When will the Great Financial Ponzi end?

[Value Hunter]

Numerical proof of the argument is just common sense,

So in other words you are making a baseless assertion. If what you are saying made sense how would you explain explosive growth in debt to GDP ratios in the majority of countries in the world over the past 40 years?

By the way the debt explosion kicked into overdrive when the U.S. dollar removed its final linkage to gold under president Nickson. Which is far from a coincidence.

 

[Value Hunter]

Yes the out put of the economy may drop, but it may not, if the velocity of money increases.

So in Venezuela or Weimar Germany or Zimbabwe when the velocity of money went through the roof as everyone tried to get rid of their rapidly depreciating fiat as quickly as possible did that stop output from dropping?
(output as measured in terms of physical volume of goods produced etc)

What you are saying is nonsensical.

 

[Value Collector]

So in other words you are making a baseless assertion. If what you are saying made sense how would you explain explosive growth in debt to GDP ratios in the majority of countries in the world over the past 40 years?

By the way the debt explosion kicked into overdrive when the U.S. dollar removed its final linkage to gold under president Nickson. Which is far from a coincidence.

Mate the Total growth in debt each year, is way less than the total GDP, and as I said not all debt is bad and unsustainable so only part of that debt growth would be from debt that could be argued as bad, not to mention that as I also mentioned at least part of that debt would be funded by people that are forgoing their own ability to consume so the can save.

eg. I could install a pool that would add to GDP, but if I instead loaned you the money so you can install a pool that adds to GDP the net affect is the same, 1 pool go installed. The fact your pool was funded by debt doesn't inflate GDP, because although the debt allowed you to consume more, the debt was funded by my savings which delayed my consumption.

 

[Value Collector]

So in Venezuela or Weimar Germany or Zimbabwe when the velocity of money went through the roof as everyone tried to get rid of their rapidly depreciating fiat as quickly as possible did that stop output from dropping?
(output as measured in terms of physical volume of goods produced etc)

What you are saying is nonsensical.

In those situations the currency was destroyed, but I don't think it meant less bread was baked each day, or forests of timber slowed their growth in fact people in hyper inflation settings normally increase consumption, eg if I thought the price of coke was going to double next month due to the currency value dropping I might buy more coke now, along with all sorts of other consumer goods and services.

A currency rapidly devaluing is disruptive, but it doesn't change the underlying value of things in real terms.

 

[Value Hunter]

In those situations the currency was destroyed, but I don't think it meant less bread was baked each day, or forests of timber slowed their growth in fact people in hyper inflation settings normally increase consumption, eg if I thought the price of coke was going to double next month due to the currency value dropping I might buy more coke now, along with all sorts of other consumer goods and services.

A currency rapidly devaluing is disruptive, but it doesn't change the underlying value of things in real terms.

What you are saying total nonsense. Sure over a very short time frame (maybe 6 - 12 months) consumption increases as people rush to spend their currency before it becomes worthless. But over a period of years consumption will drop greatly because people's purchasing power gets destroyed. Do you think in Venezuela people eat more steaks today then they did 20 years ago? I can assure you the answer is they consume less steaks because most of them cannot afford steak any more!

Your argument that currency devaluation doesn't change the underlying value of things is bogus. There is a link between the monetary world and the real economy. Sure if a factory exists just because the factory owners defaulted on the debt or the currency hyper-inflates it doesn't mean the building disappears but the factory may sit idle/vacant due to a weak economy caused by said debt defaults or hyper-inflation. An idle/vacant factory is worth less than a productive factory. A lot of homes in Venezuela today when measured in US dollars are selling for a fraction of the price they were selling for 20 years ago because they produce far less rent than they did 20 years ago (when measured in U.S. dollars).

At this point its clear you either don't understand second order economic effects or you are arguing in bad faith.

