Man - "I think both solutions have massive risks. Karl's fails to recognize how high the chips are stacked and yours proposes with doing away with them. Destroying the debt destroys the only value the currency has, to pay the debt. That is what "This note is legal tender for all debts, public and private" implies. Debt has to pay debt either through payment or liquidation."

This is correct, but all options need to be on the table and picked apart. I prefer the deflationary route Karl takes in theory because it reinforces the "rules" of the original game. However the game remains and without the return of leverage the National debt will destroy us and become realized.

My option is to apply Karl's deflation solution to the private debt and as he's claimed with tarrifs and such in the past just claim soveriegnty on the national debt and change the rules. America has its monopoly set and if you want to play here you follow the rules and we don't change them, but we need to enforce them for everyone. China and Japan you have your own monopoly set and you can't have ours you should have known better than to think you could steel our board game. Here's your money, you can still play but the rules changed for you "soveriegns" No more interest spend it as you may. But do it wisely.

You'd be destroying Wealth by deflationary forces and mark to market at home at the same time those abroad that did panic dumped their dollars. Theres definately risk involved, but at least there is an opposing force, we deal with the federal debt, and we stop kicking the can. I think Armstrong understands the large institutional investor much better than most. They whole sale dump dollars they take all the other currencies with us. I don't think they'll do it.


Karl - I'll respond, but ask for time as you've made it quite clear that your french kingdom intends to take my head off if you don't like my one response you've alloted. I will make no more until then.

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This is correct, but all options need to be on the table and picked apart. I prefer the deflationary route Karl takes in theory because it reinforces the "rules" of the original game. However the game remains and without the return of leverage the National debt will destroy us and become realized.

Extraordinary claims require strict proof. This is the third or fourth time you've made this claim without evidence.

I tire of this game and yet you believe you can play the same cards over and over. There are rules here, and one of them is that argument by repetition is off the reservation.

Debt is simply a promise to work tomorrow. That's all. There's nothing magical about this and nothing special when you get down to brass tacks.

The actual federal DEBT is some $10 trillion. Even with a monstrous contraction in GDP, the debt is payable. Yes, it means massive shrinkage of the federal government but that does not mean the entire country implodes.

What it does mean, however, is that we have to STOP accumulating more. You wish to "protect" those who made these commitments to do things that can't be done. That's impossible and is trivially provable. Shifting the cost onto "everyone equally" is nothing different than kicking the can some more because you refuse to recognize the truth, probably because recognition means it manifests on YOU. So you wish to make someone "else" cover it.

That's no different - at all - than what we've done for 30 years. It won't work. "**** everyone else, I demand MINE!" isn't going to get us where we need to go and I'm VERY TIRED of people who argue from this position.

When debt defaults, the result is not "destruction," it is a "liquidation" that rewards the frugal with bargain-priced assets and punishes the profligate with bankruptcy. The process has become known at TF and elsewhere as a "reset." It has also long been known as "creative destruction."

Honestly Karl, I think you're too patient with the dumbasses.

I believe the debt held by domestic entities could possibly be paid back over time. I do not believe total federal debt will be paid back no matter what we do. In support of this, I have the words of Michael Hudson, who predicted all of this mess starting right when Karl became more cognizant of what was going on. 99-2000. I think you are too hard on Tbessi. And i think that you believe when you do the right thing, things turn out right. I believe that is overly optimistic, as the "right" thing was never done before in a world like we have today.

I'm also not sure you have Doctor's correctly labeled or characterized on this Ticker. Most Doctor's 40 years ago never worked close to the amount of hours doctor's do now. They also weren't partnered with 10 other physicians to dramatically lower overhead cost. I would love to know what the average physician made in 1960 and then compare that to today. There are a few fatcat surgeons, derms, radiologist, and radiation therapist, and the occasional big name person who can demand a massive premium (dr. James andrews ect). Furthermore, the average M.D. graduate at Georgetown takes on over 200,000 in debt just to get that degree. College no included. Most physicians took home more in real terms in the late 70s and 80s just so you know. The reimbursement on complicated heart surgeries has decreased by nearly 90% since the early eighties. Medical care on site has become expensive, most of what your doctor does, has become cheaper. Don't even get me started on the cycle of nursing home readmission to the ICU where beds cost 10,000 a day without any tech. None of that involves paying a fat cat doctor.

