#76. The point of no returns


Bonds trading at negative yields now equate to almost half of all Western sovereign debt. Government bonds, offering both safety and a reliable income, have traditionally been the bedrock of pension systems, so the elimination of returns is destroying the provision of pensions across the world.

In Britain alone, pension scheme deficits are reported to have reached almost 50% of GDP after the latest knee-jerk cut in policy interest rates.

The destruction of pension provision is just one example of how reckless monetary policy is undermining the real economy. By keeping otherwise-failed businesses afloat, monetary largesse has undermined the essential “creative destruction” required to free up both market share and capital for new entrants. Markets are no longer able to put a price on risk.

Markets distorted by reckless polices are no longer capable of meeting the business investor’s key needs, which are to weigh risk and return.

Making an epic disaster

A couple of years ago, I was contacted from Hollywood with a somewhat unusual request – a scriptwriter was looking for help with the plot of a disaster-movie on the theme of economic catastrophe. I was on holiday at the time, and I don’t know if my cursory thoughts helped him.

But I realise now that no flights of imagination were necessary – all he needed to do was watch the conduct of the economy under today’s powers-that-be, and then extrapolate into a not-very-distant future.

After this beginning, you might expect me to remind you that an addiction to debt, and to countering the dangers of excessive indebtedness with cheap money, have turned the global financial system into a gigantic Ponzi scheme which is destined to end as all such schemes do. You might expect me to point out the consequences of deliberately-induced hyperinflation in asset markets.

I’m not, though, because readers know all this. It is surely obvious that the financial system is heading for policy-induced disaster. It is equally obvious that potential crash-triggers are proliferating across the system.

Instead, my focus here is on the consequences for the real economy of the grotesque mismanagement of the financial system. The mad magicians of monetary policy, not content with trashing their own financial bailiwick, are wreaking havoc in the real economy of goods and services as well. A string of mechanisms, vital to the functioning of the real economy, are being destroyed.

Killing the future

Here are two striking figures which illustrate the consequences of monetary madness. First, and according to the Financial Times, the $12.6 trillion of bonds now trading at negative yields equate to almost half of all Western sovereign debt. This sovereign debt is the bedrock of private (including employer) pension schemes around the world, because pension schemes require both the security provided by government debt, and the regular and predictable income received from fixed-income investments.

Amplifying this point, one consequence of the Bank of England’s latest (and surely unnecessary) rate cut has been to increase the deficit in British private pension provision to £945bn (which, incidentally, is about 50% of GDP).

Both of these numbers are gigantic. If half of all sovereign debt delivers negative returns, pension provision right across the West is no longer viable. The British private pensions deficit is in addition to a shortfall, generally put at about £1,000bn, in unfunded public employee pension provision. In theory – though the practice might be problematic – the taxpayers of the future are likely to be bled white just to keep the pension promises that governments have made to their employees. This may or may not be possible, but it surely rules out any taxpayer bail-out of private pension provision.

The British pensions issue is part of a broader national malaise which is looking increasingly existential. A forthcoming article will explain why, in my analysis, the British economy as a whole is looking increasingly unsustainable. Here, I focus on the global (or, at least, the pan-Western) consequences of monetary madness. One of these consequences is the destruction of our ability to provide for old age.

We are not simply dismantling the system of pension provision, which is bad enough in itself. Even worse, policy madness is stealing the future security in which millions of people have already invested.

The point of no returns

This problem is a wholly logical, direct and entirely predictable consequence of “low or no” interest rate policies. Interest rates determine the returns that investors make on fixed-income instruments. Pension schemes rely on these returns to meet future pay-out requirements. So “no returns” means “no pay-outs”. Well done, policymakers – you have just destroyed the futures of millions of people.

Some of this was already pretty obvious. For a start, annuity rates collapsed when rates were first slashed in 2008-09, and monetary policy has been destroying savers’ wealth ever since. But only now are the full implications for pension provision emerging.

Obviously, if someone buys a bond yielding 5%, his return is pretty much 5%, plus or minus any capital gain or loss that he makes on the principal. So a 0.5% yield equates to a 0.5% return – and you cannot run a pension system on that. A zero yield means a zero return, putting the final nail into the lid of the pensions coffin. A negative yield means that capital is being cannibalised.

