(Still) Livin' La Vida Loca

Time to step back from the hyperbole and gain some long-term perspective.  As we see in the market charts below, there have been three major bubble eras in the past 15 years, each driven by its own set of unique factors.  However, the one key driver and common factor to all three bubbles was highly accommodative monetary stimulus.  Stepping back and looking at the second (uncommented) chart below, it's impossible to deny that despite the ever-increasingly desperate interventions of global policy-makers, their efforts to paper over the cracks in the global economic foundation are losing efficacy.  The market level we are at now was first crossed back in 1999, when we were "Livin' La Vida Loca".  Looks like we still are...:

Of course, there are always those math challenged denialists who say that the U.S. National debt, now at $16 trillion, is not that high when compared to GDP.  First off, it's the highest it's been since WWII.  Secondly, the U.S. needs to borrow a trillion dollars a year just to keep the economy out of recession (i.e. 8% of the debt-sustained economy).  So the real question on the table, that no one from this comfort-seeking generation wants to answer, is how much would GDP be without the ongoing deficit?  Or put it another way that even math morons can understand - it's hard to pay down debt when the country is still borrowing.  Alternatively, we can assume like the esteemed "Economist" that only externally-owed debt matters and that Federal debt owed to Americans doesn't count, because it's money we owe ourselves.  Which is the same as losing one's job and taking a pre-retirement loan telling yourself it's ok, because it's just money you owe yourself.  Unfortunately, with that strategy, there's always the unpleasant adjustment to eating dog food in retirement.

So, until we get a definitive answer and solution to this problem of using ongoing borrowings to pretend to be solvent, then we can only assume that we are now just in the third sequential fantasy bubble phase that will once again end very badly, just like the last two.

Self-cannibalizing Capitalism - Last One Out Turn Off the Lights
I just finished reading Matt Taibbi's excellent article on Mitt Romney and all all I can say is "Wow".  Suffice to say, I would evince no sympathy for a jobless Middle Class dumb enough to elect a man who was at the vanguard of outsourcing the U.S.  Both Darwin and Ayn Rand would agree that any species that acts against its own self-interest, won't be in existence for very long, which means that the Idiocracy is now on borrowed time.  Meanwhile, the self-cannibalizing vulture capitalism model first went after the Middle Class, but now it's going after its own.  No surprise, that one company after another is reporting dismal earnings and revenue in this quarter, following four years of ephemeral outsourcing sponsored pseudo-growth.  The latest casualty on Friday was Apple which came in below earnings expectations and gave a dismal fourth quarter outlook.  Having just launched the MiniPad to limited fanfare, they are now working on the MaxiPad in hopes it will boost their flagging sales - at least with women.

Full Retard

When ZeroHedge first brought up this recent Larry Summers article in the Financial Times, I was flabbergasted but I certainly can't say surprised.  After all, no sooner had I written my recent diatribe about Harvard, than the dean himself comes out and says literally the dumbest thing I have ever heard anyone say, who was supposedly deemed mentally competent:

So, what is to be done? Rather than focusing on lowering already epically low rates, governments that enjoy such low borrowing costs can improve their creditworthiness by borrowing more not less.  

And then when Doug Kass @RM.com piled onto the same Summers article, my 'Full Retard' alarm went into red alert.  Any time you have Dumb and Dumber clamoring for the same horrifyingly moronic policy then you know it's just a matter of time before it gets implemented.

So, to paraphrase the article, the way out of a debt crisis is to borrow MORE not LESS.  You see, we have been doing it all wrong up to now - we've been borrowing too little.  What we need are more bridges to nowhere, more military equipment piled up or better yet blown up - and other trinkets that add no value to the economy.  In other words, we are  just not good borrowers and dammit we need to improve !

Then he adds in some economic babble about 'carry forward' of leases and he quotes another Harvard stooge just for good measure.  But, he makes sure never to question the value of these various acquisitions in the first place.  After all, it's a foregone conclusion that everything the government buys is a good use of money, will provide a positive future rate of return and won't burden our children and grandchildren...Except of course it's all academic nonsense.  Instead of comparing the ACTUAL expected rate of return from these pointless expenditures, his basic point is that given that we are going to pay for all of this junk anyway, we may as well finance at it at low interest rates.  AND, most importantly, by doing so we can take advantage of cheap financing to borrow EVEN MORE money to buy even more pointless government crap - 'Act now and you will get 6 Ginsu Knives, absolutely Free'.  He does make mention near the end about an expected ROI from these 'investments that would offset the expenditure (aka. the Keynesian delusion); but of course he conveniently ignores the fact that there has been negative ROI on the past 229 years of government borrowing, as evidenced by the massive accumulation of debt.  But, that's obviously because we were not borrowing enough.  In order to pay off your debts via borrowing,  Harvard Economic theory postulates that you need to borrow the MAXIMUM amount possible.  And of course, he never questions the fact that these 'low interest' rates are provided by the Federal Reserve monetizing government debt by printing new money which is an invisible tax on all of us.  The next time we go to the grocery store or gas station we get to pay that tax in the form of higher prices. 

Wow!  Even I am speechless for once, and my end-of-world paranoia is at full tilt when I realize these are the types of people 'leading' us at this juncture.  No doubt Pres. Obama has already assimilated the piece and is nodding his head approvingly:

"Brilliant !  But then he is the Dean of Harvard after all, so we should expect this type of intelligence...And of course Larry (Harvard) did contribute to my campaign.  Ok, so let's double (again) the size of the government deficit.  No, wait...why stop there - triple it...No, wait... !"  

And of course the real issue isn't Larry Summers and a few stooges who subscribe to his point of view - after all, every Village has its Idiot.  The real issue, as I wrote in my Harvard piece, is the amount of ongoing 'mind share' these thought dealers are accorded by the Lamestream Media.  

