patrick.net

Until this clock starts ticking backwards the economic abyss just keeps getting deeper.

Not really.

It ticked backwards in the late 1990s:

https://research.stlouisfed.org/fred2/series/FYGFDPUN

but that's when we were really digging the hole for ourselves wrt trade deficits:

https://research.stlouisfed.org/fred2/series/NETEXP

http://research.stlouisfed.org/fred2/graph/?g=wm6

shows the national debt (less what the Fed's bought) is now $10T, double what it was 6 years ago.

Looking at the above chart we see the debt was pretty flat 2005-2008, but that was only because we were collectively ringing up $6T in new consumer debt.

The debt is a symptom of the imbalances, but if & when we solve the imbalances, the debt will take care of itself.

Hint, we're going to have to raise taxes on the "savers" of this economy, i.e. the rich people who own half or more of the national already, and are profiting so handsomely in the status quo

http://research.stlouisfed.org/fred2/series/CP/

^ winning

Actually, the debt IS the problem. Remember Mises warning:

“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

Fed charts are all BS -- meaningless, contrived data meant to do exactly what it is doing... confuse the public. Debt will never "take care of itself". We are way beyond that possibility. Perhaps you should read more about bubbles:

http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-reserve-and-the-u-s-congress-have-created-a-debt-crisis-of-historic-proportion/

Bellingham Bill says

It ticked backwards in the late 1990s:

It ticked backwards because of the combination of internet boom, the dotcom bubble and $12 a barrel oil. Do you really expect to see that again in your lifetime.

bob2356 says

Do you really expect to see that again in your lifetime.

Actually, yes... bubbles burst and often catastrophically. This one is long over due and any hope the Fed or the world's central banks can prevent it from bursting are just pipe dreams. They most assuredly won't 'taper' it into something manageable. The event will be quite violent.

I am pretty sure the global debt bubble will collapse in my lifetime. I am pretty confident the collapse is imminent. I "hope" I live to witness it.

darlag says

Debt will never "take care of itself

Someone -- let's call them 'the rich' -- owns all this killer debt, they're the ones who have to be stiffed in the end.

Saving the rich isn't going to save us. Quite the opposite, the debt is how the rich are enslaving us.

Misean jazz is just dressed-up defense of the parasitical wealth taking over everything now.

My kids can push it onto their kids. Water always finds its level. If the Chinese, American and Iraq children have a equal standard of living, all will be right in the universe.

There are some odd and even confused comments above.

The problem with a huge debt is that 1. our taxes go to interest payments to foreigners. 2. our taxes used for interest payments can't produce any services to us (e.g. health, education, etc.) 3. the value of our own currency also slowly falls. 4. our taxes must go up to pay higher interest payments.

The analogy is having a credit card balance that you pay the minimum payment each month. What happens to your personal budget if you are paying $500/month or $1000/month in interest? That money could be put to other use that you'd enjoy more.

Looking through old photos I saw my Swiss ski lift pass. 10 days=100 Swiss Francs=$33 US dollars in 1974.
Today 100 Swiss Francs=$113 US dollars.
What changed? The USA debt rose to $17 trillion.

clambo says

The problem with a huge debt is that 1. our taxes go to interest payments to foreigners.

ZIRP solves that issue.

http://www.treasury.gov/resource-center/data-chart-center/tic/Documents/mfh.txt

shows foreign debt is up $200B YOY.

our taxes used for interest payments can't produce any services to us

that's OK, if this money is indeed disappearing into a black hole, we can just print more to replace it.

the value of our own currency also slowly falls.

this is the medicine we need to take, actually.

http://www.china-briefing.com/news/2014/04/02/chinas-2014-q1-minimum-wage-hikes.html

shows the minimum wage is $300/mo ($1.70/hr) in Shenzhen. How the heck can US labor compete with that?

We either tariff their asses or see the yuan rise until the trade deficit goes away.

And this is a $300B/yr imbalance right there.

http://www.census.gov/foreign-trade/balance/c5700.html

I saw my Swiss ski lift pass

yes, the 1% wants a strong dollar so shit is cheap in Europe for them, as are their European-made luxuries.

Thing is, a strong dollar is not necessarily good for the economy as a whole.

http://research.stlouisfed.org/fred2/series/MANEMP

half our trade deficit is in goods, the other half is oil. We need to put people working in manufacturing to replace our oil economy.

New energy-efficient houses, transportation, etc. New manufactured energy technologies like wind and PV.

If you can't tell, I think our trade deficit is a much bigger issue than our ballooning debt. Like Japan's debt situation, debt in a fiat regime is just numbers on a graph. Trade deficits are the actual real-world indication of structural imbalances that are going to have to be addressed eventually.

The subject was the growing national debt which I explained has negative aspects for Americans.

I haven't figured out a way to "print money" to pay taxes, and with larger debt taxes must go up. Please let us all know how to print money to send in, we're curious.

I also haven't figured a way to buy MORE goods as the value of my currency falls. Oh, I can "print money" again right?

