bens big ballon

7/30/2019 Bens Big Ballon

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For years, people have been calling for the world to forgive third world debt. Theamount of effort that poverty stricken countries make just to pay interest on their debtwhile people are starving and living in misery is shameful. Corrupt governments stolebig portions of what was borrowed instead of investing it in infrastructure and now thesecountries must spend generations of labor to pay off the debt instead of growing and

developing.

Imagine if Washington did for the third world what it did for Wall Street, it wouldactually seem very Christian. Hopefully one day our government we will care aboutpeoples suffering more than it cares about investment bankers, but that day is probably along way off. Look how the harbinger of hope and change, Mr. Obama, has beenenveloped in the Wall Streets orgy of greed. However, there is another debt bombticking away and its ready to go off in the first world.

By 2010, total debt of the US Federal Government will finally reach one year of GDP,about 15 trillion dollars. Japan is well beyond that already and European countries like

Greece, Spain, Ireland and Iceland are close to financial chaos due to overwhelmingamounts of debt. I lived in Argentina in 2001, before Argentina defaulted on its debt. Itwas so obvious that there was no alternative but to pull the plug, but much suffering hadto go on before the obvious was recognized and the default finally occurred.

Total world wealth is somewhere around $160 trillion, and total world debt, public andprivate, is about the same amount, $150 trillion. Current world GDP is about $60 trillion.More and more, the debt is beginning to drag us down into a dark whole of endlessinterest payments and more new debt to service old debt.

There are two options. Spend a decade in an austerity program, sacrificing development

to pay off most of the debt, while at the same time making big structural changes to ourfinancial system in order to stop the easy flow of credit to people, governments andbusiness. This is a very sound, honest thing to do; hence, it will never happen. Noperson, government or corporation is willing to succumb to that kind of pain, and forgood reason, do we really need to?

One day in the near future, we will wake to our coffee and media outlets and get a verystrange surprise. We will have a new world reserve currency, made up of a basket ofcurrencies and commodities, say oil, gold, the Dollar, the Euro, the Yen etc.. This mustbe done completely in secret, by the world financial elites, or massive speculationbeforehand would wreak havoc on financial markets. Some very interesting deals will bestruck, fortunes made and lost, but what is certain is that the incredible amounts of dollardenominated debt that China, Japan, and Europe hold will be converted into the newcurrency. No longer will Barack Obamas finger on the printers start button be giving theChinese, Japanese and Europeans fits.

The smoky room scenario is the most likely, but it is not the only possibility. With theinternets organizational capacity, a worldwide movement could begin to insist on adifferent solution. What is needed is a forum for intellectuals and citizens of the world to


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discuss and organize our future and not depend on secret deals cut behind closed doors.If there was any doubt about Obama being our savior his shotgun marriage to WallStreet should dispel any doubts. We, the citizens of the world, must organize ourselves,as simply citizens of the world, and create the political organization and power to makethe needed changes.

What could another solution look like? First, lets define what money is, how it iscreated, and what debt is. Money is the equivalent of human labor, whether that labor isgetting a hair cut, getting crude oil out of the ground, writing a book, building a table ormaking bread. Interest payments are simply the cost of using money, rent on money.But how is that money created? Is all our work and efforts calculated, an estimate made,then money printed and put in to circulation to represent that effort? No.

Money is created in two ways, fractional reserve banking and quantitative easing.The Federal Reserve, in the case of America, and reserve banks in general, lend money tofinancial institutions, i.e. banks and the banks take the money and loan it out keeping

about 10% on deposit and loaning out 90%. So if someone deposits $1,000 in Bank ofAmerica, BofA keeps $100 and lends out $900, which is eventually deposited somewhereelse, where $90 is kept on deposit, and $810 is loaned. At the end of the cycle, the$1,000 deposit becomes $10,000.

There is also the concept that the economist Herman Daly discusses which the absurdityof compound interest is. Simply put, if someone borrows $20,000 to buy a new car, theyexchange the money for its equivalent in a machine. But as the years go by, the debtmultiplies, while the car depreciates. Why? Nothing else in nature multiplies like that,except money. Gold doesnt, oil doesnt, and computers dont? There is an intrinsicabsurdity in compound interest that is rarely addressed.

As I mentioned before, total world yearly GDP is $60 trillion, total world debt is about$150 trillion, and world wealth is about $160 trillion. If we assume, and it is a bigassumption, that the debt lent and borrowed is evenly divided, if upon creating a newcurrency we simply payback 50% of what is owed in the new currency and cancel alldebts public and private, current liquidity levels would stay more or less the same, andwe should have no inflation.

