DEBT COMPELS GROWTH

DEBT COMPELS GROWTH
Why the Numbers are Stacked Against Steady State Policies

Lesson number one, Economics 101:

Credit institutions make a living by charging interest on the money they lend you. It is not a gift---they lend it. And they want it back one day. But in the meantime you must pay a sum of money to rent it. How do you keep up your interest payments and pay back your balance-owing? By earning income. You get income from working for it, or you let your assets do your working for you and use the interest or rent they earn to pay off your loan.

How do you work for that income? You have a job, and jobs are less secure in a shrinking economy, as is rental, pension or other investment income. The return on stocks, bonds and other investment instruments require the same economic momentum that banks require to see their loans repaid. The vast majority of us are all, to one degree or another, “hooked” on growth. The growth-economy is like a dog forever chasing its tail, and with so many caught in the cycle, the growth lobby will always be irresistible. How many politicians will dare to retract the economy in the name of resource limits or ecological barriers that their advisors, the high priests of classic economics, will not acknowledge? No wonder the medieval church identified usury as a cardinal sin, the agent that could unravel a stable society where even merchants did not venture much beyond their accorded place.

Economic growth relies on debt to push all the players in a market economy toward behaviour that encourages growth. No debt, no growth, and no income or durable assets to generate the income to service that debt. But is most important, the greater the debt, the greater the pressure to stimulate more growth. That being the case, you are invited to review a snapshot of the US economy, as it stood on Saturday, October 10th, at approximately 3:15 PM PDT. The figures were as they appeared on the “Debt Clock”, and in the instant the numbers were recorded, greater numbers replaced them with terrifying rapidity. A glance at the Debt Clock a day or even an hour later would make the data look quite dated.

Take a look at this:

GDP per person $34, 764
Debt per person $38,802

GDP per worker $ 76,792
Debt per taxpayer $118,000 (changing too quickly to record)

Private debt per person $54,247
Personal savings per adult $ 1, 996

Liabilities per citizen $349,180
Assets per citizen $237,178

In round numbers, these were the expenditures in 2008-9:

Military $618 billion
Social Security $499 billion
Subsidies $ 51 billion
Medicare/Medicaid $643 billion
Interest on the debt $369 billion
Sub-total appox. $ 2.5 trillion

Government bailouts $11.5 trillion

When the world’s supreme economy cannot generate enough income to cover its debt obligations, it will be like a vortex that sucks the global economy down with it. The trillions thrown at consumers to ‘fix’ a system that is not broken but fatally flawed will not suffice in the long run to rescue it from the body-blow of rising fuel prices. And the kind of money needed to shift to renewable energy solutions dwarfs what has been spent or can ever be spent in the coming decade. The US government has shot its bolt, thrown most of the chips on the table. Expanding the money supply will be the last fatal gambit. It is through hyperinflation that interest on debt payments can be diminished when growth hits the brick wall of resource shortages. Expect foreign debt holders, currently clutching $3.5 trillion in IOUs, to pull the plug completely, and the real free-fall will begin in earnest. In retrospect, the current “downturn” will look like a peak, and the hope riding on this fake recovery will be likened to the brief relief Titanic passengers felt when the ship broke in two and for a short while leveled off.

Whatever fiscal rabbits they pull out of the hat, the brutal fact remains. Ours is an economy predicated on growth, but growth ultimately does not rely on imaginary wealth, but the supply of cheap energy, productive soil, accessible and abundant water and a resilient natural environment. As the Romans discovered in the last century of their crumbling empire, money is a fiction, not an elixir. People will stop believing in it when they come face to face with a reality that can’t be fooled by confidence tricks and greenwash. When that realization hits, my hope is that they will look for scapegoats, and find them in the financial industry, the universities, the think tanks, the journalism schools, parliament, the media, and last but not least, the offices of environmental NGOs. Let the victims be hung from the lamp-posts as Mussolini was, like a slab of meat on a hook in an abattoir, as befits liars and quislings. To paraphrase Diderot, I would not rest content until the last politician is strangled by the entrails of the last environmentalist---too busy sucking on corporate tits to alert us to the perils ahead, trying to “manage” growth rather than stop it.

Tim Murray October 10/09