Thursday, December 6, 2007

Zero Hour

"Zero Hour" - interplay of debt growth and GDP growth. When we are in a debt-induced, asset-based economy, “Are we there yet?” means arriving at Zero Hour, which is a scary proposition. For those unfamiliar with the concept of ‘Zero Hour’, it is the moment at which creation of new money no longer has an impact on GDP, or the real economy.
“Are we there yet?”- Very close - Zero Hour. How do we know we are at zero hour? We know we are because M3 (money supply) has now exploded to an 18% year over year rate while the Fed has downgraded 2008 GDP growth expectations to 1.8-2.5%. Yes, money is growing at a rate ten times that of new economic output.

So What!? -

Stagflation* > Recession > Deflation.

*Stagflation - little or no growth (GDP) with inflation eventually leading to recession and deflation (lower demand requires prices to decline)

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