Broad Markets: An Exponential Explosion

 | Feb 03, 2015 10:17AM ET

In 1913 the US national debt was less than $3 Billion, gold was real money and a cup of coffee cost a nickel.

By 2015 the US national debt had increased to over $18,000,000,000,000 ($18 Trillion), the gold standard was called a “barbarous relic,” most currencies had devolved into fiat paper and digital symbols backed by insolvent governments and a Grande soy cinnamon latte, double pump, triple shot, extra hot, with sprinkles cost about five bucks.

Debt, money, coffee and prices have changed in 100 years.

What has NOT changed is the inevitable collapse of exponentially growing systems. A few extreme examples of exponential increases are:

$0.01 (one penny) deposited at the 1st National Bank of Pontius Pilate at 6% interest in the year 15 would be worth approximately $4 Trillion Trillion Trillion Trillion dollars 2000 years later. (Yes, I double checked the numbers and I used a web-based compound interest calculator to triple check. Yes, the number has 48 zeros. Compound interest is the 8th wonder of the world.)

Promise 1 grain of wheat on the 1st square of a chess board. Promise 2 grains of wheat on the 2nd square. Then 4 grains on the 3rd square and 8 grains on the 4th square and keep doubling. That promise will consume all the wheat grown in the world long before it gets to the 64th square. (Do you see the similarity between political promises and grains of wheat on chess squares?)

The US national debt has increased at 9% per year since 1913 and slightly more rapidly since 2008. Assuming the 9% rate continues, the current $18 Trillion in national debt will grow to over $300 Trillion by the year 2065 and to about $6,000 Trillion by the year 2115.

I DOUBT IT!

Exponentially increasing systems cannot last forever. Our problem is that the global financial system is based on exponentially increasing debt, energy usage, population and exploitation of natural resources. This appears to work nicely, especially for the financial and political elite, in the early years of the exponential increases. However, we are approaching the inevitable end of the exponential increases – perhaps not in a few months - but our systems probably will not last another decade. In the meantime, the plan seems to be “Party On!”

Examine the 30 year chart of the S&P 500 Index (monthly) on a log scale.

Exponential increases are clearly visible.

Peaks have occurred about every seven years.

Rallies and crashes have become more extreme. Look out below!