Adios, pensions.

Of course, an investor in a nil- or negative-return instrument can still make a profit, but he can only do so on the basis of “greater fool” theory. This says that buying something overvalued can be profitable if you can sell it on to someone else (the “greater fool”) at an even more overvalued price. Buying a bond yielding -0.1% can be profitable, then, if you can sell it on to someone else at a yield of -0.5%.

This profit, however, is purely fortuitous, and is not the same thing as a return. It is not a reliable, predictable and continuing return on investment, on which stable pay-outs can be based. Rather, it is a purely incidental gain delivered by the continuity of policy excess.

Forgive me if I seem to be labouring the point, but we do need to be clear about this. If a pension fund (or any other investor, for that matter) is deprived of returns, it cannot meet a requirement for income. The ability to make a capital gain depends entirely on the indefinite continuity – indeed, implicitly the acceleration – of monetary looseness. This distinction between investment returns and investment profits is absolutely critical to what is happening.

Investors? Kindly get lost

Destruction of future pension provision around the world is only one aspect of the massive real-economy distortions being introduced by the mad monetary magi whose only answer to every challenge is to pour in more liquidity.

For a start, this policy is making rational investment impossible. Just like pension funds, both financial and industrial investors need returns, and they need at least some visibility on future returns. This they do not have in a situation of induced hyperinflation in asset-markets. They know that capital put into existing paper assets will continue to escalate in nominal value for as long as the one-trick ponies control the monetary system. They cannot predict the date of the eventual implosion, even if they are aware that this must happen. Critically, though, they cannot project returns on investment in new business ventures either.

One reason why they cannot do this is that monetary madness has undermined “creative destruction”. In the normal course of events, over-leveraged, out-dated or simply badly-run businesses go bust, which both creates space and frees up capital for new entrants. This isn’t happening, because ultra-cheap money keeps throwing lifelines to businesses which, under normal conditions, would have failed.

In this sense, the monetary authorities have created a gigantic welfare system for the world’s worst-run businesses. Like any welfare system, somebody has to pay for it, the “somebody” in this instance being both the owners of viable businesses and the would-be entrepreneurs who should be creating the next generation of enterprises.

A market which cannot supply returns, and which keeps failed businesses in being, obviously cannot fulfil its required function of putting a price on risk. The investor’s main objective, which is weigh risk against potential return, is thus stymied on both sides of the equation. He cannot realistically anticipate returns in an environment in which returns have virtually ceased to exist – and he cannot calculate risk in markets which have priced risk down virtually to zero.

On top of this, the investor might well wonder what happens when the ageing demographic collides with the inability to provide retirement income. Of course, people denied retirement incomes may well have to stay in work for longer – but all this is likely to do is to put further downwards pressure on productivity, especially in the feeblest economies.

The final question (for now)

Since we have seen how lethally destructive the central banks’ addiction to ultra-cheap money has become, one question remains. Why are they doing this?

(Or perhaps there is a second question – are these people complete idiots?)

Beyond following a momentum that they themselves have created, central bankers seem to be behaving in this nihilistic way for three main reasons.

First, they are trying to help the financial system cope with a global debt mountain that has become far too big even to service, let alone ever repay. They are doing this because they are – probably wrongly – more fearful of a one-off cascade of defaults than they are of the on-going destruction of the value of money.

Second, they really believe that stimulus can shock the world’s real economy back into sustainable growth. No amount of evidence or logic, it seems, can cure them of this delusion.

Third, they are delivering monetary stimulus – the only weapon in their arsenal – because the alternative of fiscal stimulus is not being provided by global policymakers. The explanations for this inaction by governments are, first, that they entered the post-2008 world with fiscal deficits that were already gigantic and, second, that politicians have largely abdicated from the economic arena, dropping the whole mess into the laps of central bankers.


Though I regard central bankers and their associated cheerleaders as “the mad magi” of monetary largesse, it is pretty clear that they are acting as they are as much out of lack of alternatives as out of an ideological commitment to recklessness.

The reasons for this madness, however, are secondary to its consequences. For so long as this recklessness continues, people will be robbed of the ability to provide for retirement, whilst the economy will be undermined by the inability of investors to project returns and put a price on risk.

