The Continuing Cascade of Restructurings, and the Age of Austerity

When I grew up, there was great fear of Communism.  Not only were we living under threat of Mutually Assured Destruction, we were taught to fear the concepts of Karl Marx.   Over time, the world has changed, but we continue to some of those fears continue to live.

Readers of know that we are currently experiencing a deflationary cascade, brought about by the collapse of the mortgage backed securities market.  They also know how money is created and destroyed. and how money exists in different forms and leverage.  With that foundation, today we’ll discuss the continuing cascade of restructurings as it relates to the money supply and the debt limit.

One way to view the Great Recession, is through the lens of changes to the money supply.  It is my belief that the fiscal problems we are seeing around the world, are a direct result of the collapse of our money supply.

As we look around the world today, we see many problems tha

Nowhere is this more immediate, than in the current debate over expanding the budget limit.

According to the LA Times, in August the government is expected to collect about $172 billion in revenue and will face about $307 billion in bills.  If the budget limit is not expanded, the U.S. will have to stop spending almost

The last couple of postings have covered the U.S. money supply:  how it’s created, how it’s destroyed, and how it exists in different forms and leverage.  Today, I’ll put it all together, and hopefully add some clarity to the options that lay before us.

Tonight, Washington is working feverishly to find a way to avert what’s widely described as a potential U.S. default.  What’s really true is that we are about to hit the debt ceiling, and if we do, the U.S. will face a choice:  1) to drastically cut spending, OR 2) default on it’s debt obligations. To highlight this point, today Obama said that if they don’t increase the debt limit by August 2nd, Social Security checks would not be sent out as scheduled.

So, while everyone is In other words, the immediate effect would be to drastically cut spending.



Today, there is much debate over whether these policies have helped, and whether they should be continued.  Some argue that we can’t afford to take on the additional debt, as it will destroy our currency, and lead to run-way inflation.  Others argue that we must continue the stimulus, for if we don’t, the entire system will enter into a downward spiral, leading the system into a collapse.

I believe it is important to remember that of the TRILLIONs that were created, some were injected into monetary base (high powered money), and some were injected into the more highly leveraged versions (see

Deleveraging of the U.S. Money Supply

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