Published on FINANCIAL SENSE (http://www.financialsense.com)
Home> Death By Debt

Death By Debt
By Chris Martenson PhD Created 8 Jun 2011

Expect more thin-air money printing
Expect more thin-air money printing There are no historical examples of any country ever digging itself out from so deep a hole, and yet we find that the entire developed world has bravely pushed itself deep into unknown territory One of the conclusions that I try to coax, lead, and/or nudge people towards is acceptance of the fact that the economy can't be fixed. By this I mean that the old regime of general economic stability and rising standards of living fueled by excessive credit are a thing of the past. At least they are for the debt -encrusted developed nations over the short haul -- and, over the long haul, across the entire soon-to-be energy-starved globe. The sooner we can accept that idea and make other plans the better. T o paraphrase a famous saying, Anything that can't be fixed, won't. The basis for this view stems from understanding that debt -based money systems operate best when they can grow exponentially forever. Of course, nothing can, which means that even without n atural limits, such systems are prone to increasingly chaotic behavior, until the money that undergirds them collapses into utter worthlessness, allowing the cycle to begin anew. All economic depressions share the same root cause. Too much credit that does not lead to enhanced future cash flows is extended. In other words, this means lending without regard for the ability of the loan to repay both the principal and interest from enhanced production; money is loaned for consumption, and poor investment decisions are made. Eventually gravity takes over, debts are defaulted upon, no more borrowers can be found, and the system is rather painfully scrubbed clean. It's a very normal and usual process. When we bring in natural limits, however, (such as is the case for petroleum right now), what emerges is a forcing function that pushes a debt -based, exponential money system over the brink all that much faster and harder.

and liability basis.individually or in combination -. tax and benefit adjustments. or spending cuts are made -. overconsumption of nearly everything imaginable. and liabilities in such a way as to make the case that there's no possibility of a return of generally rising living standards for most of the developed world. not the least of which is the risk that the debt -based. let's ignore the imminent energy crisis. deficit.seriously entertain the premise that the re's just no way for all the debts to be paid back. At the heart of it all. much of Europe.and really should -. let alone at the ready. debts.] If I were to be given just one chart. Your One Chart That Explains Everything) [Note: this next section is an excerpt from a recent Martenson Blog entry [2]. There are many implications to this line of thinking.But for the moment. we will tie this understanding of the debt predi cament to the energy situation raised in my prior report [1] to fully develop the conclusion that we can -. the US. like another Internet. At the end. should some transformative technology come along. but no such catalysts are on the horizon.nothing really pencils out to anything that remotely resembles a solution that would allow us to return to business as usual. and rising prices in healthcare utterly disconnected from economics are other symptoms. fiat money system itself is in danger of failing. so if this seems familiar to any site members. or perhaps the equivalent of another Industrial Revolution. and Japan are all well past the point of no return. too. of which housing is perhaps the most visible poster child. On a pure debt. This report will examine the deficits. which fed all kinds of grotesque distortions. bloated college tuition costs. it is this one: . the developed nations blew themselves a gigantic credit bubble. However outsized government budgets and promises might be. No matter what policy tweaks. A new era is upon us. There's always a slightchance . Too Little Debt! (or. it's because you've seen it before. by which I had to explain everything about why Bernanke's printed efforts have so far failed to actually cure anything and why I am pessimistic that further efforts will fall short.

which were positioned to directly benefit from the money. if we start in January 1970 and ask the question. This means that debt has been growing in a nearly perfect exponential fashion through the 1970's. This explains everything. It explains why things don't feel right. . we find a nearly perfect fit with a R 2 of 0. credit market debt will need to double again. and local). the 1990's and the 2000's. state. corporate profits). and why most people are still feeling quite queasy about the state of the economy. note that the most serious departure between the idealized exponential curve fit and the data occurred beginning in 2008. "How long before that debt doubled and then doubled again?" we find that debt has doubled five times in four decades (blue triangles). Then if we perform an exponential curve fit (blue line) and round up. It explains why the massive disconnects between government pensions and promises.financial sector debt. Finally. or in any way resemble the prior four decades. match. Next. the 1980's. In order for the 2010 decade to mirror. First.99. and it has not yet even remotely begun to return to its former trajectory. or the same. It explains why Bernanke's $2 trillion has not created a spectacular party in anything other than a few select a reas (banking. and corporate debt and that is the bold red line (data from the Federal Reserve). household debt. government debt (federal.There's a lot going on in this deceptively simple chart so let's take it one step at a time. from $52 trillion to $104 trillion. "Total Credit Market Debt" is everything .

