Time to bring back some fear.

Discussion in 'Economics' started by peilthetraveler, Jun 8, 2012.

  1. Nobody seems scared anymore about what is going to happen to the US. So let me bring back the fear.

    Our GDP isnt real. People forget that. The only reason our GDP is $15 trillion right now is because we are borrowing that money to pump it into our economy. As soon as we run out of money to borrow, our GDP will drop about 14% if you use official numbers. 22% if you add in the exclusions the government currently excludes. (Both cases I'm assuming the VoM is 1.25 and latest money supply numbers are correct.)

    This means we are basically going to fall off a cliff one day. When we absolutely HAVE to stop spending more than we take in, then I believe GDP will drop to 11.7 Trillion. When that happens, the market will dump all dollars, and you know what happens after that...snowball effect. We are going to hell in a handbasket.
     
  2. Most people I talk to are disconnect from market, either own shares of their own company, or inflation adjusted bonds. They don't trade, they stay sideline, they don't care. you can't fear the unfearable.
     
  3. If that happens the currency will depreciate in value too imo and living standards will fall.
     
  4. BVM88

    BVM88

    Living standards will certainly fall, but the purchasing power of currency will rise as money supply, which is mostly credit, drops.
     
  5. You're right. Few people understand the math. A better metric than VoM is the fiscal multipier. It's estimated around 1.6 - 1.7. For every dollar borrowed and spent by the Government, ~0.6 jobs spin-off jobs are created. Also, there's FED QE to consider. Which has a similar effect as the FM. There's more to it - like manufacturing jobs lost to Chindia, each of those having a similar FM spin-off effect. And then manufacturing jobs the US would have gained since the 80's, but were immediately offshored to Chindia, therefore never showed up in the official US manufacturing jobs tally. Plus the spin off jobs created from that.... Just the deficit and qe alone + the fiscal multiplier, we're short around 21% GDP. Very close to your 22%. The exact same story is playing out in Europe, right now. Once America hits the debt wall and foreign investors sell their treasuries, the policy response to that is what will determine whether we go through a severe Depression (-22% contraction) and let the S&P break the 666 lows.....Or, they print, and inflate the currency, the dollar loses reserve status, and all hell breaks loose (-30%+). The leading indicator here is the NFP's. I did some math a while ago, and the monthly numbers have to be around 430K, for the next 3 years, to get us back to equiliibrium before debt-to-GDP hits 130%. ~130% debt-to-GDP is where foreign investors pushed away from new auctions in Greece, Portugual, Italy. The NFP's are ridiculously low (68K last month?), and there's talk of even more QE from the FED. The economy is toast. People don't get it. A huge swath of our economy was exported to asia, and debt was used to prop the shortfall, to make it seem everything was a-okay. I wouldn't want to live anywhere in the US, shortly. The cherry on top here - US dollar reserve status. Nobody knows how big the premium is, but it's estimated around 30-40%. Once that goes, if the FED debases to prop the Treasury market, it'll be speculatar.
     
  6. pupu

    pupu

    What's wrong also with printing trillions of $ and channeling it into GDP?

    Fed has been doing this for years and the house of cards is still solid

    I hear they will Give Ben the economy noble price after he retires too! Such a true visionary comes around only so often