Confidence is the thread the economy hangs on

From This Time is Different, an economics book studying 250 economic crises in 65 countries:

"But highly leveraged economies, particularly those in which continual rollover of short-term debt is sustained only by confidence in relatively illiquid underlying assets, seldom survive forever, particularly if leverage continues to grow unchecked."

"If there is one common theme to the vast range of crises we consider in this book, it is that excessive debt accumulation, whether it be by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom. Infusions of cash can make a government look like it is providing greater growth to its economy than it really is. Private sector borrowing binges can inflate housing and stock prices far beyond their long-run sustainable levels, and make banks seem more stable and profitable than they really are. Such large-scale debt buildups pose risks because they make an economy vulnerable to crises ofconfidence, particularly when debt is short term and needs to be constantly refinanced. Debt-fueled booms all too often provide false affirmation of a government's policies, a financial institution's ability to make outsized profits, or a country's standard of living. Most of these booms end badly. Of course, debt instruments are crucial to all economies, ancient and modern, but balancing the risk and opportunities of debt is always a challenge, a challenge policy makers, investors, and ordinary citizens must never forget."

"Perhaps more than anything else, failure to recognize the precariousness and fickleness ofconfidence-especially in cases in which large short-term debts need to be rolled over continuously-is the key factor that gives rise to the this-time-is-different syndrome. Highly indebted governments, banks, or corporations can seem to be merrily rolling along for an extended period, when bang!-confidence collapses, lenders disappear, and a crisis hits.

"Economic theory tells us that it is precisely the fickle nature of confidence, including its dependence on the public's expectation of future events, that makes it so difficult to predict the timing of debt crises.

Look at this gap, as US tax receipts plunge and spending skyrockets out of control. The continued functioning of the economy rests entirely on confidence. The actual numbers and what is happening is horrible and getting worse. The only thing propping things up at all is confidence. That is why the administration is creating the numbers out of thin air. Economists and experts don't believe them, and prove that they are nonsense. Those numbers are so that the average person can feel good and not run for the hills. Check out what this analyst had to say about the latest GDP numbers (which are silly - how can the economy surge forward when the total number of hours worked in the US is going down, unemployment keeps rising, and tax receipts keep falling?):

"Smoke and mirrors" is a common theme directed at the officials who are either woefully ignorant or blatantly lying about the worth of their existing "solutions" to the problems they face. There's a deep underlying suspicion of mainstream media cheerleading. The perception of the informed public is that the government's numbers are about as reliable as quoting the tooth fairy.

Charts like this one aren't fooling anyone (I've helpfully added some extra text as to my opinion

of the latest optimistic numbers)...

The reason this kind of projection has no real credibility is because things continue to go from bad to worse in the real world. Economic pain and suffering increases by the day and I haven't read anyone outside the establishment cheerleaders who thinks things are getting better."

It is incumbent on every generation to pay its own debts as it goes. A principle which if acted on would save one-half the wars of the world. Thomas Jefferson