Personally, I like travel, so it was nice when I could visit Switzerland before USA became a welfare state and my money went 3 times as far as it does today over there.

clambo says

I haven't figured out a way to "print money" to pay taxes,

money government spends doesn't disappear, it enters the wider economy.

so when the Fed buys bonds with printed money, the Treasury then spends this money into the economy, viola, taxes will get paid with printed money.

http://research.stlouisfed.org/fred2/graph/?g=wxx

shows Fed money printing has injected over $3.0T with this new approach.

Maybe if the Fed printed this money with blue ink you'd be able to see what they're doing.

I also haven't figured a way to buy MORE goods as the value of my currency falls.

Not more imported goods, no. But our economy is a lot bigger than what we import. People with no work -- 12 million people right now -- can't buy shit.

Inflation is a very complicated mechanism. In the 1970s we got hit with a colossal dose of it, but there was a lot of drivers, primarily the wage-price spiral that was going on, plus the demographic expansion of the workforce (the baby boom was age 11 to 29 in 1975) with the concomitant growth in payrolls and credit demand.

The bottom line here is the people with money have too much of it.

http://research.stlouisfed.org/fred2/series/GINIALLRH

Inflation is the only way to soft-default on this debt (that the cash-poor owe to the cash-rich), by pushing wages & prices up to lessen this leverage:

http://research.stlouisfed.org/fred2/graph/?g=wxB

and my money went 3 times as far as it does today over there

and manufacturing employment has fallen by 30% since 1974:

http://research.stlouisfed.org/fred2/series/MANEMP

Germany is running a massive trade surplus against us.

Printing isn't the best way to fix these problems, but first we have to agree what the problems are.

$2T/yr corporate profits, falling real wages, sky-high housing and healthcare costs, $500B/yr trade deficit -- these are the core problems with the economy.

Compared to all that, the debt is just numbers.

Bellingham Bill says

Compared to all that, the debt is just numbers.

The Fed is irrelevant in the situation that confronts the U.S., let alone, the global economy. Their puny $4 trillion of money printing -compared to the $650+ trillion and growing global debt problem - is like trying to fill lake Michigan with a garden hose. It can't be done.

Why you insist on showing charts from the Fed, charts which have concocted and contrived data behind them, baffles me. A much better source for employment data and the amount of M1-M2 and the now defunct M3 data, is

http://www.shadowstats.com

At least Williams uses actual and realistic data for his calculations.

darlag says

Their puny $4 trillion of money printing -compared to the $650+ trillion and growing global debt problem

The fed is not the only CB to print money.

If you want to talk about the US, what the fed does is relevant.

The US debt situation IS better than it was in 2008.

Bellingham Bill says

shows the minimum wage is $300/mo ($1.70/hr) in Shenzhen. How the heck can US labor compete with that?

We don't need US labor to compete with Chinese labor. What we need is US business to compete with US labor taken as a whole. Using US labor can often mean more efficient supply chains, more nimble processes, better quality control, less lead time to get product, etc. That's why many companies have been moving production back to the US.

The cost in Mexico has increased much less rapidly than China, and given the hurdles of having a production line in China vs. just over the border, it's probably more economical when you consider all variables to use either US or Mexican labor instead of Chinese, even if the labor cost is higher. US wages are also largely flat, as Chinese wages continue to rise rapidly.

As I've mentioned before, some experts predict that more US market goods will be manufactured in the US going forward:

http://www.economist.com/node/18682182

Bellingham Bill says

darlag says

Debt will never "take care of itself

Someone -- let's call them 'the rich' -- owns all this killer debt, they're the ones who have to be stiffed in the end.

Saving the rich isn't going to save us. Quite the opposite, the debt is how the rich are enslaving us.

Misean jazz is just dressed-up defense of the parasitical wealth taking over everything now.

Sometimes I wonder if you ever know what the hell you're talking about. What does the rich owning all this killer debt have to do with creating the debt? Isn't it the government who creates the debt?

Mexican labor is pretty cheap still.

http://www.mcclatchydc.com/2014/03/13/221138/at-award-winning-tijuana-factory.html

$400/month is the factory wage there apparently.

It's not the trade itself so much (I guess), it's the deficit.

http://www.census.gov/foreign-trade/balance/c5700.html

China $50B first two months

$7B to Mexico is $400/yr per household leaving the US economy.

http://www.census.gov/foreign-trade/balance/c2010.html

Bill, interest paid on the debt to foreigners does actually disappear from our economy.

I don't know what you are trying to get across, are you in favor of $17,000 billion of debt?

Taxes paid to service this debt are capital that could be saved and invested in more useful areas. It's a very inefficient use of captial to borrow money in order to pay interest on previously borrowed capital.

clambo says

Taxes paid to service this debt

is money hitting the economy somewhere.

Granted, it's all pooling with the "savers" who already own everything, but if I were running things I'd raise taxes on the top 5% sufficiently to close the current deficit, either via personal income taxes or higher corporate income taxes, hitting dividends.

It's a very inefficient use of captial to borrow money in order to pay interest on previously borrowed capital

we're in a post-scarcity world, and that includes "capital".

we're drowning in capital, well "the 1%" is at any rate.

