A big rally on toxic asset buying today, the real problem became more severe.

A rally on news like this, if it was a rally on the toxic asset buying, lasts until the next big down news day that wasn’t expected or when it becomes obvious the “plan” isn’t working. That is why during the 2 years the market was going down in the Great Depression, you had several rallies.

This isn’t a recession. This chart on Total Debt to GDP shows what it looked like going into the Great Depression and going into this depression, not recession. This is debt driven.

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As we can see on this chart, the last time debts got even remotely close to current levels was back in the early 1930s, and that bears a bit of explanation. The debt-to-GDP ratio back then didn’t start to climb until after 1929 (blue arrow), because debts remained relatively fixed in size, while it was the GDP that fell away from under the debts. With the exception of the Great Depression anomaly, our country always held less than 200 percent of our GDP in debt (green circle). In 1985 we violated that barrier and have never looked back.

What does this chart tell me? It says that what each of us knows to be “just how the economy works” is really a historically unusual experiment with debt that is barely 25 years old. In the sweep of economic history, this barely qualifies as a blink.

It says, if you listen carefully enough, that all of our global economic growth has been fictitious. An illusion of debt.

http://www.chrismartenson.com/blog/crisis-explained-one-chart-debt-gdp/11570
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There is a simple example in the article too that shows how you can create an illusion of growth.

But, the problem they had then and now, is that it takes time for consumers to get debt under control. Add that we have cities and states under water and facing higher interest payments and lower tax revenues and layoffs and cuts in spending, and it takes even more time.

This “plan” is to get banks lending again. To Who? If people, cities, states, and corporations are all trying to deleverage and get debt under control, who do they lend to in enough quantity to really change the trend in the economy.

Yet, Bernanke, the “depression expert,” says he can have rates so low and buy toxic assets, and buy our bonds and create rising prices so that people “have to start spending again,” and the economy recover.

I hope he is right but, if not, this is going to be a bumpy ride.

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We are told we must balance the budget. Look at the record and find out what happens when we do. Shortly after each balanced budget we had a recession. Check the record. Notice the many years between numbers two and four. No surpluses and no recessions until the surplus in 1969. By December, 1969 number three started. No one has dared to balance the budget since.

The large deficit in 71 and 72 got the economy going again. The deficit was reduced in 73 but before the budget could be balanced , number four started November 1, 1973. The pattern was repeated with numbers five and six.

We had number four when the deficit was reduced to about $5 billion, number five at about $40 billion, and number six at about $70 billion. Recessions five and six were so close, because the deficit in 81 was too small to keep the recovery going. Just look at the huge deficits required to end number six.

Since 1985, many items have been taken ‘Off Budget’ to hide the true size of the deficit.

Note the large reduction from 86 to 87. Could this be the reason for the October 1987 market crash? Economist predicted a depression within six months. Why were they wrong? The 88 and 89 debt increase figures tell us the answer.

The government borrowed enough to stimulate the economy out of the predicted depression.

Since 1792, our monetary system has been switched from a wealth based monetary system to a monetized debt-based monetary system. Under constitutional principles, our money was to be a representation of wealth and spent or traded into circulation.

Now our monetary system is based on debt. Every form of money now in circulation was put into circulation as a loan or as a debt to someone. When interest is charged on the loans it mean that the debt is always greater than the money supply. In order for the economy to function there must be an ever expanding debt. Is this fiscal responsibility?

http://www.wealthmoney.org/budget.html

Related Posts:

• As long as you have stops to protect from a big drop and you got in early, you should be ok.
• Why people are buying?
• Government needs to fill up the gap for consumer spending to delay the collapse
• Who is going to buy the products we need for a recovery?
• How about no recovery for a decade?

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