I would like you to elaborate on this buffer zone between private capital and production potential and the government that you claim will be gone in 10 years for sure. I do not 100% understand what you mean.

I also have my opinions as to the other side effects of "leverage" in the product development cycle over the last 20-30 years. But, I will hold off on those possibly to call in to your show.

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I'm also not sure you have Doctor's correctly labeled or characterized on this Ticker. Most Doctor's 40 years ago never worked close to the amount of hours doctor's do now. They also weren't partnered with 10 other physicians to dramatically lower overhead cost. I would love to know what the average physician made in 1960 and then compare that to today. There are a few fatcat surgeons, derms, radiologist, and radiation therapist, and the occasional big name person who can demand a massive premium (dr. James andrews ect). Furthermore, the average M.D. graduate at Georgetown takes on over 200,000 in debt just to get that degree. College no included.

You just (perhaps mistakenly - you a doc by chance? ;-)) identified one of the problems in this paragraph. Read it again and see if you can find the problem with the financialization....

it is obvious, you don't have to act like a smart .... But I'm not addressing that. You called doctor's fatcats. for 90% this is untrue. Furthermore, they drive lambos now because they can't afford what they use to buy. Lake homes and beach homes. They all got inflated out of their income reach. So they bought Lambos. Not nearly as expensive. You just see one and find it obnoxious, you didn't see the other, but it was there. I know, because i know 3 generation doctor families. My main point isn't the loans for education for doctors. And no, I'm not a physician. My father is Chief of Cardiology (Uncompensated), Chief of Staff(uncompensated), and CEO of a private practice (compensated, he started the practice) that employs 25 physicians (himself included). He is also a fan of yours, but thinks that you laugh at your own jokes too often during your broadcasts.

Another effect of requiring a cash down payment is that savings also reduces prices. American used to have a 10% household savings rate. That would lower prices 10% for everything.

A on this ticker, A+ if you add a little more to it re how to handle monopolies and pseudo-monopolies in a free market.

It seems to me that our free market works well when we are dealing with widgets that the marketplace understands and where there are sufficient producers and interested buyers. And that covers probably 98% of our activities. Where one of these three legs is missing, the other 2%, we get into what I am terming monopolies or pseudo-monopolies.

Take health. There are probably sufficient producers and buyers but the buyers generally lack understanding. When the specialist tells you that a procedure is required typically your only recourse is to ask another specialist if that is true. You have now paid two specialists to see what was needed and the specialists play golf together each Thursday. They generally agree with one another. So the buyer basically has to ask the producer if he should buy the product that the producer is selling and the producer says yes.

Securitization accomplished the same thing for the banksters. They made their products complicated and opaque and found buyers that too often didn't know what they were buying.

Creating pseudo-monopolies and selling snake oil has always been the curse. Government regulation and oversight has always been the cure. Unfortunately, snake oil is too easy to produce and sell and the snake oil producers seem to have too much clout to allow the government to effectively regulate.

At a minimum, recognizing that the free market does not work well in the darker corners is all that I am trying to say. And I would be interested in your thoughts on how to shine a light on these corners.

Why are we taking it at face value that the national debt needs to be repaid at 100%?

Just trying to identify if its a moral, legal or some other obligation.

Twink, good post - you are observant and astute. The free market capitalist method of handling the banks, is to let them fail, go BK, and investors and bondholders lose all their money. Depositors get their $$ back from FDIC.

Future investors become much more cautious about whom they give their money to - you don't see the wealthy scrambling to give more money to Madoff do you?

Wait a minute, that's how America used to be, before the financial services industry bought our government.

Hmmmmmm?

Twink, False. Best standard practices are easily found online for a given situation. However, individuals with other problems along with a certain issue will need to have standard best practices altered to take into account their capacity for recovery ect as altered by their other ailments. If anything physician induced demand has declined quite a bit, and patient induced demand due to advertising and information available over the web has ballooned. We are one of only countries in developed world that allows advertisement for medical treatments.

I think it is quite clear that the Democrats, and this administration intend on using this whole occupy wall stree meme to get themselves re-elected.

They are going to get behind this whole thing and point the finger at the banks.... then tie the banks directly to the republicans.

Want the banks held accountable?? ELECT US IN 2012.

