Basic Math 101

I know that I mention The Market Ticker on here a lot, but his no-nonsense explanation of what is going on with America's economy, why the stimulus plans aren't working and what we need to do to get America on positive economic terms once again are so straight-forward and easy to understand that it should be required reading.

So, I'm sharing yet another excellent post from The Market Ticker today, one that clearly illustrates the reason we are in such bad financial shape in America today - overuse of credit. Spending what we did not have to spend. And thousands continue to do so each day.

Read and understand. Then act.

Excerpt: Economic Fundamentals

Steve Forbes is yammering about how "we must restart securitization" instead of putting forward the truth about the matter: we have hit the wall because we have spent twenty years pulling forward demand via more and more debt load; the current economic mess is a consequence of what happens when you start to pay interest on interest - debt levels spiral upward until you hit the wall of debt service requirements .vs. income - a mathematical fact that is staring all of these commentators square in the face and cannot be refuted.

The gap between "as reported" consumption as a part of GDP and per-capita income is impossible to ignore and cumulatively, since 1981, is close to 40%.

40% X 70% of GDP = 28% GDP contraction, and this assumes that the debt and its service requirement is simply wiped out - that is, it is discharged in bankruptcy.

But nobody is willing to talk about forcing all this unsustainable debt to be discharged in bankruptcy and re-basing the economy to a sustainable level - to return to a time when most of our GDP is in fact a function of human production (wages earned) instead of cheating by charging up the credit card, intending to pay by HELOCing the money out of your house!

This is the math folks. It is the math that nobody wants to debate or discuss. It is what CNBC, The Wall Street Journal, Bloomberg, ABC, CBS, NBC and Congress and President Obama all refuse to put on the table, despite the fact that it is staring us in the face.

Notice that nowhere up above is there any complex derivation, differential equations or calculus. There is in fact no math contained in any of this that an ordinary fifth-grader cannot handle and understand.

How is it that we have 300 million Americans with over 250 million of them able to understand the above, but we still refuse to sit down as a nation and address the facts?

How do we "get the economy growing again" when the math is crystal-clear and obvious: Per-capita income is up 2.95 times from 1981 to 2005, but GDP was up 4.0 times over the same period, a gap of 30%, or almost exactly the GDP contraction up above that I have, for more than two years, cited as what must happen to bring the economy back into equilibrium with incomes, ignoring debt service requirements added since 1981.

More here.

This is one of the main reasons why "preppers" are "preppers". Americans simply do not seem to be willing to understand this basic math principle and continuing down this road of credit will lead us to our financial ruin.