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Topic: Are we in a depression? (Read 404 times) previous topic - next topic

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  • ken 
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Are we in a depression?
Good article. The GDP of this nation has been a big lie since the 2007-2008 crash.
http://www.zerohedge.com/news/2017-09-28/we-are-already-depression-if-borrowing-money-not-income

Re: Are we in a depression?
Reply #1
Good article. The GDP of this nation has been a big lie since the 2007-2008 crash.
http://www.zerohedge.com/news/2017-09-28/we-are-already-depression-if-borrowing-money-not-income

This article is exactly what I have posted here and elsewhere many times, but I used net GDP for the real economic growth rate, not actual GDP, doing exactly what the author is doing, subtracting debt. If he wanted to get more accurate, he would also subtract state and local debt as well, the difference being governments other than federal can not print funds, but they can borrow at zero rates. In both cases it encourages more government. I have also referred to this as bringing economic activity forward at the expense of future activity.

I carry the analysis further by identifying that all government spend is essentially 100% consumption and consumption by definition consumes wealth. It is reinvested wealth, not money, in wealth producing ventures that increase our standard of living and congruently our actual or net GDP. I say invested wealth, because the Fed cannot print wealth. The money printed by the fed steals its value from existing holders of dollars. It is simple, increased supply, decreased value. We cannot identify the wealth generating ventures that were not funded by existing dollar holders as a result of the lost dollar purchasing power. Another bad outcome is concentrating investment decisions into a few well connected banks, companies and government, the result being more bad decisions, remember Solyndra? This further concentrates wealth into the already rich and connected at the expense of middle America. Also, think about the dollars transferred to government, they will go to consumption; if left in private hands, a portion will go to consumption, but a portion will also go to generating wealth.

The above paragraph is exactly why big government fails. Their priority is to divert resources for the most part to consumption at the expense of wealth generating investment. We must have consumption as we must eat, shelter, and provide basic services, but when wealth generating investments do not cover the cost of our consumption plus provide extra for additional investment, standard of living contracts as does GDP, along with the collective wealth of the nation. One more point in connection with the tax plan being discussed now, it is fine but it is only part of the story. The other part is to shrink government so more wealth is directed toward wealth generating ventures and away from consumption. Think about it this way, you can not consume your way to prosperity, and you cannot consume your way to a healthy employment market.

There is so much more to say, but I am glad the story has reached a larger audience at Zero Hedge.

  • ken 
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  • Global Moderator
Re: Are we in a depression?
Reply #2
Quote
The money printed by the fed steals its value from existing holders of dollars. It is simple, increased supply, decreased value.
As I understand it, the deficit of value is made up by the petro dollar. The Saudis buy our bonds and we buy their oil, etc. The rest of the world that plays the petro dollar game also get screwed, but what's the alternative? Quit and you land up like Muammar and Saddam .  

Re: Are we in a depression?
Reply #3
Quote
The money printed by the fed steals its value from existing holders of dollars. It is simple, increased supply, decreased value.
As I understand it, the deficit of value is made up by the petro dollar. The Saudis buy our bonds and we buy their oil, etc. The rest of the world that plays the petro dollar game also get screwed, but what's the alternative? Quit and you land up like Muammar and Saddam .  

I believe that is partially correct, but not totally. It is referred to as exporting our inflating. If it were, the dollar would not have lost 98% or 99% over the last 100 plus years of fed malfeasance. By the way, run the math; that is overall a 4% per annum approximately decrease is the dollars purchasing power; so much for a 2% inflation target.

When Nixon decreed the dollar's separation from the last ties to precious metals, his treasury secretary, Bob McFarlane if I remember the name correctly, stated in some big wig meeting of country finance officials, when they complained about the arrangement of the reserve currency not being backed and getting the shaft, he stated to the effect, it is our policy and your problem. Now it is our problem and more citizens are figuring it out. You never hear the phrase, "Good as money in the bank" anymore.

This post may be the worst grammar I have ever posted, but you get the idea.

  • ken 
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  • Global Moderator
Re: Are we in a depression?
Reply #4
Another thing that gets me about the GDP is the Q1-3 where they count that as production. Again, as I understand it, for every trillion of 'stimulus' one point is added to the GDP. What a joke, not to mention dishonest. They smile when they screw you.

Re: Are we in a depression?
Reply #5
The above chain started by Ken with the excellent article reference is worth rereading in its entirety especially after the 3.5% GDP print (annualized) this morning. Putting the number in perspective, federal debt on June 29 was $21,195 billion and on September 28, $21,516 billion for a federal debt increase of $321 billion. Roughly speaking that is a pace for annual debt increase of $1,284 billion which is more than 6% of a 21,000 billion GDP economy. If the debt increase were subtracted from GDP; appropriate as explained in the article, incurring debt is not incurring income, then GDP contracted last quarter and it contracted rapidly. If an entity spends more than it takes in, it is losing value, and as a nation, we are losing value. Factor in state and local government debt increases and the situation is much worse. Then consider virtually all government spending is consumption which by definition consumes wealth; we are not only contracting, but we are also burning through our seed wealth to turn the situation around investing in wealth generating ventures.