We can not allow this to happen, as the problem on Wall Street is not a political one....both sides are to blame.

Right Morla. I know he's Karl, not Ken. Sorry Karl. Don't know why I have the name Ken on the brain. Guess it was late and 3 hours sleep the night before didn't help. At least I got the K right. LOL.

Financialization has a long history.

"Second Millennium Ur may have been an early hothouse of capitalistic enterprize, but what of the borrowers mired in debt? The government may actually have preferred them this way. A study by the economist M. Darling of the rural economy of the Punjab in modern times suggests a disturbing thing about human nature -- people work harder and produce more when they are in debt. Darling found that crop yields for farmers in debt typically exceeded yields from unencumbered farmers. Farmers in the Punjab may have faced foreclosure, but for the ancient inhabitant of Ur, the motivation was even greater. Debtors were often forced to sell themselves into slavery.

"It is difficult to escape the conclusion that, while the first loan contracts and the legal system that enforced them may have been good for the Mesopotamian economy, they made life miserable for the working man and woman. If lending began, as historian Paul Millet believes, as a process of neighborly reciprocity in rural societies, then it evolved into something quite different. In Babylonian times, short-term debt was a tool used to extract taxes from the population, and to increase the productivity of temple lands. It is almost as though the government had found a way to extract the residual "goodwill" from the economy, by allowing individuals to shift financial obligations into the future. Lending in ancient Ur was mostly for emergency purposes -- where the government created the emergency! The other side of the coin is that certain entrepreneurs such as Dumuzi-gamil achieved economic upward mobility through borrowing. Thus, while the system was harsh on the populace, it encouraged creative and productive enterprise. For those with the imagination to exploit it, the financial system of Ur offered limitless possibilities."

-- from Financing Civilization by William N. Goetzmann

"The Mesopotamian economy was dominated by large public institutions (Temples and Palaces) whose bureaucratic administrators effectively created money of account by establishing a fixed equivalent between silver and the staple crop, barley. Debts were calculated in silver, but silver was rarely used in transactions. Instead, payments were made in barley or in anything else that happened to be handy and acceptable. Major debts were recorded on cuneiform tablets kept as sureties by both parties to the transaction.

"Certainly, markets did exist. Prices of certain commodities that were not produced within Temple or Palace holdings, and thus not subject to administered price schedules, would tend to fluctuate according to the vagaries of supply and demand. But most actual acts of everyday buying and selling, particularly those that were not carried out between absolute strangers, appear to have been made on credit. 'Ale women', or local innkeepers, served beer, for example, and often rented rooms; customers ran up a tab; normally, the full sum was dispatched at harvest time. Market vendors presumably acted as they do in small-scale markets in Africa, or Central Asia, today, building up lists of trustworthy clients to whom they could extend credit.

"The habit of money at interest also originates in Sumer – it remained unknown, for example, in Egypt. Interest rates, fixed at 20 percent, remained stable for 2,000 years. (This was not a sign of government control of the market: at this stage, institutions like this were what made markets possible.) This, however, led to some serious social problems. In years with bad harvests especially, peasants would start becoming hopelessly indebted to the rich, and would have to surrender their farms and, ultimately, family members, in debt bondage. Gradually, this condition seems to have come to a social crisis – not so much leading to popular uprisings, but to common people abandoning the cities and settled territory entirely and becoming semi-nomadic 'bandits' and raiders. It soon became traditional for each new ruler to wipe the slate clean, cancel all debts, and declare a general amnesty or 'freedom', so that all bonded labourers could return to their families. (It is significant here that the first word for 'freedom' known in any human language, the Sumerian amarga, literally means 'return to mother'.) Biblical prophets instituted a similar custom, the Jubilee, whereby after seven years all debts were similarly cancelled. This is the direct ancestor of the New Testament notion of 'redemption'.

"Historically, as we have seen, ages of virtual, credit money have also involved creating some sort of overarching institutions – Mesopotamian sacred kingship, Mosaic jubilees, Sharia or Canon Law – that place some sort of controls on the potentially catastrophic social consequences of debt. Almost invariably, they involve institutions (usually not strictly coincident to the state, usually larger) to protect debtors. So far the movement this time has been the other way around: starting with the '80s we have begun to see the creation of the first effective planetary administrative system, operating through the IMF, World Bank, corporations and other financial institutions, largely in order to protect the interests of creditors."

