GDP Growth

This is so alarming as to be nearly unbelievable. Think long and diligently about what this means. When and how does the illusion end? How does it manifest itself?

This post is pulled directly from Karl Denninger's Market Ticker. My commentary follows.

To properly look at GDP in terms of actual economic progress one must back out all the borrowing that takes place during the same period. That is, the proper way to look at GDP is to subtract back out that which is paid for not with today’s output, but with promises to pledge tomorrow’s. The reason for this is clear – you may in fact only spend a dollar once. When looked at this way one gets a very different view of “growth” in the economy, and the depth of the hole we have dug for ourselves becomes clear.



There has been no actual positive GDP growth during the entire period from 1953 onward – until the 4th quarter of 2009, and since 1980 the true GDP numbers, when one looks at output (not what one “pulls forward” via debt) has been hideously bad. The spike upward in actual debt-adjusted growth that began in the 4th quarter of 2009 and peaked in the 1st quarter of 2010 was due to total systemic debt reduction – the very thing the government is trying to prevent, but which is necessary to bring the economy back into balance.

This, incidentally, is why median incomes haven’t moved upward at all in the last decade and why it seems to be harder and harder every year to maintain a middle-class lifestyle - and has been since the 1950s. The loss of purchasing power in real terms, the drive to “two income” households and finally the wild screams from the media, government, and lastly Bernanke’s recent assertion that “QE2” has been a “success” because the stock market has gone up all underlie the truth – we have not grown the economy at all during the last sixty years! Instead we serially pulled out the credit card and said “Charge It!”, continually rolling over the debt and adding more to it.

If you look at the stock market, one has to ask – when did it start to “take off”? In 1991 the S&P 500 printed 300 and the Dow stood at 2,500. That was the start of the monstrous "bull run" in stocks.

Exactly none of the alleged “stock market appreciation” has come from actual economic growth since that time. It has all come from ever-increasing amounts of leverage (debt) that, when subtracted back out of the change in GDP, show that on an actual output basis the economy of the United States has been declining at absolutely outrageous rates every single year since 1992, peaking at an astounding 29% at the end of 2007!

Nobody in the media – or government – will talk about this, despite the fact that the there’s little room for argument on the mathematical facts – they’re right there in the government data.



From Finn, a note:

You might read the above and say to yourself, “Well, isn’t debt reduction good?” It is of course however, our entire economic model has been based on GDP growth. The main source of growth has been the expansion of debt. Example, you get a new car and take a loan for $15,000. That loan is debt and is representative of GDP. If the government borrows $1 million it’s GDP. If they spend that same million it is again counted as GDP. If some guy gets laid off and stops spending all money, the Gov counts as GDP a percentage of his NON-income that he WOULD HAVE spent on imports as GDP. Completely ridiculous.

The reason GDP HAS to keep growing is because it proves to the world that Americans are able to keep servicing their debts. How do you service debt? Well you work, get paid and pay your bills. If this perception changes in the minds of foreign investors (including Central Banks) and they start to believe that we have hit the wall, they will scale back in their purchases of our Treasuries.

What if they discover that America has a chronic unemployment problem? (They know we do)
What if they discover that our GDP growth has all been debt based? (They know this too)
What if they discover the Fed has been buying all the Treasuries and America will likely default on their debts? (They know this)

What foreign nations and investors are dreading, and indeed anticipating is the Awakening of the American people to our own situation. When Americans figure this stuff out and realize that their whole “prosperous” life has been nothing more than an illusion the lid on the boiling pot will fly through the roof. The reaction of the American people will be totally unpredictable except for the flight to value. Debt will be shunned. Things of “value” will be in vogue.

Imagine the ire that Americans felt towards Japan after Pearl Harbor except this time around the anger will be isolated within our own borders. It will be directed towards bankers, politicians and even each other. Think national L.A. riots, and hope it never happens.

Buy silver, buy gold.

Quote of the Day

I have often said that after all my studies I am beginning to believe that silver is more important to the world than gold. I started to think along these lines when I realized that silver, which dollar wise is one of the smallest markets on the commodities markets, has the largest outstanding short position against it, larger than gold even.

Also, the number of days it would take to cover these short positions is the highest of all the commodities as well, nearly 160 days of production.

A brief description of the above is this……If you go “long’ a contract you expect the price to go up. If you go “short” a contract you expect the price to go down. This “sentiment” affects which way the price moves. It has NOTHING to do with physical supplies. It's much more complicated than that but this is the Quote of the day post.

Anyway, the Quote of the day…..

"SILVER MONEY IS MORE IMPORTANT TO THE WORLD THAN GOLD." - Congressional Digest, November 1931, page 286.

Peculiar that, no?

Anyone who wants to go deep down the rabbit hole, read the following…..


The Silver Stealers series of articles……read for yourself the drama surrounding this metal for nearly 100 years….. that's where the quote was drawn from.


I urge you all to increase your positions with more zeal and fervor than I have ever conveyed. Ignore the price, eat one less meal a day, sell some of your personal belongings, whatever it takes. I strongly believe that after 5 years has passed you will NEVER be able to afford it or even find it ever again. Its production will be completely controlled by the governments of the world due to its scarcity and the difficulty they will have in mining new supply due to the price of oil and credit constraints.

Ignore this advice and be impoverished. Heed it and thrive.


And who says I don’t have a sense of humor through all of this?




The end of the silver price suppression that is! LOL



Cheers!

Prediction for 2011

My own prediction for 2011....

When we look back in time, I think that 2010 will have been the highest producing year for silver that we will have ever seen.

Peak silver is on like Donkey Kong!!!!

