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2019-05-16 07:00 by Karl Denninger
in Musings , 191 references Ignore this thread
Oh, Someone Else Noticed?
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It's rather amusing to write on a topic for a literal decade or more -- as I have when it comes to actual GDP -- and then see this show up.

(Reuters) - U.S. growth appears to be based “exclusively” on government, corporate and mortgage debt and the economy would have contracted if the United States had not added trillions in debt, Jeffrey Gundlach, chief executive of DoubleLine Capital, said in an investor webcast on Tuesday.

“Nominal GDP growth over the past five years would have been negative if U.S. public debt had not increased,” said Gundlach. “One thing everybody seems to miss when they look at these GDP numbers ... they seem to not understand that the growth in the GDP it looks pretty good on the screen is really based exclusively on debt - government debt, also corporate debt and even now some growth in mortgage debt.”

Actually, when it comes to debt all is not equal, as I noted in Leverage.

Asset-backed debt, where one removes an asset from the market in exchange for the liquidity provided, is typically not inflationary to GDP.  Why?  Because you can't sell the house without repaying the note.  While people will say "yeah but you can spend the money now" what you actually spent was the house, not the money.

For this privilege you pay interest and costs, and that's as it should be.  Now we've distorted that interest downward in a big way, and that's bad, but the general premise holds.

On the other hand government debt and most corporate debt is not really asset backed.  Nor is credit card or, for that matter, student loan debt.  In none of those cases is there anything removed from the market in exchange nor can you foreclose on someone's college degree or credit card purchases -- or, for that matter, on a government bond.

GDP is denominated in dollars.  If you issue unbacked debt the number of dollars in circulation go up.  You must adjust in each period for that emission of dollars; said dollars then permanently remain in the economy on a global basis (when has total government debt ever gone down in the modern era?  Never!) and thus they remain part of the baseline for the next period.

I used to produce a quarterly report on the Fed Z1, which is the canonical report on all debt flows in the economy and is issued four times a year.  I did them all the way through the end of 2014 (issued in the early part of 2015), when I stopped.  Why?  Because nobody gave a crap; they were inevitably the worst-read (in terms of actual accesses and links) out of all of the series of articles I produced.

Anyone remember these charts?


Or this one?


The latter, by the way, shows that post 1980 all so-called "income growth" was false.

Every bit of it was nothing more than monetary inflation.

Nobody cared.

There should have been a revolt 20+ years ago -- a literal no-bull**** revolt, since all of this so-called "progress" wasn't real; it was all a bought off lie from the government intended to screw you while a tiny percentage of the population who bought and paid for said government robbed you.

A huge percentage of this reflected into health care, which incidentally became the theft vehicle of choice right about the same time in the 1980s and has continued to expand since.  By the early and mid 1990s when I was running MCSNet it was obvious that this expansion of the scam was going to swallow both the American people and the budgets of state, local and ultimately federal branches of our government too.

Still, nobody cared.

We let Donald Trump run on a promise with no fewer than three bullet points during his campaign to put a stop to the medical scams and literally on the night of the election while I was watching returns in Pensacola with friends and my phone monitoring the various campaign-related sites he pulled them from his campaign web page never to be seen or heard from again.  There have been zero indictments filed since he took office by the DOJ (which he heads and is absolutely the decider within) despite all of that system being riven through with criminal felonies that have stood on the books for more than 100 years.

The people of this nation are either spending their time on their knees giving Trump blowjobs or threatening to impeach him for alleged "obstruction" of something that didn't happen, specifically, "Russian" control over his campaign and his person while Hitlary Clinton actually presided over selling strategic Uranium assets to the very same Russians and Herr Biden's son (who, I remind you, was the actual Vice-President at the time) not only was involved with Ukranians "for profit" it also appears he was involved with the Red Chinese in a similar influence-peddling operation and in the first instance Biden appears to have actually interfered with said investigation by that foreign government with a threat to formally withhold US Government funds!

If nearly a decade of clear documentation of the fraud of so-called "growth" over the last 30+ years doesn't wake people up, if they refuse to demand that facially-felonious crap that both robs and kills them outright be stopped, backing up that demand with whatever is necessary to make it happen and instead either subscribe to the garbage of "impeachment" over allegedly obstructing something that never happened in the first place and was a clear political puff piece that failed to win the day, or possibly even worse fellating a President who is in fact calling for more monetary fraud from The Fed exactly why should I, or anyone else for that matter, give a wet crap what happens to anyone else -- or this nation as a whole?

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User Info Oh, Someone Else Noticed? in forum [Market-Ticker]
Posts: 3468
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post 1980 all so-called "income growth" was false.

