By Bernard Hickey
It hasn't dawned on John Key, but the idea that growth in the developed world may have stalled for more than a year or two is now dawning on central bankers, economic thinkers and protestors around the world.
The realisation that real and sustainable growth may not have happened in the developed world for the last 20 years is even more unsettling.
Here's the thinking. Oil production essentially peaked around a decade ago. Technical innovation has been stagnant for at least 20 years. Populations began ageing. This meant that per-capita growth in output was much slower than in the post-war years up to the 1970s. See more here from Peter Thiel on The End of the Future.
Any growth that was produced was gobbled up by the richest 5 percent of the population as the financialisation of the economy shuffled more profits to banks, traders, executives and their shareholders. A relaxation of the Depression-era rules stopping investment banks from joining up with commercial banks, along with an increasing focus on rewarding executives many multiples of average incomes accelerated the surge of income to the top tiers.
This non-growth and the increasing inequality of incomes was essentially disguised, particularly for the middle classes in developed economies such as the UK, the US and New Zealand, by borrowing from the savings in export-rich economies such as China, Japan and Germany.
The debt crunch we are now seeing in Europe and America is essentially the moment of truth for this strategy. When debts grow faster than income this eventually ends in unserviceable debts. Greece and the Eurozone is trying to control that moment of truth right now and is failing.
The various desperate attempts over the last four years to prop up a system smothered by debt with even more debt, or just to shuffle it around, is also now being exposed with the return of debt crises in Europe and America, often as the private debt shuffled to public balance sheets reaches festering point.
The extraordinary outpouring of anger in America and Europe in recent weeks is the sound of the streets waking up to this fact.
The debt can't be sustained without some sort of debt jubilee, where debts are forgiven, or by a burst of inflation.
This is shaping up as a battle royale between savers and borrowers, with the shareholders of banks and taxpayers stuck in the middle. Regular savers want a debt jubilee where bank shareholders and bond holders take the pain. Borrowers want inflation where regular savers take the pain.
Policymakers and ultimately voters have two choices.
They can destroy banks and their bondholders and shareholders by forcing them to forgive the now unsustainable debts. That creates obvious problems for financial system stability and creates a monster moral hazard for borrowers.
Or they can bail out the banks and shift the debt onto the balance sheets of taxpayers while encouraging inflation. This spreads and delays the debt problem, an eventually ends with sovereign credit rating downgrades and ultimately the bankruptcy of countries. That's what we're seeing now in Greece.
So far politicians in the United States, backed by their political funders in the banking sector, have chosen to bail out the banks and shift the burden to taxpayers generally while inflating away the value of money. This is fueling much of the anger and has created a monster moral hazard problem, along with banking monsters that are even more dangerous and too big to fail.
New Zealand has also had its own share of bailouts, including South Canterbury Finance, and the relatively silent and so-far painless guarantees of banks and their wholesale bonds (which is still in place). It is also seeing plenty of inflation.
All of this debt shuffling and kicking of the can down the road obscures a basic fact that most policymakers and voters have yet to accept.
Unending strong growth in the developed world cannot be sustained. There isn't enough oil, young workers and technical innovation to sustain it.
So what is New Zealand's Plan B?
I doubt we'll see it in this election campaign.
65 Comments
Good question Bernard – the world is changing – fast !
PM - where does it stop ?
Rena Tauranga, Pike River, Dairy farming, super City Auckland, resource extractions, etc. - spending, spending, spending – where does it stop - where does the money come from - just to pay what we destroy ?
As a nation we are simply not able to pay billions of taxpayers money, to cover the governments inappropriate, thirsty plans for unsustainable growth. Under financial and operational stress on many fronts of our economy we already see increasingly man made disasters occurring. Miners losing their life’s and humans and our environment suffering under irresponsible and megalomaniacal decisions from the government. The massive increase of our account deficit is a clear indicator of that and forces the nation and its citizens into severe financial situations. We cannot spend money out of this crisis. For years several of your ministers are unable to adapt to the world situation, constantly underperforming and should be sacked.
It is time for revolutionary reforms considering: http://www.youtube.com/watch?v=EQqDS9wGsxQ
That idea -- growing a nation out of recession with unsustainable productivity -- puts Mr. Key and his conservative National Party at odds with Washington, Tokyo and Canberra. Those capitals are rolling out billions of dollars in stimulus packages -- with taxpayers' money -- to try to prop up growth. That's "risky," Mr. Key says.
http://online.wsj.com/article/SB123638162497057661.html
PM – that’s exactly what you are doing – even worse - forcing stimulus packages from the taxpayer paying repair costs in the billions - constandly !!!!!????
