Our saviors

Today Mish did a mocking recap of how a few elitist moneymen have worked to "save" the world.  In it, Mish asks several questions, again meant to make people think while mocking the notion that we have been saved from anything.   What Mish missed is the real question that needs to be considered which is why did we need saving in the first place.  Is the human race simply Hell bent on economic self destruction or is there some other factor that we need to have a conversation about.

I contend that the system is inherently unstable, just like any other Ponzi scheme.  It has to grow at an exponential rate in order to maintain confidence.  The fed  knows this which is why they target 2% inflation per year.  You may not think so at first glance but 2% per year compound growth per year is an exponential function.  All exponential functions eventually end up going straight up to infinity.

The brown line in the chart below is debt and you can see it is now tipping its nose nearly straight up.  The green line is the GDP.  The Keynesian philosophy which has been driving this Ponzi is that more debt is good because you can use it to drive more GDP.  The dirty truth, however, is that at some point you end up with diminishing returns.  A dollar of debt growth used to drive several dollars of GDP growth.  Now as you can see from below, the debt growth has crossed over the GDP growth.  This means that there are now negative returns for taking on more debt.  Both the borrower and the lender should be concerned about this.

From the borrower perspective, the further above GDP the debt goes, the harder it will ever be to pay off.  From the lender perspective, the more difficult mathematically it becomes for a debtor to pay, the less likely he will ever pay.  What cannot be paid will not be paid.

A major collapse is coming folks.  We cannot stop it because we cannot control it without a revolution and too few people are ready to commit to that.  So we will play Major Kong from Dr. Strangelove and ride this missile in bareback.  By "we" I don't mean the con men who caused it.  I mean that Mark and Patsy victim will ride it in.  I mean that innocent, ignorant fools will ride it in.

Today we call Bernanke and Greenspan heroes and laud them for "saving us" from the collapse of the Ponzi that they helped create.  Sometime in the future we will go looking for their heads on a stake.  People will be calling for their public execution.  Trust me, it's coming because as soon as the Ponzi goes bust the reality of the situation will be felt by all.