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alstry (35.49)

Is our economy simply a Ponzi Scheme?....Without MASSIVE Lending....our economy evaporates.

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February 15, 2010 – Comments (7)

The fundemental question facing America, and the world, is whether the current economic SYSTEM  is essentially a fraud and current data is illusory based on a temporary stimulous of borrowed money?

Our problem is a structural one....we, and the world, NEEDED trillions of dollars of private sector lending EACH YEAR to drive our $14 trillion GDP.  With private sector lending being cut off, spending is evaporating as evidenced by our imploding private economy DESPITE government running a $2 Trillion dollar deficit.

Soon many will realize that America's economy, and much of the world, was simply a product of lending and spending......and now that the savings is running out, our economies, as we knew it, are imploding despite the fact we are told the recession is over.

The BIG issue facing America is how do we pay off $55 trillion of debt against a shrinking private economy......without shutting the nation down.

Just like lowering the unemployment rate by removing workers out of the workforce, we are lowering the vacancy rate by tearing down buildings.

http://www.calculatedriskblog.com/2010/02/retail-vacancy-rate-improvement-by.html

Think of where this could go if we extended this logic to medicare and social security?

The real question is what is the true nature and size of our economy without massive lending and spending?

http://globaleconomicanalysis.blogspot.com/2010/02/utah-proposes-scrapping-12th-grade.html

And what will the additional impact be from the decreased need for employees due to adoption of efficiency driving technologies?

7 Comments – Post Your Own

#1) On February 15, 2010 at 8:07 AM, DiceMagic (< 20) wrote:

I look at it like this, a man going bankrupt doesn't do it in one day. Too much debt piles up, he borrows more to make the payments, maybe misses one or two. he then has to pay higher interest rates to borrow more, pretty soon he can't pay the interest from current income and eventually someone calls in a loan. For governments its a bit more complex but eventually it has to be paid back from higher taxation or increase in economic activity giving higer taxes revenue. The alternative is to print more money making inflation rise and so the dollar denomiated revenues rise but the debts stay the same and so are easier to pay off, or a bit of all three. So expect higher interest rates, higher taxation and more money printing and adjust your protfolio acordingly.  

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#2) On February 15, 2010 at 8:14 AM, DiceMagic (< 20) wrote:

But eventually all fiat currencies are fraud and all fiat currencies revert to their intrinsic value. i.e. the value of the scrap paper.

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#3) On February 15, 2010 at 9:35 AM, oldfashionedway (39.14) wrote:

Just like lowering the unemployment rate by removing workers out of the workforce, we are lowering the vacancy rate by tearing down buildings.

CRE is more and more becoming a "disposable commodity".  After a useable life-span of 20 to 25 years, buildings have been fully depreciated, are in need of significant maintenence or renovation, are out of style and perceived as a liability rather than an asset.

The modern solution is to simply demolish a relatively functional building and throw away the "bricks and mortar", the concrete and steel.  In a twisted sort of post-modern thinking, it is a way to "recycle" the land on which a factory, office building, or retail building once sat.

In densely built-up urban areas, redeveloping vacant and abandoned properties is the financially and socially sensible thing to do.  However, in the United States, there seems to be a mentality that all architecture has more akin to the plastic plates and silverware that one is given at a fast-food restaurant drive-thru than to anything that has the potential for multi-generational usefulness.

Sadly, we also seem to expect our residential real estate, the "homes" in which we live, to be a disposable commodity as well.  The ease of travel, and the transient lifestyle to which we have become accustomed, have had some unintended consequences.  Houses are bought with the expectation that in just a few years they will be resold, either in the hope of making a quick profit, or when the next step up (or down?) the corporate ladder requires relocating to another part of the country or world.  More and more, the mortgage payments outlast our desire to own and occupy the buildings which we have chosen as the physical environment in which we work and live.  Should one find find himself, through no fault of his own, "upside-down" on a mortgage, is the logical choice to simply walk away?

What does it say about a society when they live in a "throw-away" world?  Is the new reality a world of the Sims computer game, and the solution the "delete" button?

Think of where this could go if we extended this logic to medicare and social security? 

I will leave the reader to draw his or her own conclusions.

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#4) On February 15, 2010 at 9:47 AM, alstry (35.49) wrote:

Things are about to get very convulsive.......especially when we Americans realize that most of the debt created in this ponzi scheme is owned by ourselves in our insurance companies, community banks, pension, retirement and investment accounts.

We basically owe ourselves money that we can't pay back.....and if we inflate the currency, we will pay ourselves back with worthless paper.

Only a small percentage of our $50 trillion of total debt is owed by foreigners......so by inflating, we are only hurting ourselves.

Couple that with the fact that we are eliminating millions of jobs with efficient technology, soon many will find out the problem is structural, impacting us all in a similar way the leak impacted all on the Titanic.

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#5) On February 15, 2010 at 11:14 AM, Superdrol (97.88) wrote:

The US is bankrupt.  Anyone disagreeing with that is just kidding themselves.

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#6) On February 15, 2010 at 11:51 AM, jdlech (< 20) wrote:

Not only have we bankrupted ourselves, but we deliberately set ourselves up our middle and lower class workforce to compete against every third world nation in addition to new labor saving technologies.  A technology can be implimented anywhere - including third world countries.   Even certain white collar jobs like engineers are not immune. The era of American jobs is fast being occluded by new realities.  Only that most dreaded of concepts, protectionism, can stem the tide of fleeing jobs and wealth.

The thing behind the curtain that globalists don't want you looking at is the fact that money and jobs are leaving the country.  Even if we end up in 'total trade war' America will save more jobs and money than it will lose.  We would win any trade war with nearly any nation or combination on Earth.

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#7) On February 15, 2010 at 11:52 AM, jdlech (< 20) wrote:

Not only have we bankrupted ourselves, but we deliberately set up our middle and lower class workforce to compete against every third world nation in addition to new labor saving technologies.  A technology can be implimented anywhere - including third world countries.   Even certain white collar jobs like engineers are not immune. The era of American jobs is fast being occluded by new realities.  Only that most dreaded of concepts, protectionism, can stem the tide of fleeing jobs and wealth.

The thing behind the curtain that globalists don't want you looking at is the fact that money and jobs are leaving the country.  Even if we end up in 'total trade war' America will save more jobs and money than it will lose.  We would win any trade war with nearly any nation or combination on Earth.

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