# Peak Debt = Peak Capitalism?



## Uncle Festivus (22 April 2010)

A simple proposal - that this form of capitalism is a giant Ponzi scheme and that it is approaching the point where new money creation does not cover old money destruction?

This situation is exacerbated, and perhaps caused, by growing sovereign & private global debt.

The latest example of the breakdown of capitalism is from the very heart of capitalism itself, the USA. 

There is a growing 'contagion' of 'non recourse' living, otherwise known as 
'strategic defaulters' - where people who take on debts ie home, car etc just stop paying off the loan, but continue using the product for free.

http://www.pbs.org/newshour/bb/business/jan-june10/mortgage_04-20.html

Now while the major US banks are reporting warm & fuzzy profit figures, it grossly hides the fact that they are still taking big hits from deteriorating mortgage lending portfoios. The fact that they show a profit at all is due largely to 'recovery' in equity markets - a self perpetuating, non sustainable path to failure down the track when the real economy fails to partake in the 'recovery'

While the real facts can be glossed over by fraudulent accounting and accomodative central bank liquidity, there is and still we be for several years yet the problem(s) of how to pay down the principle plus interest of debt stimulis incurred while fighting the GFC, as well as sundry accumulated debts incurred beforehand. 

Or as some would argue, simply delaying the inevitable day of reckoning from the cumulative excesses of rampant fractional reserve banking, central bank manipulation, corporate fraud and successive government largess at reeckless spending and lax corporate laws?

What is becoming clear but somehow does not get acknowledged, at least publicly by the elected officials, is the impending lowering of living standards by the requirement to concurrently raise tax's and lower government spending in order to pay down debt. Greece is the litmus test of what's in store for the US & the UK, and to an extent Australia depending on when the China bubbles pops?

The only difference between Greece and other debtor nations is that it can't inflate it's way out of debt - it has defaulted and must now pay the price, or rather it's angry citizens must now accept a standard of living below what they have been used to. 

It's time to pay the piper for the Old World Capitalists?


----------



## Uncle Festivus (23 April 2010)

And now good citizens, time for some enlightening information from Timothy Geithners own department, via the 
*2009 Financial Report of the United States Government*

or, the brief intro from *Tim*. Note he has a conveniently added a proviso ('I told you so' clause) for government inaction about the unsustainable fiscal practices of the US government (and several other governments are also following the same path).

All the while, the weakest link - politicians - keep raising the debt ceiling.



> The sum of debt held by the public and intragovernmental debt equals gross Federal debt, which (with some adjustments) is subject to a statutory ceiling (i.e., the debt limit).  Congress raised the debt limit twice during FY 2009 – from $10.6 trillion to $11.3 trillion in October 2008 with the passage of the EESA, and again to $12.1 trillion in February 2009 with the passage of the ARRA.  In December 2009, the limit was raised to $12.4 trillion and in February 2010, it was raised again to $14.3 trillion.



The U.S. Government Accountability Office (GAO) has concerns also in it's latest report - 'U.S. Government Financial Statements: Fiscal Year 2009 Audit 
Highlights Financial Management Challenges and Unsustainable Long-Term Fiscal Path'


----------



## explod (23 April 2010)

Thanks for the thread and the posts Uncle.

My reading over the years has me seeing things this way but no one wants to know.     And I have said this many times, from the film Cool Hand Luke, the great line of the warden as Paul Newman lay exhausted and beaten on the ground  "some people yar just caaaant reach"

As the paper money continues to dilute the manner of hiding the hidden inflation is becoming astounding IMV.  Food in the US now going up at .9% a month but not being counted in the inflation number.  Previous months jobless numbers being revised down to make the next months figures look better.  And so on.


----------



## GumbyLearner (23 April 2010)

explod said:


> Food in the US now going up at .9% a month but not being counted in the inflation number.




No deflationary argument on this thread yet explod. But they'll come soon. 

Here's what is going on in my neck of the woods.

http://www.koreatimes.co.kr/www/news/nation/2009/12/123_57728.html

I have to keep reminding myself that a pack of shin ramyun was 50% cheaper
2 years ago.