There's entirely too much debt. requires. Nearly three years has passed without any appreciable increase in total credit market debt. Of course. To put this into perspective. What begins as a temporary program of providing liquidity becomes a permanent program of printing money needed in order for the system to merely function. This is why Bernanke can print a few trillion and not r eally accomplish all that much. requiring close to $5 trillion in new credit creation each year of that decade. were formed during and are utterly dependent on exponential credit growth. money is loaned into existence and is therefore really just the other side of the credit coin. Las Vegas housing. because the main engine of growth expects.e. as you know. it's been the reality for the past three years.all developed and doled out during the prior four decades. Money is dumped in. and most of the unserviceable amounts are concentrated in certain spots (i. while the amounts owed are concentrated in the German. Greece.). cannot be met by current budget realities. Our entire system of money. and British banks. This New York Times graphic did an excellent job of summing everything up: . Debt and Europe The debt situation in Europe is fairly typical of the developed world and mirrors the debt chart of the US seen above.. and is otherwise dependent on credit doubling over the next decade. a doubling will take us from $52 to $104 trillion. PIIGS). Debts cannot be serviced. and by extension our sense of entitlement and expectations of future growth. and the dominoes topple from the outs ide in towards the center. but traction is weak. French. the weaker and more highly leveraged participants get clobbered first (Lehman. What will happen when credit cannot grow exponentiall y? We already have our answers. etc. which puts us roughly $15 trillion behind the curve.

(Source [3]-click to view larger graphic at source) Here is a slightly less-complicated image that expresses the same dynamic: .

we see that all but Russia carry a total indebtedness greater than 100% of GDP and that nine are carrying debt levels higher than any that have ever been repaid historically. If any one participant drops the baton in the debt relay race. and sufficient economic activity down that road to service the past debts. . the absurdity of the situation becomes unavoidable and the cause is lost. it is abundantly clear that adding more debt along the way only increases the burdens and is therefore ultimately counterproductive. When we hold this view. When all of the most indebted countries are stacked up. although it does grant the gift of additional time to avoid facing the truth. more growth. then kicking the can down the road only works if there's more wealth.If everybody owes everybody else.

seemingly without any serious discussions about whether or not this made sense. social security and government medical plans. but required both massive cuts in spending and an industrial revolution. and yet we find that the entire developed world has bravely pushed itself deep into unknown territory. yet that is what the world's central banks and political structures are busy manufacturing. nor a crisis o f insufficient debt. are the amounts that you read about in the paper when commentators note that the US. debt is only one component of the story. Of course. The above chart merely graphs the legally defined debts involved. accomplished by England between 1815 and 1900. above. which are pensions. but one of entirely too much debt. Without mincing words. for example. More debt.(Source[4]) Note: 260% debt-to-GDP is the all time record for repayment. Where We Are Now So here we are. the above chart only displays government debt and liabilities. but not an accurate description of the situation. the red bars. still has a debt -to-GDP ratio that is under 100%. just a few weeks away from the end of the second round of quantitative easing (QE II) . More debt is only going to compound the predicament. there are no historic al examples of any country ever digging itself out from so deep a hole. If we bother to add back in the liability components. That's the entire predicament in three words: too much debt. For reference. there are also liabilities to consider. with massive public debts and liabilities having only . the world does not face a crisis of liquidity. It's a comforting tale. Again. the predicament is seen to be three to six times larger: Whereas the prior chart showed all debts incurred by all sectors of each nation.

