The Money Machine Breaks Down

The bottom line is that the moneymachine based on debt expansion has reached its effective limits, mostlybecause it has grown ahead of the economy and became uneconomic in itself.  It does not contract easily.  Even near zero interest rates is not helpingmuch.

It is simply becoming far toodifficult to manage a loan portfolio.  I knowthis in a number of ways, but none so clearly as I see what is taking place onthe edges were banks are competing to lend project money without a strong guarantor.  The banks are now accepting owner’s risk inways they never did.

This tells us it cannot besustained and that it has already broken down.

Some suggestions are made, themost practical been to have the State internalize their own banking needs a lanorth Dakota as I have already posted on.

THE Most Important Chart of the CENTURY


The latest U.S.Treasury Z1 Flow of Funds report was released on March 11, 2010, bringing thedata current through the end of 2009. What follows is the most important chartof your lifetime. It relegates almost all modern economists and economic theoryto the dustbin of history. Any economic theory, formula, or relationship thatdoes not consider this non-linear relationship of DEBT and phase transition isdestined to fail.

It explains the "jobless" recoveries of the past and how each recenteconomic cycle produces higher money figures, yet lower employment. It explainswhy we are seeing debt driven events that circle the globe. It explains thepsychological uneasiness that underpins this point in history, the elephant inthe room that nobody sees or can describe.

This is a very simple chart. It takes the change in GDP and divides it by thechange in Debt. What it shows is how much productivity is gained by infusing $1of debt into our debt backed money system.

Back in the early 1960s a dollar of new debt added almost a dollar to thenation’s output of goods and services. As more debt enters the system theproductivity gained by new debt diminishes. This produced a path that wasfollowing a diminishing line targeting ZERO in the year 2015. This meant thatwe could expect that each new dollar of debt added in the year 2015 would addNOTHING to our productivity.

Then a funny thing happened along the way. Macroeconomic DEBT SATURATIONoccurred causing a phase transition with our debt relationship. This is becausetotal income can no longer support total debt. In the third quarter of 2009each dollar of debt added produced NEGATIVE 15 cents of productivity, and atthe end of 2009, each dollar of new debt now SUBTRACTS 45 cents from GDP!

This is mathematical PROOF that debt saturation has occurred. Continuing to adddebt into a saturated system, where all money is debt, leads only to futuredefaults and to higher unemployment.

This is the dilemma created by our top down debt backed money structure.Because all money is backed by a liability, and carries interest, it guaranteesmathematically that there will be losers and that the system will eventuallyreach the natural limits, the ability of incomes to service debt.

The data for the diminishing productivity of debt chart comes from the U.S. Treasury’slatest Z1 data, the complete report is posted below:

On page two of that report is the following table showing the Growth of NonFinancial Debt:


I included Financial debt onto the end of the table, that data comes from page14 of the Z1 report.

This table makes clear what is happening. Business, household, and financialdebt is trying to cleanse itself, to bring the level of debt back within theability of incomes to support it. Our governments, armed with people who cannotexplain the common sense behind debt saturation, are attempting to compensateby producing prolific amounts of Governmental debt.

They feel they must do this because if they do not, then debt and money – sincedebt backs our money – would both decrease and that would cause the economy toslow. But by adding money, and debt, they have created a sovereign issue whereour nation’s income cannot possibly service our nation’s debt. In just themonth of February, for example, our nation took in $107 billion, but spent $328billion, a $221 billion shortfall. That one month shortfall exceeds all thecombined shortfalls of the entire Nixon Administration – one month.

This is like an individual earning $5,000 but spending $15,000 a month. Wouldyou lend your money to such an individual?

Last year we spent just under $400 billion on interest on our current debt,plus we spend another $1.5 Trillion buying down rates via Freddie, Fannie, andQuantitative Easing. That’s $1.9 Trillion spent on interest, most of whichwound up in the hands of the central banks and their surrogates. Compared toour $2.2 Trillion in income, interest expense last year nearly took it all.That means that nearly all your productive effort used to pay Federal taxeslast year were transferred to the central banks.

Modern monetary theory does not understand, nor does it correctly describe thedebt backed money world in which we live. Velocity, for example, slows as debtsaturation occurs. This is only common sense, and yet the formulas do notaccount for the bad math of debt, nor its non linear function. Velocity isblamed partially on the psychology of “consumers.” What nonsense. It is asmechanical as the engine in your car, it was designed that way. Once people,businesses, and governments become saturated with debt, new money/ debt whenintroduced can only be used to service prior existing debt.

Thus money creation at the saturation point stops adding to productive effortsand becomes a roll-over affair with only the financial services industryprofiting via interest and fees. In other words, money goes out and circlesright back around to the banks instead of rippling through a healthy nonsaturated economy. If you cannot follow that most simple logic, then going toHarvard will not help you.

Below is a chart of the Gross Federal Debt, it is now $12.6 Trillion dollarsand headed straight up, a classic parabolic rise:

Below is a chart of the Gross Federal Debt expressed in year-over-year changein billions of dollars. The same phase transition of debt saturation is clearas a bell.

Below is a chart of Federal Net Outlays, parabolic and again headed straightup:

Clearly this is not sustainable and that means that change to our monetarysystem is rapidly approaching. No, it will not be left to your children or yourgrandchildren. It is an immediate problem and fortunately there is an immediatesolution. That solution is called “Freedom’s Vision.” It can be found at

That chart of diminishing returns is the window to understanding why humankindis trapped in a central banker debt backed money box. No money for NASA mannedspace flight – NASA’s total budget a puny $18 billion in comparison to the $1.9Trillion that went to service the bankers last year. One half the schoolsclosing in Kansas City, states whose debts and budget deficits seeminsurmountable all pale in comparison to how much money went to service the useof our own money system.

It doesn’t have to be like that, in fact it’s a ridiculous notion that thepeople of the United States,or any country, should pay private individuals for the use of their moneysystem. Ridiculous!

It’s difficult to see this from inside the box, so let’s look at what happenedto Icelandto illustrate. The central banks of the world created financial engineeredproducts and brought them to the banks of Iceland. These products created aboom in the amount of credit. Prices of everything rose, and the people of Iceland thenhad no choice but to go along for the bubble ride. Then with incomes no longerable to service the bubble debt, the bubble collapsed.

To “save the day,” the IMF and central bankers around the world rushed in to “rescue”the people, banks, and government of Iceland. They did this by offeringloans... documents that create money simply by signing a contract of debtservitude. That contract demanded ownership of Iceland’s infrastructure such astheir geothermal electrical generating plants. It also demanded the futureproductivity of the people of Icelandin that they should work and pay high taxes for decades to pay back this“debt.” Debt that they did not create or agree to service in the first place!

There were some wise people who saw through this central banker game andstarted a movement. They DEMANDED that the President of Iceland put the debt servitude to avote and the people wisely said, “Central Bankers Pound Sand!”

Thus they now control their own destiny, their future productive efforts stillbelong to them.

It’s easy to see from the outside looking in, but it’s not so easy to see thatit's EXACTLY the same thing occurring in the United States and no one is risingup to stop it. No one, that is, except the movement of people at

To all the naysayers who think the people do not have the power to make thechange, I say take a look at history and how humankind has overcome itsobstacles to progress with each new step. Mankind is now teetering between thebrink and the dawn of a new renaissance. A new renaissance is coming becausemankind is about to free itself from the chains of needless debt that areholding humanity back.

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