----- Original Message -----
From: Len Cranford
To: apopeeso@comcast.net ; pyrigenes
; Chris
D.
Sent: Thursday, May 07, 2015 6:46 AM
Subject: Oh Jeeze! No Recovery;
[click the link if the article
didn`t send well; The "debtberg" chart has been telling the story a
long time! No one pays attention.]
The Next 94 Days Could Be Bad for Your Wallet
The Longest, Deepest Depression in US History
Yesterday’s
good news was that there will be no 25-year
recession. “We should be so lucky,” is the way a New Yorker might react.
Because the bad news is much worse. The logic of the “long depression” is
simple. Aging populations, debt, zombification – all of which slow growth.
How many old people and zombies do you need before an economy
comes to a halt? Nobody knows. But the drag from debt is observable and
calculable. Over the last three decades, approximately $33 trillion in excess
debt has been contracted – above and beyond the traditional ratio to income –
in America alone. And growth rates have fallen in half.
That’s because dollars that would otherwise support current
spending are instead used to pay for past spending. Our old debts have to be retired
with current income. The money doesn’t disappear, of course. Some goes to
creditors who spend it. Some comes back as capital investment, which is a form
of spending. But as credit shrinks, generally, so does the economy.
Howling, whining and
finger-pointing are well-worn traditions. Especially when the question is where
the money disappeared to and whodunnit.
And that brings us to the
impossible situation we’re in now. In order to get back to a healthy ratio –
say approximately $1.50 worth of debt for every $1 in income – you’d need to
erase all that excess that has already been contracted. In other words, you’d
have to take $1 trillion out of the consumer economy every year for the next 33
years.
It would be the longest and deepest depression in US history.
[Boss Tweed cartoon 1880`s]
Debt,
more debt and economic output. Legend: total US credit market debt outstanding
(funeral-black line), total federal debt outstanding (vomit-green line) and
nominal GDP (alarm-red line). What could possibly go wrong? – click to enlarge.
A Credit Crisis, Complete with Howling, Whining, Finger-Pointing
Take a trillion out of the US economy and you have a 4% decline in
GDP. Then, as the economy declines, the remaining debt burden becomes even
heavier. Try to pay down debt and it becomes harder and harder to pay down. You
stop buying in order to save money. Your local merchants lose sales. Then they
try to cut expenses, and you lose your job.
In other words, no “steady state slump” is possible. When the
credit cycle turns, it will not be a gentle slope, but a catastrophic cliff… a
credit crisis, complete with howling, whining, finger-pointing … and more
clumsy rescue efforts from the feds.
As we said yesterday, there are two solutions to a debt crisis.
Inflation or deflation. Central banks can cause asset
price inflation. But it is not always as easy as it looks. Consumer price
inflation requires the willing cooperation of households.
With little borrowing and spending from the household sector,
credit remains in the banks and the financial sector. Asset prices soar.
Consumer prices barely move. US consumer price inflation over the last 12
months, for example, was approximately zero.
The assumption behind the “long depression” hypothesis is that
central banks cannot or will not be able to cause an acceptable or desirable
level of consumer price inflation. As a result, the economy will be stuck with
low inflation, low (sometimes negative) growth and low bond yields.
But what about deflation? If inflation won’t reduce debt, why not
let deflation do the job? More tomorrow …
The
year-on-year rate of change of CPI is currently stuck near zero, but
market-derived US inflation expectations have actually soared in recent weeks –
click to enlarge.
The
yawning emptiness of a post-crash wallet, previously leveraged.
Image captions by PT
Charts by: St. Louis Federal Reserve Research
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