March 18, 2014

Ship Ahoy

A recent report published by the Institute of Economic Affairs (IEA) suggests the debt overhang in most developed countries continues to grow and will require consistently stronger fiscal responses from already dwindling public purses.

Austerity measures have been implemented across the world in an effort to erode the gargantuan debt levels evident in most G20 countries. The financial crisis of 2008 was a critical mass moment when the unsustainable debt levels built up over decades finally started to metastasise.

The cure however has been far from effective. The 'Age of Austerity' in terms of savage public sector cuts, job losses, defaults and consolidation has caused huge negative effects upon whole societies and nations - yet the debt levels have not fallen. At best, debt acquisition and accumulation has slowed (and world economic growth has been anaemic as a result). 

The fundamental fact is that world markets, economies and businesses operate on debt. Growth is reliant upon debt. Equity markets rely on margin debt. Nations rely on sovereign debt. And they all rely on it 'growing'. The economic policy makers are trying to increase levels of growth but reduce debt accumulation at the same time - in today's obfuscated markets that's an impossibility because they are mutually exclusive. If you reduce debt accumulation, growth slows. 

If you want to increase growth, debt accumulation must rise. Achieving both objectives at the same time would require an alternative economic system. Dare I say it, an alternative economic system based on fundamentals rather than illusory rhetoric and theory that never deliver prosperity or balance of any kind. Almost every single economic policy maker claims that jobs and growth are the key targets, yet to achieve them, those same policy makers are forced to conduct more bad policy that result in less real employment and less real economic growth.

The demographic aspect is another factor that will increase the incline policy makers must climb and surely will make the debt burden even harsher for the majority. We live in troubled times but what is most troubling is that rational and fact-based analysis of macroeconomic issues is being censored and ignored in favour of simplistic, rhetorical myopia. More cheap money, more government support and hope that economic growth will save the day.

Even if economic growth is generated by the draconian monetary policy being enacted, it will help neither the global debt problem or the living standards for most people. All of that is just a delusion driven by outdated economic theory and a pliant media circus.

Read the the IEA report in full below.

Written by George Tchetvertakov