Did the Year 2000 Mark the Debt Saturation Point?

02-09-2011 • economicedge.blogspot.com

As I have repeatedly stated, when the “Fed” took over the power to create money in the year 1913, we began the transition from a sovereign money system to a credit (debt-backed) money system. In the beginning, the ratio of debt money to sovereign money was low. Today it has progressed to the point that 100% of our money is debt-backed. When the ratio of debt money to sovereign money is low, then adding debt money to the system indeed stimulates growth, as postulated by Keynes and others. However, when the ratio of debt money reaches the saturation point, then adding more debt into the system actually works to diminish real growth. The Saturation Point is defined as the point at which aggregate incomes can no longer support an increase in debt. Debt saturation is exactly why real employment has been falling despite massive attempts to stimulate the economy with more debt backed dollars. REAL GROWTH has not occurred since the year 2000 – it has only been monetary growth creating the illusion of growth. By some studies, today it requires roughly 6 new debt dollars to create $1 of net GDP growth. This is due to the diminishing return on debt, again a concept that goes alongside debt saturation. As more debt is added to the system, then the cost to carry that debt increases and makes the system less and less efficient at being productive and creating jobs. The velocity of money is a cousin to this concept. If an economy is saturated with debt, then new money creation does not move from one hand to another, instead it quickly returns back to the banks to service debt. This can be seen clearly in the Velocity chart below, note how MZM (currently the largest tracked measurement of "money") was on a descending path in the nineties, but made a sharp turn down beginning in the year 2000: