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“Endless Growth” Is the Plan & There Is No Plan B

“Endless Growth” Is the Plan & There Is No Plan B thumbnail

After five years of aggressive Federal Reserve and government intervention in our monetary and financial systems, it’s time to ask: Where are we? 

The “plan,” such as it has been, is to let future growth sweep everything under the rug. To print some money, close their eyes, cross their fingers, and hope for the best.

On that, I give them an “A” for wishful thinking – and an “F” for actual results.

For the big banks, the plan has involved giving them free money so that they can be “healthy.” This has been conducted via direct (TARP, etc.) and semi-direct bailouts (such as offering them money at zero percent and then paying them 0.25% for stashing that same money back at the Fed), and indirectly via telegraphing future market interventions so that the big banks could ‘front run’ those moves to make virtually risk-free money.

This has been fabulously lucrative for the big banks that are in the inner circle. As we’ve noted somewhat monotonously, the big banks enjoy “win ratios” on their trading activities that are, well, implausible at best.

Here’s a chart of J.P. Morgan’s trading revenues for the first three quarters of 2013, showing how many days the bank made or lost money:


Do you see the number of days the bank lost money? No? Oh, that’s right. There weren’t any.

Now, for you or me, trading involves losses, or risk. Sometimes you win, and sometimes you lose. There appears to be zero risk at all to JP Morgan’s trading activities. They won virtually all of the time over this 9-month period.

That’s like living at a casino poker table for months and never losing.

Of course, Bank of America/Merrill Lynch, Goldman Sachs, and a few other U.S.-based banks were able to turn in roughly similar results. Pretty sweet deal being a bank these days, huh?

So one might think, Well, that’s just how banks are now. Bernanke’s flood of liquidity is allowing them to simply ‘win’ at trading. If true (which it appears to be), we can’t call this trading. The act of “trading” implies risk. And it’s clear that what the big banks are doing carries no risk; otherwise they would be posting at least some degree of losses. We should call it sanctioned theft, corporate welfare, cronyism the list goes on. And it is most grossly unfair, as well as corrosive to the long-term health of our markets.

Therefore, sadly, I have to give Bernanke an A++ on his objective of handing the banks a truly massive amount of risk-free money. He’s done fabulously well there.

But will this be sufficient to carry the day? Will this be enough to set us back on the path of high growth?

And even if we do magically return to the sort of high-octane growth that we used to enjoy back in the day, will that really solve anything?

Endless Growth Is Plan A Through Plan Z

The problem I see with the current rescue plans is that they are piling on massive amounts of new debts.

These debts represent obligations taken on today that will have to be repaid in the future. And the only way repayment can possibly happen is if the future consists of a LOT of uninterrupted growth upwards from here.

It’s always easiest to make a case when you go to silly extremes, so let’s examine Japan. It’s no secret that Japan is piling on sovereign debt and just going nuts in an attempt to get its economy working again. At least that’s the publicly stated reason. The real reason is to keep its banking system from imploding.

After all, exponential debt-based financial systems function especially poorly in reverse. So Japan keeps piling on the debt in rather stunning amounts:


That’s up nearly 40% in three years (!).

It’s the people of Japan who are on the hook for all that borrowing, now standing well over 200% of GDP. So here’s the kicker: In 2010, Japan had a population of 128 million. In 2100, the ‘best case’ projected outcome for Japan is that its population will stand at 65 million. The worst case? 38 million.

So…who, exactly, is going to be paying all of that debt back?

The answer: Japan’s steadily shrinking pool of citizens.

This is simple math, and the trends are very, very clear. Japan has a swiftly rising debt load and a falling population. Whoever it is that is buying 30-year Japanese debt at 1.69% today either cannot perform simple math, or, more likely, is merely playing along for the moment but plans on getting out ahead of everybody else.

But the fact remains that Japan’s long-term economic prospects are pretty terrible. And they will remain so as long as the Japanese government, slave to the concept of debt-based money, cannot think of any other response to the current economic condition besides trying to shock the patient back to vigorous life by borrowing and spending like crazy.

If, instead, Japan had used its glory days of manufacturing export surpluses to build up real stores of actual wealth that would persist into the future, then the prognosis could be entirely different. But it didn’t.

The U.S. Is No Different

Except for some timing differences, the U.S. is largely in the same place as Japan twenty years ago and following a nearly identical trajectory.  Currently, it’s an economic powerhouse, folks are generally optimistic on the domestic economic front (relatively speaking), and its politicians are making exceptionally short-sighted decisions. But the long-term math is the same.

There’s too much debt representing too many promises. The only possible way those can be met is if rapid and persistent economic growth returns.

However, even under the very best of circumstances, where the economy rises from here without a hitch say, at historically usual rates of around 3.5% in real terms (6% or more, nominally) we know that various pension and entitlement programs will still be in big trouble.

Worse, we know that the environment is screaming for attention based on our poor stewardship. Addressing issues such as over-farming, water wastage, and oceanic fishery depletion to say nothing of carbon levels in the atmosphere – will be hugely expensive.

Likewise, a complete focus on consumer borrowing and spending at the exclusion of everything else (except bailing out big banks, of course), along with a dab of excessive state security spending, has left the U.S. with an enormous infrastructure bill that also must be paid, one way or the other. That is, short-term decisions have left us with long-term challenges.

But what happens if that expected (required?) high rate of growth does not appear?

What if there are hitches and glitches along the way in the form of recessions, as is certain to be the case?  There always have been moments of economic retreat, despite the Fed’s heroic recent attempts to end them. Then what happens?