and no clear plan for how all the sovereign debts will be funded from current productive cash flows (i. Author at ChrisMartenson.com[11] Also by Chris Martenson PhD[10] 06/06/2011 The Dangers of Fukushima Are Worse and Longer -lived Than We story Think[12] story story story story y Non-Exclusive 05/27/2011 Why Time Is Short Now That We're Past Peak Oil [13] 05/12/2011 Why Growth is Dead[14] 04/28/2011 Simon Black: The Most Sound Opportunities Are Outside the Western World [15] 04/23/2011 Axel Merk: Why Is Anyone Still Waiting to Sell the Dollar? [16] . laid out back in early March[5] is that the Fed will stop QE II on schedule and that the fi nancial markets will react exceptionally poorly to this loss of support.com http://www. are convinced that more thin air money printing is on the way.chrismartenson. the levels of indebtedness now require permanent support from thin-air money in order to avoid a deflationary collapse. Commodities will tank first. paid enrollment required) About the Author Chris Martenson PhD [10] Economic Researcher & Futurist. existing GDP). we explore key questions in detail in Part II of this report: Understanding the Endgame [6]: y How will the global debt crisis play out? y What does a world economy without growth look like? y What steps should we.grown larger instead of shrinking during the Great Recession. then bonds. My th esis..com chris @ chrismartenson. need to take in preparation? y How can investors safeguard their purchasing power during the coming rout in the finanical markets? Click here to access Part II [7] of this report (free executive summary. It is time to face the music. everybody in nearly the same boat. then stocks.e. from riskiest and most-leveraged to least. as individuals. This is why so many commentators. Given this reality. myself included.

addthis.com/contributors/chris -martenson-phd [11] http://www.gfmag.chrismartenson.financialsense.com [12] http://www.chrismartenson.com/contributors/chris-martenson/death-by-debt Links: [1] http://www.utm_medium=syndication&amp.chrismartenson. CA 92150-3147 USA 858.financialsense.com/blog/coming rout?utm_source=financialsense&amp. its staff.chrismartenson. or its parent company.chrismartenson.com/martensonreport/understanding endgame?utm_source=financialsense&amp.php?v=250&amp.utm_medium=syndication&amp.3939 The opinions of the contributors to Financial Sense® do not necessarily reflect those of Financial Sense.utm_content =link1&amp.com/contributors/chris -martenson/why-time-is-shortnow-that-were-past-peak-oil .html [4] http://www.nytimes.utm_campaign=58941 [8] http://www. PO Box 503147 San Diego.com/contributors/chris -martenson/the-dangers-offukushima-are-worse-and-longer-lived-than-we-think [13] http://www.com/martensonreport/how -position-next-oil-shock [2] http://www.utm_campaign=58941 [7] http://www.com/tools/global -database/economic-data/10403-total-debt-togdp.com/martensonreport/understanding endgame?utm_source=financialsense&amp.utm_co ntent=link2&amp. Source URL (retrieved on 9 Jun 2011 ):http://www.html#axzz1OWhtBYRX [5] http://www.financialsense.utm_medium=syndication&amp.com/interactive/2010/05/02/weekinreview/02marsh.com/print/print/contributors/chris -martenson/death-bydebt [9] http://www.username=financialsense [10] http://www.487.utm_co ntent=link1&amp. PFS Group.com/bookmark.y y y y y y y y y y y y Chart Deficit Gold Inflation Recession Deflation Peak Oil Silver Currency Crisis Precious Metals Depression Energy Crisis y y y y y y y y y Europe Stocks US Dollar Economy Energy Global Markets Article Market Observations © 1997±2011 Financial Sense® All Rights Reserved.com/blog/why -growth-dead/57764 [3] http://www.financialsense.financialsense.chrismartenson.utm_campaign=53869 [6] http://www.

com/contributors/chris -martenson/why-growth-is-dead [15] http://www.com/contributors/chris -martenson/axel-merk-why-isanyone-still-waiting-to-sell-the-dollar .[14] http://www.com/contributors/chris-martenson/simon-black-themost-sound-opportunities-are-outside-the-western-world [16] http://www.financialsense.financialsense.financialsense.

Sign up to vote on this title
UsefulNot useful