.... think about again PM - or we sack you anyway.
Good work Bernard. We need to wake up and realise that debt has been growing faster then income, at both the private and public level. Key and English promised a "Black Budget" but delivered a record deficit! The maths is acurate, it will end in global sovereign defaults. The dominoes have already started to fall. Key sounds like the Greek PM did back in '08 claiming it's under control and we can sort it out. I don't believe our leaders are prepared to tell us the truth, that we are actually broke and living on borrowed time.
Creating money by issuing debt, and then charging interest creates increased demand for debt to sustain the interest payments. This is simple arithmitic, but the mainstream media (MSM) and our politicians want us to believe that it isn't a big deal. The banking system is based on fraud and the end game is here.
Plan A. as detailed by the G20 = In their post-meeting statement, the ministers said: "We remain committed to take all necessary actions to preserve the stability of banking systems and financial markets. We will ensure that banks are adequately capitalised and have sufficient access to funding to deal with current risks.
What about Plan C Bernard ?
The NZpublic vote for politicians only, who have ethical and moral standards, love NZ and it’s green and clean 100%NZpure policies, so we all Kiwis as a nation – have our country back and maintain a decent, modest standard of living – without financial stress.
Sad but true. The system isn't designed to produce ethical and moral leaders that give a sh*t about the sheep that elected them. It doesn't even matter what they say to get elected, once they are in they do what the hell they want regardless. It's a sad state of affairs that we joke about how politicians break promises, and can't be held accountable. Then in the months before an election they start spewing forth the same deception and bribes to perpetuate the cycle into decline. None of them are preapared for change, but change they must.
None of them are preapared for change, but change they must.
Current politicians aren't capable of change - they are too entiltled, arrogant and corrupt.
Keep it simple, stop hoping for politicians to change, and realise you have to elect new ones from new political parties. Maybe even honest ones.
Then keep them in line with competition and replace them as soon as they start to entrench themselves or their entitlements i.e. regularly.
Indeed - it was bad enough having a political scientist for prime minister, but when you have ex bankers and Treasury wonks as your top politicians you know you have reached the bottom of the barrel.
A very thorough clean out of corruption would be a revolution, but the former makes for a much better sound bite.
Bernard, Im assuming that when you said ;
>>>>>
The debt can't be sustained without some sort of debt jubilee, where debts are forgiven, or by a burst of inflation.
>>>
You are talking about deflation - Inflation ? I dont think a Jubilee would involve forgiveness , rather a writing off of debt by bankruptcy and losses taken by lenders. The moral hazard of forgiving debt would be frightening. The inflation you talk about comes at the cost of savers and those who have been prudent, the very people we keep getting told we need more of.
What we really need is the government to prune back its spending and let the private sector get on with creating wealth. we need to create an environment which is business friendly,thats along way from where we find ourselves today. We simply can no longer afford the waste that is the present state sector, whether its building stadiums we dont need, Bmw limo's for ministers, plastic Waka's, large scale roading and infrastructure projects , bloated salaries, more regulation, its money we taxpayers can no longer afford afford to give. The state is over due for radical reform, im not holding my breath but something has to give.
"What we really need is the government to prune back its spending and let the private sector get on with creating wealth."
Worn out rhetoric IMHO.....
The USA has been singing that mantra for 30 years, it has not happened....in fact things are significantly worse.
Govn provides services....this is most of Govn spending.....remove public health and that is a 2 x hit on GDP and its growing at 7% per annum in the states.....thats a doubling of health costs every 10 years.....that isnt sustainable....If you make the bulk of consumers more poor by forcing them to get private healthcare and private WINZ and private education you will cripple a substantial part of your economy.....the welath will be removed to those "essential" industries/providers....and not spent evenly, or even at all...then of course ppl will be so frightened that they will save....
Finally, the private sector converts resources to "wealth" and uses cheap and plentiful energy to do so.....its in-efficient.....
"Give", indeed, a CGT is coming.....the tax has to be incraesed and the first logical place is to tax un-taxed profit....
What you are talking about simply doesnt matter any more....I suggest watching this series, its fasinating.....its like reading and signing your own death warrent.
http://www.youtube.com/watch?v=ddmQhIiVM48&feature=related
regards
Andrewj
Wage and price Inflation at higher rates than interest rates essentially reduces the real value of debt.
It means the borrower can 'catch up' with the debt because their ability to service and repay the debt is growing faster than the debt itself.
