Thursday, July 28, 2011

What The Debt Fools Are Up Against

As the ineptitude of our elected representatives continues to amaze regarding the debt issue, I think it's interesting to keep in mind what they are dealing with - the history of their own ineptitude. Its the bogus political "process" (the nicest word I could think of) that has created the nearly unsolvable problem they are working on. When you look back at history, you can see the political spats that accompanied each leg up in the debt parabola that is at a blow-off stage now:

This history shows how the recklessness of the 20s put us into the Depression in 1929 followed by a huge ramp-up in debt over the next 5 years. This reached an unworkable level and had to come back down out of necessity, but the recklessness and the debt that ensued went up out of political "process". The citizenry of that time saw no sense in doing the debt this way, but they had to watch helplessly as their elected representatives did it anyway.

Good sense prevailed for decades as the painful lessons of the '30s were practiced. Then we became entangled in the Cold War with the Soviet Union, and the political process was reckless budget balancing to out-arm and bankrupt the USSR. Then came the defeat of the USSR, but instead of the gigantic budget peace dividend that should have followed, we ran up against another enemy of the state - the banksters. They went on a creative binge of debt instrument "financial weapons of mass destruction" as Buffet calls them, and over the '90s they were the political process of choice. Standing in their way was not conducive to a political career.

If you gauge a time frame to a debt resolution to be similar to what happened from 1930 to the mid '30s after the start of the bear market, you see on the chart above that, if a secular bear market started in 2000, we should have had some kind of debt climb reversal around 2005, like the mid '30s. But perhaps because the fed has become more adept at funny money, things went on as usual.

But now another debt induced recession has resulted in another bear market, and five years from it takes us to about 2012 for some kind of dismantling of the debt mountain. That's what the fools in Washington are beginning to grapple with now and what will be dealt with in the 2012 elections.


  1. What's gone on from '00 to now does really seem to be a repeat of history of the '30s, perhaps dragged out a little more. Are we in a depression??

  2. Anonymous, Because the Fed is more hyped up now than ever, I think we are in a "dragged out" bear stock market and crippled economic growth - but a debt dismantling has got to happen in the cycle. The Fed is just prolonging the misery and delaying the real recovery. We may not be in a depression, but we're in a big bear market where the stock indexes are falling way behind inflation. We've been in this since the beginning of the "lost decade" for stocks - since 2000. This is what happened when the up cycle from the depression ended in 1966. We went sideways for the next 15 years. I think the debt mountain is living on borrowed time - and so is the Fed. If you haven't noticed, a revolution is brewing against the fed - I think it will be replaced with a global reserve currency and trade system that will be commodity backed.