I have no problem with debt pe se, for business it's forward buying to build inventory and expansion, for consumer it is measured purchasing power to but those snazzy new Gucci shoes or the new LED 3D TV (actually maybe not 3D though...what with those $200.00 + silly glasses!). But as long as you are credit worthy, meaning you are not building a further debt hole for your self. So is it easy to do that (creating a debt hole)? Of course it is, the trap is interest rates moving upward and repayment costs increasing as you become risky (further indebtedness). The hope? For a business they are able to continue repayments whilst restructure and increased or sustainable probability. That is the stress test for business, can you survive whilst your creditors want to get paid? A smart business can do this a 'dumb' business can't and they go bankrupt. For consumers he/she can just through their maxed out credit card in the bin and declare bankruptcy thus fueling a contagious credit crunch (which is all part of the boom/bust cycle).
The arrogance of western countries is that they believe they can (you can thank the Keynesian economics model for this) increase deficits fuel demand via maintaining low inflation and wait for production output to increase. Sure the US in the 1930's was a emerging superpower that could (although that can disputed) could maintain a large deficit (at the time a mere 16.2billion) and then reemerge into surplus (inflation adjusted) as private demand picked up (also disputed in the sense that some economists believe that World War 2 actually drew the world out of recession). The argument today is that developed economies such as most western countries have actually peaked in industrial output, in other words their 200+ yr old expansion is coming to end. So the deficits are an impending problem that will never be solved with increased production (peaked). In other worlds it is the beginning of the end of western economic dominance.
The people know this hence the recent G20 riots (Toronto, Canada), UK new government (austerity overdrive), German people (Merkel power hanging in a balance), France (whisper away from civil unrest), Australia dismissing a primister within 12hrs.
The US can print to finance deficits, but the inflationary factor will be oil, as I believe that a spike in oil is due; which could slap down the Obama administration smugness that it can operate huge deficits to stimulate a depressed economy.
Social unrest won't be based on recessionary/or depression sentiment, it will be on how is the country going to pay for the massive debt hole that goverments have created. The stake is higher taxes, inflation and a long term uncertainty for future generations.
The pain should be taken with a sharp jolt recession or depression, then we see what humans can do under stress; innovation, community activism/s, creativity and productivity. It is hard wired into our brains too survive, that is what we do. Yet leaders discount this and believe they can 'save us, yet they have made our future a more prolific disaster . This is to their (global leaders) detriment.
No comments:
Post a Comment