What the hell are our Children and Grandchildren going to think about us?  

Russian Roulette - Full Auto

"The man who wants everything, ends up with nothing"

The drama in Greece is getting to be very interesting.  It's a microcosm of the choices that EVERY major Western nation currently faces, whether our media propaganda machines will admit it or not.

The Illusion Formerly-Known-As-The-Economy

One chart to rule them all

This chart (below) of U.S. Federal Government debt says it all.  

It took 229 years, from the founding of the country to 2005, for U.S. Federal debt to reach the $7.75 trillion mark (which by coincidence is roughly half of GDP).  In just the 7 years since that date, the debt has doubled again to $15.5 trillion (as of this writing): 

And as you can see above, the red extrapolation into the future shows that the debt will be triple the 2005 level within just 4 more years.  So the debt accumulation ratio is 229:7:4 [single:double: triple] i.e. the debt accumulation rate is still accelerating and yet the economists tell us that the economy is recovering !  Politicians at the behest of their rent seeking special interest groups are borrowing the country into oblivion.  

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The chart below shows long-term debt history (extrapolated to 2016), which as you can see is going parabolic:

Postscript:

I realize that some Economists use "net" debt figures v.s. the "gross" debt figures that I used.  Because they assume that money a country owes itself doesn't count.  This is why (to date), no one has gone Minsky over the fact that Japanese debt exceeds 200% of GDP, by far the highest in the world - because economists rationalize that most of the debt is held by the Japanese.  Imagine what it will feel like to be a Japanese pensioner and find out that you just lost your life savings because the global bond market decided one day enough is enough.  At that point, bullshit rationalizations about "just owing oneself" will seem pretty stupid.  And the economists will all say, "oh, I guess we were wrong"...

That Minsky Moment

As my depiction of the Idiocracy would predict, today's thought dealers (politicians, economists, media infotainers) have an infantile obsession with avoiding the truth and reality.  So we ask, what would it take to get our policy-makers to face reality and begin to craft some realistic long-term solutions to these economic problems?

Waiting for the Minsky Moment
We have what I would call a Wile E. Coyote economy that has run off the cliff and is suspended (temporarily) only by Central Bank liquidity programs.  All we are waiting for now is the Minsky Moment.

Idiocracy Mortgages Its Own Grandchildren

This just in, the Idiocracy just mortgaged its grandchildren to pay for (the past) four years of Extend and Pretend.


And now for the price tag:

Goodnight Moon II - Fiscal Policy Fiasco

Continuing the archaeological "how the hell did this happen" series, we now turn to that other Oz-like lever in the grand illusion formerly-known-as-the-economy: Fiscal Policy.

Unlike Monetary Policy which subsidized the accumulation of debt by ALL constituents, Fiscal Policy has specifically elevated Federal Government debt to now out-of-control levels.

The (Other) Biggest Lie Ever Sold 

The biggest lies are never the conspiracies or the ones no one know about.  The biggest lies are the ones squarely in front of our face that no one wants to acknowledge.  The 800 lb elephant in the room.  

In this case, the biggest lie is that the economy is in recovery when in fact it's still in a major recession.  

The fucked up logic of the day is that no matter how much money the government borrows, as long as the economy is growing sequentially, then we must be in recovery.  This ignoring of the deficit logic puts Spinal Tap's "This one goes to 11" seem intelligent by comparison.  Yet somehow almost every economist, financial pundit and politician is onboard with pretending that the economy is out of recession and recovering.

Put it this way, if the Federal Government was an average person, it would be a guy who lost a well paying job of say $75k a year.  He now has a part-time job paying $25k a year and has worked his way through his life savings and retirement savings.  He tells himself that he can catch back up on his retirement savings later, even though he is already 58.  Having worked through his savings, he now props up his lifestyle back to previous levels by tapping a line of credit on his home.  Yet, like the Fed, when people ask about his job situation, he tells them he has a new job and has "recovered" from his setback, albeit he is behind on his savings...

Obviously any honest depiction of a recovery would adjust for increased borrowings, yet not one economist of note seems to make this simplistic calculation.

The numbers are frightening:

GDP for 2008, the year the recession started was: $14.27 trillion

GDP for 2009, was $14.01 trillion indicating the year-over-year recession

GDP for 2010 was back up to $14.55 trillion, giving everyone the false comfort that the economy was recovering, because GDP in 2010 was now $281 billion higher than 2008.  That is the standard story that is propagated to the masses.

But the key (missing) question is what happened to the deficit (borrowing) during those 3 years?

The deficit in 2008 was $458 billion

By 2010, the deficit was at $1,455 billion 

Therefore, even though GDP was $281 billion higher in 2010 than 2008, net new borrowings had increased by $997 billion !  i.e. if not for new borrowing, 2010 GDP would have been $13.55 trillion (assuming 1:1 multiplier), which is 6.8% lower than the reported amount.  That's the new math baby, just borrow your way to prosperity !!!

Meanwhile, these figures don't take into account inflation over those two years, which further deflates these figures by roughly 4% over those two years.

Lastly, adjust for immigration, because the U.S. had almost 5 million more people in 2010 than in 2008, so adjusted for the number of people, and GDP is further reduced.

Wow, what a great recovery.  To think that we pay these idiots to lie to us constantly.  Which came first, them lying to us, or us needing to be lied to?  One begins to wonder...

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FWIW, I still like Treasury bonds (invest at your own risk) as the ultimate safe haven, not withstanding these massive deficits.  I own them knowing that the Federal Reserve will always come along and buy them from me in some future iteration of QE "n".  And when that inevitable moment comes and we are staring into the economic abyss, the streets en fuego - there will be nary a Tea Partyer to stand in the way.