Monday, November 21, 2011


A milestone in the history of our nation was reached about 8:30AM EST today, when our ever-increasing debt to GDP ratio exceeded 100%. Just over 2 years ago, Bill Gross of Pimco, the wizard of bonds, said our debt to GDP ratio could conceivably reach this level in "perhaps as quickly as five years".  Most of us have seen the great visualization sequence at, who gives us this image of the physical size of our debt: here is $15 trillion dollars, in stacked pallets of 100 dollar bills.

I want to show the following chart, a recent, but not up to the minute version of the data, which shows the growth of the debt in the last century.  I like this format because the linear vertical scale clearly shows - with a minor hitch - exponential growth, and that's the fundamental problem (source is from January):
The exponential growth is the example of why this can't be fixed by increasing taxes; which is the equivalent of taking a bucket of water out of a swimming pool and dumping it in the other end.  This is a spending problem.  This is the death spike of a currency. 

As I said last night, with a congress unwilling to make even 3% cuts in spending, this does not end well.  But it does end - it has to - and probably fairly soon: it ends in months, not years.  Infinity is a handy concept in math but not a good basis for economic policy.
There is no means of avoiding the final collapse of a boom brought about by credit 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 involved. - Ludwig von Mises
Oh - that's right.  An anonymous Keynesian commenter in October said that Austrian economics can't make predictions.  Everything is fine.  Just keep on with life.  No need to store food or any of those fruitcake ideas you read about.  You can trust our insect overlords to fix everything. 


  1. Oh it will end!

    Never been one content with "putting off today what can be done tomorrow".

    Let's get this show on the road!!