tenable. The interest alone on only the $10.9 National Debt is 18% of all federal tax revenues (that is, before federal revenues and GDP started falling in year 2007).

  • (02) The total federal debt is actually larger than the $10.9 Trillion National Debt, due to the $12.8 Trillion borrowed from Social Security, leaving it pay-as-you-go, with a 77 Million baby-boomer bubble approaching. Still, even the $10.9 Trillion National Debt per-capita is 62% higher than the previous record-high in year 1945, after World War II. The total federal debt of $23.7 Trillion is the largest federal debt ever in (a)size, (b)per-capita, and as a (c)percentage of GDP too.

  • (03) The total federal debt ($23.7 Trillion = $10.9 Trillion + $12.8 Trillion) and total non-federal debt ($67 Trillion) is crushing the nation, and has been for years. And that doesn’t even include the looming $62 Trillion Credit Default Swap/Derivatives bubble, or the $60+ Trillion in unfunded liabilities for Social Security and Medicare.

  • (04) There is a limit to the debt (federal and non-federal), and if the total $67 Trillion nation-wide debt, which is 500% of GDP, is not untenable already, it’s damn close, and growing it bigger doesn’t make sense; especially not with more borrowing and more new money created out of thin air.

  • (05) After 52 consecutive years of deficit spending and incessant inflation (One-Simple-Idea.com/DebtAndMoney.htm), there’s a real danger that Congress is a debt junkie which is unable to stop deficit spending. Congress doesn’t get it. Congress just gave itself its 10th raise in 12 years, plus $93,000 per Congress person for petty cash and expenses. Even if the federal government had the discipline to stop deficit spending, it would still take almost $492 Billion per year in interest alone (over $41 Billion per month) at only 4.5% interest, to simply stop the $10.93 Trillion federal debt from growing ever larger. It would take 180 YEARS of that to pay off the current $10.93 Trillion debt (as of 3-MAR-2009). Yet, there’s now an estimated $1.7 Trillion deficit for fiscal year 2009.

  • (06) The $67 Trillion nation-wide debt has steadily grown for over 50 years, and has almost quintupled from 100% of GDP in year 1956 to almost 500% of GDP today. It would take 433 YEARS to pay of that much debt if Americans were able to pay back $2.68 Trillion per year (or 19.33% of GDP) at only 4.0% interest, which is the minimum payment required to stop the debt from growing ever larger.

  • (07) Where will the money going to come from for the tens of trillions being spent and borrowed, when that money does not already exist?

  • (08) Americans have been liquidating for the past decade to service debt. Foreign owned assets in the U.S. have almost quadrupled from $6 Trillion in year 1997 to $22 Trillion in year 2007.

  • (09) 90%-to-95% of all U.S. Dollars in existence in the U.S. already exists as debt. Why? Because new money is created as debt at a 9-to-1 ratio of debt-to-reserves. And today, a LOT of new money is being created without any any reserves (to prop up bad banks). Eventually, percentage of money that exists as debt will become near 100%, at which time the Federal Reserve and federal government start giving away money. At the moment, they are giving many trillions to banks and corporations. But eventually, they’ll realize that they have to give money to consumers. Especially with a 70% domestic consumer driven economy. However, that is what will trigger hyperinflation, because the amount of new money required to service so much nation-wide debt, and keep a 70% domestic consumer driven economy from collapsing will result in hyperinflation, and you’ll need a wheel barrow full of U.S. currency to merely buy a loaf of bread. It’s happened in dozens of other nations and it appears it will happen again in the next few years.

  • (10) This is not a mere recession. It is the result of several decades (since about 1976) of crushing debt that has now become untenable, and more debt will simply become more untenable. GDP has been decreasing since year 2007 (most likely early 2007 or late 2006: One-Simple-Idea.com/Recession2008.htm). The U.S. Dollar (One-Simple-Idea.com/USD_Falling.htm) has declined against all major international currencies for about a decade. Also, is GDP reported correctly. Not according to some calculations: www.StadowStats.org/alternate_data

  • (11) Some people like to claim New Keynesian and other economic models promote deficit spending for our current economic crisis. However, none of those models state the solution to a massive debt-bubble is more massive debt, borrowing, money-printing, and spending. Also, no nation so ridiculously deep into debt has ever borrowed, money-printed, and spent its way to prosperity. Some people claim that World War II and massive government spending ended the Great Depression, and try to use that as an excuse for more deficit spending in this current debt crisis. What they fail to understand is that the $10.9 Trillion National Debt per-capita is 64% higher today than after World War II, and that does not even include the $12.8 Trillion borrowed from Social Security, leaving it pay-as-you-go, with a 77 Million baby-boomer bubble approaching. Including the Social Security debt, total $23.7 Trillion of federal debt has never been larger in size, per-capita, and as a percentage (171%) of GDP (GDP=$13.86 Trillion in year 2007).

  • (12) The federal government is the largest employer in the nation. More people are employed by the government than all people working in manufacturing (nation-wide). How long can that last? The federal government is sucking up 18% of GDP for about $2.4 Trillion in federal tax revenues, but that is never enough. The projected 2009 deficit is $1.7 Trillion, and deficits are expected/planned for 10 years. I don’t think so. The massive debt pyramid will most likely collapse in less than 10 years. To make matters worse, U.S. trade imbalances are sending trillions of dollars per year out of the U.S. U.S. exports are smaller than Germany ($1.1 Trillion) or China ($1.3 Trillion), and they U.S. is the biggest debtor nation on the planet. Yet, some people still beleive the solution to the problem is more credit and borrowing?

  • (13) With more global competition, decades of a deteriorating manufacturing base, how can the currently falling GDP be grown enough to support a U.S. population of 305 Million which is growing by 5 Million per year (source: One-Simple-Idea.com/PopulationUS.gif)?

  • (14) In late 2006-to-early 2007, GDP measured in any previous year’s inflation adjusted dollars, dipped drastically by an amount larger than any previous amount in the past 100+ years (see chart: One-Simple-Idea.com/Recession2008.htm). Also, the federal government was ridiculously reluctant to report declining GDP. It wasn’t until early 2009 that GDP was finally reported to be declining since year 2007.

  • (15) The Federal Reserve has already spent $3.2 of $8.5 Trillion (www.latimes.com/news/printedition/front/la-113008-fi-pricetag-g,0,5292528.graphic) allocated to bail-out bad banks. That much money did not already exist. Most of that money was created out of thin air. Yet we supposedly don’t have a debt problem so severe that we can borrow and create tens of trillions of more new money out of thin air? How will this NOT create inflation? Also, why should the Federal Reserve and member banks be getting low-to-ZERO interest loans to then charge usurious 20%-to-35% interest rates? Hell of a deal, eh? The end result is what we have today, which is similar to what would happen if you played the game of Monopoly in which one person (the banker) could print all the money they wanted. Before long, the bank owns everything, and everyone else is broke or deep in-debt to the bank. Cha-Ching! Also, there are about $11 Trillion foreign-owned U.S. Dollars outside of the U.S. With a deteriorated manufacturing base and growing global competition, and the liquidation that is already occurring, how can that not help cause more inflation? The only reason inflation isn’t much higher now is because there isn’t only a credit problem. There’s a debt-problem in which Americans can’t service more debt. Most Americans are tapped out. The nation-wide debt is $67 Trillion. That’s $220,000 per person (on average).

