The great lie no one's talking about

Thu, 2 Sep Pre-Open

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The mainstream media will have us believe that the US consumers have taken to austerity like a fish takes to water. It goes on about how an ordinary US citizen has indeed been hit hard by the crisis. Thus, mindful of the debt burden, he has now decided to reduce the same and also scale down his free spending habits.

However, a simple glance through the official US Federal Reserve statistics on credit outstanding paints a completely different picture.

No doubt the total debt in the US has come down. But that number stands at a mere 1.5%. Not enough to even move the needle as far as deleveraging of debt is concerned. The above chart helps make matters clear a bit.

As is evident in the chart, the total US debt outstanding peaked at US$ 52.9 trillion in 1QCY09. The same currently stands at US$ 52.1 trillion. Let us try and put these numbers into proper perspective.

The total US debt as a percentage of GDP today stands at a whopping 360%. As is evident from the red line above, US debt as a percentage of GDP peaked at 260% during the Great Depression of the 30s. Thus, the current scenario is even worse than what was witnessed back then.

Furthermore, it is true that the US financial sector has managed to cut its debt by about US$ 2 trillion since the fourth quarter of 2010. However, the central government has shown a similar increase in total debt during the same period. This indicates that debt has not reduced on an overall basis. Instead, it has just been transferred from corrupt Wall Street banks to the Government and ultimately to the tax payer.

Thus, as we can see, the US financial crisis seems far from over. The debt based foundation that the US economy was built upon still very much persists and in fact, the situation is getting worse by the day on account of the debt still growing at a faster pace than the US GDP. How will things end? Well, our guess is as good as yours. But we would like to leave you with a quote from the famous Austrian economist Ludvig Von Mises

"There is no means of avoiding a final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion or later as a final and total catastrophe of the currency system involved."