Well, that’s when an already implausible story of ‘recovery’ becomes ludicrous.

If we take a closer look at the projections, the idea that we’re going to grow even remotely into a gigantic future that will consume all entitlement shortfalls within its cornucopian maw becomes all but laughable.

Of course, the purpose of this exercise is not to make fun of anyone, nor to mock any particular beliefs, but to create an actionable understanding of the true nature of where we really are and what you should be doing about it.

In Part II: Why Your Own Plan Better Be Different, we examine more deeply the unsustainability of our current economic system and why it is folly to assume “things will get better from here.”

Given the unforgiving math at the macro altitudes, the need for adopting a saner, more prudent plan at the individual level is the best option available to us now.

Click here to access Part II of this report (free executive summary; enrollment required for full access).

Peak Prosperity

12 Comments on "“Endless Growth” Is the Plan & There Is No Plan B"

  1. Northwest Resident on Thu, 23rd Jan 2014 4:41 am 

    What we have is a Perfect Storm. Environmental disaster — running out of fuel — financial collapse, all hitting at one time. We live in amazing times.

  2. Stilgar Wilcox on Thu, 23rd Jan 2014 7:38 am 

    It is interesting NR how these converging storms seem to be on a trajectory to crescendo simultaneously. Really no apparent reason why that should be the case. GW could have been farther out in time, or there could have been more low hanging FF fruit, or govt. finances could have been better planned yet they do seem to be building in unison. Should be quite a show when it peaks.

    Still perplexing is when, but make no mistake we will not be confused about what constitutes its apex when it arrives. And we’ll have a little kicker afterwards, as lack of dimming will spur a further added heat increase of 1C. Nothing like a good set of challenges to test the adaptability of the species.

  3. Norm on Thu, 23rd Jan 2014 8:05 am 

    how about a shovel-ready project, to increase the size of the earth? so the economy can grow some more?

  4. J-Gav on Thu, 23rd Jan 2014 9:40 am 

    Sure looks that way, though there are still some questions about the timing and extent of climate change impacts. However, even without considering that, a combination of biodiversity loss, energy resource depletion and financial mayhem would be plenty to deal a nasty blow to the Cornucopians – and everybody else.

  5. rollin on Thu, 23rd Jan 2014 12:26 pm 

    There’s a plan??? That would be impressive. Looks more like idiots just following what their daddies and granddads did, with tech people dreaming us into a dead end future. No real thought going on except by a small minority who have no real way to change anything.

    My plan is not to pay for part II.

  6. Davy, Hermann, MO on Thu, 23rd Jan 2014 1:07 pm 

    I am with you guys, we face a whirlwind of tipping point converging into a situation of negative reinforcing feedback loops causing bifurcation of social fabric and critical support systems. Wow I love being wordy but that is what is coming. So many of our world our not privileged to know these thing for a variety of reasons from too young, too old, uneducated, don’t care, exploitive criminals, and finally corrupted industrial/political leaders globally. Let us be fair and honest. I really see nothing that can be done from the top down. The top, house of cards Ponzi scheme, is bankrupt. All it can do is cannibalize the lower productive levels. Nothing new this has happened throughout history as societies fail. So all this bashing of this top segment of the economy is wasting energy. The bashing is inevitable so I can’t bash the bashing too much or I am guilty of the same. Let’s focus on the plan B’s, transition initiatives, local lifeboats, and national mitigation ideas as best we can in a collapsing world. We are at the top on a plateau ready for a wild ride down into something none of us can adequately describe. Decent and collapse in a highly complex global system beset by overwhelming predicaments from pollution to economic failure will be difficult to plan for. Yet, those of us who have some enlightenment on the subject must try. We are talking a carrying capacity loss of monumental magnitudes in a short time. Going back to 1960’s levels means more than halving of population. That’s where we are heading initially I would guess.

  7. luap on Thu, 23rd Jan 2014 1:43 pm 

    This is depressing ..what a state they have got us into ..we need Superman ..he could sort it out..I think

  8. action on Thu, 23rd Jan 2014 9:04 pm 

    @ Stellar

    There is a definitive reason – oil. Oil is the reason behind everythinv, including population explosion, natural ecosystem destruction and climate change, and financial and economic problems. It’s not a coincidence. All that vast energy in such a functional package built our contemporary reality. The financial problems are an offshoot of diminishing returns on energy.

  9. action on Thu, 23rd Jan 2014 9:06 pm 


  10. Northwest Resident on Thu, 23rd Jan 2014 9:28 pm 

    Stellar Stilgar, more like it…:-)

  11. Makati1 on Fri, 24th Jan 2014 12:57 am 

    In 1971, we went off the last remnants of the gold standard. That was also when oil production in the US peaked. Coincidence? I don’t think so. They knew what was coming down the road and switched to toilet paper for money. The elites had to extend and pretend so they could accumulate the rest of the real wealth before the SHTF. They are doing very well, aren’t they? When it finally happens, they will own everything worth owning in the new world and the serfs that survive will be back to slavery and subsistence. At least that is how I see it.

    If you think we are run by fools, think again. The on that currently represents them in the US may be a fool, but then, I think they all have been since Reagan, at least. And the next one will be even worse. (IF there is another election.)

  12. GregT on Fri, 24th Jan 2014 5:34 pm 

    ” Going back to 1960’s levels means more than halving of population. That’s where we are heading initially I would guess.”

    Initially perhaps, it appears more than likely to me, that our final destination will be closer to the 1690’s.

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