Banks and other financial institutions would have to be re-stocked with currency, enoughto keep them, or at least some of them, open. There would be an important loss of equityin financial institutions, but the world would be free of debt, and a new World ReserveBank would manage future lending to banks, but now the banks would only lend whatthey have on reserve, fractional banking would end. The extra liquidity in the marketwould have to be compensated with very high initial interest rates, and taxes would beplaced on all commodities, an Eco Tax, to promote sustainability and new energysources. The big trick would be keep the interest rates and new taxes at the right levelsso that inflation is kept under control. This would obviously be extremely difficult tocalculate, but that is why we have super geeks and super computers.


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Big bummer if all you did was lend money, but then again, at least you are getting 50%back in a new stable currency, and you are helping the world. There is no pound of fleshfor Shylock, but then again, no hyperinflation either. For developing countries, thiswould mean an instant increase in living standards and quality of life. New infrastructureprojects, schools, hospitals etc, must be part of the swap. In exchange for no debt, out

goes cronyism and corruption. For the first world, the deal must be a significantdecrease in military spending, and big sustainability projects to tackle the comingchallenges of a world consuming more than it can possibly produce. We must first getour financial house in order before we can take on the challenge of creating a sustainableworld.

The cycle of debt and consumption has turned into a modern slavery that now begins assoon as many young folks step on a college campus, and ends with a reverse mortgagewhen there is nothing left but equity in their house. Debt is slavery to consumption,multinationals, banks, and spiritually bankrupt advertising, media, and Hollywoodculture. Its time to lose the chains.

Is rally just putting inflation into Dowcompare loss of dollar to rise in dow..inflationworries..

The government were asleep on the job and had no real comprehension of the emergingproblem. But they should have as they were regulating the system of sorts. As the FSAwas paid by the bankers this was a redundant system.

For with total world debt being well in excess of $100 trillion (personal, corporate,institutional and government) now and the US s and UK s total debt hovering towards $53 trillion and 10.5-times GDP respectfully, there is no wonder that we are at the start ofa global recession. With such colossal figures of debt, amassed significantly over the last

century and in total being between two and three years of total global economic output,we have many years to come of austerity and economic downturn to look forward to.Even worst is if we borrow even more like our politicians are doing and where weeventually end up like Zimbabwe, with hunger, lawlessness and socio-economiccollapse? For the root problem is debt and common sense dictates that if we continue toborrow and borrow, eventually money becomes worthless. Therefore our politicianswould be better using their time, efforts and power to start afresh and accept that the nextdecade is a period of fundamental change in how the development of the world proceeds.If not, they will definitely oversee the destruction of far more of what we see today thanthe 10-years of pain required to re-engineering the world order and crucial sustainablechange. Indeed, in twenty-five years time if we do not change our development processes(capitalism, super-capitalism, globalization et al), we will look back and see that thefinancial crisis was just a mere storm in a teacup in comparison to what problems we


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shall have in 2033. The vision is of nightmarish proportions with substantially dwindlingnatural resources to sustain human life and climate change meeting head on with 8. 5billion mouths to feed.

We have definitely to change for our own good to the economics of sustainability-need

and to the preservation of the human experience itsel

The real problem is that the United States depends on foreign investors -- not on domesticsavings -- to fund the annual deficit and the cumulative debt. About $1.5 trillion, or abouta third of the nations $3.9 trillion public debt, is now held by individuals and institutionsoverseas. In 2003,

$125 trillion globally. Personal wealth

Economy

GDP (GWP) (gross world product): (purchasing power parity exchange rates) - $59.38trillion2005 est.), $51.48 trillion (2004), $23 trillion (2002)

GDP (GWP) (gross world product):[4] (market exchange rates) - $60.69 trillion(2008)

GDP - real growth rate: 3.2% (2008), 3.1% p.a. (2000-07), 2.4% p.a. (1990-99), 3.1%p.a. (1980-89)

GDP - per capita: purchasing power parity - $9,300 (2005 est.), $8,200 (92) (2003),$7,900 (2002)

GDP - composition by sector: agriculture: 4% industry: 32% services: 64% (2004 est.)

Inflation rate (consumer prices):developed countries1% to 4% typically; developingcountries 5% to 60% typically; national inflation rates vary widely in individual cases,from declining prices in Japantohyperinflation in several Third Worldcountries (2003)

Derivatives outstanding notional amount: $273 trillion (end of June 2004), $84 trillion(end-June 1998) ([3])

Global debt issuance: $5.187 trillion (2004), $4.938 trillion (2003), $3.938 trillion(2002) (Thomson Financial League Tables)

Global equity issuance: $505 billion (2004), $388 billion (2003), $319 billion (2002)(Thomson Financial League Tables)

