Tuesday, October 16, 2012
Uncharted territory begets no policy response
The level of global debt - measured in the hundreds of trillions - is unprecedented. There is no point of reference in global history. There is no popular consensus on what caused this or how to proceed. All known responses are based on past situations that bear no resemblance to our present situation.
At the same time massive over-built capacity to service massive debt-driven demand has resulted in a stagnant global economy. No incremental amount of debt can stimulate more demand in a middle class that is crushed by debt, real inflation and stagnant wages.
The only reason there is mathematically positive GDP is that real inflation (health care, education, energy, food, rents) is now stripped out of the inflation figures. The debt itself is responsible for mathematically positive growth.
The debt is ever increasing through money printing and compounding.
Yet any draw-down of debt will lead to further stagnation and possibly depression.
Quite an uncharted problem.
Huge debt. No growth. Tremendous and growing disparity of wealth.
The engine of growth - the banking system - which is supposed to efficiently distribute capital - is now an engine for sucking capital out of the economy.
So - what is the proper response we should expect from our Leaders?
Clearly we need a complete reorganization of a failing system. The reorganization must include a complete and drastic reorganization of the banking system, the tax code and renegotiation of all pension plans and transfer payments, as well as massive confiscations of concentrated power and wealth which will necessitate capital controls.
None of this will ever happen. Instead we will hear a lot of nonsense about "the free market" which no longer exists except in the popular imagination.
But since we live in a Democracy it is the popular imagination that counts. Therefore, since we live in a Democracy, our leaders will simply reflect the popular will and the popular imagination back to the populace.
And since we are in uncharted territory the populace has no chart to dictate what they should expect their leaders to do. So their leaders will do nothing.
The only people who are responding are the central bankers. And they have but one tool: the printing of money to create and service ever more debt.
What you see is what you get. This is the end game.