Stimulus Addiction Disorder: The Debt-Disposable Earnings Pyramid

by Charles Hugh Smith
Of Two Minds

One glance at this chart explains why the status quo is locked on “run to fail” and will implode in a spectacular collapse of the unsustainable debt super-nova..

For those who suspect the status quo is unsustainable but aren’t quite sure why, I’ve prepared a simple chart that explains the financial precariousness many sense. The chart depicts the two core elements of a debt-based, consumerist economy: disposable earnings, defined as the earnings left after paying for essentials which can then be used to service debt and debt.

In other words, if all the household earnings are spent on non-discretionary expenses (rent or mortgage, taxes, food, utilities, healthcare, etc.) then there is no money left to pay the interest and principal on a loan. Lenders consider this household uncreditworthy for the simple reason that their earnings cannot support the monthly nut of debt service (interest and principal).

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