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2018-05-30 07:00 by Karl Denninger
in International , 707 references
[Comments enabled]  

Well well, debt does make a difference?

Italy, for those who have memories longer than it takes to drink a beer, has a horrid debt problem.  Of course nobody seems to care about this anywhere -- right up until it threatens to all go to Hell.

Nobody, in particular, cares when voting for such policies.

Nor when implementing such policies.

Nor when basking in the false prosperity such policies appear to bring.

A reminder -- the reason governments do this rests right here:

 

The "belly" of that curve, where the gap between output and debt widens, is why every government and industry does this.  But the outcome of these policies is inevitable and obvious to anyone who understands basic arithmetic.

In every single case this economic path leads to destruction -- every single time.

It cannot be avoid because arithmetic is not subject to political will; they are called mathematical laws for a reason.

It is a certainty that when any political subdivision no matter whether it's a city, county, state or nation undertakes such a policy the outcome will be the destruction of the economy, the currency or the political system itself, with the latter often coming with violence.

It cannot be otherwise because such a policy inevitably attempts to pay more in interest than is generated by the economy as a whole, which is obviously impossible.  There is no other outcome possible from such a path because the laws of mathematics describe what will ensue if this policy is followed.  The only option is to abandon it before the two lines cross which means adopting severe and long-lasting fiscal austerity (of at least as long as the original policy was in place!) or, to the extent that the funds spent in this fashion were stolen, confiscation of them from the thieves which, since those people have usually embedded themselves politically, in business or both typically means destruction of the economy or even civil war.

To believe the ECB can change mathematics is to believe in faeries -- or unicorns.  Neither exists.

The markets have, for the last decade, believed in said unicorns.

Guess what -- they're Rhinos, they're horny, and they think you're pretty.

PS: If you think Italy is a crapshow don't look at the projection forward for US debt over the next 10 or so years... which Trump, I might remind you, has made materially worse in his first year in office.  Oh, and he's done it on purpose with the full consent of Congress.

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