  • (16) One obvious indication of a massive debt problem is 9,000-to-10,000 foreclosures per day. Another root cause was rampant greed in the banks, corporations and federal government, combined with the extraordinary incompetence of Congress, SEC, and the administration, which has resulted in over 3 Million foreclosures in 2008, 2.0 Million in 2007, 1.2 Million in 2006, and 846,000 in 2005. 3+ Million more foreclosures are expected in 2009, and 9 Million more are predicted.

  • (17) Some people say inflation is low, or that we currently have deflation now (as of FEB-2009), that inflation is not a concern at this time, and inflation can be managed later. They don’t know that, and there is no historical precedent for it either. The Federal Reserve will not be able to contol hyperinflation, because raising interest rates won’t be enough, and the money supply will be difficult to reduce when 90% of new money is created as debt, and 90%-to-95% of all U.S. dollars in existence already exists as debt. And if the massive debt-bubble is merely grown larger, more people will simply be deeper in debt. We also have not had deflation (i.e. negative inflation) in the past 52 consecutive years. Also, the government’s economic statistics are not credible, because The CPI calculations were modified in year 1983 and 1998 to decrease the weighting on items increasing in price and increase the weighting on items falling in price. Therefore, based on pre-1983 and pre-1998 calcuations, inflation is really much higher (www.shadowstats.com/alternate_data).

  • (18) Even many of those that believe more spending and debt is the cure for our massive debt-problem, admit that the debt is near untenable already. So why grow it bigger and make it completely untenable? What economic model or historical precedent supports that course of action, which is completely contrary to most peoples’ idea of common-sense. Since when did the priciples of math and the universe suddenly become invalid?

  • (19) If the debt actually is tenable, then why is the federal government predicting/planning more deficit spending for another 10 years? Does that sound as if it is tenable? No. It sounds like it is out of control. Who really thinks 10 years of more deficit spending is possible? Where’s the proof?

  • (20) Since when did any nation so deep into debt (400%-to-500% or more of GDP) ever solve their debt-problem with more borrowing, debt, money-printing and spending?
  • How much debt is too much debt? Total federal debt ($23.7T=$10.9T+12.8T) is 171% of GDP (never large in (a)size, (b)per-capita, and (c) as a percentage of GDP (GDP=$13.86T in year 2007; probably less now).

So, did it ever occur to anyone, that instead of more deficit spending which created this massive (and near, if not already, untenable) debt-bubble bigger, to spend the federal government’s $2.4 Trillion in total tax revenues smarter, cut all unnecessary federal spending and waste, stop deficit spending, stop growing the debt larger, and stop the major abuses that have been hammering and costing Americans billions per year in net losses?

bills wrote: Its time to nationalize Citibank for starters.
That actually may not be such a bad idea, depending on whether government can reduce corruption enough to manage the banks responsibly. Looking at the Social Security and Medicare systems, and voters’ negligence to hold elected politicians accountable, skepticism is not unreasonable. Still, theoretially …
    SOLUTION - Reform the Monetary System:
  • (1) The federal government controls the monetary system; creates the money it needs (interest free), and controls the money-supply.
  • (2) The federal government shall prohibit usury (interest) by government and member banks. Private banks are still free to lend money with interest, but usury will be less of a problem. If a lot of interest is bad (i.e. usury is immoral), how can a little interest be good? If inflation is bad, how is a little inflation good?
  • (3) This creates a stable money supply with the flexibility for small fluctuations. If inflation is too high, some money in circulation can be removed. If there is deflation, or the population increases, the government can create and spend some money. If they do a bad job of it, the voters know exactly who to hold accountable. Currently, the Federal Reserve is a quasi-government controlled / privately owned bank, and the voters have little (if any) control over it. Why would people borrow from a bank (with interest) when they can borrow from the government, interest free? Thus, there would be little (if any) usury. Usury, predatory lending, and other manifestations of unchecked greed and the other numerous negative side effects would be greatly reduced. If properly managed, without profit and usury as a motive, the U.S. currency would become superior to any other world currency.
  • (4) Theoretically, if managed responsibly, with the central bank in control of the monetary policy (instead of the current quasi-government controlled/privately owned bank system), there may also be no need for any tax system? That is, inflation and deflation would affect everyone’s money an equal percentage (better than the current regressive tax system). Of course, such a vast change in the monetary and tax systems would require new ways of thinking about money, interest, borrowing, taxation, and monetary policy, and there are many (e.g. politicians and bankers; a.k.a. puppets and puppeteers) that will resist such changes. This is unlikely to happen, but the gargantuan debt-bubble of nightmare proportions may provide sufficient motivation to consider such a monetary reform? But, since this way of funding the federal government is unlikely any time soon, the least we can do now is to greatly simplify the current, ridiculously complex and regressive tax system (e.g. make it a more fair, flat 17% income tax on all types of income above the poverty level).

At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

Posted by: d.a.n at March 7, 2009 1:56 PM
Comment #277034

CORRECTION:

David R. Remer wrote: Our government must treat the recession, and then treat the future inflation that will result. To reverse this order would mean the economic patient dies.

Not if inflation [debt] is already untenable.

Posted by: d.a.n at March 7, 2009 2:06 PM
Comment #277097

What is obvious from those M1 Money Supply charts (above in Rowan Wolf’s article) is that Money Supply is very difficult to grow when:

  • (01) most Americans are already deep into debt, as evidenced by many symptoms of the massive debt-bubble (e.g. 9,000-to-10,000 foreclosures per day, rising unemployment, rising bankruptcies, rising credit card defaults, declining federal, state, and local government tax revenues, and numerous other deteriorating economic conditions).

  • (02) $67 Trillion nation-wide debt has grown from 100% of GDP in year 1956 to almost 500% of GDP today, and has never been larger in (a)size, (b)per-capita, and (c) as a percentage of GDP (GDP=$13.86 Trillion in 2007).

  • (03) the $11 Trillion National Debt debt-per-capita has never been larger ever (66% higher than the previous record-high debt per-capita in year 1945 after World War II), and that does not even include the $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 78 Million baby-boomer bubble approaching.

  • (04) the combined $11 Trillion National Debt and $12.8 Trillion borrowed from Social Security ($23.8 Trillion) has never been larger in (a)size, (b)per-capita, and (c) as a percentage of GDP (GDP=$13.86 Trillion in 2007)

  • (05) the weatlh disparity gap has never been larger since the Great Depression (1% of wealthiest own 40% of all wealth; 80% of Americans own only 17% of all wealth; 40% of Americans have (on average) zero net worth).