----------



## Uncle Festivus (24 April 2010)

explod said:


> Thanks for the thread and the posts Uncle.
> 
> My reading over the years has me seeing things this way but no one wants to know.     And I have said this many times, from the film Cool Hand Luke, the great line of the warden as Paul Newman lay exhausted and beaten on the ground  "some people yar just caaaant reach"
> 
> As the paper money continues to dilute the manner of hiding the hidden inflation is becoming astounding IMV.  Food in the US now going up at .9% a month but not being counted in the inflation number.  Previous months jobless numbers being revised down to make the next months figures look better.  And so on.




It's only human to take the path of least resistance/hardship. It always pays to look behind the headline for the real truth in the reported numbers. If you have a look at the latest bit of fluff to get the market into some sort of financial apoplexia you can see that they are still bringing forward future consumption to prop up current failing consumption. So the new home sales came in at the highest since moses was a boy - that is until the artificial stimulis is withdrawn at the end of the month, then what? The lowest on record? 

Another interesting bit of data is that the savings rate in the US has also taken another huge dive over the last few months, but nearly exactly to the dollar, co-incides with the expansion of consumer spending over the same period. So the second wave has begun and the great consuming masses are being encouraged to live beyond their means again, only this time the stimulis debt has been spent and all it's achieved is an equity market dead cat bounce and massive deficits for decades to come? 

The Japanese lost decades is now morphing into the global lost decades.


----------



## Uncle Festivus (24 April 2010)

Japan next to default? Peak debt syndrome contagion....



> TOKYO (Dow Jones)--Fitch Ratings said Thursday that Japan's credit  ratings face downward pressure in the medium term due to the *ballooning  debt*, increasing the urgency that the government come up with a plan to  get it public finances under control.
> 
> "In the absence of sustained economic recovery and fiscal  consolidation, government *debt will continue to rise*, placing downward  pressure on sovereign credit and ratings over the medium term," the  credit-rating agency said in a report.
> 
> ...



http://online.wsj.com/article/BT-CO-20100422-708017.html?mod=WSJ_World_MIDDLEHeadlinesAsia


----------



## Ato (25 April 2010)

With respect, I'd like to see some rigorous analysis on Japanese debt claims. For example, it may be that the government has the highest ratio in the world, but what exactly does that mean based on the type of debt, and economy. Most of the debt is privately held by the citizens of the country, unlike for example the US government debt, which is held mainly by Japan & China. So as the debt is qualitatively different, does that give the Japanese government various other options to work with?

Anyway, I dont claim to have any rigorous analysis, but it would be nice to see some.


----------



## Uncle Festivus (5 May 2010)

Ato said:


> With respect, I'd like to see some rigorous analysis on Japanese debt claims. For example, it may be that the government has the highest ratio in the world, but what exactly does that mean based on the type of debt, and economy. Most of the debt is privately held by the citizens of the country, unlike for example the US government debt, which is held mainly by Japan & China. So as the debt is qualitatively different, does that give the Japanese government various other options to work with?
> 
> Anyway, I dont claim to have any rigorous analysis, but it would be nice to see some.




Fitch makes the claims, as per the post - 



> "The Japanese government is one of the most indebted in the world," Fitch said in the report titled, "Just How Indebted Is The Japanese Government?"
> Fitch estimates Japan's headline gross government debt reached 201% of gross domestic product at the end of the last year, the highest ratio of any country the agency rates.




as do several dozen other economists. The debt that has pushed Greece to the brink of ruin, by contrast, is 113 per cent of GDP. It's just that Japan has domestic surplus cash to keep supporting the deficit, at least until about 1017 by some projections, then game over. But it will be a game of accelerating negativity long before then.

Looks like the chickens are coming home to roost with the debt contagion taking hold globally? Or perhaps just economic reality of the final failure of the current capitalistic experiment?







http://www.ft.com/cms/s/3/55635b30-56cf-11df-aa89-00144feab49a.html


----------



## Ato (5 May 2010)

Ato said:


> rigorous analysis




I see that you arent capable of providing what I asked for. Thanks anyway.

