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Here’s an interesting question from yesterday’s piece on the Debt/GDP trap that the US seems to be in. I thought it deserved a fuller explanation so here goes.
The detailed explanation is quite complicated.
So let’s default to simple real-world data instead.
There’s only one time in the prior 50+ years of data where credit went down for a period of time and that was from 4Q2008 to 2Q2010, as seen above.
Let’s zoom in a little:
I mean that in the ‘stocks vs flows’ way. In a complex system all of the order and complexity is due the flow of energy across its system boundaries. Stop the flows and the system rapidly begins to ‘simplify.’
In the economic system, money is the energy and everything depends on its flows.
Simplistically, if we all stopped paying our debts at the same time, stopped spending our money at the same time, there would still be the same ‘stock’ of money and debt but the system would immediately seize up due to the loss of lows.
The sun’s flows of energy sustain the brilliant complexity of life on this planet, and it’s somewhat irrelevant how much energy the sun actually has in its stocks (except to whoever is still herein 5 billion years or so, then it matters a lot).
If the sun’s output were to stop for even a short period of time, the impacts on the earth’s systems would be massive.
Back to the debt charts above.
That little wiggle, that temporary downward trajectory for debt actually indicates the loss of flows of new money into the system. Deprived of those flows the entire Western system of financial entities and banking – and possibly the entire world – threatened to collapse.
The Federal Reserve, having more intimate information, actually began to freak out very early on, and had more than doubled the size of its balance sheet within that first Q42008 period.
By the week of Sept 17th (which is always reported a week late, due to lag) the Fed had expanded its balance sheet (that is, the base supply of money in the system) by a whopping 10%.
Now, to put this in context, let’s look at the precious stock market, which as we all know the Fed protects and defends as if their very reputations at cocktail parties depended on it:
I’ve circled in blue where the stock market was at the time the Fed had already begun its highly aggressive, totally unusual, and thoroughly untested “QE” program which was simply emergency money printing to save the big banks, inflated financial asset prices, and an overly bloated financial system.
Also, fun fact: The S&P 500 bottomed at 666 there in Oct 2009.
Or maybe it was all simply to save Wall Street bonuses which, as we all know, are a God-ordained right of the protected class.
At any rate, the subpoint here is that the Fed was already panicking early and often…well before there was any public recognition of the fact that the train was off the tracks and careening toward a fuel depot.
The main point is that ‘the system’ operates relatively smoothly when expanding credit, and threatens immediate and total collapse when contracting. At least that’s what our ‘n of 1’ data point from 2008/2009 suggests.
What we don’t know is considerable.
1 – What would happen if credit expansion was flatlined to be no more than income expansion?
2 – What rate of credit/money expansion is required to prevent the whole mess from collapsing? Is that a steady rate or is it variable?
3 – What happens when all of the holders of all of those debt claims suddenly figure out that they’re holding the wrong end of a math problem?
4 – Does all of this help to explain the obvious fascination of the central banks and the elites with Central Bank Digital Currencies or CBDCs? That is, do they see this too and have (as we strongly suspect they might) backup plans just in case?
At any rate, the issue seems to be that we’ve collectively gotten ourselves into a bit of a predicament. We’ve built up an entire system of empire, power dynamics, and financial parasites who only know how to persist in a constantly expanding system where their own predations and misdeeds are endlessly covered up by more printing and money creation.
You can make a lot of mistakes in an expanding business, but precious few in a declining business environment.
You can goof around a bit on your way up Mount Everest when your food and oxygen levels are abundant, but make zero mistakes on the way down when those have run out.
When oil was constantly delivering more and more surplus energy it was easy times. Now we’re facing harder times, but shot through with entitled, spoiled midwits shot through at every level of our governing organizations.
We need look no further than Harvard University for a fractal representation of the difficulties we’re going to face due to the deep corruption of character and institutional purpose that now define pretty much every large corporation, public entity, and political body:
It’s merely this, come to life:
The weakest of the weak have been formed and shaped by the easiest of times in all of human history and they are now fully in charge of the Federal Reserve.
This is all they know how to do, because they are weak people driven by ego, and know only what they know from their cocktail party bubbles and exclusive speaking retreat invitations.
But this dynamic, of course, leads directly to this:
Again, “you are here.”
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by dogbone