Debt as a percentage of GDP

[Rajiv]

Interesting chart from Hypertiger

[metalman]

Re: Debt as a percentage of GDP

Interesting chart from Hypertiger

this is the 3rd time i've gone to hypertiger's site and tried to wade through her idiotic crackpot ramblings.

If you did not request more debt and had a source of income that was hyperinflating during a hyperinflation...you could easily pay off all your debts...Money is debt and debt is money....So during a hyperinflation it's actually not the total money supply that is inflating...the total debt is...

But not what you owe unless you request more debt to be manufactured...

where do i start? there was an asset hyperinflation, sure. but not a m3 money supply hyperinflation... good ol' inflation there.

With the household debt to income ratio at 110%...I don't see how a 1920's German style hyperinflation could even ignite...Because past 100% and consumers are forced to request commercial banks to manufacture less and less new debt...not more and more which is what is needed to sustain a hyperinflation...

Germany of the 1920's was a major exporter...The USA is a major importer...There is no manufacturing base to sustain a hyperinflation either...There will be mass lay offs...and laid off workers can't request much new debt to be manufactured with no source of income to service it's existence...

"apples are $1 a dozen so i don't see how oranges can hyperinflate."

how stupid. oh why oh why is there so much crappy, silly, idiotic, bullshit out there!? ugh.

[Guest]

Re: Debt as a percentage of GDP

Rajiv -

Methinks Metalman takes exception to the thesis? Does not "mince any words"!

I find it refreshing - a welcome change from "in my humble opinion" (aka IMHO) and "if I may be so bold as to point out", and "I'd be the last person in the world to know of course, but mightn't it be that ...", and other such elaborate self-deprecation".

Refreshing! Like a storm window that blew open to let the howling gale blow the tablecloth and tableware clean off the kitchen table just before thanksgiving dinner.

Don't let the Metalguy fluster you. He sounds mean and ornery, but he isn't really (big secret).

[Rajiv]

Re: Debt as a percentage of GDP

To me what was very interesting was the graph itself. The levels of debt are astounding -- and she is correct in stating that the magnitude of the total debt bubble is 8-10 times that of the 1929 debt bubble (the GDP per capita is 6 times that in 1929). So the question is whether this level of debt is sustainable

Look at the arithmetic, a debt level of 330% of GDP, would require what percentage of the GDP annually to service that debt? The amount of excess production over consumption required would be?

So the question is when will the house of cards come tumbling down?

[Guest]

Re: Debt as a percentage of GDP

Rajiv -

It's reasonable to expect the debt to GDP ratio will likely not resolve "in a manageable way". This entire community's aggregate of discussion seems to revolve around what form the "abnormality" of the debt's "reconciliation" will assume.

I will venture a guess, the whole debt story, although it will certainly be front and center for the next two years, can easily take a back seat to the flatlining of petroleum production growth quite quickly thereafter. The mere confirmation of the zeroing out of future oil production growth has the potential to sneak up on the expectations for future growth in the global markets like a bombshell.

iTulip regards this danger as not as near as the debt bomb. Sure does look that way right now. But just a little ways down the road, when it winds up a bit of momentum, the energy crunch has the potential to "engulf" both the debt and the climate stories - seems likely in fact to have the potential to become bigger and more pressing than both combined.

What's happening with the debt and the dollar may easily be overtaken by petroleum prices entering a spike, and unlike the spikes of 1973 and 1979, which lasted for three or four months each, this new one seems it should to all appearances be open ended in duration - if that extension of a spike lasts for more than a few months, and perception hits home that the issue is more than a "1970's style spike", then this simple perception shift has the potential to permeate global markets and instill a sharp apprehension and caution on all expectations for future growth.

Puplava noted on this weekend's broadcast that all of alt-energy won't comprise much more than 5% of global energy consumption even as far out as 2030. I'd sure like to get a handle on the sources of this assertion. If they are credible, it's a real kick in the head.

Meanwhile, how can we rationally assume the world's nations can crank out 5000 nuclear plants in 15-20 years to cover the equivalent of another Saudi Arabian present day production? Just who is it who is sleepwalking into this (real or imaginary) mess? The alarmists, or the Panglossians?

Not too much longer now. Here, let me take a wildly immoderate guess. Let's see how foolish I wind up looking on the call.

2009 = $150 a barrel.

2015 = $250 / $300 a barrel.

Oops. I forgot all about the global crash that's going to decimate petroleum consumption!

[FRED]

Re: Debt as a percentage of GDP

Rajiv -

It's reasonable to expect the debt to GDP ratio will likely not resolve "in a manageable way". This entire community's aggregate of discussion seems to revolve around what form the "abnormality" of the debt's "reconciliation" will assume.

