The Real 2013 Cliff

By John Aziz of Azizonomics.

There’s a much bigger cliff than the so-called fiscal cliff. The absolute worst result of the fiscal cliff would be a moderate uniform tax increase at a bad time, resulting in a moderate contraction. It is an obvious — but ultimately rather cosmetic — stumbling block on the so-called “road to recovery”.

The much bigger cliff stems from the fact that the so-called recovery itself is build on nothing but sand. This is a result of underlying systemic fragilities that have never been allowed to break. I have spent the last year and a half writing about this graph — the total debt in the economy as a proportion of the economy’s output:



This is the bubble that won’t go away. This is the zombified mess that the Federal Reserve won’t let dissolve (as happened regularly in the 19th century and early 20th century each time there was an unsustainable debt bubble). This is the shifting sand — preserved by the massive monetary stimulus programs — that the so-called recovery is built upon. During the 1980s and 1990s and 2000s cheap money pumped up the debt level in America. In 2008, the bubble burst, and the hyper-connective fragile financial system was set to burn. Then central banks around the world stepped in to “stabilise” (or as Nassim Taleb puts it, overstabilise) the financial system. The unsustainable reality of debt vastly exceeding income was put on life support.

A high pre-existing residual debt level makes growth challenging, as consumers and producers remain focussed on paying down the pre-existing debt load, they are drained by pre-existing debt service costs, and they are wary about taking on debt or investing in a weak and depressed environment. It’s a classic Catch-22. The only true panacea for the depression is growth, but the economy cannot grow because it is depressed and zombified. That’s where a crash comes in — the junk is liquidated, and clearing the field for new growth. That is what Schumpeter meant when he talked of “the work of depressions”, something that many mainstream economists still fail to grasp. (In fairness, a similar effect can probably be achieved without a depression through a very large scale debt relief program.)

Japan has been stuck in a deleveraging trap for twenty years, to no avail, all that has really occurred is that the private debt load has been transferred onto the central bank balance sheet — there has been very little net deleveraging) and while the Japanese central bank has completed round after round of quantitative easing — sustaining and preserving the past malinvestment and high debt load — the Japanese economy is still depressed.



That is the road America and most of the West are now on. And just as Japan’s bank stocks did multiple times even after the Japanese housing bubble burst, American banking stocks — even in spite of a year of fraud, abuse, mismanagement and uber-fragility — have been shooting up, up, up and away:



The zombie financial sector is the real cliff — as interconnective as ever, as corrupt as ever, and most importantly, nearly as leveraged as ever:



This is a reinflated bubble built on foundations sand. I don’t know which straw will break the illusion (middle eastern war? Hostility between China and Japan? Chinese real estate and subprime meltdown? Student debt? Eurozone? Natural disasters? Who knows…) but this bubble poses a far greater threat in 2013 than the fiscal shenanigans and the Boehner-Obama “Boner-Droner” snoozefest.

 

John does a good job here explaining how the G.O.P.; the self acclaimed "Grand Old (so-called conservative) Party", has helped more than its fair hand in getting us into this mess that the Obama admins doesn't seem to have a clue how to get us out of.

He perhaps could have spelled things out a bit more clearly by pointing out the fact that the Republican party was in the White House for twenty (20) of the twenty-eight (28) years in which the bubble formed, and eventually popped after the cherry the Bush admins put top of it.


Thanks for posting Tsing!


p.s. The Obama admins may have over spent in buying a trillion dollar tourniquet , and we may end up losing a leg, but at least the body is still alive.

We still have another leg to kick the can a little further down the road...

 

That's it. Focus on partisanship. Don't bother with addressing the issues. Well done!

 

it's a divide and conquer strategy... banksters, now that they lend us our very currency, can pay the republicans to take away our fourth amendment rights with their war on drugs, enslave us in third worldish scenarios with psychopaths leading the way via deregulation, poison us with irresponsible environmental actions and they can pay the democrats to snare us into socialistic programs, take away our guns, take away our freedom to choose what kind of medicine we want and a lot more. And they can proclaim "they did it to themselves, that's what they voted for".

Since nothing is going to change the onslaught against us the question to ponder is that of how to best cope... Autodidacticism is a very good thing at this point in history, considering the availability of knowledge.

 

Are you speaking to me or John?

All he is does in his article is to spell things out, however bleak they might seem.

He points out where things have gone wrong, and illustrates the catch 22 conundrum/challenge with trying to solve these issues within the capitalistic republic we live in.

I have simply made things a little clearer by pointing out that the Republican party held the oval office for more than 71% of the time in which the bubble was occurring.

After all, if the purpose of his article and your re-posting of his article is to raise awareness on why we are in this mess, I don't see where there is any harm in pointing out a pertinent observation that still compliments his over all message.





Perhaps you are accusing me of ignoring the issues, whatever they may be, simply because I am not focusing on, or talking about whatever it is that's on your mind.

Is it possible that where you are seeing an issue that is paramount, I am simply seeing an outcome that is inevitable?

It is possible that my way of thinking is wrong.
It is also possible that I was once stuck in the way you are thinking, and I have since moved on.



It could just be that your desires and my desires are far apart, and so it will always seem that we are ignoring each others issues, as long as our expected outcomes remain unchanged.

So- it would seem that you have some issues, pertaining to the above article, in which you would like to have addressed.

I will be happy to listen to your issues and respond in the best way that I can.

 

I was going to look up "autodidacticism" but I'm not into learning stuff on my own.