A couple of random comments, if I may indulge.

Japan has a current account surplus, as a net saver. Greece has a deficit.

The net debt of Japan, which some suggest is a better indicator, is about 90%, whereas Greece's is about 85%.

The demographic problem, isnt a clear 'problem'. While money is withdrawn from retirement funds and deposited into banks, it is then taken again by the banks for reinvestment.

As I stated, I dont have anywhere near all the facts, and certainly cant claim to have any rigorous analysis. This little game, macroeconomic discussion & prediction is a tough one at the best of times. Most of the punters in the game want to be right, and consequently most of them get it wrong. Perhaps, you have some interesting rigorous analysis, UF? Do you even know the meaning of the graphs you've attached? Where does the magic 2017 number come from?


----------



## Whiskers (5 May 2010)

Uncle Festivus said:


> Now while the major US banks are reporting warm & fuzzy profit figures, it grossly hides the fact that they are still taking big hits from deteriorating mortgage lending portfoios. The fact that they show a profit at all is due largely to 'recovery' in equity markets - a self perpetuating, non sustainable path to failure down the track when the real economy fails to partake in the 'recovery'




Yes I saw reports earlier that some in UK in particular, were paying record dividends while profitibality was lagging or even making a loss. 



> While the real facts can be glossed over by fraudulent accounting and accomodative central bank liquidity, there is and still we be for several years yet the problem(s) of how to pay down the principle plus interest of debt stimulis incurred while fighting the GFC, as well as sundry accumulated debts incurred beforehand.




It seems to me that the greater of the two bitter pills and easiest for the general public to swallow will be increased taxes to curtail soverign debt .

The markets will slow a bit but probably not stagnate as a whole if it's introduced more staedily, because there are some countries like Aus that have relatively low debt that can still prosper so long as we can continue to find healthy trading partners.

That is unless the worldly dynamic changes to totally controlled by corporations rather than government. Then the other bitter pill of lower standard of living for the masses may be the the only option...

getting back to the 'East India Company' scenerio.


----------



## IFocus (5 May 2010)

Ato said:


> I see that you arent capable of providing what I asked for. Thanks anyway.
> 
> A couple of random comments, if I may indulge.
> 
> ...




Alto as I understand it Japan is in serious trouble due to continued stimulus using debt and I have seen extreme numbers I will see if I can find a reference John Mauldin has described it saying Japan's economy is a bug in search of a windscreen.   

Why they get away with it is that Japanese use their savings to buy Government bonds so no over seas borrowing hence no exposure to rising interest rates yet.

Problem is the savings rate is falling rapidly so borrowings will have to be made overseas eventually.


----------



## Uncle Festivus (7 May 2010)

Ato said:


> I see that you arent capable of providing what I asked for. Thanks anyway.
> 
> A couple of random comments, if I may indulge.
> 
> ...




The first chart shows that Japan is running a deficit, of which the shortfall is being funded by sucking the savings out of private holdings and then being paid back with newly printed money ie loss of currency value (private wealth) over time.

If you had followed the link, and read the article, you would have found the answers to your questions. 

The problem facing Japan is what now faces the rest of the world, although the ROTW don't have the savings 'buffer' that Japan has. The 'magic number', from the article  - 



> By 2017 or thereabouts, on Barclays Capital projections, the private sector’s cash surplus – currently financing the public cash deficit – will be almost gone.




I think it's symptomatic of humans generally that they do not want to acknowledge that they are living beyond their means, both ecologically and financially, and that at some point in the _current_ capitalistic cycle it must come to a day of payback ie the current system is UNSUSTAINABLE! 

Do you even know what capitalism is? Here is David Harveys' point of view on capitalism, not sure of his views on how to fix it? (3 parts) - 

http://www.youtube.com/watch?v=YtyZY9sKv2w


----------



## IFocus (7 May 2010)

Uncle Festivus said:


> The first chart shows that Japan is running a deficit, of which the shortfall is being funded by sucking the savings out of private holdings and then being paid back with newly printed money ie loss of currency value (private wealth) over time.
> 
> If you had followed the link, and read the article, you would have found the answers to your questions.
> 
> ...