  • (06) 90%-to-95% of all U.S. dollars in existence in the U.S. exists as debt, because new money is created as debt at a steep ratio of 9-to-1 of debt-to-reserves.

  • (07) falling median household incomes since year 1999.

  • (08) Americans are liquidating assets by the trillions. Foreign owned assets in the U.S. have almost quadrupled from $6 Trillion in year 1997 to $22 Trillion in year 2007.

So, how do you increase the money supply when most Americans are so ridiculously deep into debt already that they can’t take on more debt?

There’s only one thing left to do. The next thing we may very likely see is the federal government and Federal Reserve creating huge amounts of money out of thin air and literally giving it away in the form of stimulus checks, tax breaks, or rampant pork-barrel spending. Unfortunately, the tens of trillions needed to even put a dent in $67 Trillion of nation-wide debt will almost certainly lead to hyperinflation, and make things many times worse, by destroying the currency, all savings, pensions, 401Ks, entitlements, and wages.

How did this happen?
Here’s how. For many decades, the Federal Reserve has been creating new money out of thin air at a steep ratio of 9-to-1 of debt to reserves.
That is, for every new loan from the Federal Reserve to member banks, 90% of each loan is new money created out of thin air.
The member banks receive the loans at low-to-ZERO interest rates, and then try to loan that money to everyone possible at much higher interest rates.
Credit card rates can be as high as 35% (maybe higher in some instances).
As a result, during the past 5 decades, the nation-wide debt has grown from 100% of GDP in year 1956 to almost 500% of GDP today.
So, the problem isn’t only the total federal debt of $23.8 Trillion; it’s also the total $67 Trillion of nation-wide debt.
And that does not even include the looming $62 Trillion unregulated Credit Default Swap/Derivatives bubble, which could easily trigger a financial disaster.

Also, it is a global problem, because many other nations went to funny-money fiat monetary systems about a century ago.
The debt-pyramids have been growing ever since, and as with any pyramid-scheme, they are mathematically doomed to eventual collapse.
The only way out of this mess will require drastic reforms as soon as possible.
There are many things the federal government could be doing to help most Americans (such as stopping these 10 major abuses).
One of those many things needed is the stabilization of the money supply, without creating hyperinflation.
Job creation is part of the solution, but not via a bunch of reckless, haphazard, irresponsible, if not ridiculous pork-barrel spending.
Job creation should very carefully target projects that will produce benefits, efficiency, and long term savings.
It will take time for the debt to unwind, and some of the debt will default (i.e. 9,000-to-10,000 foreclosures per day is unlikely to suddently stop any time soon).

Currently, when the Federal Reserve creates new money as debt at such a steep 9-to-1 ratio of debt-to-reserves, the nation-wide debt-to-savings simply grows ever larger. That is, a large part of our problem is a mathematically doomed monetary system that is a ponzi-scheme that grows debt ever larger. And why should the Federal Reserve (a quasi privately-owned/government-controlled bank) receive interest on money created out of thin air? It must be nice to create money out of thin air, and receive interest on that money too. And with so little in reserves (e.g. 10% or less), what happens when there is a market correction of over 10%? The banks can lower interest rates, so that people will borrow more money, and banks did that. However, as a result, too many banks with too much highly leveraged debt then failed. And too many people with too much debt went bankrupt too. Now, interest rates can get much lower. Even at ZERO interest rates, many are already so deep into debt, that they’re unable to service more debt. And the $62 Trillion Credit Default Swap/Derivatives bubble seriously exacerbates the situation.

At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

Posted by: d.a.n at March 8, 2009 3:27 PM
Comment #277101

d.a.n, debt is tenable. We are making the interest payments on our debt. That makes it tenable, by definition. Our creditors are still investing in our debt. That makes our debt tenable.

To be sure, there is a dollar amount of debt, which in our future will exceed our capacity to sustain and manage without default. And Orzag, Bernanke, Greenspan, Conrad, and many others are absolutely correct that entitlement debts will surely cause us to reach and exceed that dollar amount.

But, like I said, ending this recession must be the first priority, because the revenues to deal with our debt and deficits depend on healthy economic activity. Killing the goose today to prevent killing the goose tomorrow, still leaves one with a dead goose.

The questions I think you should be raising is not whether current debt should preempt rescuing the economy, but 1) will the Federal Reserve and Treasury, be capable of marking the optimum point at which to begin to shrink the money supply in order to mitigate inflation, and 2) will Congress (and the American people) be capable and willing to enter a protracted period of austerity regarding federal spending, to the point of halting deficits altogether after this recession has abated?

Whether or not America can survive its debt depends crucially on the answer to those two questions.

Posted by: David R. Remer at March 8, 2009 3:48 PM
Comment #277102

d.a.n said: “There is no way to create tens of trillions of new money out of thin air without creating hyperinflation.”

We aren’t creating 10’s of trillions of dollars out of thin air at this time. Significant portions of our debt are supported by borrowing, not printing money. It would be helpful to rational discussion if you would research what amount of the current deficit spending is being funded by borrowing vs. increasing the money supply. Then we would have some real data to work with, instead of irrational guesswork intrinsic to such general implied statements such as we are printing 10’s of trillions of dollars out of thin air.

Further, I hope you are not using debt as your basis for the 10’s of trillions, since, the need for the cash to pay down that debt is, by definition, deferred into the future, and therefore, requires no printing of money currently, except in part or whole, to pay the service on the debt.

Posted by: David R. Remer at March 8, 2009 3:58 PM
Comment #277116
David R. Remer wrote: d.a.n, debt is tenable.
No, the total federal and total nation-wide debt are not tenable, as evidenced by the numerous deteriorating economic conditions caused by the massive debt bubble (which took decades to grow to such nightmare proportions).

Besides, how can it be tenable when the federal government has been borrowing and/or printing new money to pay the interest on the federal debt for 52 consecutive years? ! ?

David R. Remer wrote: We are making the interest payments on our debt.
Not really.

Again, the federal government has been borrowing and/or creating new money to pay the interest for 52 consecutive years, which has created 52 consecutive years of incessant inflation. The M3 Money Supply increased from $135 Billion in year 1950 to $10.15 Trillion in year 2005. That’s an increase by a factor of over 75. Yet, we didn’t all become 75 times wealthier did we?

In addition, the Ponzi-scheme run by the Federal Reserve and the federal government (creating money as debt at a steep 9-to-1 ratio of debt-to-reserves), which has created 52 consecutive years of incessant inflation, is also the major reason for the $67 Trillion nation-wide debt ($220,000 per-capita) growing from 100% of GDP in year 1956 to almost 500% of GDP today (GDP = $13.86T in year 2007). It’s a debt pyramid and it is mathematically doomed.
How is that tenable? ! ?