It depends on wages rising in line with prices...
cheers
Bernard
That may well be but have we reached peak debt? Im thinking deflation to destroy the debt after that all bets are off, could go either way. Im saying this because its what Im seeing, Ok food is up and Government charges are up but can they stay up? Milk looks to be in serious oversupply it will require the government looking the other way to keep dairy prices this high in our supermarkets. I saw porterhouse steak in PaknSave at $11 a kg last week, that does not compute with the current shedule paid to farmers. Lamb is also very high, sustainable? is anyones guess, Im on the negative side. If interest rates rise even a tinsy wenny bit then hell will play out with asset values. Everyone I know is maxed out, they have nothing left to give, thats not inflationary its the end of consumption, most people now recognise that there is something very wrong with our economy, more debt wont help and I dont see any sign of a willingness to jump into assets with an expectation of capital gains. I just got a cracker tax bill, so ive had to cancel my new gararge, only so much money and the government has so many ways to spent it, but not around here, this is ear tagged for Auckland, and votes.
Duncan Watts had a brilliant talk on Radio NZ, every thing is obvious once you know the answer, the problem is, we are wrong most of the time we think we are right.
http://www.radionz.co.nz/search/results?mode=results&q=Duncan+watts
also Nicole Foss
http://theautomaticearth.blogspot.com/2011/10/october-3-2011-commoditie…
Im replying to myself, any way Dairy farms this year experienced %9.9 inflation, compound that, oh wait thats just whats being happening for years, how do you increase the return for farmers when they are selling a commodity and new world produces have costs less than half ours? If wages go up it just makes it worse,time has moved on. When I leased my first farm costs were %35 of my gross sales today the sheep and beef farm average done by MAF is %85, open her up and lets go to %100 or even %110 what the hell , lets go for broke.
AndrewJ,
The point re govts allowing / encouraging high inflation is that they achieve this by keeping rates low when they shoudl be raising rates to contain inflation. When this occurs it is a win win for borrowers as they get the benefit of a) low rates and b) fast rising salaries to eat up the real value of the debt. More often than not govts will hide the fact that they are doing this by fiddling with the CPI, the most obvious being the exclusion of land costs which received the lions share of inflation over the last decade. All that money creation had to find a home somewhere, and it found it in INFLATED asset values which the CPI index happily ignored.
I think now though, govts are brazenly saying to savers, too bad, we know inflation is high but we have no choice but to keep rates near zero. See Mervyn King for a current and tragic example of this in a country with 4% inflation. Ditto for Greenspan and continuing US policy. NZ and Aus have not quite stooped to this level of depraved bank friendly policy, but they are both leaning towards it by ignoring the fact that the CPI is now above the 3% band which supposedly should trigger a rate rise. The impact of low rates and high hidden inflation over the past decade is summarised by the answer to the following question. What lifestyle will a family on one median income (700 after tax) have today?? Will it buy a house?? no. will it allow you to eat healthily at 250 per week for 2 adults and 2 kids? no.
I was thinking about exporters who's only hope is a depreciating currency and thats only half of a solution. I will let Bazza sum up my feelings
BazzaMcKenzie
Politicians throughout the West keep posturing as though this is primarily a financial crisis and there is a financial "fix" if they can just find it.That confuses money with real wealth and the consumption of real goods and services.
The core problem is that throughout the West, countries have been conditioned, by politicians, to consuming more than they produce, with the balance being goods loaned to them by Japan, China, etc, who at some point want the equivalent of those goods back.
But that is just the tip of the iceberg. Throughout the last 3 or 4 decades, people have been saving for their retirement, ie foregoing the consumption of goods and services in the present so they could have consumption when they retired.
Unfortunately, again because of the politicians, most of what was saved did not go into productive investment that would return benefits to the retirees. It went into current consumption by supporters of the political class, whether they be lifetime benefit recipients, bureaucrats, or "banksters".
So there is no retirement pot for most people. Had it existed, it would have taken the form of factories throughout Europe and the US, turning out valuable product. Instead, most of those factories are in China. They are either owned by Chinese or will be once China gets jack of not having its debts repaid by the West.
This Ponzi scheme only worked during the post WWII baby boom years, with a disproportionately large group of young workers, as those individuals worked and saved. Now the age demographic in Europe and most of the West, and in Japan and China, is moving in the opposite direction. The con cannot be replayed.
Instead of facing this reality and helping their countries adjust, as best they can, European politicians and the Democrats in the US are trying to keep the con going, when that makes the ultimate crunch even worse.
