Posted on 08/22/2012 6:30:24 AM PDT by jpl
Richard Duncan, formerly of the World Bank and chief economist at Blackhorse Asset Mgmt., says America's $16 trillion federal debt has escalated into a "death spiral, "as he told CNBC.
And it could result in a depression so severe that he doesn't "think our civilization could survive it."
And Duncan is not alone in warning that the U.S. economy may go into a "death spiral."
Since the recession, noted economists including Laurence Kotlikoff, a former member of President Reagan's Council of Economic Advisers, have come to similar conclusions.
Kotlikoff estimates the true fiscal gap is $211 trillion when unfunded entitlements like Social Security and Medicare are included.
However, while the debt crisis numbers are well known to most Americans, the economy hasn't suffered a major correction for almost 4 years.
So the questions remain: Is the threat of collapse for real? And if so, when?
A team of scientists, economists, and geopolitical analysts believes they have proof that the threat is indeed real - and the danger imminent.
One member of this team, Chris Martenson, a pathologist and former VP of a Fortune 300 company, explains their findings:
"We found an identical pattern in our debt, total credit market, and money supply that guarantees they're going to fail. This pattern is nearly the same as in any pyramid scheme, one that escalates exponentially fast before it collapses. Governments around the globe are chiefly responsible.
"And what's really disturbing about these findings is that the pattern isn't limited to our economy. We found the same catastrophic pattern in our energy, food, and water systems as well."
According to Martenson: "These systems could all implode at the same time. Food, water, energy, money. Everything.
Another member of this team, Keith Fitz-Gerald, the president of The Fitz-Gerald Group, went on to explain their discoveries.
"What this pattern represents is a dangerous countdown clock that's quickly approaching zero. And when it does, the resulting chaos is going to crush Americans," Fitz-Gerald says.
Dr. Kent Moors, an adviser to 16 world governments on energy issues as well as a member of two U.S. State Department task forces on energy also voiced concerns over what he and his colleagues uncovered.
"Most frightening of all is how this exact same pattern keeps appearing in virtually every system critical to our society and way of life," Dr. Moors stated.
"It's a pattern that's hard to see unless you understand the way a catastrophe like this gains traction," Dr. Moors says. "At first, it's almost impossible to perceive. Everything looks fine, just like in every pyramid scheme. Yet the insidious growth of the virus keeps doubling in size, over and over again - in shorter and shorter periods of time - until it hits unsustainable levels. And it collapses the system."
Martenson points to the U.S. total credit market debt as an example of this unnerving pattern.
"For 30 years - from the 1940s through the 1970s - our total credit market debt was moderate and entirely reasonable," he says. "But then in seven years, from 1970 to 1977, it quickly doubled. And then it doubled again in seven more years. Then five years to double a third time. And then it doubled two more times after that.
"Where we were sitting at a total credit market debt that was 158% larger than our GDP in the early 1940s... By 2011 that figure was 357%."
Dr. Moors warns this type of unsustainable road to collapse can be seen today in our energy, food and water production. All are tightly connected and contributing to the economic disaster that lies directly ahead.
According to polls, the average American is sensing danger. A recent survey found that 61% of Americans believe a catastrophe is looming - yet only 15% feel prepared for such a deeply troubling event.
Fitz-Gerald says people should take steps to protect themselves from what is happening. "The amount of risky financial derivatives floating around the globe is as much as 20 times size of the entire GDP of the world," he says. "It's unsustainable and impossible to unwind in any kind of orderly way."
Moreover, he adds: "People can also forget that the FDIC can only cover a fraction of US bank deposits. It's a false sense of security. Just like state pensions, which could be suspended at any time. A collapse could wipe out these programs. Entitlements like Social Security and Medicare are already bankrupt and simply being propped up."
We can see the strain on society already.
In two years, Congress won't have any money for transportation, reports the Washington Post. Cities like Trenton, NJ have layed off one-third of their police force due to budget cuts. And other cities like Colorado Springs, CO removed one-third of streetlights, trashcans, and bus routes, reports CNN.
Fitz-Gerald also warns of a period of devastating inflation. A recent survey, reports USA Today, notes that in the coming years it could take $150,000 a year in household income for a family to afford basic living expenses - and maybe go out to a movie.