A billion smartphones are manufactured every year! Everything is like that, except for maybe non-CAFO food supply, and our food supply that is threatened by the current California drought, and future droughts elsewhere. (and sub-$100 oil, LOL, we've pretty much run out of that)

Corporations are clearing $2T a year in after-tax profit now. No capital constraints there.

But 80% of this country doesn't have a pot to piss in, being left behind as riches flow up the pyramid.

My thesis is that the high rents in housing and health care are increasingly impoverishing the paycheck economy, plus on top of that we have retail employment under attack via internet disintermediation, and of course manufacturing falling away as a significant employment opportunity.

http://research.stlouisfed.org/fred2/graph/?g=wH8

shows that during the peak 1 out of 4 people age 25-54 was involved in mfg. Now it's 1 out of 10.

And yet we have 12 million underemployed, and $2.7T sitting at the Fed doing nothing:

https://research.stlouisfed.org/fred2/series/EXCSRESNS

NOT a lack of capital, a lack of distribution, of demand.

Our economy is getting as dysfunctional as the Soviet one ca. 1985.

Heraclitusstudent says

The fed is not the only CB to print money.

True. But they are the largest by far. All the others combined don't add up to the Fed. Together, all the CBs in the world can't begin to touch the debt that exists. Those that naively think the CBs can print the globe out of its debt problems are grossly mistaken.

darlag says

But they are the largest by far

LOL. What do you think the 中国人民银行 had been doing since the 1990s?

How about Japan?

http://research.stlouisfed.org/fred2/graph/?g=wLP

Oops, sorry, another Fed chart -- I understand actual numbers and stuff goes against your religion!

Shows Japan has been slacking this century, but they're going to catch up the lost ground if Abe has his way.

http://www.bloomberg.com/news/2014-04-09/kuroda-seen-brewing-yen-weakening-surprise-action-japan-credit.html

darlag says

think the CBs can print the globe out of its debt problems

We don't have a debt problem, we have an undertaxed rich problem.

taxing the rich incidentally fixes the debt, too.

funny how the rich and the people they pay to generate propaganda don't see this.

The big 'ol evil debt will destroy us, any day now...

Any year now...

Any decade now...

Iosef V HydroCabron says

The big 'ol evil debt will destroy us, any day now...

Any year now...

Any decade now...

It will be a controlled demolition...

Bellingham Bill says

Germany is running a massive trade surplus against us.

That can't be. I thought the Germans were all lazy Eurosocialists. Whereas our Free Trade Liberty and far, far more lax employment, enviro, and business regulation has gotten us a... oh... massive trade deficit, Year after Year.

Why is China not reciprocating our Free Trade? All the Classical and Neo-liberals say it's guaranteed to happen... can't figure it out.

Hey, speaking of economic liberty causing political liberty, any word on when the people will be able to vote for the President of Saudi Arabia, Bahrain, and China? They've been capitalist for decades upon decades now...

Bellingham Bill says

LOL. What do you think the 中国人民银行 had been doing since the 1990s?

Cute. But Abenomics is a joke in the second decade of the 2000s. Our Fed is learning a lesson the Japanese tried to teach us for two decades... you can't print your way out of deflation. They tried for 20 plus years and failed. Five years in we still haven't figured it out... once more, per Mises:

“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

The markets will eventually confirm Mises. Current events may very well be the beginning of his substantiation. Bubbles burst... simple as that.

http://www.globaldeflationnews.com/anatomy-of-a-bubble-how-the-federal-reserve-and-the-u-s-congress-have-created-a-debt-crisis-of-historic-proportion/

darlag says

But Abenomics is a joke in the second decade of the 2000s.

Abenomics has nothing to do with the People's Bank of China.

Well it does tangentially, since Japan's strong yen was making Japanese labor less globally competitive than China's weak yuan.

per Mises

eye roll. It's easy for rich assholes to prescribe 'market clearing' crashes.

Not so easy when you force millions if not billions to starve with your remedy.

There are better ways, it's a false dichotomy to insist on Austrian vs. Keynesian.

The real thing we have to do is tax the rich. A lot.

http://research.stlouisfed.org/fred2/series/GINIALLRH

Austrians don't see that as a problem, they celebrate it.

darlag says

you can't print your way out of deflation.

In "normal" conditions, you can.

You can't if salaries are anchored at a low point by competition with low wages countries.

If salaries can't go up, there won't be inflation and only assets will be pushed up by printing.

In these conditions, taxing the rich heavily may indeed be the one way to prevent accumulation of money in places where it doesn't circulate.

thunderlips11 says

That can't be. I thought the Germans were all lazy Eurosocialists. Whereas our Free Trade Liberty and far, far more lax employment, enviro, and business regulation has gotten us a... oh... massive trade deficit, Year after Year.

Note that Germans like a strong currency.

Countries with strong currencies (Germany, Japan) have historically have a strong trade balance the one with a weak currency (US, England) - contrary to the advertised effect of currency devaluation.

Japan now devalues its currency and - surprise - it is starting to get trade deficits.

This is because it discourages debts (and debt based spending) and asset inflation, it encourages saving and therefore investment.

Germany is one of the few countries that didn't have a housing bubble and the huge malinvestment that went with it.