On the capital side, we are caught between Scylla and Charybdis or, in the modern idiom, between a rock and a hard place. If asset market hyperinflation continues, it will inflict ever greater damage on an economy already trying to function with a concept of returns, without the vital pricing of risk, and without critically-important “creative destruction”.

If (meaning when), on the other hand, asset market hyperinflation ceases, it will crash the system in a tidal-wave of defaults.

Pension savers in particular, most of whom have yet to realise that their futures have been stolen, desperately need the restoration of returns – and so does the broader economy.



30 thoughts on “#76. The point of no returns

  1. Hi Tim, thanks for yet another wonderful article.

    If you look at the central bankers behaviour with a psychologists eye it does begin to make sense well, maybe explained. There’s cognitive dissonance right there! They’ll carry on with their bonkers behaviour to the end and beyond because not to do so would destroy their private logic, their view of the world. And in the meantime BHS and British Steel pensioners find the numbers no longer add up (not that they ever could – twice as many pensioners as workers in BHS case). The dots aren’t connected because we all need to believe these guys know what they’re doing. So, we’re just as bonkers too.
    I confess, I have a morbid fascination with the whole debacle. It was telling that after Carney’s latest missive he took questions and was asked directly about pensioners and savers. I’m sure he felt he answered but…….. nope, nothing!

    Oh, and thanks for ‘bailiwick’ what a wonderful word and entirely new to me.

    Regards Nigel

  2. Hi Tim

    Thanks for yet another great article.

    In the section “The Final Question” I do wonder whether you are right.

    Let’s face it the amount of non mainstream opinion, particularly on the internet, is now huge and many people now think as we do about this whole situation and its complete unsustainability. Given that I’m not inclined to dismiss someone who might say that this idiotic policy is quite deliberate. The central banks, and governments, are, as you say, between a rock and a hard place and this is why we get endless and idiotic excuses from the Fed as to why they delay raising rates; it’s really becoming almost comical.

    My question is: are they doubling down on idiocy in order to precipitate a crash as the basis for forcing through policies which will require sacrifices from the plebs? They cannot ask for sacrifices under normal circumstances because the peasants might indeed revolt but in a crisis people are far more willing to bend. This is the most sensible route given the need to preserve the existing power structure in society.

    In some ways TPTB are lucky because the depredations have boosted visible assets such as real estate but have trashed the invisible elements such as pensions. How many fifty year olds would be celebrating a low mortgage payment if they knew how much income their pension fund would now buy?

    Although a crisis may be inevitable in some ways it might actually be perceived as necessary.

    • I tend to find the “cock-up theory of history” more convincing than the “conspiracy theory” and, looking at the people in charge, the simple idiocy of following etablished formulae seems persuasive. Whatever the reason, they are surely fooling people with the “feel-good factor” of inflated asset values. The only people to whom a country’s housing stock can be sold are the same people who already own it, so its aggregate value is purely notional. The destruction of pensions, however, is all too real.

      In the British instance, I don’t know whether they are inviting a crisis or not – but they are certainly going to get one. The current account deficit is now 7% of GDP, which must be funded by foreign investors or lenders. Those foreigners who have lent or invested in GBP are now suffering big forex losses – and didn’t need the BoE’s latest (and pointless) rate cut as another kick in the teeth.

  3. The global – especially western – economy cannot expand due to shrinking global net energy per person and technology does not move fast enough to ease the problem. (on Our Finite World I will make a link to your article)

    • Thank you, Niels. You are right about growth – and, unfortunately, we are trying to use the financial system as a massive exercise in denial.

  4. Pingback: The Point of No Return | NEWS FROM THE FUTURE

  5. Tim, what do you mean by “Sovereign debt’? Surely not “Government debt” which is the sum of treasury securities held at the Central bank. As you must know your savings account at a commercial bank is a bank debt/ liability. But it’s wealth to you. Government debt is wealth to the investors who purchased the bonds. The big thing is that a monetary sovereign government does not spend or use that money. It has zero need for it. So repaying the debt is just a simple adjustment to the accounts crediting back the bond sum to the investors. So that $20Trillion in the US fed, is simply misinterpreted as a debt the government has to find money to repay, and that is false.

  6. Why are they doing this?

    Surely you know the reason Tim. No need to sugar coat the situation.

    They are of course doing this because we are out of cheap oil.