Yep I remember them. Changed my entire understanding of GDP and our "prosperity" since the Reagan years. Some of my fave posts/charts over the years.

The unexamined life is not worth living.-Socrates
The only stable state is the one in which all men are equal before the law.-Aristotle
Liberty exists now in the spaces government has not yet chosen to occupy.-Doc Zero
I anticipate that 10 Dallas Cowboys Cheerleaders will blow me this evening.-K.D
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I wish I could give you more of a reason to care. Those charts scare me to death and they are years old now. Thank you for posting regardless. They keep me focused on the fact things are not going to stay as they are.

The Constitution is the law. It is not, and was never meant to be a "living document."
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I think the reason your charts are not popular is that they are hard to understand. I have looked at each one carefully and don't get it.
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South of Canada
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Fixed it for you -

I think the reason your charts are not popular is that they are hard to understand schools don't teach mathematics or economics anymore. I have looked at each one carefully and don't get it got distracted by snapchat.

Seriously, I remember those charts. Seeing the data over time like that is depressing...and most people don't care as they are busy with the shiny object of the day.
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What a scam: borrow millions in cheap money on a ridiculous business model, pay the directors lavish salaries, double down on the debt, buy back stock, rinse and repeat until it all collapses.


But it isn't just corporations: tiny little University of Idaho wants a sportsball stadium. Ground hasn't broken and it is already over budget. By the time it is all paid off-- $80 million bucks. And another $50 million spent expanding an airport that only 500 people a day use.

I too have started praying for Karl's 'sweet meteor of death'.
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I know you're still filling out those spreadsheets, Karl. :-)

I'll agree, they were pretty thorough in explaining to me the "rotten in denmark" feeling I'd had ever since I learned about the Fed and interest rates and got out of high school. It's just sad it took so long.
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A True American Patriot!
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@Ckaminski -- Nope. Not most of them. It's quite a bit of work maintaining those tables, and nobody gave a wet crap, so I stopped doing it.

Winding it down.
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Scottsdale, AZ
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I have a friend in commercial roofing in the Chicago area. He told me all the schools are now issuing bonds for either rehab or repairs and his company is going to be busy through the end of the year. I also heard that those same municipalities are trying to raise the tax rates at the same time.
So, due to the fed manipulating rates, it drives the municipalities to issue more debt while rates are low and in order to pay for that debt, tax the people even more. When the people pay higher taxes, they have less disposable income because it's be stolen by the tax man. How does that improve the economy?
All this BS growth is due to more and more leverage. I saw an article last week that said corporate debt now exceeds $3 trillion and a large portion of it is coming due in the next 4 years with a rating of BBB or less. How does that one end?.....
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Winding it down.
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Karl, you've said that the Federal budget will hit its financial wall by or before 2024...well looks like corporations will be hitting that wall around the same time...see link below.

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Well @Gauntlet33 if you know you're ****ed in six years why not load up on anything that gets you right around that time (or a bit later)? There's no downside to it.

Winding it down.
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Karl: Exactly, and like I believe you said, looks like we all know we're spiraling down the toilet.

I noticed that Wells Fargo is offering an 11-month CD paying about 2.5%...looks like they need and want to lock in money as they know that customers might be pulling out soon.
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I noticed those charts. They were very interesting. I also bought your book 'Leverage' and read it from cover to cover at least twice and it has pride of place on my bookshelf.

You are quite right though. People just do not care. I'm just waiting for the Gods of the copybook headings to show up when everybody least expects it.

In the Carboniferous Epoch we were promised abundance for all,
By robbing selected Peter to pay for collective Paul;
But, though we had plenty of money, there was nothing our money could buy,
And the Gods of the Copybook Headings said: "If you don't work you die."

Then the Gods of the Market tumbled, and their smooth-tongued wizards withdrew
And the hearts of the meanest were humbled and began to believe it was true
That All is not Gold that Glitters, and Two and Two make Four
And the Gods of the Copybook Headings limped up to explain it once more.

As it will be in the future, it was at the birth of Man
There are only four things certain since Social Progress began.
That the Dog returns to his Vomit and the Sow returns to her Mire,
And the burnt Fool's bandaged finger goes wabbling back to the Fire;

And that after this is accomplished, and the brave new world begins
When all men are paid for existing and no man must pay for his sins,
As surely as Water will wet us, as surely as Fire will burn,
The Gods of the Copybook Headings with terror and slaughter return!

-- http://www.kiplingsociety.co.uk/poems_co....

Thanks for everything you do Karl. It is very much appreciated. :-)
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