The killer for Japan is the continuous run of populist governments bit like the major parties here


----------



## Ato (8 May 2010)

I personally feel the first chart is, at least, a little disingenuous. It compares tax revenues to total debt. If I'm not mistaken, it's like comparing one's yearly wage to total debt owed, say on their house. It's not so important to know that the total debt on your house is greater than your yearly wage, because you dont have to pay it back all at once with just your yearly wage (and ofc, you cant), and ofc the total debt is greater than your yearly wage. What you have to pay back is the interest. Currently the interest is at about 25-26% of tax revenues, which is admittedly rather high, I think.

Anyway, here are a few interesting bits of info/articles if you're really interested in pursuing the topic further:

http://www.economist.com/displaystory.cfm?story_id=15867844

http://findarticles.com/p/news-articles/analyst-wire/mi_8077/is_20090720/tantallon-ceo-jesper-koll-bloomberg/ai_n50900858/

http://w4.stern.nyu.edu/japancenter/events.cfm?doc_id=1535




Uncle Festivus said:


> I think it's symptomatic of humans generally that they do not want to acknowledge that they are living beyond their means, both ecologically and financially, and that at some point in the _current_ capitalistic cycle it must come to a day of payback ie the current system is UNSUSTAINABLE!
> 
> Do you even know what capitalism is? Here is David Harveys' point of view on capitalism, not sure of his views on how to fix it? (3 parts) -
> 
> http://www.youtube.com/watch?v=YtyZY9sKv2w




My apologies. I guess I should have known after reading the title, so I blame no one but myself for getting involved in this thread. However, this is imo nutcase tin-foil hat type stuff. I will withdraw myself from this thread and leave you to your David Harvey's. May Karl Marx rise from his grave and redistribute your wealth to all and sundry!


----------



## explod (8 May 2010)

Ato said:


> My apologies. I guess I should have known after reading the title, so I blame no one but myself for getting involved in this thread. However, this is imo nutcase tin-foil hat type stuff. I will withdraw myself from this thread and leave you to your David Harvey's. May Karl Marx rise from his grave and redistribute your wealth to all and sundry!




Without going back to the books, I think the Karl Marx idea was to distrubute down to all equally and within that idea that capitalism or more correctly in his context, mass production would eventually fail.  I do see them as both one and the same.  

But as George Orwell expressed in Animal Farm , "all animals are born equal but some are born more equal than than others"  ring any bells on Wall Street???

We are never satisfied in our bellies and will eventually eat ourselves away IMVHO.  Not sure who quoated that, maybe my own disfunctional dream.


----------



## Uncle Festivus (8 May 2010)

Ato said:


> My apologies. I guess I should have known after reading the title, so I blame no one but myself for getting involved in this thread. However, this is imo nutcase tin-foil hat type stuff. I will withdraw myself from this thread and leave you to your David Harvey's. May Karl Marx rise from his grave and redistribute your wealth to all and sundry!




So you agree Japan is in a bad way?

Yes, for the average person it is beyond comprehension that the only system of living that we have known is under serious threat, if not outright collapse. 

FWIW, David Harvey is not advocating any particular system, but pointing out that the currrent form of capitalism is unsustainable if we go for 3% compound growth ad infinitum, and that Marxs' ideas have a better social conscience for equitable wealth distribution. Taking the best parts of all the systems? 

But as it is now, there is a disproportionate, and growing, disparity between the rich and poor, both as individuals & countries. As the fallout of Keynesian debt deficit policy takes hold, there will be a growing mass of humanity who will demand justice and a return to 'the old ways'. Unfortunatley, the old ways were funded by debt from a fractional reserve banking system to the point where the 'natural' living state was 'un-natural' ie living beyond one's means.

The Keynesian solution to the Greek debt problem will be to 'create' more money, which will satisfy short term, but down the track the debt accumulation has to written off by someone, usually bond holders or who ever has bought that freshly minted debt etc

3 years ago if someone told you what was about to happen over the next 3 years they would have gotten the 'tin foil hat' label also, but we all know now what has transpired - the nutters are being continually vindicated for their views. When the rest of the world finally agrees with them, it will be too late?


