STOCK MARKET WATCH -- Monday, 23 January 2012

[DemReadingDU]

51. Karl Denninger: You cannot solve a debt problem with more debt.

1/23/12 Lagarde: A Desperate Scream For Help
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You cannot solve a debt problem with more debt. You cannot resolve the issues that face the world economy with more borrowing and you cannot "grow out of it", as mathematically you must either grow faster than the debt increases or shrink the debt faster than GDP decreases.

This is mathematical fact, not politics or policy.

Lagarde doesn't want to talk about mathematics and she's not alone. The rest of the developed world is likewise unwilling to face facts when it comes to the mathematical certainties that underpin what is going on in the economy on a global basis. The IMF states that "a collapse in demand" will lead to a global Depression (true) but refuses to admit that "demand" fueled by deficit spending is in fact false; it is "demand" that does not actually exist in the economy as a consequence of actions by people and is instead a reflection of "free stuff" being handed out by those governments.

But "free stuff" is never actually free. It is only a pull forward of demand into today from tomorrow. Then, when tomorrow comes, we do it again. And again. And again.

For how long can this continue? Can it contiunue forever, as people like Lagarde claim? Of course not.

Can we expect productivity and improvement in the economy to lessen and fix sovereign balance sheets? No, because the deficit spending has not stopped and nobody intends to stop it.

But until it does stop, and until the facts are faced there is no resolution, there is no adjustment in the general price level, there is no recognition that the people of these nations have lived at a standard of living that exceeds their ability to earn.

Until that changes -- whether by choice or force -- there is no resolution to the underlying problem, and thus all so-called "recoveries" will be both short-lived and false.


http://market-ticker.org/akcs-www?post=200922