David R. Remer wrote: That makes it tenable, by definition.
No, that does not make it tenable.

52 consecutive years of borrowing to merely pay the interest on the debt is not a reflection of debt that is tenable (to say the least).
$220,000 of total $67 Trillion nation-wide debt per-capita is not tenable.
$36,066 of the $11 Trillion National Debt per-capita is not tenable.
$78,032 of the $24 Trillion total federal debt per-capita is not tenable.
It would take 433 years at only 4.0% to pay off the $67 Trillion nation-wide debt.
If it is tenable, then please provide a payment plan that includes more deficit spending and growing the debt and interest ever larger.

David R. Remer wrote: Our creditors are still investing in our debt. That makes our debt tenable.
No, that does not make it tenable.

Just because other nation’s are foolish enough to throw their money into a black hole doesn’t equate to debt that is tenable.
Besides, the $24 Trillion of total federal debt ($11T National Debt + $12.8T Social Security Debt) is not the nation’s entire debt problem.
The $67 Trillion of total nation-wide debt is every bit as serious as the total federal debt.
BOTH have never been larger ever in size, per-capita, and as a percentage of GDP.

David R. Remer wrote: To be sure, there is a dollar amount of debt, which in our future will exceed our capacity to sustain and manage without default.
What is it? Based on these 20 reasons, it’s clear that the debt is already untenable.
David R. Remer wrote: And Or[s]zag, Bernanke, Greenspan, Conrad, and many others are absolutely correct that entitlement debts will surely cause us to reach and exceed that dollar amount.
We’ve already exceeded the level of tenable debt.

We are simply borrowing and money-printing to fund the deficit spending of the past 52 consecutive years.

David R. Remer wrote: But, like I said, ending this recession must be the first priority, …

True.

But not by growing untenable debt bigger and more untenable.
There are many things that can be done to help most Americans.
The federal government receives $2.4 Trillion per year in federal tax revenues.
The government is severely (www.akdart.com/gov1.html) bloated and wasteful.
Over a Trillion in current unnecessary spending could be eliminated.
Going forward, the government should not have to pay the damn Federal Reserve and banks interest on new loans.
If the government fixed the regressive tax system, it would probably raise more tax revenues too.
The federal government could create jobs for Americans by not continuing to import 1.5 Million H-1B workers per year.
The federal government could save Americans $70-t0-$327 Billion per year (One-Simple-Idea.com/Costs1.htm) by stopping illegal immigration, and enforcing E-Verify.
The federal government could stop these other abuses which would save hundreds of billions (perhaps trillions) dollars and many lives per year.

With the federal government’s current $2.4 Trillion, change the spending as follows:

  • $700 [$600] Billion for Health and Human Services (including $432 Billion for Medicare)

  • $660 [$522] Billion for Social Security

  • $640 [$448] Billion for Department of Defense
  • (leave Iraq; reduce military presence in 132 nations).
  • $100 [$30] Billion for Department of Education

  • $100 [$40] Billion for Department of Agriculture

  • $85 [$100] Billion for Veteran Affairs

  • $75 [$52] Billion for Homeland Security

  • $56 [$10] Billion for Department of Transporation

  • $50 [$10] Billion for Housing and Urban Development (HUD)

  • $60 [$32] Billion for Office of Personnel Management

  • $550 [$550] Billion for Treasury Department (including $430 [$500] Billion for Interest on the National Debt).

  • ____________________________________________________________________
    $3.074 [$2.4] Trillion ($574 [$0] Billion over total revenues of $2.4 [$2.4] Trillion in 2008 [2009])

    That budget is doable.
    Cut spending.
    That makes a hell of a lot more sense!
    OH ,… and rescind Congress’ 10th raise received recently, and their increases of $93,000 per Congress person for petty cash and expenses.
    However, I seriously doubt that will happen.
    It appears quite likely that the U.S. is about to explore the horrors of hyperinflation.

    David R. Remer wrote: But, like I said, ending this recession must be the first priority, because the revenues to deal with our debt and deficits depend on healthy economic activity. Killing the goose today to prevent killing the goose tomorrow, still leaves one with a dead goose.
    There’s no need to kill the goose.

    What is akin to killing the goose is trying to save the economy by destroying it first, by trying to solve massive untenable debt with more debt, borrowing, money-printing, and rampant pork-barrel spending, leading to hyperinflatioin which destroys the currency, all savings, pensions, 401Ks, entitlements, and wages.

    David R. Remer wrote: The questions I think you should be raising is not whether current debt should preempt rescuing the economy, but (1) will the Federal Reserve and Treasury, be capable of marking the optimum point at which to begin to shrink the money supply in order to mitigate inflation, …
    No. Again, it won’t possible to shrink the money-supply by the time hyperinflation is detected, because:
    • (a) the massive spending and money-printing that preceded inflation can not be undone by merely manipulating interest rates (the cheif tool used by the Federal Reserve)
    • (b) the money supply can not be reduced if 90%-to-95% of all U.S. dollars in existence in the U.S. exists as debt.
    • (c) and 90% of new money for every new loan is created as debt?
    • (d) and even if the the federal government and Federal Reserve could accurately time the moment to reduce money-supply, neither have demonstrated the competence to know when that moment will be. That sort of competence probably won’t come about until after major reforms to the Federal Reserve and federal governemnt. Besides, it will be too late to stop hyperinflation, because capital can not be created out of thin air, and the massive $67 Trillion nation-wide debt can not be reduced quickly without causing hyperinflation.
    David R. Remer wrote: (2) will Congress (and the American people) be capable and willing to enter a protracted period of austerity regarding federal spending, to the point of halting deficits altogether after this recession has abated?
    Yes. Whether it be sooner than later (the wiser, less painful path), or later than sooner (the most probable and more painful path) when enough voters are feeling enough pain and misery (of their own making) to provide sufficient motivation to stop the abuses and corruption. Most likely, the level of moral and fiscal responsibility will be preceded by a Great Depression caused by hyperinflation which destroys the currency and therefore destroys all savings, pensions, 401Ks, entitlements, and wages.
    David R. Remer wrote: Whether or not America can survive its debt depends crucially on the answer to those two questions.
    On No. One Yes. Not very promising. Especially when so many people believe that solution to a massive debt-bubble is to grow it bigger, and believe that they can control hyperinflation (a mistake dozens of other nations have already discovered the hard way).
    David R. Remer wrote:
    • d.a.n said: “There is no way to create tens of trillions of new money out of thin air without creating hyperinflation.”
    We aren’t creating 10’s of trillions of dollars out of thin air at this time.
    Not true.

    The federal reserve could not have possibly had all of this $3.2-to-$8.5 Trillion available for:

    • (1) Wall Street Rescue (one-simple-idea.com/$8.5TrillionBailout.gif , www.latimes.com/news/printedition/front/la-113008-fi-pricetag-g,0,5292528.graphic )

    • (2) the $750 Billion Bail-out BILL in late 2008.

