Karl Denninger spells them out:
- Economic progress only comes through capital formation.
- Capital formation only comes from economic surplus.
- Economic surplus is earnings less expenses including taxes.
- All other forms of “development” are nothing more than leverage-driven bubbles.
The reason most people can’t distinguish between leverage-driven bubbles and real economic growth is that most people don’t read history and don’t know the first thing about economics. They can’t distinguish between the products of government-driven malinvestment and market-driven investment, and so they confuse bank balances for wealth, statistics for substance, and digital abstractions for money.
But as Karl, Steve Keen, and myself have all demonstrated, using different methods, there has been no economic growth in the United States for nearly 30 years. It is all an illusion of credit expansion, which is why the Federal Reserve has been so desperate to keep inflating the credit supply. But the Fed could not maintain credit inflation, managing only disinflation, and it is only a matter of rapidly decreasing time before the credit contraction begins.
And that, my friends, is when things start to get interesting, in the sense of the apocryphal old Chinese curse. To paraphrase Margaret Thatcher, the problem with credit inflation is that, sooner or later, you run out of borrowers capable of paying installments.