 

[Value Hunter]

Mate the Total growth in debt each year, is way less than the total GDP

 

[Value Hunter]

Different sources give different figures for total debt to GDP because there are different ways of calculating it (do you include or exclude off balance sheet liabilities such as underfunded pensions, etc).

But every source shows the long term trend of debt to GDP is that its trending strongly upward over time. So by definition debt is growing faster than GDP. And a lot of academic studies show that the marginal utility in terms of growth produced by each additional dollar of debt continues to decline over time once you become over indebted (which we already are).

So according to the second chart in 1950 debt to GDP was a little over 100% (let's call it 103%). In 2022 according to the same chart it was 238%. So it increased by 135% in 72 years. If you project the same growth rate going forward in 100 years time debt to GDP will be over 760%. Clearly things will collapse long before then.

 

[qldfrog]

What you are saying total nonsense. Sure over a very short time frame (maybe 6 - 12 months) consumption increases as people rush to spend their currency before it becomes worthless. But over a period of years consumption will drop greatly because people's purchasing power gets destroyed. Do you think in Venezuela people eat more steaks today then they did 20 years ago? I can assure you the answer is they consume less steaks because most of them cannot afford steak any more!

Your argument that currency devaluation doesn't change the underlying value of things is bogus. There is a link between the monetary world and the real economy. Sure if a factory exists just because the factory owners defaulted on the debt or the currency hyper-inflates it doesn't mean the building disappears but the factory may sit idle/vacant due to a weak economy caused by said debt defaults or hyper-inflation. An idle/vacant factory is worth less than a productive factory. A lot of homes in Venezuela today when measured in US dollars are selling for a fraction of the price they were selling for 20 years ago because they produce far less rent than they did 20 years ago (when measured in U.S. dollars).

At this point its clear you either don't understand second order economic effects or you are arguing in bad faith.

Or a simple easy to understand fact:
The house owners default, the house get on market via morgage sale, are boarded up, squatters set in: within a decade.. Detroit, housing areas in europe, the houses are destroyed, unmaintained infrastructure collapses and only the raw land, now in no go area is left as "value" for maybe a recycling plant or a heavy machinery parking area, there is actual destruction of assets, output not only $ value.

 

[Value Hunter]

The inflation that occured in Germany after world war 1 (the Weimar republic) literally laid the foundations for Hitler to come into power. And one of the reasons behind the collapse of the Roman empire was inflation of the currency (they reduced the gold/silver content of coins either via clipping the edges or adding other metals such as copper to coins).

 

[Value Hunter]

Here is an example of the effect of inflation.



In this episode of the best ever food review show filmed 10 months ago. If you watch the episode from around the 7 minute mark to the 8 minute mark he visits a busy bakery in Lebanon that is selling a lot of bread. They still sell around 5000 pieces of bread per day but in U.S. dollars the price has dropped from $0.70 per piece to $0.01 per piece because the customers cannot afford to pay more due to inflation crushing their purchasing power. So it went from being a viable business to a business producing only $50 USD worth of revenue per day and I assume profit must be close to once you subtract cost of goods sold, electricity, etc. So what was once a viable business is basically worthless now due to inflation.

 

[Value Hunter]

In 1977 Warren Buffet penned an article literally titled "How inflation swindles the equity investor" and basically made the point that for the vast majority of business inflation will hurt the business and its shareholders massively. He pointed out there are a handful of businesses with strong pricing power that will be mostly unaffected by inflation but the vast majority of businesses and their shareholders will suffer greatly during a high inflation period.

http://csinvesting.org/wp-content/uploads/2017/04/Inflation-Swindles-the-Equity-Investor.pdf

This is literally the first paragraph:

"It is no longer a secret that stocks, like bonds, do poorly in an inflationary environment. We have been in such an
environment for most of the past decade, and it has indeed been a time of troubles for stocks. But the reasons for
the stock market’s problems in this period are still imperfectly understood."

 

[Value Collector]

View attachment 185825
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That chart proves my point.

