Chris Martensons Condensed Crash Course

Crash_Course_by_Chris_Martenson-2

Chris Martenson is no wacko. He holds a Ph.D. degree in Pathology from Duke University and an MBA from Cornell, and has been Vice-President of a US Fortune 50 company. Over the last five years, he has been studying the ramifications resulting from certain disconnects in the economy that he has observed. He felt that this material was so important to bring to as wide an audience as possible, that he created the Crash Course, which is available for download from his web site (www.ChrisMartenson.com ), and also on DVD.

Recently he has created a condensed 38-minute version, which you can find on YouTube and which is also at the bottom of this page.Chris’s determination to educate in this way is akin to our determination to bring information about precious metals investment to as many people as possible in New Zealand in particular, and more widely if possible.

This article presents a summary of this condensed Crash Course.

He opens with the following remark:

The next 20 years are going to be completely unlike the last 20 years.

The disconnects that he noted approximately 5 years ago were as follows.

1)  The US was living considerably beyond its means.

2) With respect to the housing bubble, he observed that house prices were rising much faster than incomes.

3) There was an increasing decline in credit standards; it was becoming easier and easier to borrow money.

4) Credit (= debt) was expanding faster than the economy.

The key point Chris noted was that none of these trends was sustainable.

Three stages of dealing with a problem:

1)  Awareness – at this point we know we have a problem but we don’t understand.

2)  Understanding – this may take time and effort to acquire – but it is a necessary prerequisite to moving to stage 3.

3)  Develop appropriate solutions.

The three E’s – the Economy, Energy and the Environment.

The economy depends on adequate energy being available. The question of peak oil arises. If you don’t know about this concept yet, google it, or visit the excellent web site www.TheOilDrum.com. Chris’s own site also contains material on this topic.

The crash course also discusses the environment – in particular the resource depletion which is occurring as a consequence of increasing planetary population pressure.

The point is that these 3Es are inextricably linked, and storms are approaching in all three areas, which will have to be dealt with over the next few years – certainly before 2020. In this condensed course, Chris focuses on the economy, but the full Crash Course contains a lot of information on energy and the environment.

Debt

Definition: a debt is a legal contract providing money today in exchange for repayment in the future – with INTEREST of course – that’s the kicker. A debt is different from a liability – which has no legal backing.

We can differentiate between secured and unsecured debt.

The total Credit Market consists of all forms of both secured and unsecured debt at all levels – personal, corporate, municipal, state and federal debt.

Now debt is not intrinsically a good or a bad thing – it all depends on the borrower’s ability to repay…. We have to compare debt against income – which determines the ability to repay.

united-states-total-credit-market-debt-and-national-income-e2808e
United States Total Credit Market Debt and National Income – Source: Federal Reserve‎

Now consider the disparity between the two green arrows. This disconnect cannot continue indefinitely – at some point the interest to be repaid will absorb the entire national income.

The total amount of debt in the US has doubled since 2000.

One more characteristic of debt – When we take on a debt, we are consuming today what we will pay for tomorrow. Thus debt really represents future consumption, taken today.

debt

Now let’s look at this a different and enlightening way, as per the graph below, which depicts the ratio of total credit market debt to GDP.

Notice the spike upwards that took place in the 1930’s. This occurred because the debt stayed constant, but the national income went down – the economy shrank. Later, as the economy recovered, the ratio came back into balance. With the exception of that anomaly, during the entire 20th century, or at least up to 1985, the ratio never exceeded 180%. But check out what’s been happening since 1985! Now, with this ratio standing at 360%, the US is truly in uncharted territory…..

a-historic-level-of-debt

Now, in order to pay this debt back, future generations will, perforce, have to accept a lower standard of living.

Debt is dealt with in one of two ways – it must either be paid back, or defaulted on (or some mixture of the two). Default would seem to be a choice that is not open to the US – it implies banana republic status for one thing and as Chris says, would be a tragedy for the country.

A further disconnect can be found when we ask the following question.

How is it possible for an insolvent nation to borrow money from an insolvent financial system to bail out insolvent financial institutions?

Consider the following chart of the total US Federal Debt, courtesy of the US Treasury Department.

We can observe one thing immediately about this chart – which covers the period from 1945 to the present time.

The total US Federal Debt has never decreased during this time – which has included periods of strong economic growth….

total-us-federal-debt

Notice also that the entitlement programs – Medicare and Social Security – are not part of thisdebt – they are referred to as unfunded liabilities of the US government.

The Treasury Department issues a report on these unfunded liabilities once a year – just before Christmas…..

Here’s a table that comes straight from the Treasury Department’s own web site.

treasury-dept_unfunded-liabilities

That figure circled in green represents $50 trillion. This is the shortfall – the amount of money that was required at the end of 2006 in order for the US to balance its books, i.e., for the assets and liabilities to match each other at that time. Of course now the situation is much worse. This number arises as the result of what is called a net present value calculation – taking into account future earning streams of the government via taxation, and placing values on all assets that the government owns.

Also note how the figure was growing in the preceding years – which included years of strong economic growth. So this is not a problem that the US will be growing out of any time soon…

This table proves, with no room for doubt, that the US as a nation is insolvent.

As for the financial system, we can take the banks as a proxy.To return the banks to solvency would take twice as much capital as they possess at the moment. So the government cannot borrow trillions from the banks. Of course much of this capital requirement has come from abroad, via countries like China, Japan, the Middle East and so on, but it is becoming questionable as to whether this can continue on the scale required. If this funding from abroad were to cease, or even be cut back, where would the trillions come from?

At the same time this is happening, there are other entities that are searching for funding – the state of California, for one.

As for insolvent financial institutions, we have seen plenty of instances over the last year….

When the disconnects we have talked about above are this great, it behooves us to take this information seriously, to trust ourselves and take responsibility to protect ourselves and our loved ones, to look to increase societal awareness of the problems, and to work at developing our local communities to sustain us through the likely extremely difficult economic times ahead.

We are attempting through GoldSurvivalGuide to make our own contribution to this effort.

Video: Chris Martenson’s Condensed Crash Course

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  1. Pingback: Exit Strategy… What Exit Strategy? | Gold Prices | Gold Investing Guide

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