The Idiocy Of The Media, Fed And Government

Let's cut the crap here and now and talk macro economics and debt.

I'm going to go back to this chart again:

This shows total non-government debt going from 150% of GDP (approximately) in 1981 to 350% of GDP (approximately) last year.

In 1981 GDP was $3.128 trillion, so the total amount of debt in the system (non-government again) was approximately $4.5 trillion.

In the last year GDP was $14.264 trillion, so total debt in the system was approximately $50 trillion.

This is an increase in the outstanding (not taken and paid-off) debt of roughly $45 trillion dollars.

In the same period of time the aggregate gross output (GDP added over all years) was approximately $218 trillion dollars.  That is, if you sum the GDP of all years in the dollars of the day (not constant dollars) from 1981 to the present, you get about $218 trillion.

The growth in debt outstanding is therefore responsible for pulling forward demand - that is, increasing GDP - by about 21%.

That is on average in each year since 1981 the addition to the current debt incurred by private parties (again, not including the government!) has resulted in GDP being 20% higher than it would have otherwise been over the entire 30 year period.

The parabolic nature of the above graph however makes clear that at the start of the period the "pulled forward" amount of demand was smaller than 20%, and as such it is clear that the "contribution" now is greater than 20%.

But since we live in the here and now, and it is only fair to bias our discussion in the direction of not facing the apocalypse, we will use the 20% figure.

This recession began due to the impossibility of consumers and businesses paying their debt down.  Remember - the recession did not start with job losses and a business slowdown - it began with people defaulting on mortgages and credit cards, and businesses defaulting on lines of credit.  That in turn led to a business slowdown which then fed back and caused even more defaults.

Bernanke and everyone else knows this.

They know that we cannot "stuff" the debt channel any more, because we are up against the wall where people cannot pay.

This means that GDP must contract until equilibrium is restored, which is likely to be significantly more than 20%, because (1) we've intentionally understated the recent-year impact of this "pulled-forward" demand and (2) as the economy contracts and people are laid off this results in a spiral of less spending, which then feeds back to even more business contraction.

The total de-leveraging of debt by the consumer so far, since January 09 (which was the top in consumer credit outstanding) has totaled three percent - or about 10-15% of the total amount that is required to restore balance just in the consumer lending space.

You have not and will not see this reported in the mainstream media or discussed by Ben Bernanke, but it is in fact the crux of the problem - the only way "out of the box" is to try to ramp lending somewhere so as to create yet more debt to maintain final aggregate demand.  The amount of debt required to do so has gone parabolic and cannot be paid down privately; ergo, the attempt to shift it all to the government via the alphabet soup programs. 

This is doomed to fail despite any transient appearances of success as the amount of debt required to maintain the pulled-forward demand is now growing exponentially.

Yet there are only two choices: Face this reality, default the debt and accept a 20% or larger GDP contraction, or keep trying to stuff the federal government (since the private sector has hit the wall and cannot absorb any more credit) and when THAT blows up we lose our government and political system.

The math is irrefutable and Bernanke is fully aware of it, as are the wonks in Wahington DC. 

They simply don't care about the truth and neither does the mainstream media.

If you're wondering why I go after the media and government so aggressively, this is the reason: The facts are right in front of their face and require nothing more complicated than a 4-function calculator to add it all up. 

You are being intentionally misled by all of them.  Period.