On Why Things Appear (sort of) Normal

Assuming I’m not in denial (which I admit might be possible given the underlying genetic basis of denial which makes it difficult to detect denial in yourself) I like to think that I belong to a small group of people that understand what is going on in the world.

Despite this understanding I was completely wrong in predicting the global economy would collapse before today.  I think I understand why I was wrong but I do catch myself from time to time marveling at how well the wheels have stayed on since the 2008 crash.

It is wonderful reading someone like Tim Morgan who with a few words explains clearly why we have delayed the day of reckoning.

https://surplusenergyeconomics.wordpress.com/2017/04/19/94-spring-has-sprunga-leak/

…there’s a big difference between reasonable optimism and outright delusion, and the latter, it seems, has been taking a big hold over many of those whose job it is to forecast our economic weather.

In 2016, global GDP grew by 3.4%, adding $3.9tn to GDP. Where debt is concerned, we do not yet have comprehensive data for the whole of the year, but we do know that world debt increased by over $11.4tn in the first three quarters of 2016.

In that nine-month period, governments borrowed more than $5.5tn, households $2.3tn, and non-financial businesses $3.5tn. That stacks up to $3.90 of borrowing for each $1 of reported growth, even if we assume that prudence reigned supreme, such that nobody borrowed at all in the three months running up to Christmas.

To be sure, we cannot make a one-for-one comparison between borrowing and growth. But we do know that a lot of this credit expansion went into consumption expenditures, not least because that’s what governments spend most of their money on. The calculations made by SEEDS suggest that, stripped of the spending of borrowed money, reported growth of 3.4% falls to an underlying level of just 1.2% – and even that probably makes some pretty generous judgments on the validity of a very big pile of borrowing.

Nor is that all – because debt is not the only hostage that current practices are handing to posterity. Debt, though it adds to the burdens of futurity, can at least be managed, if we let inflation accelerate, essentially bilking lenders by paying them back in devalued money.

This cannot work with other forms of futurity, most obviously pensions, where the same inflation that devalues debt simultaneously increases the burden of future payments, not just of pension commitments but also of welfare. It should come as no surprise whatsoever that pension deficits are continuing to widen alarmingly.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s