160 Trillion world
http://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_world_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_world_producthttp://en.wikipedia.org/wiki/World_economy#cite_note-3http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Developed_countryhttp://en.wikipedia.org/wiki/Developed_countryhttp://en.wikipedia.org/wiki/Developing_countryhttp://en.wikipedia.org/wiki/Developing_countryhttp://en.wikipedia.org/wiki/Economy_of_Japanhttp://en.wikipedia.org/wiki/Economy_of_Japanhttp://en.wikipedia.org/wiki/Hyperinflationhttp://en.wikipedia.org/wiki/Hyperinflationhttp://en.wikipedia.org/wiki/Third_worldhttp://en.wikipedia.org/wiki/Third_worldhttp://en.wikipedia.org/wiki/Derivative_(finance)http://www.bis.org/publ/otc_hy0412.htmhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Thomson_Financial_League_Tableshttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Thomson_Financial_League_Tableshttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_world_producthttp://en.wikipedia.org/wiki/Gross_domestic_producthttp://en.wikipedia.org/wiki/Gross_world_producthttp://en.wikipedia.org/wiki/World_economy#cite_note-3http://en.wikipedia.org/wiki/Inflationhttp://en.wikipedia.org/wiki/Developed_countryhttp://en.wikipedia.org/wiki/Developing_countryhttp://en.wikipedia.org/wiki/Developing_countryhttp://en.wikipedia.org/wiki/Economy_of_Japanhttp://en.wikipedia.org/wiki/Hyperinflationhttp://en.wikipedia.org/wiki/Third_worldhttp://en.wikipedia.org/wiki/Derivative_(finance)http://www.bis.org/publ/otc_hy0412.htmhttp://en.wikipedia.org/wiki/Debthttp://en.wikipedia.org/wiki/Thomson_Financial_League_Tableshttp://en.wikipedia.org/wiki/Stockhttp://en.wikipedia.org/wiki/Thomson_Financial_League_Tables


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US 70 Trillion

Total us Debt is about 60 Trillion dollars

North America 5.17 27.1 34.39 23.88 33.67 Central/South America 8.52 6.51 4.34 8.496.44 Europe 9.62 26.42 29.19 22.8 27.06 Africa 10.66 1.52 0.54 2.36 1.01 Middle East9.88 5.07 3.13 5.69 4.1 Asia 52.18 29.4 25.61 31.07 24.1 Other 3.14 3.7 2.56 5.4 3.38

980 909.0 33.3 1990 3,206.3 55.9 2000 5,628.7 58.0 2001 5,769.9 57.4 2002 6,198.459.7 2003 6,760.0 62.6 2004 7,354.7 63.9 2005 7,905.3 64.6 2006 8,451.4 65.0 20078,950.7 65.6 2008 9,985.8 70.2 2009 (est.) 12,867.5 90.4 2010 (est.) 14,456.3 98.1

910 2.6 n/a 1920 25.9 n/a 1930 16.2 n/a 1940 43.0 52.4 1950 257.4 94.1 1960 290.5 56.11970 380.9 37.6 1980 909.0 33.3 1990 3,206.3 55.9 2000 5,628.7 58.0 2001 5,769.9 57.42002 6,198.4 59.7 2003 6,760.0 62.6 2004 7,354.7 63.9 2005 7,905.3 64.6 2006 8,451.465.0 2007 8,950.7 65.6 2008 9,985.8 70.2 2009 (est.) 12,867.5 90.4 2010 (est.) 14,456.398.1

WASHINGTON - THE net worth of US households fell by nearly 18 per cent orUS$11.2 trillion (S$1.84 trillion) in 2008 as the world's biggest economy grappled with a

prolonged recession, the Federal Reserve said Thursday.

Household net worth - the difference between the value of assets and liabilities - was anestimated US$51.47 trillion at the end of the fourth quarter of 2008, down US$5.1 trillionfrom the preceding quarter, the US central bank said.

For 2008 as a whole, household net worth fell US$11.2 trillion from US$62.68 trillion inthe previous year, according to the Fed's latest 'Flow of Funds Accounts' quarterly report.

The 2008 figure is the lowest since 2004, when household wealth was at US$51.87trillion, the report said.

The United States is facing its worst recession since the Great Depression after a homemortgage meltdown triggered financial turmoil that slammed the brakes on growth.

The recession began in December 2007 and based on the most recent governmentestimate, US gross domestic product contracted at an eye-popping 6.2 per cent annualpace in the fourth quarter of 2008.


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Some analysts say the downturn may be even worse in the first quarter of 2009.

The Fed also said that at the end of 2008, the level of outstanding domestic nonfinancialdebt was US$33.5 trillion, including household debt valued at US$13.8 trillion and totalgovernment debt of US$8.6 trillion.

