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Hyperinflation Ratios Spin Out of Control; Impose Glass-Steagall While We Still Can
17 February 2013
In a recent article headlined "Credit Supernova!" Bill Gross, the managing director of PIMCO, the world’s largest bond trading company, warned that the global financial system was about to explode like a supernova. Gross accurately pointed to one of the symptoms of the hyperinflationary bailout bubble that has been created since the demise of FDR’s Bretton Woods System in 1971: "In the 1980s, it took $4 of new credit to generate $1 of real GDP. Over the last decade, it has taken $10, and since 2006, $20 to produce the same result." Gross aptly described this as "a monster that requires perpetually increasing amounts of fuel, a supernova star that expands and expands, yet, in the process begins to consume itself." But even leaving aside the fact that Gross is clueless as to the cause of the crisis, let alone of a viable solution, what he described as what we might call worsening "gearing ratios," is actually only the tip of the iceberg. As he himself admitted in a footnote to the article, the debt figures he used for his ratios include all U.S. government, corporate, and household debt—but "does not include ’shadow’ debt." That so-called "shadow" debt is actually the gigantic derivatives and other speculative bubbles which make up total global financial aggregates—the third curve in Lyndon LaRouche’s famous "Triple Curve" graph—and which have been growing far more rapidly than simple debt. In fact, the "gearing ratio" of total global financial aggregates to U.S. debt, has been growing even more rapidly than the "gearing ratio" of debt to GDP. So, if it took $4 of new debt to generate $1 of GDP in 1985, it took $10 of global financial aggregates for the $1 in GDP. By 2012, the debt "gearing ratio" had grown fivefold, requiring $20 in debt to produce $1 in GDP. But the financial aggregates "gearing ratio" had grown fifty-fold, so it now requires $500 in financial aggregates for each $1 increase in GDP! And mind you, GDP itself is a phony, bloated measure of productive economic activity. The fact is that real physical- economic output has been collapsing, as growing ratios of financial assets have been fed to the "credit supernova." This is the symptomology of a hyperinflationary policy gone amok. The cancer has not only taken over the body; it is now consuming itself. |