Debt Overview – PrudentBear

Posted: March 1st, 2009 by: h2

This one is almost painful to post. These numbers are so utterly stark, so massively clear, and so utterly dismal, that it’s almost impossible to understand how the idiots running the US financial system, from top to bottom, could ever have led themselves to believe that things could end other than disastrously.

And this is why you don’t let zealots and extremists, aka: Free Market libertarian nutcases, neoconservatives, etc, into the halls of finance or power. They simply cannot even see reality, let alone understand it.

But first let’s take a look at what
Ambrose Evans-Pritchard at
is saying today:

Stephen Lewis, from Monument Securities, says we have been lulled into a false sense of security by the lack of “soup kitchens”. The visual cues from Steinbeck’s America are missing. “The temptation for investors is to see this as just another recession, over by the end of the year. But this is not a normal cycle. It is a cataclysmic structural breakdown,” he said.
We need shock and awe policies to halt depression

No, even if you subtract a bit of exaggeration, this situation is looking downright frightening right about now.

But let’s take a look at what Doug Noland over at is saying this week about our credit bubble (quote under the fold), you know, the one that ‘nobody could have predicted would deflate’. I mean, look, let’s be brutally honest. If you can’t predict a credit bubble must deflate, then you have no business working in finance, politics, or any other position of power or authority.

So all these idiots (Greenspan, Bush Jr./Sr., and the neocon mental cases that cluster around power like maggots around a rotting corpse) we’ve had to suffer listening to for the last decades have been totally delusional, because they they are ideological extremists, every bit as dangerous to our society as Nazi’s were to Germany or Stalinists were to the Soviet Union. Failure to comprehend this point will lead this country to second world status, if it hasn’t already pushed us in that direction too far to recover from already.

Let’s try to place the various huge – and increasingly numbing – deficit/loss numbers (attendant with this bust) into coherent context. For such an endeavor it is imperative to first examine the preceding boom. This week, in particular, seems an appropriate time to summarize, in Credit terms, the incredible dimensions of the fateful inflationary Bubble.

From the Federal Reserve’s “flow of funds” report, we can see that Total System Credit (non-financial and financial) ended 1995 at $18.475 TN. By the end of 2007, this number had inflated to $49.882 TN, for growth of 170% in only 12 years. During this period, Household Debt swelled 184% to $8.959 TN; Non-farm Corporate Debt 130% to $3.832 TN; and State & Local Government borrowings 109% to $2.192 TN. Federal debt expanded “only” 41% to $5.122 TN. Rest of World holdings of U.S. assets inflated 365% to $16.048 TN. While significantly trailing Credit growth, GDP nonetheless bulged 87% during this period.

Over the past decade, the “optimists” often cited the federal government’s positive fiscal position as evidence of the health of the overall economy and soundness of our prosperity. It should be clear these days that the protracted boom’s massive inflation of private-sector Credit had grossly inflated government receipts (among other things). Indeed, over the 12-year period Federal Receipts inflated 88% (to $2.651 TN) and State & Local receipts increased 92% (to $1.903bn). This crucial facet of the inflationary boom spurred federal and state & local spending growth of 80% and 93%, respectively.

Absolutely disgusting. We have lived in a false economy for at least 10 years or more, maybe 20 or even 30, it’s hard to say. And now global resources are hitting their peaks of production, especially oil, and there’s no way we’re going to see any growth come out of that pot any time soon, if ever again, barring the odd little bump up to break the decline now and then.

So get used it, it’s over. Or they just renounce all debts of the planet and start over. We’ll see what happens, it’s not going to be good, that’s for certain, except for the fact that this unsustainable system will in fact not be able to sustain itself.

By the way, this is what the term ‘unsustainable’ means. It doesn’t mean you can sustain it, it means you can’t. This seems to form an almost insurmountable mental wall through which almost no extremist free marketeer can make his/her way. That’s why you don’t follow ideological nutcases if you want to have a future.

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