Household debt contracted at an annual rate of two per cent in the fourth quarter of 2008,following two quarters of very weak growth, the report said. -- AFP

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The Crisis: Debt and Real Wealth

By Herman E. Daly

The current financial debacle is really not a liquidity crisis as it is often euphemisticallycalled. It is a crisis of overgrowth of financial assets relative to growth of real wealthpretty much the opposite of too little liquidity. Financial assets have grown by a largemultiple of the real economypaper exchanging for paper is now 20 times greater thanexchanges of paper for real commodities. It should be no surprise that the relative valueof the vastly more abundant financial assets has fallen in terms of real assets. Real wealthis concrete; financial assets are abstractionsexisting real wealth carries a lien on it inthe amount of future debt. The value of present real wealth is no longer sufficient to serve
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as a lien to guarantee the exploding debt. Consequently the debt is being devalued interms of existing wealth. No one any longer is eager to trade real present wealth for debteven at high interest rates. This is because the debt is worth much less, not because thereis not enough money or credit, or because banks are not lending to each other ascommentators often say.

Can the economy grow fast enough in real terms to redeem the massive increase in debt?In a word, no. As Frederick Soddy (1926 Nobel Laureate chemist and undergroundeconomist) pointed out long ago, you cannot permanently pit an absurd humanconvention, such as the spontaneous increment of debt [compound interest] against thenatural law of the spontaneous decrement of wealth [entropy]. The population ofnegative pigs (debt) can grow without limit since it is merely a number; the populationof positive pigs (real wealth) faces severe physical constraints. The dawning realizationthat Soddys common sense was right, even though no one publicly admits it, is whatunderlies the crisis. The problem is not too little liquidity, but too many negative pigsgrowing too fast relative to the limited number of positive pigs whose growth is

constrained by their digestive tracts, their gestation period, and places to put pigpens.Also there are too many twolegged Wall Street pigs, but that is another matter.

Growth in US real wealth is restrained by increasing scarcity of natural resources, both atthe source end (oil depletion), and the sink end (absorptive capacity of the atmosphere forCO2). Further, spatial displacement of old stuff to make room for new stuff isincreasingly costly as the world becomes more full, and increasing inequality ofdistribution of income prevents most people from buying much of the new stuffexcepton credit (more debt). Marginal costs of growth now likely exceed marginal benefits, sothat real physical growth makes us poorer, not richer (the cost of feeding and caring forthe extra pigs is greater than the extra benefit). To keep up the illusion that growth is

making us richer we deferred costs by issuing financial assets almost without limit,conveniently forgetting that these socalled assets are, for society as a whole, debts tobe paid back out of future real growth. That future real growth is very doubtful andconsequently claims on it are devalued, regardless of liquidity.

What allowed symbolic financial assets to become so disconnected from underlying realassets? First, there is the fact that we have fiat money, not commodity money. For all itsdisadvantages, commodity money (gold) was at least tethered to reality by a real cost ofproduction. Second, our fractional reserve banking system allows pyramiding of bankmoney (demand deposits) on top of the fiat governmentissued currency. Third, buyingstocks and derivatives on margin allows a further pyramiding of financial assets on top

the already multiplied money supply. In addition, credit card debt expands the supply ofquasimoney as do other financial innovations that were designed to circumvent thepublicinterest regulation of commercial banks and the money supply. I would notadvocate a return to commodity money, but would certainly advocate 100% reserverequirements for banks (approached gradually), as well as an end to the practice ofbuying stocks on the margin. All banks should be financial intermediaries that lenddepositors money, not engines for creating money out of nothing and lending it atinterest. If every dollar invested represented a dollar previously saved we would restore


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the classical economists balance between investment and abstinence. Fewer stupid orcrooked investments would be tolerated if abstinence had to precede investment. Ofcourse the growth economists will howl that this would slow the growth of GDP. So be itgrowth has become uneconomic at the present margin as we currently measure it.

The agglomerating of mortgages of differing quality into opaque and shuffled bundlesshould be outlawed. One of the basic assumptions of an efficient market with ameaningful price is a homogeneous product. For example, we have the market andcorresponding price for number 2 cornnot a market and price for miscellaneousrandomly aggregated grains. Only people who have no understanding of markets, or whoare consciously perpetrating fraud, could have either sold or bought these negative pigsinapoke. Yet the aggregating mathematical wizards of Wall Street did it, and nowseem surprised at their inability to correctly price these idiotic assets.

And very important in all this is our balance of trade deficit that has allowed us toconsume as if we were really growing instead of accumulating debt. So far our surplus

trading partners have been willing to lend the dollars they earned back to us by buyingtreasury billsmore debt guaranteed by liens on yettoexist wealth. Of course theyalso buy real assets and their future earning capacity. Our brilliant economic gurusmeanwhile continue to preach deregulation of both the financial sector and ofinternational commerce (i.e. "free trade"). Some of us have for a long time been sayingthat this behavior was unwise, unsustainable, unpatriotic, and probably criminal. Maybewe were right. The next shoe to drop will be repudiation of unredeemable debt eitherdirectly by bankruptcy and confiscation, or indirectly by inflation.

bens big ballon

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