A rational metric

Karl Denninger proposes one at the Market Ticker:

[T}his is where government and regulatory interests align to the detriment of economy stability: Governments want to see big GDP increases, and increasing leverage (amount of borrowing outstanding in the economy for a given GDP level) is one way to do this.

The best way to control this trend would be to mandate (by law) that GDP be adjusted to reflect leverage changes in the economy – that is, if debt goes up by 4% of GDP then the 4% has to come off the reported GDP numbers.

The reason this isn’t tenable, of course, is that it would make it clear that we’re well into the economic contraction of massive proportions that is beginning to become visible despite the best efforts of the governments and banks to statistically obfuscate.

Explaining debt-deflation

This article should help explain why “printing” money is not necessarily inflationary in a monetary system where most of the money is created through fractional-reserve lending:

The following chart shows that bank reserves held at the Fed have increased 100-fold over the past 14 months — from around $10B in August of 2008 to around $1000B ($1T) today. It is important to understand that while this explosion in the reserves of US depository institutions has rightfully prompted much discussion and consternation, it hasn’t directly added to the total supply of US dollars (bank reserves are not counted in monetary aggregates such as M1, M2, M3, MZM and TMS). The reason that bank reserves aren’t added to the money supply is that they do not constitute money available to be spent within the economy; rather, they constitute money that could be loaned into the economy or used to support additional bank lending in the future.

If even bank reserves can’t be counted as money, it should be obvious that mere Federal Reserve printed notes can’t be counted either. The money has to go into the system before it can be spent; this is why increased bank reserves are considered to be deflationary. This does not mean, however, that the Fed can simply force the banks to force lending, as some have suggested. Mike Shedlock explains why:

1) Lending comes first and what little reserves there are (if any) come later.
2) There really are no excess reserves.
3) Not only are there no excess reserves, there are essentially no reserves to speak of at all. Indeed, bank reserves are completely “fictional”.
4) Banks are capital constrained not reserve constrained.
5) Banks aren’t lending because there are few credit worthy borrowers worth the risk.

The long-prophesied government

The outlines are beginning to become clear:

The word “global” has taken on sacred connotations. Any action taken in its name must be inherently virtuous, whereas the decisions of individual countries are necessarily “narrow” and self-serving…. There is a whiff of totalitarianism about this new theology, in which the risks are described in such cosmic terms that everything else must give way. “Globalism” is another form of the internationalism that has been a core belief of the Left: a commitment to class rather than country seemed an admirable antidote to the “blood and soil” nationalism that gave rise to fascism.

There is more than “a whiff of totalitarianism” about it; globalism is an intrinsically more deadly threat to Man than fascism, Communism, and Nazism combined. The sacred connotations it has taken on should cause every religious and non-religious individual alike to question just what, precisely, is the nature of the religious spirit behind it. As for me, I think it stinks of sulfur.