Over 8 years global debt rose by less than $10 Trillion per year, but the Global GDP was over $100 Trillion per year, so clear most GDP is not coming from debt.

Especially when you fact in the follow points.

1. Even if debt stayed the same in real terms, that chart would show $6 Trillion increase each year just from inflation.

2. The global economy grew over that time, so you would expect debt to grow as the economy grows, this is probably atleast another $3 Trillion per year.

 

[Value Collector]

Or a simple easy to understand fact:
The house owners default, the house get on market via morgage sale, are boarded up, squatters set in: within a decade.. Detroit, housing areas in europe, the houses are destroyed, unmaintained infrastructure collapses and only the raw land, now in no go area is left as "value" for maybe a recycling plant or a heavy machinery parking area, there is actual destruction of assets, output not only $ value.

Before the houses in Detroit were abandoned, they were lived in and consumed for years, they served their purpose. Just like a loaf of bread has value, that disappears as it is consumed, so do houses they just are consumed over a much longer time frame.

As the population of Detroit dropped and land lost its value in some areas, that population shifted to other areas of the USA and caused land values to rise there.

 

[Value Hunter]

Over 8 years global debt rose by less than $10 Trillion per year, but the Global GDP was over $100 Trillion per year, so clear most GDP is not coming from debt.

8 years is not enough time when looking at long term trends for the global economy. Pay attention to the the long term chart starting from 1950. Also your maths is not adding up. The chart showed that debt rose from $221 trillion to $315 trillion in 8 years. That is $94 trillion increase in 8 years which is an $11.75 trillion increase in debt per annum. I don't know where you are getting the less than $10 trillion per year figure from.

1. Even if debt stayed the same in real terms, that chart would show $6 Trillion increase each year just from inflation.

2. The global economy grew over that time, so you would expect debt to grow as the economy grows, this is probably atleast another $3 Trillion per year.

You clearly do not understand the charts or basic mathematics because they are highlighting debt to GDP ratio not the nominal level of debt. Therefore if inflation boosted GDP and debt at the same rate then the debt to GDP ratio would remain the same but it did not remain the same it increased significantly since 1950.

There is no point arguing with you if you are going to continue to be intellectually dishonest and argue in bad faith.

 

[Value Hunter]

In the U.S.A the government paying interest on the debt it owes is the second biggest line item in terms of expenditure and its projected to become the number 1 line item for expenditure within the next 5 - 10 years. But according to you that is a sustainable trajectory when a government spend more on paying the interest on its debts than it does on any other line item such as healthcare, social security, infrastructure investment, etc.

 

[Value Collector]

8 years is not enough time when looking at long term trends for the global economy. Pay attention to the the long term chart starting from 1950. Also your maths is not adding up. The chart showed that debt rose from $221 trillion to $315 trillion in 8 years. That is $94 trillion increase in 8 years which is an $11.75 trillion increase in debt per annum. I don't know where you are getting the less than $10 trillion per year figure from.



You clearly do not understand the charts or basic mathematics because they are highlighting debt to GDP ratio not the nominal level of debt. Therefore if inflation boosted GDP and debt at the same rate then the debt to GDP ratio would remain the same but it did not remain the same it increased significantly since 1950.

There is no point arguing with you if you are going to continue to be intellectually dishonest and argue in bad faith.

Ok, well you find me a time when global debt has ever increased at a rate that is anywhere close to global GDP.

Either way, $11 Trillion per year increase is still no where near the over $100 Trillion of out put, so how can you say GDP is being funded by unsustainable debt.

As an economy gets bigger it will naturally have more debt, if you lift workers out of poverty and they start getting good wages, getting home loans and car loans etc the debt goes up, that’s not a sign of weakness it’s a sign of a growing economy.