    The economy cannot grow when oil is priced anywhere near the level required for producers to break even (over $100 per barrel for most).

    So when oil started to rise off a low of $12 in 1998 and busted through $35 just after the turn of the century — the central banks were left with 2 choices:

    1. Stand by and watch increasingly expensive oil destroy growth — resulting in a deflationary death spiral — and the near term collapse of civilization.


    2. They could do ‘whatever it takes’ to fend off the deflationary pressure of expensive oil in order to keep civilization alive for as long as possible.

    They very obviously opted for door number 2. As is obvious — they are doing whatever it takes — printing trillions of dollars – ZIRP – NIRP – bail outs — making hundreds of billions of dollars available to failing corporations for buy backs – subprime everything etc etc etc…

    They are not stupid. Absolutely not.

    What they are is desperate. Beyond desperate. They understand what we are up against here.

    So what the pensioners don’t get paid and have to eat cat food for dinner.

    When these policies push on a string — cat food will sound pretty darn appetizing when collapse hits — and the grocery stores are emptied – forever.

    • As you will know, my own thesis – and what my book is really all about – is that the rising cost of energy has put an end to growth. My projections show plateau economic output for a few years, followed by decline.

      Of course, figures can be manipulated to disguise this, but it will become (or is becoming) obvious in an increasing number of ways. One of these “markers” has been evident for about a decade now – the cost of essentials has risen faster than incomes.

      Pension provision is another such “marker”.

      Historically, only prosperous societies could afford pension provision. Primitive – or really wiser? – societies provided for their elderly in social support ways, which might be equated to charity, but only a prosperous society can afford a systematic, codified and often quite generous pension system. So the fact that our society increasingly can not afford this any longer is a post-growth marker.

      Monetary manipulation is an exercise in denial, but it is also an exercise in entrenching inequality – because, to benefit from increased asset values, you have to have assets in the first place. So, with property, those who own it benefit from price rises, but those who do not own it lose out through, for example, escalating rents.

      What we are going through now can be compared with an agrarian society experiencing a succession of bad harvests (except, of course, that eventually good harvests would return). In bad harvest periods, the authorities seek to defend their wealth and privileges, by pushing the consequences of bad harvests on to “ordinary people”.

      It’s natural that they should try it – but it has seldom, if ever, been successful.

    • Let’s attack this from another angle.

      Let’s imagine what would have happened if interest rates had not been reduced to ZIRP… and increasingly NIRP.

      Let’s say US debt remained at 5%… which it was prior to 2008.

      Might I suggest that growth would have completely collapsed… even the largest of companies would have collapsed… in fact the entire economy would have collapsed…

      And of course pension funds would have vapourized.

      At the end of the day central bankers are not idiots. They would have met to discuss and weight the options.

      They most definitely made the right choices. They have bought us 8 years and counting.

      Truly magnificent. Too bad they cannot come out from behind the curtain .. explain why they did what they did (and are doing)…. and instead of being pilloried (by the likes of Zero Hedge, Paul Craig Roberts, Zero Hedge, Wolfstreet etc…) accept a thunderous round of applause… (which of course would be followed by epic despair…)

      Remember what Bernanke said when he stepped down – to the effect: I know many people hate me for what I have done — but when they realize the reasons – they will understand – and they will be thankful.

      That’s as close as we are going to get to an admission that the end of days are at hand — and that the central banks are blowing up the castle — in order to buy a little more time before the starvation, disease, and violence begin….

    • Let me respond with two thoughts. First, we need to distinguish between the real and the financial economies. The real economy, as my book explains, has gone ex-growth, and I see it as on a plateau now, with gradual (but, for mankind, shockingly unaccustomed) decline set to follow. We can cope with that, and quite possibly stabilise the situation at a lower level.

      But doing so will have to mean fundamental changes in attitude, with consumerism a thing of the past, and currently-accepted levels of inequality no longer acceptable.

      The point is that, if this is reality, manipulating the financial economy cannot change it.

      Second, there is the matter of leverage. If Dutch tulip investors, those who bought South Sea stock and so on had confined themselves to staking and losing just their own money, no great harm would have been done – and the bubble and the bust would both have been much smaller. It is the use of debt to create leverage which always makes these things so much worse.

