In a hole

Stagnation, default or inflation await. The only way out is growth

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WT Economist

The Economist hasn't tackled the generational aspect of this. Once generation, Generation Greed, has run the debt up, but it doesn't want to give anything back. It wants to impose austerity on the next generation. You see this across all public policies here in the U.S.

It also hasn't probed the reason why Generation Greed is what it is. Why did this happen?

Consider that in response to the Great Depression, with its problem of inadequate demand, the U.S. has a number of policies to encourage spending up until 1980. All consumer interest, including credit card interest, was tax deductible, and all returns on savings were heavily taxed.

The Reagan Administration worried about the need for more "savings and investment," and changed the tax code to encourage it. Tax breaks for consumer borrowing, other than (sometimes) student loans and home mortgages, was eliminated. The full range of tax breaks for middle class savings -- IRA, 401K, 529, etc. -- was created. And yet, at the same time as encouraging Americans to save for their own future, the Reagan Administration sought popularity by selling out of collective future, via government debts.

It seems to me that culture is was matters. It was a culture of selling the future that got responsible Jimmy Carter replaced by irresponsible Ronald Reagan in 1980, got Reagan re-elected, got more responsible George Bush I ousted, and less responsible George Bush II re-elected. The same irresponsibility was played out in statehouses and city halls, boardrooms and kitchen tables. It was a social tsunami.

Make Generation Greed pay for it now. Not my children later.


More unsustainable growth propaganda.

The flip side of that growth is that we are overfishing, overgrazing leading to desertification, depleting industrial resources: oil, coal, natural gas, metals, uranium, etc., depleting natural resources: forests, fresh water, clean air, etc., clear cutting rainforests, killing marshlands, creating growing dead zones in the ocean, changing the climate, killing 10,000 plant and animal species a year, draining aquifers that were legacies from the last ice age for agricultural purposes, poisoning topsoil and groundwater with artificial phosphorous-based fertilizers, creating "wealth" through increasingly exotic means (derivatives, speculation, etc.) because there is less and less real wealth to go around, all while the planet's population grows from 7 billion today to 9.5-11 billion by 2050, all of whom aspire to hop on the ponzi scheme of modern capitalism, which is based on unsustainable consumption by ever-increasing numbers of people at ever-increasing rates, or "growth" as you say.

Ever going to address this side of the equation?

It took me a while to realize that the great flaw in modern economics is that it doesn't take into account where basic resource inputs come from, the true cost of exploiting them, and how they can be sustained. The "free market" simply provides them, and always will. It's like coming home each night and expecting that dinner will be made without ever wondering how much food is left in the freezer.


The Economist is still peddling unsustainable exponential economic growth as a way forward.

Presumeably this means we are able to double our GDP every 25 years (growth of 2.5 - 3.0%) on a world with finite resources as a global population moves towards 9 billion.

After a 100 years this makes our GDP 16 times larger, after 200 years 256 times.........


At the very least if economies are not able to grow, debt interest is not affordable - so a part default on the total debt is certain.

Commercial banks loan into existance (out of thin air) nearly all the money supply with interest. Wouldn't it be better if commercial banks were precluded from doing this (leveraged fractional banking is after all a Ponzi scheme) and the Bank of England instead given the task of creating it and to then give that to Government debt free to spend into circulation. Surely this would be more equitable to all.


As the subtitle of this article suggests "the only way out is growth." However, i can not see any kind of sustainable economic growth (without government stimulus) coming anytime soon. The reason for this is the rising price of oil (and therefore energy) which will hamper the growth, and is due to an inability to extend our supplies much further.

We might have another 5 MB/d of capacity, however I do not believe the Saudi Arabian numbers. When Aramco was still a US company a report to the senat showed their reserves to be roughly 110b barrel. One year later the company was nationalized and suddenly the reserves jumped to 160b barrel, without any significant new finds, and when OPEC introduced its quotas based on reserves in the 1980s the reserves of Aramco jumped again – to 260b barrels. They remain there until today, despite 3-4b barrels of exports each year. Is it me or is that unlikely? Also i would contradict the statement, that unconventional sources – such as tar sands in Alberta – can compensate for any shortfall of production in the persian gulf for years to come. All of the the oil produced there atm is extracted from Sands on the surface, while the vast majority lies below 80 meters of soil. Extracting those will be much more expensive.

Based on this I would also contradict the statement, that in the future the US might be able to service their debt better than the Europeans. While the point of population in the US still being in a growth period is certainly true, I would argue that the whole US-society is much more dependent on cheap oil, and will therefore suffer more from rising prices.


..... interest on debt requires exponential economic growth. Growth is therefore not able to solve this problem.

The world needs to get rid of debt by removing interest on debt and explore sustainable steady state models (or other alternatives) for mature economies whilst emerging economies are left to grow in a sustainable way.


A free market Stalin? You make it sound so terrible.

Somebody perhaps more benevolent and certainly cleverer shouldn't be quite as scary. Giving somebody like Ben Bernanke more autonomy and independence doesn't mean people starving or being disappeared to Gulags in Alaska.

Government is like cake. Baking a cake too much liquid or too much flour are a disaster. In government either too much democracy or concentration of power are problematic. The secret is in the balance. A century ago the idea of an independent central bank was revolutionary. Now the consensus is that keeping monetary policy removed from democratic pressures is a good thing - even if this is actually "undemocratic." A similarly removed technocratic management of economic policy could be a similarly positive innovation.

Project Syndicate

"One way of eliminating those barriers would be to set up some sort of global federal government", hopefully this won't happen. This article: , basically shows how difficult it is to have one currency for many nations. The idea may sound nice at first, but when one area falls, it is hard for the people to move to another country that is not feeling an economic downfall. Imagine if we had one world currency and a whole continent fails? Where would all those people go? It would be hard to move for reasons explained in the link I posted such as language and citizenship.



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