Right now, in fact, "52% of Americans feel they barely have enough to afford the basics."
"If our research is right," says Fitz-Gerald, "Americans will have to make some tough choices on how they'll go about surviving when basic necessities become nearly unaffordable and the economy becomes dangerously unstable."
"People need to begin to make preparations with their investments, retirement savings, and personal finances before it's too late," says Fitz-Gerald.
—Gold seems to be a popular investment now, but the way I see it, it’s just a heavy chunk of metal. I’d rather stock up on food, fuel, and ammo.—
I agree. Tools are also a good investment. I see my large shop building as an investment. I can use it to fix and build things made of wood, metal and plastic. Everything from cars to furniture. And I can MAKE farm implements.
All gold does is look pretty. Junk silver is better, in that it is more practical for barter, since it comes in lesser valued pieces.
But I’d rather have a $30,000 shop/building than $30,000 in gold or silver.
I agree that our current welfare state is far too large and not sustainable in the long term. That is why we need some serious reforms and reductions to entitlement spending. I am also very critical of fiscal policy about the large deficits we are consistently running.
But private debt has decreased by nearly $5 trillion since the recession started.
The national debt is actually decreasing as a percentage of GDP.
The future can be bright if we chose it to be.
Wait — we have a civilization?
We’ll be OK as long as the crash doesn’t happen on Obama’s watch - dems would use it as an excuse...
Default???
Why would we need to default?
We have the ability to print as many dollars as we want so there is no chance of default.
They would use it as an excuse if they were in power, as well. And it would be far worse. They’d use it as an excuse to go full-on commie.
—The national debt is actually decreasing as a percentage of GDP.—
So, since unemployement and underemployment are a real problem and debt is down, that would imply a seriously contracting economy, no?
Once a populace's trust in the intrinsic value of their fiat currency (be it dollar, euro, yuan, etc.) is destroyed through unlimited printing (i.e. Q.E.) by the government, demand will grow rapidly for any good, product, asset that is perceived by the populace as retaining intrinsic value. People won't be able to spend their growing more worthless by the day currency fast enough on things they can stockpile that will retain some intrinsic value. Weimar Germany and Zimbabwe are just two textbook cases of numerous instances of that happening. Fiat currencies backed by nothing but warm fuzzy feelings of government promises seem to always ultimately implode through debasement. JMO.
Contracting? No. We just have an anemic recovery with growth rates of around 1.5% thanks to Hussein and his failed demand side economic policies.
The “fiscal gap” (present-value of projected government costs, mostly unfunded liabilities for “entitlement” programs, less present-value of projected revenue) is a serious issue, but one that can be addressed.
However, I’m seriously underwhelmed by any alarmist who cites the total notional value of derivatives as if it had a meaning. It’s a bit like taking all the insurance policies currently in force, finding the maximum amount each could be obliged to pay out under the contractual terms of the policy (e.g. $500,000 for a $500,000 life-insurance policy, the depreciated value of a car for a collision policy, the cap on liability payments for a liability insurance policy) then running around crying that the sky if falling because this sum is larger than the total market capitalization of all insurance companies issuing the policies.
But even that number is more meaningful than the total notional value of derivatives: let’s add up the price of stocks people have bought a contractual right to buy at a fixed price during some period of time (the notional value of calls) and the price of stocks people have bought a contractual right to sell at a fixed price during some period of time (the notional value of puts), and the total amount that one party has contracted to pay another (in exchange for a payment now, or a stream of payments) in the event of some credit default or other (the notional value of credit default swaps), [fill in more definitions of notional value for other derivatives here], and pretend the sum actually means something. The contrast of the actual meanings of the notional values for the three examples given shows the sum is meaningless, unlike the insurance companies’ collective maximal payout.
And like the insurance example, the events which would trigger the derivative contracts’ effects (the buyer of every call deciding to buy the stock at the option price because it went up, the buyer of every put deciding to sell the stock at the option price because it went down, the seller of every CDS having to pay the buyer because the credit event happened, . . .) won’t all happen simultaneously — indeed can’t if people with opposite market expectations about the same stock or credit event have participated in the derivative market as buyers — just as all the insured won’t die, total their cars, have massive liability judgements handed down, . . . against them simultaneously.