    • “We can cope with that, and quite possibly stabilise the situation at a lower level”

      Can you explain what this ‘lower level’ situation looks like.

      Is it a primitive civilization — or is it a civilization similar to what we have now (cars, iphones, oil, etc…) but with some level of austerity — otherwise referred to as BAU Lite.

    • The “lower level” situation is one where the decline in EROEI is arrested by renewables. So EROEI does not collapse to zero – but neither does it regain the historically much higher levels enjoyed when fossil fuels really were both abundandant and energy-cheap.

      The implication is that the economy continues, but at levels of prosperity well below those enjoyed, unsustainably, in the “golden age” of cheap oil.

    • Tim – Renewables — economy continuing at lower levels of prosperity????

      This is absolutely not possible.

      You really should drop into Finite World for a dose of reality.

    • I can’t reply to Thomas Malthus’ (Fast Eddy’s) response below so I’ll do it here instead. I’d assume that the low level economy would look something like Edo Japan – i.e. forests are the fuel. Would that work? Well, yes, because it did for roughly 200 years. I suppose the better question is whether the forests themselves will survive the energy contraction? That depends on population mobility – in a world without oil travel shuts down rather rapidly so people’s attempts to relocate become ‘problematic’, especially to remote locations. Their ability to fell trees even more so. Given that the whole logging industry is incredibly industrialised a collapse in industry greatly slows down the process – regardless of our desire to burn everything in sight.

      One of the reasons that oil doesn’t enter popular conversation is that we don’t see it. If oilfield depletion rates were visible to our eyes the story would have entered the public sphere decades ago. The fact that it all happens underground in a land far from our own hasn’t conferred the imminence of this existential threat. Forest depletion wouldn’t be afforded the same ‘luxury’. Now I’m not suggesting that forests can support 7.5 billion people, but they can support a number greater than zero.

    • 1. Spent fuel ponds – no BAU – no way to manage them

      A typical 1 GWe PWR core contains about 80 t fuels. Each year about one third of the core fuel is discharged into the pool. A pool with 15 year storage capacity will hold about 400 t spent fuel. To estimate the Cs-137 inventory in the pool, for example, we assume the Cs137 inventory at shutdown is about 0.1 MCi/tU with a burn-up of 50,000 MWt-day/tU, thus the pool with 400 t of ten year old SNF would hold about 33 MCi Cs-137. [7]

      2. EDO is impossible – because we have destroyed nearly 100% of the earth’s arable land using petro-chemical fertilzers – they will grow no crops

      https://agenda.weforum.org/wp-content/uploads/2015/08/agriculture3.png (note – most organic land in Australia is rubbish and supports sheep only)


      The end of BAU = Extinction. Guaranteed

    • Laetitia, Thomas:

      An interesting debate (and one that somehow puts me in mind of James Lovelock and Gaia…….)

      Thomas, I’m not altogether clear what Business As Usual (BAU) encompasses, because there are three parts to this:

      1. A political-financial elite that has cornered a disproprortionate share of global wealth for itself? Nothing new here, this is a repeating dynamic, where the elite either wises up, or gets kicked out.

      2. A financial system, a structure of money and credit superimposed on top of the “real” economy of goods and services? Ultimately, if the financial system collapses, the collateral damage would be enormous, but the real economy would still exist.

      3. An economic system, based areound consumerism and an imperative need for “growth”, but dependent ultimately on cheap and abundandant energy which is now eroding, taking the BAU economic system down with it?

      Assuming by BAU you mean 3 – and this is where Laetititia’s observations come in – transition to a post-consumerist economy, based on the smaller energy surplus that renewables can provide, may be feasible.

      Let me suggest two issues here. 1. Legacy from the consumerist economy. This legacy is both good and bad – good in terms of built structures, bad in terms of spent fuels, and land degraded by monoculture and addiction to artificial (energy-sourced) inputs. 2. Commercial systems – these are designed to run at or near full capacity – a development loses money unless c95% of apartments are sold, transport systems that lose money below c95% capacity, and so on.

      The legacy issues are difficult if we plan our post-BAU economy well in advance – but if we don’t plan well ahead, they are lethal. Supporting 7.5 billion (rising to 10 billion by 2050?) does look impossible post-BAU. Commercial systems will very probably collapse – finance first, then trade, then industry as we know it today – but could be replaced by systems more appropriate to a post-BAU economy.