    • (3) the $787 Billion Stimulus passed 17-FEB-2009.

    • (4) the $410 Billion more for the rest of fiscal year 2009.

    • (5) the $1.0 Trillion deficit for 2008.

    • (6) the $1.7 Trillion deficit for 2009.

    That adds up to $7.85-to-$13.2 Trillion (in less than 12 months).
    And the Federal Reserve isn’t open and transparent where a lot of that money went either.

    However, some of that is borrowing (i.e. the spending by the federal government).

    Significant money-printing has already been reported in the news by many stations.
    In addition to that, the money-printing has been occurring on a massive scale for many decades:

  • The M3 Money Supply in year 1950 was $135 Billion.

  • The M3 Money Supply in year 2005 was $10.15 Trillion.

  • The M3 Money Supply increased by a factor of 75.

  • No wonder we’ve had incessant inflation for 52 consecutive years.

    One-Simple-Idea.com/M3MoneySupply.htm

  • YEAR MONTH M3_MONEY ___ CHANGE (values are in Billions):

  • 1950 12 __ $135.00 ____ $?.??

  • 1959 12 __ $299.70 ____ $299.70

  • 1960 12 __ $315.20 ____ $15.50

  • 1961 12 __ $340.80 ____ $25.60

  • 1962 12 __ $371.30 ____ $30.50

  • 1963 12 __ $405.90 ____ $34.60

  • 1964 12 __ $442.40 ____ $36.50

  • 1965 12 __ $482.10 ____ $39.70

  • 1966 12 __ $505.40 ____ $23.30

  • 1967 12 __ $557.90 ____ $52.50

  • 1968 12 __ $607.20 ____ $49.30

  • 1969 12 __ $615.90 ____ $8.70

  • 1970 12 __ $677.10 ____ $61.20

  • 1971 12 __ $776.00 ____ $98.90

  • 1972 12 __ $885.90 ____ $109.90

  • 1973 12 __ $985.00 ____ $99.10

  • 1974 12 __ $1,069.90 __ $84.90

  • 1975 12 __ $1,170.20 __ $100.30

  • 1976 12 __ $1,309.90 __ $139.70

  • 1977 12 __ $1,470.40 __ $160.50

  • 1978 12 __ $1,644.50 __ $174.10

  • 1979 12 __ $1,808.70 __ $164.20

  • 1980 12 __ $1,995.50 __ $186.80

  • 1981 12 __ $2,254.50 __ $259.00

  • 1982 12 __ $2,460.60 __ $206.10

  • 1983 12 __ $2,697.40 __ $236.80

  • 1984 12 __ $2,990.60 __ $293.20

  • 1985 12 __ $3,208.10 __ $217.50

  • 1986 12 __ $3,499.10 __ $291.00

  • 1987 12 __ $3,686.50 __ $187.40

  • 1988 12 __ $3,928.80 __ $242.30

  • 1989 12 __ $4,077.10 __ $148.30

  • 1990 12 __ $4,154.70 __ $77.60

  • 1991 12 __ $4,210.30 __ $55.60

  • 1992 12 __ $4,222.60 __ $12.30

  • 1993 12 __ $4,285.60 __ $63.00

  • 1994 12 __ $4,369.80 __ $84.20

  • 1995 12 __ $4,636.30 __ $266.50

  • 1996 12 __ $4,985.50 __ $349.20

  • 1997 12 __ $5,460.90 __ $475.40

  • 1998 12 __ $6,051.90 __ $591.00

  • 1999 12 __ $6,551.50 __ $499.60

  • 2000 12 __ $7,117.60 __ $566.10

  • 2001 12 __ $8,035.40 __ $917.80

  • 2002 12 __ $8,568.00 __ $532.60

  • 2003 12 __ $8,872.30 __ $304.30

  • 2004 12 __ $9,433.00 __ $560.70

  • 2005 12 __ $10,154.00 _ $721.00

  • 2006 01 __ $10,242.80 _ $88.80 (JAN-2006)

  • 2006 02 __ $10,298.70 _ $55.90 (FEB-2006)

  • 2007 12 __ $??,???.?? _ $???.??

  • 2008 12 __ $??,???.?? _ $???.??

  • 2009 12 __ $??,???.?? _ $???.??

  • Source: en.wikipedia.org/wiki/File:Currency_component_of_the_US_money_supply_1959-2007.gif
    It will be interesting when the 2008 and 2009 data is available.

    David R. Remer wrote: Significant portions of our debt are supported by borrowing, not printing money.
    It’s BOTH. In the last 12 months, more money has been created out of thin air to prop-up bad banks, than money borrowed by the federal government.

    Both cause inflation, when the interest on borrowed money is perpetually paid by more borrowing.

    David R. Remer wrote: It would be helpful to rational discussion if you would research what amount of the current deficit spending is being funded by borrowing vs. increasing the money supply.
    Me?

    I have (some). See above.
    If you’d like to see more M1, M2, and M3 Money Supply data, go here: www.ShadowStats.com/alternate_data
    And here: en.wikipedia.org/wiki/Money_supply

    David R. Remer wrote: Then we would have some real data to work with, instead of irrational guesswork intrinsic to such general implied statements such as we are printing 10’s of trillions of dollars out of thin air.
    It’s not hard to account for $7.85-to-$13.2 Trillion in the last 12 months of borrowing and money-printing (combined). So, when I said tens, it was at least about one “tens” of trillions. But I suspect by the end of next year, we’ll be lookin’ at several “tens” of trillions. Why? Because Congress and the administration appear to have decided that the solution to massive debt is more debt and spending. It’s Also not hard to account for many hundreds of billions (up to almost a Trillion) per year for many years. There’s no other way to explain an increase in the M3 Money Supply by a factor of 75 between years 1950 and 2005.
    David R. Remer wrote: Further, I hope you are not using debt as your basis for the 10’s of trillions, since, the need for the cash to pay down that debt is, by definition, deferred into the future, and therefore, requires no printing of money currently, except in part or whole, to pay the service on the debt.
    No.

    Future debt is not current debt.
    Money created out of thin air does not create a debt.
    Current nation-wide debt = $67 Trillion (One-Simple-Idea.com/DebtAndMoney.htm)
    Current National Debt = $11 Trillion (One-Simple-Idea.com/Abuses.htm)
    Current Social Security Debt = $12.8 Trillion (www.socialsecurity.org/reformandyou/faqs.html#2)
    Future debt (unfunded liabilities) is not current debt.
    Future debt (unfunded liabilities) for Social Security and Medicare are many tens of trillions ($50-to-$60 Trillion).