Only in a static model. Does government spending constitute a large percentage of GDP? Sure, it does. But government gets money from 3 places: taxes, borowing or inflation. If you shrink the size of government, the burden placed on those three places lightens. Overall GDP should stay the same, or go up, particularly if regulations are lowered along with the size of government.
Not decreasing the size of government for fear of shrinking the economy is the same type of Keynesian thinking as growing government to increase GDP.
[ heh, heh. I firmly believe WDII will end in WWIII. And just as WWII was worse than WWI, WWIII will be worse than WWII.
It’s what countries do when their back is to the wall. After all, desperate times call for desperate action. And as desperate as they are now, they don’t hold a candle to where they will be very soon. ]
There will be a lot of chaos for sure, I don;t think we will go back to the stone age, maybe some areas in the 1st world will go back to 1950’s levels in terms of lifespan and tech, but there will be areas that will be more advanced then we are today.
[ “You can draw the opposite conclusion as well. If you curtail the welfare system now you introduce all kinds of human capital back into the marketplace. It could be a second Renaissance.”
But this segment of our population is generally undereducated and not trained to be infused into the 21st century workforce.
The jobs they would have integrated into are now overseas. ]
Depends if they are still allowed to vote for government goodies, to me allowing people on governemtn assistance to even vote is a gorss conflict of interest as much as having a politician vote themselves a pay raise.
This is a stupid statement, because it betrays a lack of understanding of what “civilization” is. Three definitions:
1) “A society in an advanced state of social development, such as complex legal and political and religious organizations.”
America has a constitution and a basic framework for government that is *capable* of functioning at technological levels from the 18th Century to the 21st Century. It also has numerous religious organizations relatively independent of government that function reasonably well on their own. These frameworks are understood and agreed upon by all civilized peoples in America, if not Democrats.
2) “The social process whereby societies achieve civilization.”
America had and has a “social contract” dependent on self-reliance that is maintained by the people as individuals. We have not just achieved civility, but everyone, excluding Democrats, works to maintain it.
3) “A particular society at a particular time and place.”
This is the one grain of truth in his statement, in that our current civilization has *some* unsustainable elements, foisted on us by Democrats, that *must* end. Not out of any real philosophical difference, which also exists, but solely because they are unsustainable.
However, what Democrats think of *their* ideal, fantasy civilization never existed, nor could exist, anywhere in the world, for any length of time. So while the pursuit of this fantasy civilization has severely harmed our real civilization, the collapse of their fantasies are not the fall of civilization itself.
And, as the expression goes, “good riddance to bad rubbish”, leaving the civilized people to clean up the mess, while virtuously clinging to their guns and Bibles, restoring an orderly, legal, political, and religious order to things.
Though it would serve our civilization well if we are to find some cure for the spiritual and logical failings, and self-destructive impulses and bizarre fantasy philosophies of the Democrats, so that our civilization is never again imperiled by their, or whatever parasite is controlling their brains, agenda again.
EXACTLY. I kept looking for an explanation about the provocative claim of these non monetary systems being on the verge of collapse. Sure, most folks realize when the monetary system collapses EVERYthing becomes tough, but this article is long on hand wringing and very short on facts.
To really simplify and use a static model, an economy of 400 people would be four times bigger than an economy of 100 people. However, if tools allow them to produce twice as much stuff, the economy of 200 people could be only half as large as an economy of 400 people. But there would not be more money. Just more stuff. So everything would cost half as much and the economy would actually still be 1/4 of the economy of the 400.
And even then I miss it because when credit is added to the equation, it can be a multiplier.
But the point is that if government intake is static, then if government is going to grow it must borrow. Not a big deal if it’s borrowing a little bit, but what we are doing now is only sustainable if the economy expands as the population increases. And even then, if people find a way to do without stuff - austerity - this could contribute to a contracting economy, causing more to spend less. Hence the death spiral theory.
But again, I over simplify. For starters, it’s not a closed system. But that is now part of what is exacerbating the problem.
its called a “death spiral” for a reason
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