There may be some politicians who are good people, but most of them are the scum of the earth. And for good measure, the people of Europe are now loaded up with an extra level of this scum. http://www.telegraph.co.uk/finance/financialcrisis/8830553/Lack-of-ECB-…
I think you will find that our overseas debts are only payable in foreign currency. Pretty soon if not now interest payments will be a greater portion of our "exports" then our real export sector. A low dollar will bring the end forward a bit. I am now convinced that interest/debt has screwed us all over.
Just to clarify Bernard you suggest we have wage price inflation to reduce the real value of debt. Inflation = increase in the money supply. Increasing the money supply can only occur with an increase in debt. The maths doesn't add up.
For further clarification are our overseas debt's (about 200% GDP) denominated in NZ$ or Foreign currency?
Based on retaining resources for New Zealanders we could start by curtailing immigration except for highly needed skills .
My observation is that Auckland suffers from growth pressure which are heavily distorting housing and services. It seems that most of those arriving at Auckland Airport only move away within the distance of a good day's walk.
Concentrations of immigrants result in costly pressures and sometimes even ghettos as seen overseas.
Has anyone seriously studied the economic effects of all the recent immigration into Auckland. From what I've seen these folk are not bringing any needed skills or new export businesses, surely we don't need more taxis drvers or two dollar shop operators.
Auckland is the poster child for rampant consumerism and exponential debt yet it continues to prosper - largely on the back of the rest of the country. There's an article in the Herald today saying Auckland needs hundreds of thousands of new homes - to house folk doing what exactly? They mention the need for the place to become more export orientated but with no apparent answer for how that's to be achieved - it's been going backwards in that regard for decades.
http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10759093
At last. Someone is finally waking up. Anyone who has followed my posts over the past 18 months will have noted my advocacy for closing the doors on immigration. (until the woes of the world are fixed) NZ cant afford it. Take a dekko at the unintended consequences of what's happening in the northern hemisphere have a look at who's coming to a place near you: People who dont want to contribute, dont want to pay taxes, and want pensions at age 55. Go you good thangs.
http://www.theaustralian.com.au/national-affairs/immigration/greeks-rus…
Auckland is the poster child for rampant consumerism and exponential debt yet it continues to prosper - largely on the back of the rest of the country.
I think you have summed up Auckland well.
What a nightmare - our too big to fail city is going to need bailing out.
Then there are the burdens on the Health Service from reunified families from later-life arrivals (often parents of earlier immigrant arrivers) who have made no contribution to the productive sector but start to use these expensive areas.
There is evidence of property being bought in NZ by the non-resident parents of overseas students. Perhaps a restriction on what can be owned by non residents would take pressure off the market..
High immigration allows big business and those with existing capital to be lazy. All those new immigrants want to buy houses, so it provides growth for the banks assuming they maintain their market share. it also puts pressure on house prices and allows the continutation of the ponzi. It can continue for some time, but it will degrade (and already has) our quality of life. Immigration should be used to complement a growing economy NOT be a driver of an economy. When immigration drives an economy, those with existing wealth and capital reap the benefits as the capital becomes more scarce and valuable, those trying to get ahead lose out. It really is as simple as that. I saw a stat on Auckland a few years back. GDP grew, but gdp per capita shrunk.
Steven, the more taxes we pay the less we have to spend, we are just chasing our tails. I fully expect a land tax, I expect stupidity from our leaders, I expect them to run the good ship NZ onto the rocks at full steam ahead. I may however choose to pick up my ball and go play somewhere else. I dont expect the government to create wealth all Im asking them is not to spend money we dont have and dont load us up with debt we simply cannot pay back. Im not asking the government to reduce expenditure on health and education, i am asking them to reduce waste and expenditure in areas like Regional councils( why do we need them) and other regulatory bodies and to stop spending money we simply dont have. I saw 60 minutes last night all about Kiwis in Australia, no dole, no benefit,s no Uni loans but most appear to be doing Ok. We need to reboot our welfare system, you are most likely right energy will be a limit on out growth but why make it worse than it has to be?
Andrewj, while I agree stadiums etc are a waste, most tax we pay goes to Heath, Education and WINZ....if you stop doing these publically then the voter has to provide these for themselves.....
"Pick up my ball" I think you over-look that this is a global problem....by all means pick up your ball and go play elsewhere...you might gain yourself some years......but in my worst nightmares NZ is the best survival place in terms of our base needs, ie we produce enough food and have a small enough population that we are pretty self-sufficient, so I hope as one of the more intelligent ppl you dont do "something silly" nad move to say Texas.......
