The Zero Hour
The point at which the multiplier from government spending is either zero or negative.
This is Federal Reserve data that shows the diminishing return from adding $1 of new debt to nominal increases in growth as measured by our Gross Domestic Product (“GDP”). The monotonic declining line through the actual data points clearly shows that the declining effectiveness of spending by government will soon hit Zero, hence the ‘Zero Hour’. If we follow the monotonic line to the end of 2008, we see that a $1 of debt spending is presently yielding about $.15 in growth. The math of burning up a trillion dollars in government spending to get approximately $150 billion of growth which will decline on the next trillion is a formula to financial insolvency. The mispricing of credit and risk yields increased legacy debts both public and private with a declining benefit. Moreover, the mispricing of risk encourages more bad investments which by definition will yield less welfare than their cost. The destruction of the interest rate by wayward monetary policy is equivalent to the destruction of the value of money and eventually resolves by a currency crisis.