Peak Debt = Peak Capitalism?

[Uncle Festivus]

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]

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]

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]

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]

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]

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.

"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.

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

 

[Ato]

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]

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]

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]

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]

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?

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]

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?

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]

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 -



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

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

 

[Ato]

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

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]

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]

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]

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]

So you agree Japan is in a bad way?

Misrepresentation

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]

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 $7.7Billion a day.

 

[Whiskers]

Misrepresentation






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

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.