I graduated from Morehouse College with a degree in mathematics in 1967. Back then, we didnt use fancy calculators to solve problems. Instead, we utilized formulas to solve for x.
Ah. Ignorance is no excuse then.
Fine: Solve for "X"; here is the problem.
The United States Economy. If one deducts from GDP debt taken for other than non-residential investment, from 1953 to 1983 the average annualized growth rate was 5.29%. That's good.
From 1983 to 2009 the average annualized growth rate was -4.89%. That is very bad.
Under these metrics George HW Bush had a GDP growth rate of 0.33% during his entire Presidency, Clinton -1.1% and George W. Bush a whopping -11.5%, all annualized.
You will note that this is not a partisan problem. It is graphically represented here:
Notice that despite interventions and alleged "deregulation" over that period of time net investment has always hovered around 10% of GDP. Claims that various Presidents have made about "dramatically" improving the business environment are a lie, as such changes always show up in the form of net investment into the economy. Despite such actions and claims, no such major change has taken place; .
In the "aughts" this idiocy produced a debt orgy unlike anything in modern history. It is graphically shown here:
I argue that it is not possible for our economy to heal until the excess shown in the above chart is removed. It can only be removed two ways: Pay it down or default it.
In the case of the Federal Government there is only one rational choice: Pay it down. That's because a default is constitutionally impermissible. But paying it down requires you remove this much from Federal Spending or you increase taxes by this much each and every year:
Note that for the last three years this has been in excess of $1,500 billion annually.
In the private sector, on the other hand, we have protected firms that have engaged in arguably illegal conduct (and without argument conduct that they should face the consequences of) for the last three years. Banks and other financial institutions have been and are, right now, "cooking their books" so as to avoid recognizing insolvency. They are foreclosing on people and then bidding the mortgage value at auctions so as to avoid recognizing that the property they hold has an embedded loss of more than 50%, which on a sale they would have to recognize. This is an active and intentional act of deception.
If you wish to be a serious candidate for President you must explain how you will "solve for X" in this instance. Canards about how we "grow our way out" are lies; they are not acceptable. The reason for that rejection out of hand is that for the last thirty years this has been the canard, and yet the evidence is clear and convincing - no such growth has taken place. Instead we have piled debt upon debt and leverage upon leverage to hide our collective insolvencies. Further attempts to run this lie will be rejected by any thinking American out of hand.
Therefore, I challenge you Mr. Cain: If you wish to be President, explain your solution to "X" - the fact that on a systemic basis we have put forward false growth numbers through debt leverage, and in 2007 the decision was taken to transfer that false leverage accreation to government. Since this cannot continue on an indefinite forward basis, explain your solution.
There are many challenges facing our nation today, but none is more important than our economy. You claim to have a mathematics degree and thus must understand the fundamental nature of exponential functions. You therefore have no excuse for platitudes or half-statements, and it is entirely fair to expect you to be able to expound on these matters, even today.
I challenge you Mr. Cain, if you are to be taken seriously as a candidate for President: Let's have your solution.
Where We Are, Where We're Heading (2013) - The annual 2013 Ticker
The content on this site is provided without any warranty, express or implied. All opinions expressed on this site are those of the author and may contain errors or omissions.
NO MATERIAL HERE CONSTITUTES "INVESTMENT ADVICE" NOR IS IT A RECOMMENDATION TO BUY OR SELL ANY FINANCIAL INSTRUMENT, INCLUDING BUT NOT LIMITED TO STOCKS, OPTIONS, BONDS OR FUTURES.
The author may have a position in any company or security mentioned herein. Actions you undertake as a consequence of any analysis, opinion or advertisement on this site are your sole responsibility.
Looking for "The Best of Market Ticker"? Check out Ticker Classics.
Market charts, when present, used with permission of TD Ameritrade/ThinkOrSwim Inc. Neither TD Ameritrade or ThinkOrSwim have reviewed, approved or disapproved any content herein.
The Market Ticker content may be reproduced or excerpted online for non-commercial purposes provided full attribution is given and the original article source is linked to. Please contact Karl Denninger for reprint permission in other media or for commercial use.
Submissions or tips on matters of economic or political interest may be sent "over the transom" to The Editor at any time. To be considered for publication your submission must include full and correct contact information and be related to an economic or political matter of the day. All submissions become the property of The Market Ticker.