----------



## Uncle Festivus (9 May 2010)

The US is the Naked Emporer, and the tide is going out....



> Overall U.S. government debt now stands at 92.6% of projected 2010 gross domestic product, according to the International Monetary Fund.
> 
> The U.S. now has a heavier debt burden than several of the overleveraged countries that have been branded with the scornful nickname "the PIIGS."
> 
> Portugal's debt, according to the IMF, is 85.9% of its GDP; Ireland's, 78.8%; Italy, 118.6%; Greece, 124.1%; Spain, 66.9%. Perhaps there should be a new acronym, with the U.S. added to Portugal, Ireland, Italy, Greece and Spain: "PIG IS U.S."




http://online.wsj.com/article/SB10001424052748704292004575230601932486166.html


----------



## Ato (9 May 2010)

Uncle Festivus said:


> So you agree Japan is in a bad way?




Misrepresentation




Uncle Festivus said:


> Wrote a whole bunch of garbage (imho)







Anyway, as stated, I'm outta this thread and it's craziness. Catch ya round, UF.


----------



## Uncle Festivus (9 May 2010)

And the suggestion of a GFC would have been crazy before it happened???

Useless fact for the tin foil hat brigade - the US Gross Federal debt ceiling is increasing at the rate of approx $7.7*B*illion a day.


----------



## Whiskers (9 May 2010)

Ato said:


> Misrepresentation
> 
> 
> 
> ...




Yes chicken littles end is near (up), but the question is, where is his head? 

You won't know it hit you till after it hit you, if you're not looking even in the general direction. 

Sorry folks, I just can't help myself with some of these pictorial analogy's.


----------



## wayneL (9 May 2010)

Re Chicken Little.

The sky might not fall, but things like stock markets, currencies, nations/governments... even civilizations periodically do.

IOW, Chicken Little is a false analogy.


----------



## Uncle Festivus (10 May 2010)

> Since the start of the financial crisis, industrial country public debt levels have increased dramatically. And they are set to continue  rising for the foreseeable future.
> 
> A number of countries face the prospect of large and rising future costs related to the ageing of their populations. In this paper, we examine what current fiscal policy and expected future age-related spending imply for the path of debt/GDP ratios over the next several decades.






> Our projections of public debt ratios lead us to conclude that the path pursued by fiscal authorities in a number of industrial countries is *unsustainable*. *Drastic measures are necessary* to check the rapid growth of current and future liabilities of governments and reduce their adverse consequences for long-term growth and monetary stability.



So says the Central Bankers bank, the[FONT=Arial, Helvetica, sans-serif] Bank of  International Settlements.

http://www.bis.org/publ/work300.pdf?noframes=1

The next phase has begun - hung parliaments - as the populace can't decide on who will save them. The UK, Germany, Philippines and possibly even Aus with Rudd Co now 50/50 with the alternatives. 
[/FONT]


----------



## drsmith (10 May 2010)

http://www.theaustralian.com.au/bus...und-for-eurozone/story-e6frg90x-1225864426160



> It casts aside long-held notions that each EU nation should manage its own finances, opening an era in which members of the common currency take on unprecedented responsibilities for each others' fiscal troubles.



Another finger in the dike to try and plug the leak ?

How many fingers are left ?


----------



## drsmith (10 May 2010)

Crikey Moses!

The S&P500 futures likes it. Up 3.6%. 

Guesses for where the index will end today's session and what it will mean ?


----------



## wayneL (10 May 2010)

drsmith said:


> Crikey Moses!
> 
> The S&P500 futures likes it. Up 3.6%.
> 
> Guesses for where the index will end today's session and what it will mean ?




Investors have been deluded into liking pseudo Keynesian bailouts... or should I say punters?


----------



## Whiskers (10 May 2010)

Watch out Chicken little!