I agree on the regional councils and councils spending, its grossly mis-allocated and wasteful in some areas....but as long as the can kicking continues thats what will continue.
Im hoping that the voter finally gets their act together and votes such wasteful ppl out.....I think thats coming......
Welfare, yes it needs work....however we are in such a position that you cannot simply remove support overnight if there is no alternative ie jobs.....the result would be anarchy....ther are a lot of things to look at, like shutting the door on the automatic right of imergration from some pacific countries to here....its going to happen......
regards
There is no chance there will be a plan B put forward in the election, If Phil Goff commits hari-kari and says growth is finished we are in for 30 years of hardship but JK laughs and says look at them they are clueless, ust where does the voter vote? death and destruction of the never never land? I think I can see how that ends.
JK just has to watch it hold it together for 6(?) weeks or so he simply has to deny .....its highly likely he will win....even if the EU implodes and so does the US, the NZ voter has no where else to go, Labour are also in denial.....Even if JK cant win what is a new labour Govn going to do? they have the same song sheet..."growth is king, growth is good, growth will save us....expotential rocks.....can kick, can kick......"
its worked for 60 years.....
regards
Any one remember their Shakespeare and the lines that went something like
“The fault is not in the stars but within ourselves”
People maxed out their credit cards and thought their houses were like ATM’s
Want a job; sorry that is not environmentally friendly.
Thing not going so well, blame the politicians.
Do some readings about psychographics add in demographics and observe the future
The future cannot be seen through a rear vision mirror.
The moneys gone
Hammer, Nail, Head.
Well said Bernard, it is a scary thing for the smiling politicians to have to accept, but the rearranging of the deck chairs at the moment (ala. extend and pretend) can't last forever.
Unfortunately though the issue transcends politics, it is neither right wing nor left wing and is therefore shunned by all political parties, with the possible exception of the greens... Unfortunately For the mainstream, as the greens have hinted at the possibility that limitless growth is over and sustainability is the name of the game it becomes a crazy leftist theory to the media and Joe average.
Thus it'll continue on until the issue is forced.
Short answer is no - as a rule NZ is hopelessly unprepared, and usually reacts to situations rather than plans for them. And most of the issues you raise (energy demand, debt levels etc) are completely out of our hands, we're just too small to affect these things. We can focus though on our exports and productivity, these are the areas that will help us ride out problems facing the western world. We can start by curtailing our reckless borrowing, encouraging manufacturing and exporting, and taxing capital gains and property. Stop miring our economy in debt and trusts, that would be a good medium term strategy.
The culture of debt has been so ingrained in our society that many people struugle to comprehend life without it. This is despite the fact that most mortgages cost 2-3x more then the price of the underlying asset.
Inflation is the bogeyman that scares people into taking on more debt, because money devalues relative to everything not money. The truth is that the cause of inflation is the debt itself. With the issuance of debt (specificly fractional reserve banking) new money is printed and enters the money supply dilluting the value of money.
The secondary and more sinister problem of debt based money is the interest requirement. This means that when you get a mortgage the banks require 2-3x more money then was lent out. This creates a shortage of money over time if no new debt is issued (the process of creating money). For a debt based system to work, new debt needs to be created in an amount equal or greater then the amount of interest being paid + current debt being paid off.
This is common knowlege amongst the banking cartel, they designed the system and have maintained it. The mathamatical results of the interest bearing debt if new debt is decreasing relative to old debt (deleveraging) is bankruptcy.
Today the game is up. This banking cartel has bankrupt business, families, and even nations. Money does not need to be debt, and the real economy will be fine without the banking cartel.
'a battle royale between savers and borrowers, with the shareholders of banks and taxpayers stuck in the middle. Regular savers want a debt jubilee where bank shareholders and bond holders take the pain.'
Without government intervention many bank would have failed already and shareholders would have lost their money...maybe if governments do nothing shareholders and bondholders will take the pain?
John Key doesn't need a Plan B, he doesn't even need a Plan A. Whatever happens to the world, the entrepreneurs and business people will respond to the changes and continue to service people's needs and wants, making us wealthier over time.
Meanwhile, the politicians will sit around in committees coming up with grand schemes and making pronouncements such as "we, as a nation, need to do...(insert name of policy that will benefit selected special interest group here)."
The myth propagated here by Bernard Hickey is that politicians need to "plan" for the future in order to "direct" our economy in a way that responds to the changes Mr Hickey envisions.
