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pencilvanian
1000+ Penny Miser Member
USA
2209 Posts |
 Posted - 10/22/2008 : 21:36:15
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I am not much of a fan of Denninger's posts (he tends to cuss more than necessary) though to ignore his comments is to do one's self a dissservice.
Differing viewpoints are sometimes needed to get a clearer picture of what is going on around us in the world of financials.
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Congress: What Bernanke and Hank Aren't Telling You
by Karl Denninger
Excerpts-
...the economy only grows at a rate of about 20 cents for every dollar of debt taken on. That is, it takes five dollars of debt to generate one new dollar of GDP.
The bad news is that once you reach the "$1 for $1" level you are no longer able to finance growth with debt, and it becomes inevitable that you will begin to finance debt with debt.
That, of course generates no GDP at all but precipitously tightens the spiral.
.....The Truth is that once you reach a level where a dollar in debt will not support a dollar in GDP you must inevitably either pay down or default that excess debt. Unfortunately, in this case we must pay down or default approximately 80% of the aggregate public and private debt in the United States in order to return to a standard were $1 in debt will generate $1 in GDP....
....The Truth is that if we reach the point where a dollar of debt has a NEGATIVE impact on GDP The United States monetary system and government will implode. The reason for this is mathematically obvious - each additional dollar of borrowing beyond that point actually contracts GDP instead of growing it; this is, for all intents and purposes, a "black hole". It is that event that has led to the implosion of other monetary systems such as the hyperinflationary implosion of Argentina.
The above are mathematical facts, not my or anyone else's opinion.
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More on Mr Denninger's views can be read on
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When a debt backed dollar doesn't work anymore
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