It's coming from the other direction! :


----------



## cutz (10 May 2010)

drsmith said:


> Crikey Moses!
> 
> The S&P500 futures likes it. Up 3.6%.
> 
> Guesses for where the index will end today's session and what it will mean ?




Have no idea but one thing's for sure, it's getting pretty exciting.

at last


----------



## Uncle Festivus (10 May 2010)

> TOKYO (MarketWatch) - Japan's central bank joined five major global counterparts Monday in reopening temporary U.S. dollar-liquidity swap facilities as part of coordinated global central-bank efforts to maintain normal money-market function.




Crank up the 'copters Benny, another $US1TRILLION please . 
The Sara Lee Debt cake - layer apon layer apon layer..........
Or the Sovereign debt chocolate wheel - where it stops nobody knows.....
Or the no doc central bank bailout - print some more IOU's......


----------



## basilio (11 May 2010)

Promise of $1trillion dollars to support Greece et al and hold the Euro. The cavalary has arrived in the nick of time and all the punters can jump back into the market secure in the knowledge that we will have peace in our time, a chicken in every pot and a perpetual rise in national living standards.

I think I'll believe it when in 6 months Greece,  Italy, England, Spain, Portugal  USA , in fact all the debtor countries, start demonstrating a reversal of debt expansion - and somehow still manage to keep the economies  alive. Otherwise it will just be the last big bang before the inevitable  bigger bust.

Just don't really want to think what that sort of bust could look like.


----------



## explod (11 May 2010)

basilio said:


> Just don't really want to think what that sort of bust could look like.




Maybe we will see the trees basilio,     *ar huh  *""Idea"" the seppos could start with jungling Detroit maybe.


----------



## Uncle Festivus (27 May 2010)

If a measure of peak debt is when the government debt to GDP ratio goes above 1, then we have post peak debt right now.

And we have the US pointing the fiscal finger at the Euro zone with a 'get your house in order' frown, when the US is in a worse condition already?

The real state of the global financial system is actually several times worse, because the chart does not include unfunded off balance sheet items!

Chart source - Now & Futures


----------



## basilio (28 May 2010)

Ugly set of figures  isn't it Uncle !!  Just can't see how it can have a happy ending no matter which way we massage the figures. There will have to be truly monumental change in accounting and reality to keep most of us smiling as this play unwinds. 

Incidentally if/when we have a significant recession/depression then the debt to GDP ratio will climb even higher as GDP falls 

_______________________________________________________________________________

That is a fascinating series of charts you have linked to . Thanks


----------



## basilio (28 May 2010)

I've just spent some time on the World of Possible Futures website that  Festivus used as a reference for his recent post.  Quite fascinating. In considering where the current financial crisis might take us it's worth looking at what happened during the 1930's depression as debt was unwound around the world.




> * "A common feature of all these earlier troubles [panics such as 1907 and 1914] was that having happened they were over. The worst was reasonably recognizable as such.
> 
> The singular feature of the great crash of 1929 was that the worst continued to worsen. What looked one day like the end proved on the next day to have been only the beginning.
> 
> ...




http://www.nowandfutures.com/great_depression.html


----------



## Aussiejeff (28 May 2010)

basilio said:


> I've just spent some time on the World of Possible Futures website that  Festivus used as a reference for his recent post.  Quite fascinating. In considering where the current financial crisis might take us it's worth looking at what happened during the 1930's depression as debt was unwound around the world.
> 
> 
> 
> ...




But, apparently we are much smarter and tech savvy now. We've had years more experience since then. Those poor old timers were sucker dummies, eh? 

We New Agers are better educated and know better than to be fooled like that.

Thnak god for modern civilization and it's endless benefits & resources. We are The Gods Of Debt!

Bring it on....


----------



## GumbyLearner (6 July 2010)

This 11 minute video is interesting. For those interested in economics take a look. The academics final point about who to vote for is very amusing. Enjoy


----------



## againsthegrain (13 November 2021)

10 years ago things were looking like the peak, money printing dropping rates worked back then so kick the can down the road.

Here we are 21/22 things looking like heading into the peak, but this time rates are more likely going up then down,  printing is stopping.

Is there a way out this time?


----------

