Credit Crisis Predicted

Lyndon LaRouche, economist, long-range forecaster, risk manager 'avant la lettre' and one of the initiators behind the SDI-project (Strategic Defense Initiative) in the 80s.

With firm quotes like "there has been no economic growth on this planet, since the end of the 1960s. None, if you measure the right magnitudes", he takes stand in the sometimes overoptimistic and misleading world we've created.

Back in 1995, in Germany, he stated "We are at the end of an epoch".

He warned that a global financial bankruptcy and collapse would be under way and introduced in an econometric form his 'famous' "Typical Collapse Function" or "Triple Curve"to illustrate that power statement.

In his daring view, he describes the interplay of the three curves (non mathematical directionalities) that characterize the collapse process:

1. Physical-economic input/output (bottom curve)
   The productivity and functioning of the physical economy, upon which all human existence depends;
2. Monetary aggregates (middle curve)
   The increase in monetary aggregates (approximately represented by money supply measures; injections)
3. Financial aggregates (upper curve)
   Growth—which can become hyperbolic growth—in financial aggregates of all kinds: run-up of debts and other obligations, speculation in currencies, stock markets, futures (derivatives), etc.

As in the case of a "typical collapse function," the interaction of the upper two curves sucks the underlying physical economy dry.

But at a certain critical point (around 2000 in the USA), no matter how much money is injected in the economy, the financial bubbles cannot be kept aloft! The rate of rate of growth of monetary aggregates becomes higher than the rate of rate of growth for financial aggregates. In graphical terms, this is the "inevitable crossover" point of the middle, monetary curve, breaking up through the top financial curve.

Although this looks like intuitive econometric science, LaRouche illustrates this with some striking examples.

In the year 2000 LaRouche stated that compared with a worldwide GDP of about $41 trillion, the total amount of financial aggregate in short-term obligations was over $400 trillion. In other words, at least 10 times the amount of the total annual product of the world as a whole at that time. "

In 2008 he publishes in 'The Time Has Come for a New System':

• We are a credit system, not a monetary system.
• Outstanding obligations: $1.4 quadrillion, derivatives, short-term obligations of speculative nature
• This mess is coming down.
• System will be put into bankruptcy, by governments

And than to realize that there are still leading prominent professionals that like to make us believe that it's just some limited subprime issue. Regretful, it's the other way around. Subprime will just turn out to be the proverbial little stroke that'll fell the great oak.

Read more about LaRouche Writings

Let's hope that LaRouche is a pessimistic man....