What collapse looks like

The image of a glacier calving reminded me of what the major financial collapse will look like.  Apt metaphor.  While the King’s horses and men try to paste it together the sheer force will be unstoppable.  We are beyond kicking the can down the road and while everything looks normal, there are structural defects that when they reach the ‘BANG’ moment - hold on. Mauldin's Endgame provides the background.  Worth a read.  An excerpt is below.  Also worth reading is Planet Ponzi.

https://www.youtube.com/embed/hC3VTgIPoGU?rel=0

That day comes when the debt is growing faster than the economy. The final Bang! moment happens when the total interest on the debt overwhelms the nominal growth of the economy.

When that happens, whether to a family, a company, or a nation, either spending must be slashed or taxes raised (which will hurt overall growth), or there will be a default. There comes a moment when investors start to worry more about the return of their capital than the return on their capital. Rates begin to creep upward and the process turns into an ever-tightening spiral of rising taxes and falling spending (which we currently call austerity), which hampers the growth of the nation and makes it ever more difficult to escape the debt trap.

In the course of human experience we have watched this process unfold literally hundreds of times, yet we never seem to learn. Somehow, we always manage to tell ourselves that this time is different. Someone else can pay more taxes. We can grow our way out of the problem, just like we did the last time. Or we settle for the desperate, cynical belief that future generations will sacrifice their lifestyles so that we can get paid our unfunded pensions and health care.

Sidebar: my friend Mike Shedlock chronicled this week a rather sobering set of statistics. The US now has more people on government pensions than workers in the private workforce.

• As of 2012-06 there were 111,145,000 in the private workforce.
• As of 2012-06 there were 56,174,538 collecting some form of Social Security or disability benefit.
• The ratio of SS beneficiaries to private employees just passed the 50% mark (50.54%).

This next chart, from the St. Louis Fed, shows us that the problem is rapidly growing. The accelerating growth in recent years is just going to increase, because the Baby Boom generation is just starting to retire (sadly, I am now eligible for Social Security, if I want to "retire" early). Keep in mind, this is just Social Security; healthcare is far worse.

http://www.financialsense.com/contributors/john-mauldin/the-beginning-of-the-endgame

The US debt is 100% of GDP.  Add state pensions, federal pensions, Social Security, Medicare, Medicaid, and other obligations, we have over $8,680 billion of debt (WSJ).  The world’s GDP is $6,970 billion.  What is the probability that we can dig out from a debt that is greater than the world’s GDP?  All in - the total US debt is probably closer to $211,000 billion - $211 TRILLION (NPR).  Hang on.  All will not be quiet on the Western front.