 

[Value Collector]

In the U.S.A the government paying interest on the debt it owes is the second biggest line item in terms of expenditure and its projected to become the number 1 line item for expenditure within the next 5 - 10 years. But according to you that is a sustainable trajectory when a government spend more on paying the interest on its debts than it does on any other line item such as healthcare, social security, infrastructure investment, etc.

Some of that interest it pays it pays to itself, for example the federal reserve is a huge holder of government bonds, and its returns its profit each year back to the treasury.

Also, other government organisations often hold USA treasury bonds.

It to mention the the biggest private buyer of bonds Berkshire pays tax on the interest it collects on its bonds, as do many of the the other holders.

 

[divs4ever]

Also, other government organisations often hold USA treasury bonds

an interesting concept when you dwell on it ( especially at US Federal and State Government departments )

( Government departments holding debt of the US Federal Government .... )

 

[Smurf1976]

Or a simple easy to understand fact:
The house owners default, the house get on market via morgage sale, are boarded up, squatters set in: within a decade.. Detroit, housing areas in europe, the houses are destroyed, unmaintained infrastructure collapses and only the raw land, now in no go area is left as "value" for maybe a recycling plant or a heavy machinery parking area, there is actual destruction of assets, output not only $ value.

Yep plenty of examples of towns where whatever industry that brought money in died out.

Once that happens people leave, usually most are gone pretty quickly once it's clear there's no future there, and it ends up with at most a few remaining intact buildings. For the rest either they're intentionally demolished (or carted away intact if suitable) or they end up falling into disrepair and eventually ruin.

Plenty of examples of that in Australia and it all tends to go pretty quickly.

 

[Value Hunter]

Ok, well you find me a time when global debt has ever increased at a rate that is anywhere close to global GDP.

What on earth are you talking about? You are comparing apples to oranges. You need to compare total debt to total GDP and total debt growth to total GDP growth otherwise it makes no sense. You are trying to compare total GDP to the individual annual increase in debt which is a useless and nonsensical comparison.

What you are saying would be the equivalent of saying "widget corporation has $100 million dollars of earnings and its debt only increased by $15 million this year". Its kind of a meaningless analysis. What would be meanignful is saying that "widget corporation last year earned $97 million and this year earned $100 million. Meanwhile its total debt increased from $300 million to $315 million". The second sentence is a more accurate portrayal of whats going on with global debt to GDP.

You keep ignoring the two key points:

1) Global debt already far exceeds global GDP. Globally total GDP is somewhere around $95 - 110 trillion USD (depending on who's figures you use). While total debt is $300 - $350 trillion USD. And that $300 - $350 trillion figure excludes various off balance sheet liabilities (unfunded pensions, etc). You could argue if you were comparing the total economy to a company GDP would be like sales rather than profit. And any company that has debt which is 3 times sales is generally considered highly indebted. Even debt to EBITDA (let alone debt to sales) of 3 times is considered to be a considerable amount of debt for the majority of companies (although it can be okay for some companies such as utilities, real estate companies, etc).

2) In 2016 global debt was around $69 trillion USD (extrapolated from the graph I posted earlier). So its increased from $69 trillion to the current $100 trillion. That is a $31 trillion dollar increase in 8 years. In the same 8 years Total debt increased from $221 trillion to $315 trillion. That is a $94 trillion dollar increase. So the total debt in nominal dollar terms increased by triple the amount that total GDP did. And it also increased at a faster percentage rate as total debt to GDP increased from 320% to 333% (some other figures from other sources show even higher increases in the total debt to GDP ratio).

So to summarize debt is increasing faster than GDP in both dollar terms and percentage terms. And this has been going on since the 1970s (when the final link to gold was severed and the world moved to a pure fiat standard). If debt kept gorwing faster than earnings for a company in both dollar and percentage terms over a 50 year period it would generally be considered unsustianable (depending on the starting level of the debt) and the same is ture for the world economy.

At this point I am getting tired of dealing with your ignorance, lack of using facts to argue and your lack of logic and constant arguing in bad faith. Its very tiresome.