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On a knife-edge

The economy really is on a knife-edge.

As the absolute stock of debt rises, and as it reaches a tipping point, it becomes more and more difficult to stabilize the economy due to the pre-existing levels of debt and the need to keep the economy sucking up more debt just to stay in a stable pattern.

Once the economy tries to reverse course and de-leverage, attempts to defer the de-leveraging only delay the painful liquidation of debt that must occur.

Although Steve Keen doesn’t include widespread debt-forgiveness or bankruptcies in his model, he captures this paradoxical dynamic here on his blog.

You can imagine it as if the economy is on a knife-edge.  However this doesn’t really capture the dynamics of the problem.  Imagine the economy like a spinning top, having been spun into a frenzy due to accelerating levels of housing debt.  Provided it keeps spinning everything looks stable.  Once it starts to slow down, it wobbles badly.  Then it looks ‘drunk’,  swaying uncontrollably from side to side.  If you try to nudge the spinning top to re-balance it as it is slowing down, you’re just as likely to push it at the wrong time, causing it to tip over even more quickly.  There is nothing you can do but wait for the top to fall over and stop spinning.  Only then can you start afresh and give the top another spin.

What we are witnessing is a spinning top decelerating and the Fed trying to ‘nudge’ the economy in the right direction, away from the de-leveraging that gravity, commonsense and reality are forcing on our spinning top of an economy.

They’ve nudged it up – at the cost of slowing the top down even more.  When this top overbalances and falls it’s gonna crash over all of us.  And there’s nothing the Fed or any central bank in the world can do to stop it, other than widespread debt forgiveness.  And, sadly, that isn’t on the table.

Because the table is owned by the corrupt banks.

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