It is a sad commentary on the fiscal management of the country's politicians and the situation is made exacerbated by the fed's foolish monetary policy and stimulation games.

  • ken 
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  • Global Moderator
Re: Are we in a depression?
Reply #6
This shit show called Amerikan politics is about the money and wealth of the politicians and the masters they serve which own this country, or should I say hijacked this country through their wealth. The people mean nothing except for their financial contributions, called taxes and fines. To fix this mess will take a crash and burn of the entire system.

America is not known for its brilliance in doing the right thing. It is known for its unbridled greedy politicians that think they can rule the world. Such fools.

  • sn00p
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Re: Are we in a depression?
Reply #7
no and i have some simple proof -- silver would be higher

Re: Are we in a depression?
Reply #8
The above chain started by Ken with the excellent article reference is worth rereading in its entirety especially after the 3.5% GDP print (annualized) this morning. Putting the number in perspective, federal debt on June 29 was $21,195 billion and on September 28, $21,516 billion for a federal debt increase of $321 billion. Roughly speaking that is a pace for annual debt increase of $1,284 billion which is more than 6% of a 21,000 billion GDP economy. If the debt increase were subtracted from GDP; appropriate as explained in the article, incurring debt is not incurring income, then GDP contracted last quarter and it contracted rapidly. If an entity spends more than it takes in, it is losing value, and as a nation, we are losing value. Factor in state and local government debt increases and the situation is much worse. Then consider virtually all government spending is consumption which by definition consumes wealth; we are not only contracting, but we are also burning through our seed wealth to turn the situation around investing in wealth generating ventures.


It is a sad commentary on the fiscal management of the country's politicians and the situation is made exacerbated by the fed's foolish monetary policy and stimulation games.

http://market-ticker.org/akcs-www?get_gallerynr=6757

I was not able to post the chart, but have a look at my post above and a look at the chart. The US is in contraction economically and the GDP number without considering debt is a fraud. The chart does not include state and local debt making GDP even more fraudulent. So what is a real repair for our situation?

First we need to understand that the above chart is showing the US is consuming (consuming is destroying) wealth faster than it is being generated. Wealth is generated via mining or extraction of resources, growing things from food to trees, manufacturing and construction, and via intellect (patents). Trump is doing some right things to turn the country to more wealth generation with his tax change to repatriate money and leave more wealth with individuals where some can/will be invested in wealth generating ventures. Another is his move to bring back manufacturing. He is also neglecting items that would do the most long term good probably because they would also inflict the most short term pain.

First is the debt. Virtually all federal spending is on consumption, so borrowing to fund more fed spending is foolish. As with the recession just prior to the roaring 20's, the government needs to contract spend to eliminate the deficit and start reducing total debt. When this was done in the 20's, the recession ended quickly albeit with pain; contrast that with the depression of the thirties where government essentially tried to spend our way into prosperity again, albeit with some 15 years of pain.

Second is interest rates being fixed below market rates. This encourages excessive borrowing that facilitates bloating the federal budget and disproportionately swaying the consumption to investment ratio in favor of consumption. Low interest rates also lower the threshold for positive investment decisions on marginal projects. Low interest rates also discourage savings, the foundation for capital to fuel our capitalist economy and destroying what should be steady income for people who sacrificed by saving some of their wealth. One might say the fraudulent GDP growth has been borne in large part by our senior citizens.

Third is illegal redefining of the fed's prices steady goal to 2% inflation. That one move is a mechanism for transferring wealth from all dollar denominated assets at a compounded rate of 2% per year. Since the fed was formed it has actually been closer to 4%. That wealth could be used for investing in wealth generating venture. Remember it is retained wealth invested, not printed dollars that generate wealth. Yes, printed dollars can be invested, but one has to consider their value is stolen from existing dollar denominated assets. As brilliantly pointed out by Frederich Bastiat, the seen is what the printed dollars have done, the unseen is what was not accomplished by the stolen wealth.

Fourth, lending needs to become more disciplined. Lending for consumption is encouraging wealth destruction. Should a family borrow for a lavish vacation, once taken, the vacation has consumed commensurate wealth. If the family bread winner become unemployed, then to service and or repay the debt, the family needs to sell something of value. further even if all goes well, the wealth represented by the loan must first be repaid from future wealth generated removing other options the money could have been spent.

So much more could be said. The article I took the chart from is linked but the gist of it is a bit different including information on birth rates and medical spending:

http://market-ticker.org/akcs-www?post=235839


Re: Are we in a depression?
Reply #9
More food for thought from Denninger, this is heavy:


http://market-ticker.org/akcs-www?post=236380

  • ken 
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  • Global Moderator
Re: Are we in a depression?
Reply #10
More food for thought from Denninger, this is heavy:


http://market-ticker.org/akcs-www?post=236380

Good case for a reset. I do think Trump see's this also.