Yesterday, Zerohedge came out with this chart and this article:
As the saying goes “a picture is worth 1,000 words”, actually, in this case I would suggest that “one picture says it all”. This is a chart of “velocity” which is the turnover of money or in this case the lack of turnover. You can look at this from several points of view or from different economic styles, however you choose, the picture is not pretty and shows that none of the “remedies” attempted over the last 5 years has had ANY positive effect whatsoever.
From the “Kondratieff” style of economics, you can clearly see a “Winter, Spring and Summer, decelerating in Fall and crashing into Winter again. (Nikolai Kondratieff was a Russian economist who wrote about the capitalist 60 year credit cycle which went from boom to bust, he was executed in 1938 under the Stalin regime). This chart pretty much sums up the credit cycle though it is only a picture of “velocity.” In Spring and Summer as the use of credit begins to be accepted and then embraced, “money flows.” It flows until the debt service starts to bite and autumn begins as people begin to tighten their belts. Once the snow starts to fly because “debt saturation” is reached, no amount of “printing” (credit) can kick start the machine, put money on the streets or get people to start spending…until it does! The “until it does” part comes in, ()especially when a fiat currency is the foundation to the system when the public begins to question the money itself. It is at this point where Kondratieff’s theory ended and the Austrians took it one step further. The Austrian’s spoke (speak) exhaustively about credit booms and how they always end in bust but they also add to the equation that “the money” must be real or the only way Spring will ever arrive is when the monetary system is overhauled or “reset”.
But back to this chart, basically it is showing money supply (credit) growth versus the GDP. It is a picture of money being frantically shoved into a system that is not growing. As more and more credit is created (now it is government debt), the economy is either not growing or actually shrinking. In Kondratieff’s Spring and Summer, $1 of debt might have created $5 or even $10 of growth, in other words credit facilitated growth so “debt was good”. As Fall and now the current Winter sets in, $1 of new debt creates less than $1 of growth, in fact, I think the last number I saw was less than .50 cents. Debt has saturated the system, the debt services cannot be paid as neither will the principal.
Again, this chart is only of “velocity” but it does show a picture at least as bleak as the Great Depression. If you were to look at charts of statistics on GDP, unemployment etc. that were constructed the way they used to be, they would all show the same thing, namely we are living through another and Greater Depression. (Current statistics are compiled differently today to show a better picture and have been specifically changed for this purpose).
So, what does this chart mean going forward. What it means is that money is NOT turning over and people have hunkered down, BUT, (scary words here) IT IS DIFFERENT THIS TIME! Normally when you hear this phrase you need to be very careful but it really is different now. Back in the 1930’s, money was backed by Gold, money was real. Today, money is backed by nothing, it is not real, in fact it is a scam, a Ponzi scheme, an intentional Ponzi scheme. One day very soon I believe, people will wake up to this reality and begin to spend. They will spend and spend like never before in our lifetimes. They won’t spend because all of sudden they are making more money nor “feel” wealthier, no, people will SPEND out of outright panic of loss. Loss of purchasing power as we enter HYPERINFLATION. This chart will turn upwards. It will turn for one of two or probably a combination of both reasons. The economy will either slow rapidly or money will be put into play (to get out of paper and into real “things”) or most likely BOTH at the same time! In other words, hyperinflation in a declining economy, the worst combination of any but the odds on favorite outcome.
Capitalism can and does work. It can work really well if it is allowed to. If governments stay out of it and let it flourish, let it correct it’s own mistakes, errors and malinvestments, it can work. The governments role is to keep the game fair and actually prosecute when it’s not (Eric Holder anyone”). THE most important piece to a capitalistic system is “the money” just as a foundation is THE most important piece of a house. We are living through and witnessing a system as it cracks up and self destructs. The problem is that the money is fake, the problem is that debt replaced equity, the problem is that money changing replaced farming, mining and manufacturing. The only way to create an economic system that is fair and will flourish is to scrap the current model by replacing the money and allowing a “reset” to erase 68 years (Bretton Woods) of credit expansion. I’m rooting for Mother Nature!