    At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

    Posted by: d.a.n at March 8, 2009 7:49 PM
    Comment #277164

    d.a.n said: “No, the total federal and total nation-wide debt are not tenable, as evidenced by the numerous deteriorating economic conditions caused by the massive debt bubble (which took decades to grow to such nightmare proportions). “

    Well, again, you appear to be arguing from a conclusion without a basis in fact. The dollar remains strong on the international markets, which continues to make U.S. treasuries highly desirable by foreign investors, and low interest cost to the U.S., which in turn makes our debt tenable by definition.

    You can argue otheriwse, but, these facts remain the reality for the present. If you want to argue that at some time in the future, our debt will become untenable, I am can agree with that assessment using a host of empirical data to support such a projection of potential.

    But to argue that our current debt is untenable is demonstrably a false argument by every definition of undefaulted debt.

    Posted by: David R. Remer at March 9, 2009 12:50 PM
    Comment #277166

    d.a.n said: “Besides, how can it be tenable when the federal government has been borrowing and/or printing new money to pay the interest on the federal debt for 52 consecutive years? ! ?”

    Illogical, as the federal government’s revenues far exceed the interest on the national debt. And as everyone knows, when it comes to budgeting, interest on debt is the highest budgeting priority in terms of remaining solvent.

    Posted by: David R. Remer at March 9, 2009 12:53 PM
    Comment #277168

    d.a.n said: “It’s not hard to account for $7.85-to-$13.2 Trillion in the last 12 months of borrowing and money-printing (combined). So, when I said tens, it was at least about one “tens” of trillions.”

    It appears obvious that you are not researching your data in this regard, d.a.n. In the last 12 months, the national debt only rose by a bit over 2 trillion dollars. Which represents the total of borrowing and printing money above the point of equality of revenues and spending.

    Posted by: David R. Remer at March 9, 2009 12:58 PM
    Comment #277188
    David R. Remer wrote:
    • d.a.n said: “No, the total federal and total nation-wide debt are not tenable, as evidenced by the numerous deteriorating economic conditions caused by the massive debt bubble (which took decades to grow to such nightmare proportions). “
    Well, again, you appear to be arguing from a conclusion without a basis in fact.
    False.
    • If the debt is tenable, why do we have 9,000-to-10,000 foreclosures per day?
    • If the debt is tenable, why is unemployment at a 25 year high (8.1%; 12-to-28 Million unemployed)?
    • If the debt is tenable, why are there record bankruptcies?
    • If the debt is tenable, why are the banks scared $#!+l@ss about the $62 Trillion Credit Default Swap/Derivatives bubble?
    • If the debt is tenable, why has the federal government been deficit spending for 52 consecutive years?
    • If the debt is tenable, why has the federal government borrowed and spent $12.8 Trillion for Social Security, leaving it pay-as-you-go, with a 78 Million baby-boomer bubble approaching?
    • If the debt is tenable, why is the U.S. swimming in $67 Trillion ($220,000 per0-capita) of nation-wide debt?
    • If the debt is tenable, why is the U.S. dollar much lower today against most major currencies than it was 7 years ago (source: One-Simple-Idea.com/USD_Falling.htm)?
    • If the debt is tenable, why does 90%-to-95% of all U.S. dollars in existence in the U.S. exist as debt?
    • If the debt is tenable, why is inflation a concern?
    • If the debt is tenable, why is year-to-year inflation still rising (2002=1.59%, 2003=2.27%, 2004=2.68%, 2005=3.39%, 2006=3.24%, 2007=2.85%, 2008=3.85%, 2009=??.??)?
    • If the debt is tenable, why is the $60 Trillion of unfunded liabilities for Social Security and Medicare a concern?
    • If the debt is tenable, why have we had 52 consecutive years of incessant inflaton?
    • If the debt is tenable, why is a 1950 Dollar now worth only 10 cents ?
    • If the debt is tenable, why aren’t people spending? Maybe it’s largely because they are tapped out and already deep into debt, eh?
    • If the debt is tenable, why is the current $11 Trillion National Debt the largest National Debt ever in size, and per-capita?
    • If the debt is tenable, where will the money come from to merely pay the interest ($2.7 Trillion per year at only 4.0% on $67 Trillion) on so much debt, when that money does not exist?
    • If the debt is tenable, and inflation is not a concern, why not create more money out of thin air?
    • If the debt is tenable, why can’t anyone provide a explanation for excerpt from some economic model that justifies trying to solve massive debt with more debt, money-printing, and spending?
    • If the debt is tenable, why are 10 more years of deficit spending being predicted?
    • If the debt is tenable, why did the Federal Reserve have to pump $3.2-to-$8.5 Trillon into the banks and corporations?
    • If the debt is tenable, why was it necessary to save GM, Ford, and Chysler?
    • If the debt is tenable, why was it necessary to save AIG over and over ?
    • If the debt is tenable, why did Ben Bennake and Henry Paulson appear before Congress to beg for emergency funds?
    • If the debt is tenable, why was a $750 Billion Rescue BILL necessary in late 2008?
    • If the debt is tenable, why was a $787 Billion Stimulus Bill necessary in Feb-2009?
    • If the debt is tenable, why are Americans liquidating, evidenced by foreign-owned assets which have almost quadrupled from $6 Trillion in year 1997 to $22 Trillion in year 2007?
    • If the debt is tenable, how do you explain all of the above?
    David R. Remer wrote: The dollar remains strong on the international markets, which continues to make U.S. treasuries highly desirable by foreign investors, and low interest cost to the U.S., which in turn makes our debt tenable by definition.
    Strong?

    That depends on your definition of strong.
    Here’s the obvious proof that the U.S. Dollar has fallen significantly compared to many major international currencies for many years.
    What’s strong about that?

    And don’t forget, those other currencies have inflation too.

    However, recently, some foreign currencies have become very unstable.
    And guess who is largely responsible for that?
    Which country bundled-up trillions of dollars of toxic debt, rated it as AAA securities, and then fraudulently peddled it to the rest of the world.
    If it weren’t for that, those other nations and their currencies would not have been impacted so negatively.
    Still, even then, the U.S. dollar is significanlty lower against most major international currencies than it was 10 years ago (as evidenced by these charts: One-Simple-Idea.com/USD_Falling.htm).

    David R. Remer wrote: You can argue otheriwse, but, these facts remain the reality for the present.
    I just provided the proof (One-Simple-Idea.com/USD_Falling.htm). Feel free anytime to disprove the historical exchange rates (One-Simple-Idea.com/USD_Falling.htm).
    David R. Remer wrote: If you want to argue that at some time in the future, our debt will become untenable, I am can agree with that assessment using a host of empirical data to support such a projection of potential.
    I just provided 20 reasons why the debt is untenable. The current economic crisis is part of the evidence of that very fact.
    David R. Remer wrote: But to argue that our current debt is untenable is demonstrably a false argument by every definition of undefaulted debt.
    Not true. See questions above.

