13 July 2010
A global double dip is unavoidable. The problem is that we have massive global debt weighing down the world’s economies that are woefully incapable of servicing the burdens of debt placed on them.
Debt by itself is not necessarily bad, if used properly debt has many benefits. Debt financed the industry and commerce that lifted western civilization out of the dark ages. But debt has a dark side too. What it built, it can destroy.
So what distinguished creative debt, from destructive debt? Simple, all debt finances economic activity of some nature. If in the creation of debt, economic activity is stimulated that pays off the debt, as it produces a profit for the lender and borrower; that is good debt. Valuable goods and services are produced, jobs are created, and taxes are paid, all thanks to debt.
But this is not what happened in the past 40 years. Credit standards have been relaxed, resulting in massive debt in government, commerce, and individuals, who were encouraged, by practitioners of quack economic theory, to take on debt to finance economic activity that could never pay off the debt. So now we find ourselves in our current situation. And what is our current situation? On a global basis, we have come to a point where our assets have transformed themselves into oppressive liabilities.
If you correctly understand our problem, you’ll understand that it’s not a question of whether or not we will see a global double dip. But rather how long, and how much pain the world must endure before we start discussing how best to go about the liquidation of politically inspired, uneconomic debt?
I’m in favor of returning to the marking of debt to the market. No more bailouts! If a debtor can’t pay his debts as scheduled, his assets are liquidated for * whatever * the going price is. I understand that this will result in massive deflation. Banking systems will fail as housing prices drop by 50% to 90%. Governments will fall too. Say goodbye to the school-loan system, and government “research grants” funding dubious-social science that made our Colleges and Universities as rich as the medieval church! But all this is going to happen anyways.
The current policy of bailing out insolvent, but politically connected debtors will in time result in hyper-inflation. And Hyper-inflation is even worse for political careers, the banking system, and lives of private citizens. We need to admit that there is no painless solution to our economic problem. Of the two solutions we are confronted with, the one that results in truly affordable housing, lower taxes, and steady employment in 2 to 3 years seems preferable to me. But this path will result in the destruction of the life’s work of our current political class of Academics, Bankers and Politicians. These elites only understand the common people as a human resource to be exploited.
They have brought the world to the edge of an economic abyss. With the people now in control of
Mark J. Lundeen
13 July 2010