Read this article and draw your own conclusions....link..

An Apologist Describes the History of Gold

This is terrible analysis in my view from the Khan Academy. Watch this video and read my response to it...

Video.....


Interesting video on history but flawed logic on what money actually is.

Austrian economics talks about these things extensively: the definition of money, the value of it, what is its marginal utility, why do we even have it?

He’s correct in that gold was a transition from getting people to understand that what backs a “money” is some value of some sort. The process he describes is not new. It has happened repeatedly for a very long time and usually for nefarious reasons. Not because some sort of enlightenment was reached about what money is.

The problem, and Ludwig Von Mises addresses this in his book, “Human Action”, is that governments have never been able to restrain themselves from printing more money than their economies can provide for. Always the debt issuance and the interest that must be paid back grows at a faster pace than the labor of the people can provide for and they end up hyperinflating their currencies and what is there to provide the safety net? Gold and silver.

Watch this video:

James Turk talks about how technology has evolved and how our understanding of HOW to use gold as money must evolve also.

The apologists will always try and downplay the value of gold by saying it does nothing. That guy’s demonstration of a plane landing was ridiculous. Make believe doesn’t work in the real world. I could make a drawing and create any number of instances and lead you to the decision I wanted you to make by creating scarcity. Of course I would choose food over gold. But given an option I would choose gold over fiat. He could just as easily have put a big pile of money on the one island and you still would have landed on the other island. Why did he choose gold? Paper currency or gold both can represent taxes, labor, land, intellectual property, etc. The only difference is that getting gold takes labor and time and capital. With paper I can print a 1 or 1,00,000,000,000 on a piece of paper and the cost is no different.

The next transition for gold is that its price has to be allowed to trade freely. Governments don’t want this because they then have to keep adding gold supply to the reserves in order to grow their spending budgets and how can they buy votes if this is so? Fiat was created as a matter of convenience. Gold was heavy and clanged around when you walked announcing your wealth like an alarm bell. Gold can now be traded digitally in infinitesimal amounts.

And let’s be realistic, the socialist in everyone’s heart WANTS government to overspend. They want a redistribution of wealth and they want other people to pay for it. Especially if they are overseas and don’t look like us or talk like us and we won’t see if they die or not from our actions. Many will resist the truth of that but that’s only because they want to resist evolution. That evolution is the evolution of the mind. Evolution of the mind is a recognition that you are not in communion with God and being in communion with God is THE most difficult thing anyone will EVER achieve in all of their lifetimes. Therefore: paper money!

The possibilities that we can achieve on this Earth are staggering but we are having great difficulty getting there because at one end of the spectrum there is a class of people overcome with a sociopathology where they must have more than everyone else and liken themselves to demi-gods, the “Masters of the Universe”. And at the other end of the spectrum you have a class of people who are overcome with apathy and laziness who would feed off their host and take, take, take and do no work. Most in the middle are confused. But it’s the middle way that can set you free.

Voltaire-Of Hope and Silver's 2011 Price Prediction

This directly from Voltaire......

There is Hope

Millions of people out there looking for the truth about what is wrong with our economy, our political system, our corporate ecosystem, have found a black hole of despair on the internet.

Yes, the world is messed up. You already know that. What you need to understand is that there is a solution. As this drama plays out, the people who have brought this mess down upon our heads will grab for the same solution as everyone else.

In order to keep the world operating, we simply must have a functioning electronic based currency system. The currency system that we have now has been undermined by fraud and must be replaced. Trust has been destroyed. Only a 100% gold backed currency system can replace the current system. This means two things:

1) The price of gold must rise to the point where the working capital of the world all resides in gold. We are talking about a price of gold equivalent to one year’s wage for an ounce of gold.

2) The banking system must provide a smooth mechanism by which depositors can convert their gold and silver into electronic form and back into physical form. Only this will restore confidence.

The world can limp along with the current system for a while longer, but this change is coming. Collectively, we have no real alternative except to restore confidence to the current electronic transaction system. Those who have power now have more to lose than the rest of us.

Silver Historical Chart and the Future

Here’s a neat chart to reflect on from time to time…..If any of you had watched that video I sent out over the weekend you would know that there is about 5 times more gold above ground than silver……

There is about 10-15 times more silver than gold in the ground however industry uses about 650 million ounces a year of which very little is recovered. The rest goes to investors. Also, the USGS has published a report stating that silver reserves will be depleted BEFORE gold, in about 10 years. Think about that, in 10 years (+-), no more silver will come out of the ground (for the most part).

When industry discovered that rhodium had 14 years left to be mined the price was run up from $300 an ounce to $10,100 an ounce. The difference between silver and rhodium (other than if rhodium disappeared life would go on) is that rhodium is NOT traded on the futures exchanges. If/when the silver paper manipulation of prices ends, God only knows what the upper limits of the price will be.

Personally, I view silver as my retirement. I can see selling 1 ounce of silver a month to cover my living expenses. Keep in mind that this will most likely be in an environment where the price is higher than the month before, averaged out over the year. I believe silver will cross the $1,000 mark, perhaps within the next 4-6 years. How many months will you "buy" in advance? View it as a time saver.

If sanity were to come back to the planet we live on and supply/demand fundamentals mean anything, silver could surpass the $5,000, $10,000+???? mark. Sound unbelievable? When gold crossed $700 analysts were calling for it to fall back to $250. It’s doubled since.

When rhodium was $5,000 an ounce (from $300), an analyst, Jack Lifton, said it was a good time to buy!!!!!! Many sold. Who could believe that? It doubled from there.

Anyway, the chart.





Link to larger chart...

Starting off 2011