
I linked to this post a couple of days ago, but just to save you hunting for it I have relinked it.
Essentially he posits that there will be civil unrest and that the government will fall. I actually don’t disagree that there may well be civil unrest, deep recessions cause civil unrest. Also that the government will fall. If he means that Obama will not be re-elected, sure, I have no problems with that. If he means revolution – no not yet, that’s just a bit too extreme.
My problem with the post is that he claims the data provides evidence of his thesis. He uses Fed data to make his various points.
As government is unable to expand credit markets and as most tax revenue is going towards debt service despite the lowest interest rates in history, public service must be curtailed.
Curtail enough public services (police, fire fighting, refuse disposal… health care…… pensions) in an environment where unemployment is rising at the same time that the power and business elites are implicated in scandal after scandal and you got yourself the ideal conditions for civil unrest.
http://money.cnn.com/2009/11/16/news/companies/US_postal_service/index.htm
Civil unrest means government will fall.
The first exhibit is the Money Multiplier

This is being presented as evidence for the inability of debt to expand the GDP. That $100 of debt creates less than $100 of GDP. Note that this is currency that is being measured. Thus it is not even measuring the expansion of credit. The entire data series is invalid for drawing the conclusions that he does from the series. It is useful however to continue the analysis of the multiplier anyway.
What exactly is the multiplier?
The multiplier is a Keynesian economic theory. According to Keynes, the greater the marginal propensity to consume, the more an increase in investment will boost national income. The multiplier indicates that any increase in credit expansion will cause a rise in real national income equal to the reciprocal of the marginal propensity to consume.
This mathematical automatism which underlies the multiplier, bears no relation to the actual processes within markets. Expansion of credit, particularly via Bank expansions, flow to the structure of production, which through increased money bid up the costs of production, which, eventually flow through to consumer prices. This is an inflationary process.
Consequently the multiplier masks the widespread malinvestment process. The credit expansion is currently not a banking expansion, rather a governmental expansion. The flow of credit is not being aimed at the productive structure, quite the opposite, it is being aimed and directed to the consumer.
The how and why of the multiplier are contained on the flip-side of the coin. We move directly to the Accelerator Theory. The accelerator theory goes something like this: a rise in the demand for consumer goods creates a proportional increase in the capital goods required to manufacture the consumer goods.
So as a brief example: a manufacturing company has an output of 100 units, utilising 10 machines. Each year, one machine is replaced due to wear.
Consumer demand is increased via deficit spending by 20%. The now required output is 120 units. The manufacturer, to meet this new demand, increases capital goods by 2 machines, for a total of 3 new machines, or a 200% increase in capital spending.
Thus Keynesian theory [again] asserts that via government deficit spending, the economy, and particularly the productive structure, is enabled.
So you may say, essentially you are agreeing with guido’s analysis? The multiplier is presented as exhibit #1. From this data, several erroneous conclusions are drawn. It is important to define the multiplier as it is quite a complex data series that does not intuitively impart its message.