    Also, I just provided 20 reasons why the debt is untenable.
    Again, the current economic crisis is part of the evidence of the fact that the debt is untenable.

    David R. Remer wrote:
    • d.a.n said: “Besides, how can it be tenable when the federal government has been borrowing and/or printing new money to pay the interest on the federal debt for 52 consecutive years? ! ?”
    Illogical, as the federal government’s revenues far exceed the interest on the national debt. And as everyone knows, when it comes to budgeting, interest on debt is the highest budgeting priority in terms of remaining solvent.
    No. It’s not illogical at all.

    First of all, the federal government’s total revenues in year 2007 were about $2.4 Trillion, a number I’ve posted many times.
    The interest on the debt in year 2007 was about $432 Billion (or 18% of total revenues).

    Second, it is a factual statement that the federal government “has been borrowing and/or printing new money to pay the interest on the federal debt for 52 consecutive years”. The money-printing is evidenced by the M3 Money Supply which grew from $135 Billion in year 1950 to $10.15 TRillion by year 2006 (an increase by a factor of 75).
    Also, in that time (for 52 consecutive years), the National Debt has also grown ever larger, until the National Debt per-capita is has never been larger.

    The debt is out-of-control.
    Hence, based on that (and the other 20 reasons provided), the debt is untenable.
    Some may disagree, but they’ll dig themselves a very deep hole trying to refute it.

    Third, this current economic crisis is the result of massive, untenable debt, because IF it were tenable, we would not be having an economic crisis now, would we?

    Remember what caused this crisis? Massive defaulting mortages (i.e. “untenable debt”).
    How is 9,000-to-10,000 foreclosures per day tenable debt?

    Untenable debt is obvious and completely justified by these 20 reasons: One-Simple-Idea.com/DebtUntenable1.htm

    When someone can explain-away those 20 reasons or answer those questions above (as to why the debt is untenable), and explain why the current crisis is not due to a massive, untenable debt-problem, and explain why $67 Trillion of nation-wide debt is not untenable, then they may have a case.

    Until then, saying the debt is untenable is very sound logic.

    Calling this crisis a “credit crisis” is nonsense too.
    How do you get people to borrow more money when they are already deep into debt ($67 Trillion nation-wide debt = $220,00 per-capita).
    If that’s not untenable debt, what is?
    If 9,000-to-10,000 foreclosures per day is not untenable debt, causing a world-wide crisis, what is?
    If $220,000 per-capita is not untenable, what is?
    Especially when a LOT of debt has yet to default, but most certainly will.
    If 180 Years (at only 4.0% interest) to merely pay down the $11 Trillion National Debt (only part of all federal debt) is not untebable, what is?
    If 433 Years (at only 4.0% interest) to pay down the $67 Trillion National Debt is not untebable, what is?
    If in addition to all of that, $60+ Trillion of future debt for unfunded Social Security and Medicare liabiliites is not untenable, what is?
    And if things weren’t bad enough, with a $62 Trillion Credit Default Swap/Derivatives bubble looming, that could cause massive global defaults, how can anyone say the debt is not untenable?
    What’s it going to take before people start taking the debt seriously?
    Hyperinfation, and a complete melt-down that destroys the currency, all savings, pensions, 401Ks, entitlements, and wages; essentially resulting in complete and total default on all debt?

    David R. Remer wrote:
    • d.a.n said: “It’s not hard to account for $7.85-to-$13.2 Trillion in the last 12 months of borrowing and money-printing (combined). So, when I said tens, it was at least about one “tens” of trillions.”
    It appears obvious that you are not researching your data in this regard, d.a.n.
    False again.

    There is borrowing and their is money-printing.
    The two are different.
    Yet, your comment that follows below attempts to obfuscate the difference by only focusing on that $11 Trillion National Debt alone …

    David R. Remer wrote: In the last 12 months, the national debt only rose by a bit over 2 trillion dollars.

    True, the federal National Debt grew about $2 Trillion.

    No one said it hadn’t.
    However, the $11 Trillion National Debt is not all federal debt, and it doesn’t include money created out of thin air by the Federal Reserve, and it doesn’t include Social Security debt, and it doesn’t address the huge non-federal debt problem either:

    • (1) This $3.2 of $8.5 Trillion (source: www.latimes.com/news/printedition/front/la-113008-fi-pricetag-g,0,5292528.graphic) used to prop-up bad banks and corporations is money created out of thin air. That money did not already exist prior to SEP-2008. The Federal Reserve also refuses to provide a transparent accounting of that money.

    • (2) The total federal debt is larger than the $11 Trillion National Debt. The federal government borrowed and spent $12.8 Trillion (source: www.socialsecurity.org/reformandyou/faqs.html#2) from the Social Security system, leaving it pay-as-you-go, with a 78 Million baby-boomer bubble approaching. And the is no Social Security surplus (only I.O.U.s / obligations the federal govnerment still owes). Adding that $12.8 Trillion to the $11 Trillion National Debt, the total federal debt is actually $23.8 Trillion, which has never been larger ever in size, per-capita, and as a percentage of GDP. The $11 Trillion National Debt alone has never been larger in size, or per-capita.

    • (3) I was also addressing the total $67 Trillion nation-wide Debt (e.g. which includes the $12.8 Trillion borrowed from Social Security). Excluding that $12.8 Trillion, the nation-wide debt is $54 Trillion, a number which you have also previously wrote about and referenced (mwhodges.home.att.net/) in one of your own articles.

    David R. Remer wrote: Which represents the total of borrowing and printing money above the point of equality of revenues and spending.
    False.

    The Federal Reserve prints money out of thin air, and not all of it becomes fedeal debt.
    Where do you think that $3.2-to-$8.5 Trillion came from to prop-up the bad banks and corporations?

    Total current federal debt is a separate issue.
    Total current federal debt is $11 Trillion National Debt + $12.8 Trillion borrowed from Social Security.
    Some try to call the $12.8 Trillion borrowed from Social Security a future debt, but it is really current debt.
    That $12.8 Trillion was already borrowed and spent from Social Security (at about the worst time possible).

    • Private domestic financial sector debt=$15.8 Trillion;
    • Household debt= $13.88 Trillion;
    • Business debt=$10.16 Trillion;
    • Federal government National Debt = $11 Trillion
    • State and local government debt = $2.2 Trillion;
    • Other private sector foreign debt = $1.8 Trillion;
    • _______________________________________________________
    • Total nation-wide debt = $54 Trillion (and that does not even include the $12.8 Trillion borrowed and spent from Social Security, leaving it pay-as-you-go, with a 78 million baby boomer bubble approaching);
    • If the $12.8 Trillion borrowed and spent from Social Security is included:
      • Total nation-wide debt = $67 Trillion = $54 Trillion + $12.8 Trillion = 4.83 times the nation’s $13.86 Trillion GDP (year 2007) !
      • Total federal debt is = $23.8 Trillion = $11 Trillion + $12.8 Trillion = 1.72 times the nation’s $13.86 Trillion GDP (year 2007) !