      Food and population are the big issue. The implication (hinted at rather than spelled out) in my book is a smaller population post-BAU. Lovelock addresses this as part of his “sustainable retreat”.

      As I see it, population decline seems very likely, and is likely to be uneven. Some societies – with a climate unsuitable for solar, a population too big for home-based food supply, and dependent on food and energy imports – may well be toast. But others may adapt. The human world may contract into climate zones optimal for sustainable existence. In the transition, migration pressures could dwarf anything ever seen before.

      However you look at it, a post-BAU society is likely to be smaller (in every respect), but may be feasible – but only if we have planned for it.

    • I am referring to all 3.

      To touch on 1… when has there not been elites?

      I would argue that under the current elites – where power ultimately rests with the owners of the Federal reserve -a private company — things have never been better …. they have shared the wealth far and wide (at least mongst their followers who get a share of the spoils in the zero sum resource pillage) …. previously there were a few kings and aristocrats… and dire poverty for all others.

      Of course this was all made possible by cheap energy…. but give credit where credit is due …. a peasant these days has two tee vees and a car in the drive … and lays about watching American Idol while gobbling 241 pizza and coke….

      Let’s address:

      ” transition to a post-consumerist economy, based on the smaller energy surplus that renewables can provide, may be feasible”

      When you refer to renewables do you mean solar panels and wind?

      If so then how would we manufacture and repair these without BAU? We need mines and smelters and factories and ships — all of which require immense amounts of energy…. we need to make and repair the mining gear — the ships — the smelters – the factories etc etc etc….

      This means we need to keep the oil flowing — the financial system operating ….etc…

      Basically that is BAU. And BAU is going down – because we are out of cheap to produce oil….

      How does this problem get resolved by collapsing BAU?

      Now if we work out how to grow solar panels and batteries and the rest of the kit on trees… I might change my mind…

      Now if you are referring to lower energy levels from sustainable energy source such as trees…. I agree — that in theory – is feasible

      However I suggest you do a bit of research into what was happening to the planet’s forests in the 1800’s…. they were disappearing … burned up by blacksmiths to make tools and weapons… chopped and burned for heating and cooking …. and for building materials…

      Alas we did not create a global Easter Island because coal was harnessed…. so the demand for trees for charcoal abated….

      The population back then was a fraction of our 7.4 billion … one can imagine what 7.4b people would do to the forests when there is no other way to keep warm or cook food…. I see the Greeks have already been cutting down trees in parks for these purposes….

      Of course billions will die off…. but those who remain will have a taste of BAU — and they will not let their darling go so easily … they will not return to a primitive state…

      Rather they will continue where we left off pre coal — using the trees to try to rekindle BAU…

      And this time there will be no ‘saved by the bell’ — there will be no coal (btw coal pits fill with water quickly and need pumping systems… ) no oil — nothing.

      Only trees. Not for long of course.

    • I agree. We are only awaiting the whites of its eyes to suddenly know everyone has to come to terms with it. Right now we don’t treat it like our death. Death we know we cannot avoid, we are not yet there with our civilization’s demise, so we just try not to see.
      PS. Money will not be the tripping point. There will always be plenty of that, al least until the grid goes down and takes banking with it.

  7. Dr Tim Morgan,

    Thank you for another good post.

    You’re certainly right that we have now passed the point of no returns – and therefore that we are inevitably approaching the end-game of our monetary Ponzi scheme. A lot of us, however, have warned for several years that the global financial system had become a house of cards that was about to crumble, only to see it continue to hold until now. We may have underestimated the resilience of the existing system or the capacity of its various components to do “whatever it takes” to make it hold. There is so much political capital invested in this order of things that it will not go away quietly, and the economic and political power structures that rely on the permanence of this system will probably go to extremes to delay its collapse and maintain the pretense that it is still functioning. We all know how this is likely to end, we all know that the reckoning is getting closer with each passing day, but nobody can really predict when and how the unravelling will suddenly accelerate.

