The Most Important Chart in Economics?
Earlier this month, the U.S. Federal Reserve quietly released the Financial Accounts of the United States. Like most government data, the 198-page report (known to insiders as the Z1) is almost impossible to understand.
However, to the economists and accountants who wade their way through the mess, the implications are clear.
America has been growing government, business and household debts faster than its economy for more than four decades. Despite the huge runup in asset prices during that time, the country is essentially bankrupt.
The impending disaster becomes even clearer when presented visually.
The above chart, compiled on the St-Louis Fed’s FRED site, strongly suggests that economists have been pushing a GDP expansion that has been fueled almost uniquely by debt.
The three stages of scam economics
The story of how the American government and the Federal Reserve—with the quiet backing of university academics—fueled this elaborate Ponzi scheme unfolded in three stages.
Tax and spend
The first signs emerged in the 1960s and early 1970s, when American companies, after an almost three-decade free ride, began to get competition in international markets from countries such as Japan and Germany, which had been bombed back to the stone ages during World War II.
By that time, the American public had gotten used to constantly-rising living standards. For politicians, asking voters to work harder or to curtail constant demands for “more” became increasingly more difficult.
Governments responded with what became known as “tax and spend” economic policies.
Taxing the hard-earned savings of workers and passing the cash to bureaucrats to spend instantly created “sugar highs,” due to the short-term effects of dumping extra cash into the economy.
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