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Wednesday, May 21, 2014

The No Exit economy

Half a century ago Jean Paul Sartre wrote (or perhaps his girl friend wrote) Huis Clos which literally means Shut Hinges but is translated as No Exit.  The play describes a situation wherein a group of three people are locked in a room with no options, choices or recourse - for eternity.

Whether or not this describes Human Existence, it certainly describes the nearly 4 trillion dollar and growing Fed Balance Sheet - and by extension - the US banking system and the Global Banking System.

The Fed is currently "scaling back" the growth of its balance sheet.  Unfortunately the US economy is growing at a pace that is slightly slower than the pace at which the Fed Balance sheet is growing.  As they scale back their growth, they are also scaling back US growth - which is the engine of Global Growth.

Eventually as growth goes negative they will have to expand their balance sheet - to eternity.

Now - there are tens of thousands of economists employed by the banks and the Financial Networks that will explain until the cows come home how those three unhappy people (Fed, ECB and BOJ) really do have options.  They can talk to each other (jawboning) they can make transactions with each other (trade debt) they can ignore each other (competitive devaluations).

But none of this gets them out of the little room.

What does this mean?  It means for sure that as their balance sheets grow towards infinity their units of account on those balance sheets (Money) shrink towards ZERO.

And this also means that everything real that can be bought or traded in those units of account move towards Infinity as measured by the units of account (Money.)

Act Accordingly,.

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