I will venture a guess, the whole debt story, although it will certainly be front and center for the next two years, can easily take a back seat to the flatlining of petroleum production growth quite quickly thereafter. The mere confirmation of the zeroing out of future oil production growth has the potential to sneak up on the expectations for future growth in the global markets like a bombshell.

iTulip regards this danger as not as near as the debt bomb. Sure does look that way right now. But just a little ways down the road, when it winds up a bit of momentum, the energy crunch has the potential to "engulf" both the debt and the climate stories - seems likely in fact to have the potential to become bigger and more pressing than both combined.

What's happening with the debt and the dollar may easily be overtaken by petroleum prices entering a spike, and unlike the spikes of 1973 and 1979, which lasted for three or four months each, this new one seems it should to all appearances be open ended in duration - if that extension of a spike lasts for more than a few months, and perception hits home that the issue is more than a "1970's style spike", then this simple perception shift has the potential to permeate global markets and instill a sharp apprehension and caution on all expectations for future growth.

Puplava noted on this weekend's broadcast that all of alt-energy won't comprise much more than 5% of global energy consumption even as far out as 2030. I'd sure like to get a handle on the sources of this assertion. If they are credible, it's a real kick in the head.

Meanwhile, how can we rationally assume the world's nations can crank out 5000 nuclear plants in 15-20 years to cover the equivalent of another Saudi Arabian present day production? Just who is it who is sleepwalking into this (real or imaginary) mess? The alarmists, or the Panglossians?

Not too much longer now. Here, let me take a wildly immoderate guess. Let's see how foolish I wind up looking on the call.

2009 = $150 a barrel.

2015 = $250 / $300 a barrel.

Oops. I forgot all about the global crash that's going to decimate petroleum consumption!

Luke,

Oil = transportation fuel.
Coal = fixed electricity production fuel.

The nukes replace some of the coal, none of the oil.

Is Jim trying to say that we can't have a meaningful alt energy boom? The first boom will be in technologies that increase efficiency and conservation.

In any case, we're working on an analysis to help our readers understand how we can continue to have commodity price inflation as the recession unfolds. Here's a preview.

First, we recommend two articles on the subject by Mike Moffatt at About.com.

Cost-Push Inflation vs. Demand-Pull Inflation
What is deflation and how can it be prevented?

There are four variables at work that determine inflation:
1. The supply of money
2. The supply of other goods
3. Demand for money
4. Demand for goods

Below we offer the simple case of an economy in balance with 100 units each of goods supply and demand and money supply and demand resulting in an inflation rate of 3.3%. Keep in mind that in this example, interest rates are above the zero bound because the Fed has followed its mandate to keep nominal interest rates above zero percent.

Our model is designed to show the relationship between changes in the four factors of inflation, not the actual extent of changes in inflation relative to the factors within the US economy. In other words, a 10% increase in the broad money supply in the US may cause inflation to rise more or less than 0.4%. The actual extent of inflation responses to inflation factors depends on many aspects of the US economy and monetary system that are too complex for us to model.

We break our scenarios up into two series: Growth Cases and Contraction Steps.

First, for our Growth Cases, we demonstrate the relationship between the four variables by increasing one while holding the others constant.

Growth Case 1: Raising goods supply causes inflation to fall

Growth Case 2: Raising goods demand causes inflation to rise

Growth Case 3: Raising money supply causes inflation to rise

Growth Case 4: Raising money demand causes inflation to fall

Walking through the Contraction Steps, we start with both goods supply and demand, and money supply falling equally as money demand falls even more. The result is a moderate increase in inflation.

Step 5 is the circumstance of very high goods supply (over-capacity) combined with a severe 50% decline in demand, a severe 50% decline in the money supply, and a doubling in demand for money. The result is that inflation falls to 1.1%. In real life, of course, such drastic reductions in goods demand and the money supply will likely have a much more severe impact on inflation. Again, the idea is to show the relationships.

Comments welcome. We plan to post this officially this week.

[Guest]

Re: Debt as a percentage of GDP

... Is Jim trying to say that we can't have a meaningful alt energy boom? -- and another reference -- ... Cost-Push Inflation vs. Demand-Pull Inflation.

Fred -

Puplava has mentioned this: "alt-energy won't be more than 5% of global energy requirements out to 2030" - in a variety of broadcasts and interviews over the years, with several energy interviewees, among which was the energy sector banker Matt Simmons. If they are bandying this percentage number around so often and freely, then presumably it has been appropriately checked and derived from some wide consensus estimates among numerous sources. That 5% would be an eye opener, because it's a very small percentage.

However at no time did Puplava comment about this specifically within the context of an alt-energy boom, and I have the impression he completely agrees with iTulip that alt-energy will indeed be a very hot sector. Even within a mere 5% of global energy requirements in the next two decades, there is a heck of a lot of spending tucked away in there anyway.

But with regard to alt-energy finding it's way into transport, the interview was interesting, he cited numbers ranging in the 1.5 trillion USD per each transport sector, to all retool cars in private transport, to retool all trucking, retool commercial transport, retool aviation, etc.

He added up the conversion of the existing transportation fleets in the US and suggested numbers around 4-5 trillion aggregate to convert the entire fleet of vehicles to anything other than gasoline. Clearly, the country is hostage to petroleum here, without a massive expenditure just for the vehicles themselves. This does not even factor any expense for the R&D, development and deployment of the presumed 'alternative fuel' itself. Put it all together and it sounds like somewhere, sometime, they will have to come up with a truly gargantuan amount of 'money' to fund any weaning process off gasoline.

Personally I think the sleeper 'alt-energy' for the North American vehicle fleets is COAL. This is the resource that's there, that's abundant, and where the technology already exists for ultra-high efficiency diesel engines which routinely get 60-90 MPG in Europe! Piggyback a small ultra-high efficiency diesel engine onto a battery powered vehicle and bingo you've got an 'old-tech' car that gets 150 MPG. Add in the fact you've got all the coal here to power the country 100+ years, and this combination is the winner. And there is ZERO futuristic R&D to accomplish this, because that technology is already all here.

The big hurdle is really only one - how to combine Fischer Tropsch process with real, near zero emissions exaust scrubbing. But the point is, this seems one hell of a lot less of a technological hurdle than perfecting nuclear fusion, or building 500 nuclear plants to split water so all the vehicles can run on hydrogen. Coal is the biggest sleeper of all and America has the trump card in coal. I"m betting that's where the big breakthrough shows up. Anyway, the diesel / hybrid engine has such high potential efficiency I think this will be the 'right off the shelf' solution that will be immediately grabbed if or when we get a massive petroleum price spike.

The scary thing is if this gets popularized by many other countries, many of them will crank up the coal plants and say to hell with the exaust scrubbing.

And with regard to COST PUSH INFLATION - this is the first time I've seen that seriously mentioned on iTulip, and I've been hoping this would be introduced. At some point the fossil fuels must inevitably introduce cost-push inflation if there is a global supply / demand crisis. Maybe I missed it's reference elsewhere here before.

Thank you for your input.

[rabot10]

Re: Debt as a percentage of GDP

Boys

Hey lets look at the real world for just a min.

Based on advise from the book Americas Bubble Ecomomy - I started a marketing frim that drives business into BK attorneys - there have been more than a few things to overcome (attorneys are idiots) but the response has been overwhelmimg. The genereal populace has WAY more DEBT than they can handle. OMG you would not believe the calls (500+)we get and the condition the average American is in re there finances.

I am starting to wonder if the Fed with lowered interest rates will make a difference. The consumer can't handle anymore DEBT!!!! It's done, over, ca-put, (sp) finished, end game, no more etc. And that is only marketing to three states Calif, Arizona, and Colorado. Just my ramblings but from the steet.

rick

PS we did over 95K last week

[Andreuccio]

Re: Debt as a percentage of GDP

Boys

Hey lets look at the real world for just for a min.

Based on advise from the book Americas Bubble Ecomomy - I started a marketing frim that drives business into BK attorneys - there have been more than a few things to overcome (attorneys are idiots) but the response has been overwhelmimg. The genereal populace has WAY more DEBT than they can handle. OMG you would not believe the calls (500+)we get and the condition the average American is in re there finances.

I am starting to wonder if the Fed with lowered interest rates will make a difference. The consumer can't handle anymore DEBT!!!! It's done, over, ca-put, (sp) finished, end game, no more etc. And that is only marketing to three states Calif, Arizona, and Colorado. Just my ramblings but from the steet.

rick

PS we did over 95K last week

Kudos, man. Great idea.

[rabot10]

Re: Debt as a percentage of GDP

Kudos, man. Great idea.

Thanks man it's been 6 or 7 days a week figureing it out and getting it going. I need a vacation.

[The Outback Oracle]

Re: Debt as a percentage of GDP

G'day Rick

Sorry, but you have the odd bloke from the Antipodes in here....what do you mean "drives business into BK Attorneys" ?

Cheers

[Andreuccio]

Re: Debt as a percentage of GDP

G'day Rick

Sorry, but you have the odd bloke from the Antipodes in here....what do you mean "drives business into BK Attorneys" ?

Cheers

BK=bankruptcy.

He's finding people with debt problems and hooking them up with attorneys, minus a small percentage for "expenses".