What real-world experience has shown time and again is that politicians are hopeless at predicting the future and even worse at trying to plan for it using other people's money.
The best and only true method of economic planning is done through the marketplace, with prices sending signals as to what actions are economically viable and what ones are not.
We don't need politicians to tell us where to live or what kind of car to drive to "adapt" to the new reality - market pricing (the best way of rationing scarce goods) ensures very view of us commute to work for two hours each way in a Hummer.
Being "wealthy" simply means having more capacity to satisfy our wants and as the situation changes, the 'wants' will change.
Brilliant people like Steve Jobs (RIP) will continue to come up with ways of providing us with the things we want, even if those things didn't exist and hadn't even been thought of five years ago.
The big threat to our future economic prosperity is not that people are getting older, or that there's less oil than there used to be, or the fact we don't have flying cars yet.
No, the biggest threat to human progress is, and will always be, the state. New Zealand will never reach its full potential while we allow a bunch of clowns in Wellington to tell us what we can and can't do, while stealing our money and expecting us to be grateful for it.
Although what you have said is acurate it does not adress the issues that government will be dealing with. Namely the headline of this article. Government needs to be preapared for a zero growth economy, it has current liabilities ie debt, interest, welfare, health, education, defense (offense) to name a few. How it is going to meet these liabilities requires a bit of thought. Current government is not thinking, it is just going to the banks and borrowing! This lack of thought and planning will see us like Greece in about 10 years, my maths may be out in its timeframe but not in the end result. Work it out for yourself its easier on a spreadsheet. There is no escaping the Giant Vampire Squid.
Plan B is for Government to get out of the way, stop interfering in the market and in our communities. Cut the rediculous amount of regulation, red tape and beauracracy that exists.
Reduce the size of the tax take rather than trying to expand it. Flat 10% tax on incomes only. Scale back the size of our government and public sector dramatically and only run neutral budgets on a vastly reduced income. Allow people to take resposnsibility for their own lives.
Return our currency to the community. Disolve the RBNZ/DMO. Send the ozzie banks back across the Tasman with the Wallabies. Back our new currency with gold.
Let businesses and entrepreneurs create jobs. Outlaw corporations. Turn welfare over to charitable organisations funded by donations.
Let communities and schools teach our children.
Big goverments that try and control everything create societies and economies that don't work. Never have.
Are you referring to China? I highly doubt you will get sweet FA for welfare donations seriously. Economies based on debt don't work never have never will. The gold standard is no different to Fractional Reserve Banking (FRB) once debt and interest is put into the mix. For a real sustainable economy we need to address the issue of the debt spiral and a gold standard does not do this. Time based money does this as it has a fixed lifespan. There are other options and the world is bursting full of financial engineers that could concieve other sustainable forms of a medium of exchange.
Good article Bernard.
I would add that two or three countries in the world are running huge artificially supported trade surplases. This undermines the the ecconomies of the rest of the world and is unsustainable. Eventually we must have balance to preserve stability or we risk war.
America's crazy global adventurisim and wars are a significant factor.
Can we we really expect to keep growing exponentially forever? This is unprecedented in nature so may be we need to have a careful think about were the growth forever model is taking us. Maybe we should channel our efforts away from increasing material wealth to other expressions of well being. Health, leasure and other non resourse limited values.
Well here's my Plan C, addressing public debt (and private at the same time), welfare and tax reform, environmental issues and the realisation that we have to learn to live within our limits.
Well stated in plain language Bernard.In the days of Adam Smith economics was always referred to as Political Economy.How wealth is shared goes in hand with the theories and science of money. The sharing is the issue today, sharing what we have and the future.I guess sharing then brings us to what is fair and justice.I think this is the key.Justice involves morality, man made morals in the area of wealth.
You mention moral hazard for borrowers. I believe where the world is in a moral crisis because moral hazards of greed by the priveleged have not been raised but not listened to by politicians since monetarism and the freeing of markets in the 1980`s. Polarisation of wealth has been with us for nearly 30`s since the "trickle down " days.
The level of debt is the major problem and the international money system response to shuffle it around and try to solve it with more debt.It is interesting.I did a dissertation many years ago on the law of Assumpsit. The mortgage contract in the 1300`s.In Christian nations until the mercantile era interest was considered to be immoral. Mortgages were a little like Shria finance where interest is also immoral in Islam. Even today ,in theory the common law courts will render a default penalty "unconscionable" if it is oppressive. so 750 years later the morality issues surrounding interest leads to your power company or Council rates adding a penalty into its costs and giving you a early payment discount. This is a relatively recent subversion , trickery around the ethics of charging interest.Perhaps part of the rot and dishonesty.
