Mathematically Certain Monetary Collapse?

[Thales]

Karl Denninger is predicting a monetary collapse will happen. He's showing it my mathematical extrapolation going back from 1953. Listen to this 7 minute video and look at his graphs. This is very heady stuff.

I should have added the document where he describes everything:

http://market-ticker.org/archives/1439-WAR...Dead-Ahead.html

Edited September 17, 2009 by Thales

[Grames]

But the singularity will save us!!!

[brian0918]

I asked my econ phd friend about this in IM, here's his response:

[2:20 PM] Ryan: those debt numbers are made up

[2:21 PM] Ryan: http://cbo.gov/ has the correct ones

[2:21 PM] Ryan: the federal government debt is something like 60 perc. of GDP

[2:21 PM] Ryan: IIRC

[2:22 PM] Ryan: it is growing far too fast for comfort and there is a small but growing possibility of a currency crisis in the future

[2:22 PM] Ryan: I think this is the consensus view

[brian0918]

So who's right? I presume the CBO numbers are leaving out things that Denninger is choosing to include, but what are they, and what is his justification for including them in the "debt"?

[softwareNerd]

So who's right? I presume the CBO numbers are leaving out things that Denninger is choosing to include, but what are they, and what is his justification for including them in the "debt"?

I assume he is considering all debt, not just government debt. i.e. adding government debt, corporate bonds etc. outstanding, and household debt (mortgage, auto, credit cards).

His figure for 2008 debt is a little over $50T. He refers to "Fed Z1" which is the flow-of-funds tables. You can see the debt numbers here. If you go to the bottom, you'll see that the total debt of the non-financial sector is about $33 T, and of the financial sector is $16 T. That adds up to $49 T. if one adds the last column (foreign) one will get a little over $50T. So, i bet that's how he got his figure.

One important thing to know about the government portion is that people talk about it in two ways: some add the amount the the government owes itself (in its incarnation as Social Security and Medicare), while others don;t consider this. Which one is right, depends on one's purpose; but, those two figures cause some confusion when people speak of Federal government debt. The flow table appears to only show the net federal debt (i.e. does not include the amount "owed" to the SS and medicare trust-funds).

[Grames]

The source for the 1st graph is right on the chart. Federal Reserve Z1, BEA GDP Table 1.1.5 Don't equate Fed Reserve debt with Fed Gov't debt.

Edited September 17, 2009 by Grames

[softwareNerd]

The source for the 1st graph is right on the chart. Federal Reserve Z1, BEA GDP Table 1.1.5 Don't equate Fed Reserve debt with Fed Gov't debt.

That is not Fed reserve debt. It is debt as shown in the data-series named "Z1" produced by the Federal reserve. (see my previous post)

[Bastian Hayek]

That is kind of off-topic, but I found it under the video posted here: If I look at the comments on YouTube I am always frightened in how many people make Jews responsible for the FED. Did you encounter that too?

[Grames]

My mistake, hadn't actually looked it up.

The argument being made is that the total debt within the economy increases faster than GDP, and because the difference is the difference between two exponentials the difference grows exponentially. Exponential growth doesn't stop until it hits a limit, and the limit is near.

I don't know what the limit is or how long until we hit it, and neither does this guy. "All men are mortal therefore I am going to die" does not mean I am going to die tomorrow.

[softwareNerd]

I don't know what the limit is or how long until we hit it, and neither does this guy.

True. Also, a major assumption he makes is the rates at which these two will increase in the future. He assumes that they'll keep growing until there is a massive credit/debt deflation.

One might argue that the horse has already bolted from the barn. After all, from late 2008 we have seen the rate of growth come down. The most recent figure (most recent quarter from the Fed Z1 data) is negative (using the same data-series that he used). Here's a graph showing the rate of growth (quarterly figures, annualized)

Edited September 18, 2009 by softwareNerd