Chart below that depicts leading US Treasury spending vs. SP500 Sales vs SP500 earnings over the recent long term in time domain.
Of interest is the linearity in the growth of both Treasury spending and SP500 sales over the time period leading up to the "GFC" in 2008, about from the years 2001 thru 2007.
While if we look at the below chart depicting the growth in the Fed's H.8 Loans and Leases in Bank Credit over this same time period that we showed here last week, we can see the NON-linearity of the growth in the establishment of these balances over this same time period.
So even though bank credit was growing exponentially, we can see no exponential growth in sales by firms over this same time period.
This observation might make one want to wonder: "Where did the money go?".
"Loans create deposits" is a true statement; and we can see that loans and hence the derivative deposits were being established in exponential growth over this time period, while concurrent sales by the large SP500 firms were not growing exponentially, seemingly responding to the linear growth in leading US Treasury spending rather than non-linear growth in "Bank Credit".
Intuitively we might think that an exponential increase in Bank Credit would lead to an exponential increase in at least sales by firms (if not earnings), but that does not appear to be the way the system is functioning.
12 comments:
Go go frankOstein!!@@@
Thank you for the chart my left right left brain needs the graphs.
This is a function of refinancing and so nobody is really doing anything - the collective system hard drive is still defragging and compacting.
Did the big banks subcontract the quant model engineers and programmers or were they direct hires for creating the derivative monsters?
What is typically forgotten by people is that banks require repayments for their loans with interest. The repaid money like taxes is destroyed, and moves out of the economy. Only the interest payments survive - but only a small amount of the interest is spent back into the economy. On the net, unless the loans produce new real assets, the result is a transfer of financial assets from the 99% to the 1%. So unless the Federal government replenishes the financial assets to the 99%, the net result is an increase in inequality, and an impoverishment of the bottom in the form of wage slavery (at extremely low wages)
Hey Matt, can you lay net-US Treasury spending inside the UST Treasury spending bar of the last chart, and maybe add a gross private savings bar?
Seems like it would help illustrate what's going on.
I would also add to "net real assets" the addendum "priced correctly"
Roger there may not really be anything to loot as perhaps these deposit balances that derive from the loans end up being used to pay increasing taxes... this might be what Warren means by "the deficit gets too small..."
goog, yes I think at least some of the banks brought some quants in for those "hedging" type of activities by helping to design contracts that would protect them from "the black swan" event which imo seems to exhibit more of a "religious belief" from these people rather than an understanding of the USD system operations...
Charles, I am next going to look at the deposit side of the Treasury account so we should be able to see how deposits responded vs. withdrawals vs bank lending... as far as "gross private savings" what is that? is there a FRED graph? but btw I am trying to avoid the dreaded "S=I issue" and just look at what I see as simply the "USD system"...
rsp,
Matt,
I wasn't referring to looting in any currency sense, but rather net looting of net and distributed degrees of freedom, and distributed looting of any & all forms of social liquidity.
If you constrain a diverse system, you loot it of it's own operational freedoms.
Clonal,
Yes. Tried to explain stage 1 of that here
http://mikenormaneconomics.blogspot.com/2013/12/conflating-current-fiat-with-future.html
and here
http://mikenormaneconomics.blogspot.com/2013/09/a-currency-denominated-economy-cannot.html
As you note, one mechanism for adding additional insult to injury is to also mal-distribute whatever liquidity remains in an "under-denominated" system.
If we could get away from the broken semantics & sophism (currency supply = "debt"; currency creation = "deficit") the real logic would be revealed incidentally.
Instead, we MOSTLY see politicians babbling like Mad Hatters.
gross non-government savings=gov't deficit spending + non-government deficit spending.
Roger,
An additional item is that when no new real assets are being created, or that the new real assets are mispriced, the loans cannot be repaid. this results either in a systemic collapse, as happened in '08, or a continuous transfer of the newly created assets to the top 1% at the time of bankruptcy.
Charles thanks I'll look into it...(I understand the first part (govt deficit) but not exactly the second part (non-govt deficit)... ie I dont understand how the non-govt can have a "deficit" they possess no currency authority? (I combine the UST and its 'agents' the banks in ONE govt sector...)
Clonal,
You state "when no new real assets are being created, or that the new real assets are mispriced, the loans cannot be repaid."
OK, I do not see the link between a real asset being created and/or mispricing and the abiility to repay a loan? Seems like the ability to repay a loan depends on income? Not assets? So if income is being sustained, then a loan made against that income should be able to be paid back?
rsp,
Matt,
You are correct. I omitted a(n)(assumed) step. the sale of the new asset or the income from the new asset produces the money to repay the loan with interest. In the absence of such income, or the mispricing of the asset, the ability to repay the loan disappears, and the collateral along with the already made payments transfer to the lender (in my world the 1%)
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