    As you rightly point out, the global monetary experiment conducted since 2008 undermines the ability of investors to project returns and put a price on risk. A consequence of this is that the capacity to pay retirement pensions in the Western world is being eroded – even if the scale of the problem will only become fully apparent over time. This “Great Deformation”, as David Stockman (former Director of the Office of Management and Budget under President Reagan) called it, actually started long before the Great Financial Crisis – and may even have played a role in causing it. Many therefore believe that ending this “monetary folly” will make it possible to “clean up” the system, terminate the “zombies” that keep polluting the economy, restore the healthy functioning of free markets, revive the critically-important “creative destruction” and hence make it possible to resume some form of self-sustaining “growth”. This is actually likely to be little more than a “great delusion”, based on the persistent belief that economic “growth” only depends on the supposedly unlimited extent of human ingenuity – that free markets stimulate and enable better than any other system. As your work and that of others have shown, the capacity of the global economy to “grow” is however constrained by a number of “biophysical” boundaries that over time tend to raise the acquisition costs, constrain the quantity and degrade the quality of the flows of energy and natural resources that can be delivered to the economic process. As we reach these “limits to growth”, the only way to maintain the pretense of normality is to keep accounting for “growth” what is, as you put it, little more than “the spending of borrowed money”. This debt-fuelled growth model has developed over several decades and has been instrumental in making possible everything we have come to consider as “normal” these days, i.e. globalisation, the tech boom and the transition of Western countries to a service-based economy, among others. This model however imploded in 2008-2009, and since then it has only been maintained on life support by the massive monetary stimulus conducted by the world’s major central banks, as well as by the massive and compounding asset bubbles that have been blown as a result in developed as well as emerging economies. In this perspective the “monetary folly” of the last few years is no “folly” at all, it is the perfectly rational conduct of a system that knows it has run its course but that, as any failing system, is primarily geared on survival and self-preservation.

    Of course, this course of action is unsustainable and self-defeating over the long term. Of course, it means that the system is now “rigged” and benefits only the few, while whole sections of the population slowly but inexorably fall down the economic and social ladder. However, ending this course of action and restoring “sound money” policies would probably not restore any healthy growth that would once again generate the kind of “opportunities” and “returns” that many in the West have come to expect and claim as their rightful due. What it would do for sure is to trigger a brutal deflation of the assets that underpin the entire global financial and economic system – maybe ruining some among the 1% but surely leaving only hardship and broken dreams for the 99%. At some point, this will happen anyway. One way or another, the world economy, or the stock of claims on wealth that we have come to account for as the world economy, will have to be “deflated”. One way or another, deflated it will be. The “monetary folly” of the last few years has delayed this process and has bought us all some time, more time than many would have thought. It has also, however, obscured the issues at stake, and therefore ensured that we would not do anything really constructive with this time. Given where we’re at now, it is inevitable that we will get more of this folly over the next few years rather than less. What it means for pensioners and future pensioners is that yes, they will see their retirement pensions progressively vanish. In Western societies, retirement pensions have come to be seen as some sort of basic human right, but they will likely end up being seen as what they in fact are: a “privilege” that only societies that benefit from a significant wealth surplus can afford to hand out – and that will go as the wealth surplus goes.

    All the best,

    Paul Arbair

    • The real problem could be quite different.

      What if:
      *A source of plentiful and almost infinite energy was mastered e.g. Nuclear Fusion
      *Equally, any element and compound could be created in any required quantity with ease
      *Robots did all manual work
      *We mastered the ability to repair the planet
      *We mastered space travel

      There would plentiful food, water, shelter and clean air for all humanity. There would be almost no need for people to work. No need for war over resources (e.g. oil) as everything would be plentiful.

      Where would that leave those in charge then?

      In trouble, I expect. How would they control the masses under such conditions?

    • I agree.

      Marx would be right; just a little delayed. Which is the most cogent reason why we’ll never get there!

    • No – it would just lead to greater global population … just as the harnessing of fossil fuels did… and we’d just burn out the planet faster…

    • The link between population and energy availability is incontrovertible, and is discussed in my book. In the book I identify a set of interlinked exponental series, including population, economic output and energy consumption.

      I further identify energy as the “master exponential” – meaning that, if energy turns down, the others (including population and economic output) will come down with it. Adjusting the economy downwards could be traumatic – adjusting population downwards would surely be brutal.

      P.S. There is a version of that chart in the book, except that population is set against fossil fuels rather than just oil.

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