-- from Debt: The first five thousand years, by David Graeber

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ou just (perhaps mistakenly - you a doc by chance? ;-)) identified one of the problems in this paragraph. Read it again and see if you can find the problem with the financialization....

I'll take the "200,000" student loan debt that was stupidly acquired for a 100.



The amount of time, effort and intelligence it takes to go through all of that and get through medical school, why are they not smart enough to stay away from that.



Great ticker, btw.

I don't know if anyone's mentioned it (or even cares), but a social consequence of financialization was the advent of the two-wage-earner family. A second parent (generally the mother) entered the workforce, leaving much of the time and effort devoted to raising their children in the hands of someone else (daycare, the public schools). The lack of stability and consistency from the at-home parent, I believe, has helped to shape the attitudes and behaviors of the last 30 or so years of children, who are now adults and having children of their own.

There are so many kids around us who come home to an empty house after being dropped off by the bus. Their behavior at school is atrocious. I wonder if there's a cause-and-effect relationship here.

I have seen this in international adoptions too many times. Two high wage earners (because they're the only ones who can afford the high cost) adopt, bring the child "home," plop him/her in daycare (just transferring from one institution to another), and wonder why the child has (in some cases very severe) emotional/developmental issues.

Financialization changed the whole fabric of our society.

Not only that. I wonder about other side effects of the two income earner household such as increased need for fossil fuels, depressed wages (supply glut of employees, further exacerbated by illegal immigration), increased marital infidelity, increased food and household costs caused by lack of time, and higher rates of teen pregnancy (mom and dad aren't home to catch the kids before tab A goes into slot B) and drug use.

I expect this will eventually stabilize at some level that isn't as damaging to society (I don't have a problem with women working, mind you), but it was a rather sudden sea change in the way households were run. Any major change in society usually requires a while for adjustment, sometimes generations. It takes a heck of a lot of time and energy to maintain a house and its contents, particularly if there are children involved. Labor-saving devices help a lot, but there's still plenty to do. We've managed to outsource a lot of that because of our (ponzi-generated) wealth (an upside of it, if any is to be had, I suppose), yet we haven't quite figured out how to overcome the downsides, including the fact that we are not nearly as wealthy as we'd like to pretend to be.

Goforbroke, yep.

I'd love more data to look at the college question. Especially state run colleges (which is what I imagine the OWS people are protesting...)

Its only been 15 years or so - the cost of my state run education has doubled since then. My guess is the quality hasn't improved, and the demand might have grown... But to the tune of twice the demand it was? Count a 5% inflation rate, and I could see it going up by 10% or even 20%, but not 100%...

They are not for profit... Does that mean that the price has risen only so bankers can collect higher amounts of interest on their loans? The professors at state run colleges don't earn excessive salaries. Sure - the pres might, and the VP too (less likely), but not to the tune of doubling the tuition across the student body...

Where did that money go once the university got it??? Did they hire too many teachers assistants and union sanitation workers? Did they spend it on new buildings and facilities? (the latter is probably likely, the gym is amazing since I left UofWashington, and they have a number of new state of the art buildings, and several in the middle of a major renovation). Is this story universal?

What are these universities doing with all that extra income?

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Where did that money go once the university got it??? Did they hire too many teachers assistants and union sanitation workers? Did they spend it on new buildings and facilities?

You answered your own question. They're creating these "Taj Mahal" type university complexes.

Buildings and facilities. We have had at least one project going for I don't know how many years. Nice ****, too.

Tacotime12 wrote..

Its only been 15 years or so - the cost of my state run education has doubled since then. My guess is the quality hasn't improved, and the demand might have grown... But to the tune of twice the demand it was? Count a 5% inflation rate, and I could see it going up by 10% or even 20%, but not 100%...

You know how demand works, and how papa government works, add the two together and it's obvious. If you want to attend college you're no longer just competing against people with money, you're also competing against anyone who promises that they will have money eventually. Why are these loans being made? Because the government guarantees them. The result shouldn't surprise you, if it does then get your head in the game.

Sigh. My "fwd" key is wearing out. Yet another best ticker ever

Best article ever on this whole mess. It doesn't get any more succinct than this.

Excellent.