Chris Martenson is one of the market analysts we follow pretty regularly. He does good interviews and podcast every once in a while. He’s not quite as sensational as some of our favored economist and tends to be very measured and careful with his endorsement of ideas. Overall, we think he’s fairly accurate.
Here Martenson gives a lecture on the barely understood concept of “exponential growth.” Exponential growth is dangerous because, as Martenson describes it, “Once an exponential function ‘turns the corner,’ even though the percentage rate of growth might remain constant and possibly quite low, the amounts do not. They pile up faster and faster.”
Karl Denninger explains it clearly this way:
“We will start with a pond of a surface area of 4096 square feet, or about 64 feet square. We will place within that pond one lily with an area of of one square foot; that is, a lily that is a square of 12 x 12… This pond contains fish.”
Karl says that in the real world, the lily pads are debt, and we are the fish thinking the lily pads are of little or no threat. If there are too many lilies, the fish die due to lack of sunlight. So lets assume there is exponential growth of lily pads. How does this play out?
“On the first day there is 1 square foot of pond that is covered.
On the second, 2
On the third, 4.
On the fourth, 8.
On the fifth, 16.
On the sixth, 32.
Note that on the 6th day just 0.8% of the pond is covered with lilies. You would not detect any problem on the sixth day, I suspect. More than 99% of the pond is open to the sky! Now here’s the nasty truth: If you’re a fish, you’re halfway to being dead!
On the seventh day 64 square feet are covered.
On the eighth, 128.
On the ninth, 256.
On the tenth, 512.
The pond is now 12.5 percent covered. More than 80 percent of the surface area is open to the sky. When you hear someone say ‘we have 80% of our resource left; we can’t be in trouble,’ consider exactly where you are. Why? You’ll see in a moment.
On the eleventh day, 1024 square feet are covered.
On the twelfth, 2048.
On the thirteenth day there is no surface open to the sky and every fish in the pond dies.”
This is the danger of exponential growth. On the 12th day, 50 percent of their pond was still open to the sky. They died the next day. Exponential growth (or in our case, exponential debt) sneaks up on you. You don’t realize your in danger until its too late!
Hemingway once wrote that a man goes broke “slowly, then all at once.” When government goes broke, it’s no different. When debt expands at an exponential rate, things can look OK one minute, and before you know it, you’re dead. With that, we suggest you watch Chris Martenson’s presentation on exponential growth.