The relationship between debt and morality is strong and has a long history.I remember when when a son left home to go into the world , to not be a lender nor a borrower. How times have changed in only 60 years.
As a finacial planner and having been involved in budgetting services in the 1970`s the education about the perils of debt are forgotten.
Who have been the promoters of rampant indebtedness of the general population?Have itnow and pay later value. There is moral turpitude involved in this insidious promotion of the credit and government have been a party to it and are part of the problem now.
You say people are taking their power back and there is action on the streets because people have wised up. Yes they do not understand the finance but they keenly know the injustice of what is i being done to them. They have looked to the political elite to remedy the injustice, but found the politicians are all wned by the financial elite and serve them.What else can you do but march on the street.
This is a moral issue for the west as well a financial issue.
One of the many things that amazes me is that all the leaders of the world appear to be running arround panicing like headless chooks; real up to their armpits in aligators stuff, reacting to one disaster after another. - a gauranteed way to make matter worse. I would have thought that somebody in leadership somewere would be pushing for some long tern perspective and planning accordingly. Maybe I am missing something or is all this mess and panic part of some undiclosed long term plan? This would also explain why the apparant idots, who did nothing to predict or stop the disaster, are still employed.
Time to build the financial shelter I reckon...and if you is anywhere near Iran...you should think about running....far away in an upwind direction! A concrete bunker just won't do it.
Little old NZ can go on pretending "recovery" is coming for yonks yet....time enough for Sir John and Sir William to retire...time for Labour to have another go at buggering the country...time to find some gas and oil...
The real shite won't hit this place until the idiots allow the pop to expand to near 8 million.
Priceless video of Nigel Farage taking apart lying POS Jean Claude Junker:
http://globaleconomicanalysis.blogspot.com/2011/10/nigel-farage-calls-juncker-political.html
Plan B?
Ah........how about Plan D......or E?
These so-called "leaders" have no idea. But they do have great ideas when it comes to fooling the taxpayers into believing fairytales.
Any politician out there willing to scare the living daylights out of their electorate with the true reality we ALL face over the next decade would also be a fairytale. They don't exist! real leaders that is.......
My advice to all: Be ready to either fight against a global police state or accept your fate as a ignorant accomplice to bank slavery for life along with your children's. Occupy Wall St is just the beginning of something that they (Global Police States) will crush with shock and awe tactics galore. Homeland Security are just ready and waiting for the nod and not only here in the US either.
You have been warned AGAIN.
Yes Justice your right, the maths doesn't lie (unlike our politicians)
This is awesome Global Debt Clock LQQK
Riyadh: Saudi Aramco has forecast that the kingdom's daily energy demand will reach an equivalent of 8.3 million barrels by 2028, more than double the 3.4 million barrels equivalent in 2009.
Currently, of the 8.3 million barrels daily in oil production, more than three million barrels are consumed by the domestic market mainly to fuel national industries.
http://gulfnews.com/business/oil-gas/saudi-oil-saudi-energy-demand-to-d…
regards
FYI from a reader:
Hi Bernard,
I enjoyed reading your piece on oil.
I blog on international energy sites using the alias “Energy Investor” and I have been intrigued by the contrary arguments of peak oil supporters and their opponents (led very ably by Daniel Yergin). I spend my time on pure research so I am better informed on issues of the day than many mainstream economists.
For individual oil fields the bell curve used in M. King Hubbert’s model is the order of the day – sometimes elongated or reshaped by horizontal drilling, fracking, waterflood or other means of enhanced recovery. For those who oppose the theory of peak oil and deny the obvious seems just a little silly to me.
IMHO the peak of conventional production occurred in July 2008 (IEA now says 2006 was the peak). Yet for ten years I have watched with horror as China has locked up all supply sources not nailed down and ramped up their usage from 3 million bbls per day to the 10 million bbls per day that it will be at start of 2012.
Unfortunately, although I became aware of the lies told by the IEA and EIA in 2005 (their oil supply forecasts were not actually forecasts but instead they used a balancing figure), it was only when the IEA’s chief economist, Fatih Birol produced the results of a field by field analysis in their World Energy Outlook of 2008 that the theory behind peak oil established a degree of respectability.
However, the oil industry relies on a “drill, baby, drill” mentality to encourage investment.
