These charts are scarier

Derek Thompson of the Atlantic considered these four charts from Calculated Risk to the be scariest economic charts he’s seen all year. I can only conclude that he has not seen the following chart, which shows the “credit gap” between where the U.S. economy would be if credit growth had simply proceeded at its 50-year post-WWII average and where it actually stands after Q1-2011.  The chart shows, in no uncertain terms, how completely unprecedented the situation is, and also demonstrates that the scale of the problem is much, much larger than is presently indicated by the various employment, production and consumption statistics.

Nor, I presume, has he seen the chart that accompanied it in last week’s column, which shows how the composition of that stagnant debt has been shifting since 2008.

This chart explains the reason behind the determination of both political parties to raise the debt ceiling, as federal debt HAS to continue to increase, and increase significantly, in order to make up for the ongoing contractions in the private debt sectors, which so far has amounted to $600 billion in the Household sector and $3 trillion in the Financial sector.  The truly frightening thing is that it is perfectly possible for the Financial sector debt to contract much more severely; it grew from 0.85% of total debt in 1946 to 32.7% in 2008 and presently stands at 25.23%.  Considering what $3 trillion in debt-deleveraging has done to date, imagine how much more economic pain would be involved in an additional $13.8 trillion contraction.

As Steve Keen has chronicled since 2005, the mainstream economists are still paying absolutely no attention to these apocalyptic signs because they consider debt to be “exogenous” to their system models.  Paul Krugman’s words in his latest paper are straight out of Paul Samuelson’s 1948 textbook.

Ignoring the foreign component, or looking at the world as a whole, the overall level of debt makes no difference to aggregate net worth — one person’s liability is another person’s asset.
 – (Paul Krugman and Gauti B. Eggertsson, 2010, pp. 2-3)

Of course, this gives us a clear warning with regards to how The Masters of the Universe are going to try to fix the problem.  Big it up and centralize it.  Since the U.S. inability to pay back its foreign debt is becoming increasingly obvious, the answer will be to “look at the world as a whole”, or convert a national economy into a global one in which the national debt no longer counts because “one person’s liability is another person’s asset”.  As long as the macro accounting all balances, how could there possibly be any problem?  And since the European Union has shown that the stresses of monetary union cannot survive without political union to enforce austerity programs and forced transnational redistributions, this means global governance will be a necessary, indeed integral, part of the mainstream economic program.

Because, after all, forcibly installing a one-world government makes so much more sense than simply replacing your inoperative and outdated economic model with one that actually works!