Karl Denninger, “The CNBS Parade This Morning”

“The CNBS Parade This Morning”
 by Karl Denninger

“There is simply amazing crap being run this morning. Let's start with Mitch Daniels (Gov. Ind) who spouted off that the only way out of this mess for us in the United States is to grow at "two or three times" the present growth rates.  Mitch, with all due respect the bottom line is that debt cannot grow faster than GDP.  Ever.  Mitch needs to read the Ticker from yesterday and play with the spreadsheet for himself.  There is no solution to the problem of excessive debt that is found simply in "growth", if that growth is financed with borrowing.

Next we have the people talking about how the alleged "recovery" is coming from capital spending used to replace people.  Yep.  Anyone care to guess why that's happening?  It's called wage and environmental arbitrage.  Some part of it (which we call "productivity growth") has been behind our economic expansion throughout our nation's history, but offshoring production and replacing people with robots and computers has accelerated in the last 20 years and most of that labor has gone to Mexico, China and India.  It's not that their people are smarter, it's that they live like cavemen comparatively (look up the GDP per-capita in those nations!) and as a consequence they're "satisfied" with less.  In addition our corporations can, as a consequence of non-existent regulation and corrupt officials, dump toxic wastes in the air and water in China (directly and indirectly via the firms they hire) and get away with it - practices that we made illegal and actually enforce in this country.  It's not possible for America to compete with these "labor repositories", but the question isn't whether we can - it's whether we should allow this sort of exploitation to be fueled and fed with our consumption!  I say no, and not only because it creates immense trade flow distortions, but because it is utterly unsustainable.

At its core the problem here is that the employment rate of the population has dropped and even these folks on CNBS admit that these jobs are not coming back.  The problem is that without them the ability to cover these debt loads and take on more debt at the federal level is unsustainable.

What we always come back to around here at the Ticker is fundamental mathematical relationships.  The difference between a stable and sound economy and a bubble is relatively simple: one is founded on mathematically-sound consumption where your life as a consumer is improved through economic surplus you generate in your work, while the latter is generated through the inappropriate and ultimately-disastrous abuse of financial leverage.

We've spent 30 years doing the latter, and now are desperately clawing at the edge of the cliff we've dropped off with our fingernails in an attempt to avoid the 500' fall that lies below us.  The problem is that one-by-one our fingernails are being ripped off our fingers, and eventually we're going to run out of fingers.”

- http://market-ticker.org/

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