Prepare for a Keynesian Hangover

This is the reason that I label the 2009 dollar rally as a pimple on the ass of an elephant, a sucker’s rally created by luncheon agreements on the carry trade unknowable as to volume) concluded by hedge fund managers. - Jim Sinclair

Indeed, a very well written article. We are headed for Keynesian Hangover that will last far longer than 2010. A breakdown of total credit market debt by the FRB Z.1 Flow of Funds illustrates not only the extent of the drinking that has already taken place but also the size of the hangover coming.

Please review TCMD as % GDP chart already posted:

Domestic Nonfinancial (DNF), Rest of the World (ROW), and Financial (FIN) debt as a percentage of GDP:


DNF is nearly 250% and still rising, while ROW and FIN are flat to decelerating. The reason why lies in Federal debt trend. It is exploding.

Federal (FED) and Nonfederal (NONFED) debt as a percentage of GDP:


The 61-year down trend line in FED has been broken to the upside as Keynesian economics tries to buffer the bursting of household debt bubble.

Nonfederal sectors (Household, nonfin corp, nonfarm nonfin corp, farm, and state & local) as a percentage of GDP:

Adding to the hangover, the household driven consumption bubble, or up trend line has only recently failed. The painful adjustment years still lie ahead. The Keynesian solution is comparable to curing the hangover buy consuming more alcohol. The U.S. dollar will not miss this point.

Source: online.wsj.com

Source: jsmineset.com