[ExI] Energy and Henson's forecast
pharos at gmail.com
Mon Nov 30 17:38:27 UTC 2009
On 11/29/09, Lee Corbin wrote:
> I would say, BillK, that the government *can't* end the depression.
> Only wealth creation---not phony, but real wealth creation---and
> real employment (not fake jobs) can do that.
A good (long) article here explaining how the depression cannot end
until the the level of debt has been brought down. That's what
depressions do - pay off debts.
With such ignorance about the dynamics of debt, academic economists
and Central Banks around the world are hoping that the crisis is
behind them, even though the cause of it–excessive levels of private
debt–has not been addressed. They are recommending winding back the
government stimulus packages in the belief that the economy can now
return to normal after the disturbance of the GFC.
In fact “normal” for the last half century has been an unsustainable
growth in debt, which has finally reached an apogee from which it will
fall. As it falls–by an unwillingness to lend by bankers and to borrow
by businesses and households, by deliberate debt reductions, by
default and bankruptcy–aggregate demand will be reduced well below
aggregate supply. The economy will therefore falter–and only regular
government stimuli will revive it.
This however will be a Zombie Capitalism: the private sector’s
reductions in debt will counter the public sector’s attempts to
stimulate the economy via debt-financed spending. Growth, if it
occurs, will not be sufficiently high to prevent growing unemployment,
and growth is likely to evaporate as soon as stimulus packages are
The only sensible course is to reduce the debt levels. As Michael
Hudson argues, a simple dynamic is now being played out: debts that
cannot be repaid, won’t be repaid. The only thing we have to do is
work out how that should occur.
Since the lending was irresponsibly extended by the financial sector
to support Ponzi Schemes in shares and real estate, it is the lenders
rather than the borrowers who should feel the pain–which is the exact
opposite of the bailout mentality that dominates governments around
Unfortunately, it will take a sustained period of failures by
conventional policy before unconventional policies, like deliberate
debt reduction, will gain political traction. Implementing them will
require both a dramatic change of mindset and probably also a
widespread changing of the political guard.
The second decade of the 21st century promises to be a dramatic one,
politically and economically.
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