    So, what part of any of that do you disagree with?
    Where exactly (which sentence(s) exactly) are not factual?
    Why the sudden propensity to want to want to paint a rosier-than-reality picture lately?
    Very odd.

    At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

    Posted by: d.a.n at March 9, 2009 2:55 PM
    Comment #277281

    BOING!

    I think we just bounced off the bottom. While I fully expect further retractions, the likely possibility of more moneys to be spent on bailouts and stimulus, I think this is the signal that the bear is dead.

    Posted by: gergle at March 10, 2009 11:22 AM
    Comment #277288

    Not likely.
    This crisis is a massive debt-bubble, and it not only still exists, but is still growing.

    At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

    Posted by: d.a.n at March 10, 2009 12:19 PM
    Comment #277291

    Perhaps not, but I predicted a DOW bottom of 5 to 6000. We got down to about 6500. Just looking at the charts that squeeze’s out most of Wall street’s bubble. This may well be a simple short selling cover, but it shows that short sellers are worried.

    I think we are approaching a bottom.

    The government debt bubble is another issue…longer term.

    Posted by: gergle at March 10, 2009 1:07 PM
    Comment #277304

    The DOW could still go below 6000.

    The stock market is not a great barometer.

    I think this increase today is mere volatility.
    I’m not jumpin’ into the market, and many big investors are still on the sidelines.

    The goverment debt bubble is only part of the story.
    Total federal debt is over $24 Trillion.
    Total non-federal debt is over $43 Trillion.
    Total nation-wide debt is %67 Trillion.
    That’s $220,000 per-capita.
    That much debt is most likely untenable (or very close to untenable).
    There is still a massive nation-wide debt bubble, and trying to solve it with more debt, borrowing, money-printing, and spending doesn’t make much sense.

    At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

    Posted by: d.a.n at March 10, 2009 1:48 PM
    Comment #277315

    Me neither, d.a.n.,

    But I’m watching closely. I think David was a bit early, but I think we’re beginning to see capitulation and some evidence it’s not as dark as it seemed a month ago. Unemployment will continue to rise, it’s a lagging indicator. GNP growth is still 6 months off.

    Posted by: gergle at March 10, 2009 4:48 PM
    Comment #277316

    BTW, I always dollar cost average in, anyway. You can’t hit peaks and valleys on the nose.

    Posted by: gergle at March 10, 2009 4:49 PM
    Comment #277321

    An interesting graph located here:

    http://seekingalpha.com/article/125072-debt-loads-of-g20-nations-japan-u-s-deep-in-the-hole

    Posted by: gergle at March 10, 2009 5:49 PM
    Comment #277352

    That graph is interesting.

    However, it only shows government debt relative to GDP, and the current $11 Trillion U.S. National Debt is not really the total U.S. federal debt, since it doesn’t include the $12.8 Trillion borrowed from Social Security, leaving it pay-as-you-go, with a 78 Million baby-boomer bubble approaching (i.e. at about the worst time possible).

    Also, the U.S. is the biggest debtor on the planet with the largest debt-per-capita ($220,000 per capita = $67 Trillion [nation-wide debt] / [305 Million U.S. population] ).

    Therefore, the United States’ problem is not only federal debt, but the combined total federal and total non-federal debt, and a lot of it is toxic debt. The combined debt is over $67 Trillion.

    Also, Debt as a percentage of GDP doesn’t tell the whole story either.

    For example, the highest U.S. National Debt per GDP was 116% in year 1945 after World War II. So, the U.S. National Debt per-capita in year 1945 was $21,719 in 2008 dollars.

    However, today, the $11 Trillion U.S. National debt per-capita is $36,066 , which is 66% higher than the previous record-high in year 1945.

    Including the $12.8 Trillion borrowed from Social Security, the total federal debt is $23.8 Trillion, which is $78,032 per-capita.

    Japan’s Debt-to-GDP appears worse on that chart, but Japan has a government debt of $7.1 Trillion, and a population of 128 Million.

    Therefore, Japan’s government debt per-capita is $55,469 , which is less than the United States’ current total federal debt per-capita of $78,032.

    And the total U.S. nation-wide debt per-capita is $220,000 , which is truly ridiculous, making the U.S. the worlds’ biggest debtor nation, and most likely the worst nation-wide debt per-capita of any developed nation.

    These things are rarely (if ever) reported in the news, because those in government, and those on Wall Street don’t want you to know these things.
    Also, a lot of economic statistics are not being reported accurately and honestly.
    It wasn’t hard to show GDP had actually been falling since year 2007, yet it took a whole year before the federal government and Federal Reserve admitted it.
    The federal government’s and Federal Reserve’s unemployment, GDP, inflation, and debt statistics raise a lot of questions.

    Another obvious problem which few (if any) want to talk about is the glaring mathematical flaw in the fiat monetary systems most nations adopted about a century ago. Since that time, debt has grown, and grown, and grown. That is a characteristic of any doomed pyramid-scheme. Most of these monetary systems were abused, such that reserves were steeply leveraged to create money for loans, for the purpose of earning interest. That is, greed (as usual) is at the root of the problem. As a result, the Federal Reserve has been creating money out of thin air at a very steep 9-to-1 ration of debt-to-reserves. That is, 90% of every new loan is new money created out of thin air. As a result of that, 90%-to-95% of all U.S. dollars in existence in the U.S. exists as debt. When there was a market correction (e.g. mortgages), 10% (or less) in reserves was not nearly enough to weather the storm. And the large-scale fraud (i.e. giving toxic debt AAA ratings) exacerbated the problem.

    Therefore, the total federal, total non-federal, and total nation-wide debt problem still exists.
    So, celebration is premature.
    Some upward volatility in the market may occur, but the fundamentals are still threatened by massive nation-wide debt of nightmare proportions.

    At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

    Posted by: d.a.n at March 10, 2009 11:56 PM
    Comment #277354

    And that doesn’t even include the looming $62 Trillion Credit Default Swap/Derivatives bubble in the U.S. (part of a global $455 Trillion CDS bubble), or the $60+ Trillion future debt (unfunded liabilities) for Social Security and Medicare.

    At any rate, the voters have the government that the voters elect (and re-elect, and re-elect, and re-elect , … , at least until that finally becomes too painful).

    Posted by: d.a.n at March 11, 2009 12:08 AM
    Comment #279268

    Hey the reset graphs are interesting but their effect may be overstated in your mind since many of the sub prime mortages I would think are concentrated in Southern Suburban California area, Florida, Las Vegas where the foreclosures are festering and hence foreclosures will wipe these loans off the books prior to resetting. Sure you have the interrelated effects of financial hedge bets but anyway that is that.

    Posted by: bazooka joe at March 30, 2009 11:03 PM
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