People now use evidence of an increase in the production of “All liquids” (from IEA and EIA stats) to demonstrate that oil production has yet to peak. But that ignores two factors. The first is that all liquids that are loosely referred to as “oil” do not have the same utility to mankind, and secondly that the oil quality and Energy Return on Energy Invested (EROEI) is rapidly falling for all new discoveries. Meanwhile supplies of sweet light crude oil from existing conventional resources are falling inexorably. Of course it is the crude that refineries have been set up to process that is important. However, people ignore what oil is used for and regard it as more and more of a homogeneous, financially tradable commodity.
Because of the way oil is viewed, outfits like Greenpeace are able to brand it as a distasteful product for us to have anything to do with. While I doubt there will be any oil in commercial quantities found off East Cape, we certainly cannot afford the luxury of not allowing prospecting there. You are right in your paper that our politicians have no plan B for the inevitable end to supply growth. My own concern is that there will be no cost effective way to get our bulky and low value agricultural goods to export markets by 2020. So we would be stupid to turn down the opportunity for someone to risk their own money by exploring our territory.
You would be wrong to think that our cabinet is altogether unaware of the threat of peak oil. I have corresponded with one or two of them from time to time – but have been ignored. I seems to me just that they think in electoral cycles. This year is an election, but what John Key is unaware of is that the impact of peak oil is about to move to centre stage during the next electoral cycle.
My calculations tell me that the world will be in severe crash mode by mid 2012 or else oil prices for Brent will be around USD150/bbl or higher by July 2012.
The WTI price – presently depressed by the quantity of stranded crude at Cushing – is acting as a net dis-incentive to exploration and oil sands development in North America. But all-in-all we will probably have a dire situation in supply next Northern summer. Forecasts of growth are quite speculative. The relationship between Brent and WTI prices is an early warning of major trouble to come. Traditional allegiances between suppliers and customers is changing. Oil in North America that is higher quality than the Brent spec. is selling for USD26/bbl less today. Chris Huhne in the UK government is very aware of the problem of peak oil but while he and his European peers are extremely worried, they have no solution and daily bemoan their growing reliance on Russia. It will not be just price that determines who will get oil from 2012 onwards, but also who has right of access to what is available.
Your paper focuses on the financial impact of limitations to growth from the plateau in supply. But I am also aware of the way the Fukushima fallout is affecting the world nuclear power supply – to the tune of almost 50 reactors affected.
I am aware of most of the lines of research into technological fixes for our oil addiction. Regretfully our salvation won’t come before there are significant reductions in the rate of global oil supplies.
So please continue to do what you can to alert the mainstream media to the looming danger.
Please also publish more about the looming disaster that is global banking and derivatives. There is far too little written about the degree to which the banks have leveraged their involvement in derivatives and commodity futures without collateral. It isn’t just the fact of the way derivatives are unregulated or uncollateralised that would cause contagion in the event of – say – a Greek default. It is also the way banks have been allowed (in a number of jurisdictions) to hold poor quality assets at overstated values in their balance sheets. The BIS stats need explanation for the public and the world’s governments to understand how the banking frauds have been perpetrated.
Frankly, it seems hard to pick which will happen first...financial crash, or primary pricing impacts from post peak oil scarcity L.
Meantime thanks again for your public comments on these subjects. You are providing an essential advocacy.
Kind regards
ei
Good letter, EROEI is an awesome phenonmenon, corn biofuel has an EROEI of 1 LOL. So a farm could theoreticaly make an infinite amout of it and never have any to sell. The looming disaster in the finance sector will be downplayed until we get smacked in the face with it, so will peak oil, and BB's retirement. Interesting times. I beleive the answer is not how can I profit from this, but how can we build a better system after this all collapses.
"Unending strong growth in the developed world cannot be sustained. There isn't enough oil, young workers and technical innovation to sustain it."
Good point Bernard, however, I would say that unending (physical) growth - be it production, consumption, population, infrastructure etc - cannot be sustained on a finite planet full stop! Any attempt to sustain the unsustainable will only impoverish future generations in the long run.
We need to work towards a stable and sustainable population, an economy that does not require physical growth at all costs and concentrate on quality of life for ourselves and future generations.
"Unending strong growth in the developed world cannot be sustained. There isn't enough oil, young workers and technical innovation to sustain it."
Good point Bernard, however, I would say that unending (physical) growth - be it production, consumption, population, infrastructure etc - cannot be sustained on a finite planet full stop! Any attempt to sustain the unsustainable will only impoverish future generations in the long run.
We need to work towards a stable and sustainable population, an economy that does not require physical growth at all costs and concentrate on quality of life for ourselves and future generations.
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