"The Fiscal Cliff Will Look Like The Fiscal Hill": Liesman
Karl Denninger

Again, it comes.

Steve Liesman just said that they are "modeling" the GDP impact of deficit spending ceasing because the debt limit is not raised.

Well, duh.   Since The Ticker began publication the fact that debt is (of course) additive to GDP when it is created, because the "money" created via new debt is spent on something, which means it "counts" in GDP, is a theme I have continually hammered on.

But this is in fact not final demand and not real; it is an apparition. 

Discussion of this fact has been studiously avoided in the mainstream media for the last five years. 

Until, suddenly, it's not.

In the last couple of days this fact has been brought up several times on CNBC and elsewhere.  Exactly what triggered people's remembrance of exponents along with exactly what deficit spending is and does is something I can't get my arms around, but I must admit to cracking a wry smile that suddenly a breakthrough appears to be occurring within the media and various "communications channels."

I'd like to take some credit for that since I've been incessantly pounding the table the entire time, but I won't.  I suspect that what's really going on here is that like the relative dearth of atheists in foxholes the very real potential of an actual "full stop" on the deficit game has forced people to contemplate exactly how many of their fingernails they have dug in to maintain their grip on the cliff face -- and that grip is becoming more and more tenuous by the day.

The ugly reality is that from 2000-2007 we added some $27 trillion in new debt to the system, and yet our "expansion" of GDP over that same period of time was less.

Now there will be people who argue that this is unfair, in that the GDP expansion was maintained in the subsequent years.  What they're missing is that the expansion was exponential and hit the wall in 2007, which is what called a halt to the games -- for a while.

The Federal Government has taken between 6-10% of the economy each year and substituted new debt for alleged final demand that didn't and still doesn't exist.  This is a short-term game that must and will fail, because it too will go exponential if not cut off. 

That is how you wind up as Greece did.

We're dangerously close to that cliff -- and instead of spending the last four years calling for the government to not step in and further extend the ponzi scheme we instead heard all about the "necessity" for the government to stand in place of the private debt-creation machine.

But as I pointed out this "substitution" is a gambit that cannot succeed because one cannot take a collapsed exponential pyramid scheme and shore it up -- it is mathematically impossible to do so on a continuing basis. 

Any attempt to do so simply makes the amount of pain that must be endured to restore balance worse.  This is the lesson of the 1930s, it is the lesson of Greece, and it is now the lesson that we will be forced to deal with -- and which is, after five years, starting to gain some currency among the mainstream media.

Welcome to 5th grade math class Mr. Liesman.  Please sharpen your pencil and take a seat.

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