THE TRIUMPH OF HOPE OVER REALITY
I’m a cheerful person – really, I am – and with the sun shining on a shimmering sea outside my window, who wouldn’t be? But there’s a big difference between reasonable optimism and outright delusion, and the latter, it seems, has been taking a big hold over many of those whose job it is to forecast our economic weather.
This week, we’ve seen a pretty upbeat set of forecasts from the IMF (the International Monetary Fund), which has predicted that growth in world GDP (measured in international dollars at PPP rates of conversion) will improve this year, from 3.1% to 3.46%, rising steadily thereafter, to 3.7% by 2019, and nearer 3.8% by 2022. This seems to have reinforced an optimism percolating through the forecasting community, with some even opining that we may be approaching a nirvana known as “take-off velocity”.
In fact, and if the IMF is right, global economic output will be 24% bigger in 2022 than it was in 2016. To find a six-year growth record as good as this, you have to go back to the period from 2002 to 2008, when world GDP grew by 29%, and that ended well, didn’t it?
Oh.
The trouble with “take-off velocity”, you see, is that, if the aeroplane is carrying too much weight, it can fly straight into a brick wall. “Weight”, in this context, means debt. The SEEDS database shows that the 29% growth achieved between 2002 and 2008, whilst adding $21.5 trillion to GDP, was accompanied by $44.7tn in net new borrowing. In other words, world debt grew by twice as much as GDP (if you’re a stickler for detail, the ratio was 2.09:1).
This couldn’t happen again, could it? Surely we’ve learned from the shock effect of the 2008 global financial crisis (GFC), haven’t we?
Well, no.
In 2016, global GDP grew by 3.4%, adding $3.9tn to GDP. Where debt is concerned, we do not yet have comprehensive data for the whole of the year, but we do know that world debt increased by over $11.4tn in the first three quarters of 2016.
In that nine-month period, governments borrowed more than $5.5tn, households $2.3tn, and non-financial businesses $3.5tn. That stacks up to $3.90 of borrowing for each $1 of reported growth, even if we assume that prudence reigned supreme, such that nobody borrowed at all in the three months running up to Christmas.
To be sure, we cannot make a one-for-one comparison between borrowing and growth. But we do know that a lot of this credit expansion went into consumption expenditures, not least because that’s what governments spend most of their money on. The calculations made by SEEDS suggest that, stripped of the spending of borrowed money, reported growth of 3.4% falls to an underlying level of just 1.2% – and even that probably makes some pretty generous judgments on the validity of a very big pile of borrowing.
Nor is that all – because debt is not the only hostage that current practices are handing to posterity. Debt, though it adds to the burdens of futurity, can at least be managed, if we let inflation accelerate, essentially bilking lenders by paying them back in devalued money.
This cannot work with other forms of futurity, most obviously pensions, where the same inflation that devalues debt simultaneously increases the burden of future payments, not just of pension commitments but also of welfare. It should come as no surprise whatsoever that pension deficits are continuing to widen alarmingly.
In short, claims that we are nearing “take off velocity” should be taken with a huge pinch of salt.
Indeed, we’d do better to steer very well clear of any kind of take-off – until the pilots on the flight-deck of the world economic aeroplane have sobered up.
Surplus Energy Economics 
It makes me laugh how The Powers That Be (TPTB) have been screaming hysterically lately about ‘fake news’. If TPTB are to be believed, there are all sorts of bad organisations and people out there determined to have us believe abject nonsense.
Meantime, TPTB – in this case the International Monetary Fund – squirts out the mother-of-all fake news and we’re supposed to be taken in by it.
Thank goodness for people like you Tim who are happy to devote time and energy to challenging TPTB – and thanks too for the internet itself which gives 3 billion human beings the chance to learn about and take part in challenging TPTB.
As you know, I do the same over at my blog, albeit on different subjects. As a Libertarian myself, I’m relishing the chaos being inflicted on the political and economic Establishments these days by the power of omnipresent information. Long may it continue!
And on the specific matter economics and the trajectory of our western developed world’s way of life, I couldn’t help noticing that even the BBC is now taking an interest in societal collapse: http://tinyurl.com/k4h5c6f
Thanks MM. I recently indulged myself with a CD of Noel Coward, and in “There are bad times just around the corner” he sings that “the rats are preparing to leave the BBC” – thanks for the link!
You’re right, of course. This story just cried out to be debunked, and the debt figures (which anyone can download from the BIS) are extremely striking.
At the moment I’m writing a guide to surplus energy economics, necessarily rather dry, but some things (like borrowed growth and mortgaging the future) seem both remarkably obvious and remarkably dangerous. We could, in theory, inflate away historic debt – but we cannot do the same to pension liabilities, which are now ballooning.
I have just been reading in the FT that some for-profit colleges in the US “receive federal subsidies but typically spend a minuscule part of their budgets on instruction; in the US, nearly 50 per cent goes on marketing to new students. It looks all too much like an educational Ponzi scheme.”
The point is that, to finance this kind of cr£p, a huge student debt bubble is growing rapidly – this is surely madness.
https://www.ft.com/content/a272ee4c-1b83-11e7-bcac-6d03d067f81f
P.S. I’m familiar with Thomas Homer Dixon – and I think he links the collapse of Rome with a slump in EROEI.
I’ve considered writing an article on whether Western civilization faces collapse (or indeed simple enfeeblement and irrelevance) but have so far baulked at doing it.
As the BBC article observes, this threat is happening sooner than even pessimists might have supposed – I don’t see Trump, Brexit etc as aberrations, but as evidence of stresses that are shaking the public out of their customary, comfortable torpor – and it takes a lot to do that!
I take it you’re familiar with Joseph Tainter’s seminal work, ‘The Collapse of Complex Societies’? Worth a read, for sure …
Tim, What’s the data that says governments borrowed $5.5 Trillion? As you should know Federal governments have no need to borrow their own currency,[ but that doesn’t stop them from doing so]
State and Euro governments will have to borrow as they don’t own their own money.
ejhr2015: That last point is indeed the rub. In the US, the currency has been turned over to the Federal Reserve which is an umbrella organization for the country’s important banks. In other words, the banks own the currency, not the government. In the US, it would take a constitutional amendment (2/3 majority in both house and senate and ratified by 3/4 of the states) to wrest control of the currency back from the banks. Given that the Congress is now a wholly-owned subsidiary of the banks, this just ain’t gonna happen. Ever.
What this means, of course, is that the US will continue to have a monetary system based on usury — a logical impossibility in a finite universe — until the whole shebang comes down. The sad part of this is that people are resilient. And so I’m guessing that this will go until every last ounce of wealth has been extracted from the body politic. The only real question is will the populace realize that it’s past time to lock and load before the bankers, like a plague of locusts, realize that it’s time to move on to the next feeding ground.
Here’s roughly what Rodger Mitchell says in regard to the 1913 Act. He’s more sanguine about it than you seem to be;
“The Federal Reserve Act created the Federal Reserve system and gave the 12 Federal Reserve Banks the unlimited power to create dollars.
Among the Constitutionally enumerated powers of Congress is the power to coin [create] money.
While many believe the federal government must “borrow” to fund its deficit spending, this is a huge misunderstanding about what federal borrowing is.
So-called “borrowing” is nothing more than accepting deposits in T-security accounts. These accounts can total whatever the government wishes.
The only limitations on federal deficit spending’
1. A gold standard
2. A debt ceiling.
Both are self-imposed limitations Congress and the President can empower or eliminate instantly.
The federal government, being sovereign over its own currency, can create as much as it wishes.”
IMO. I’m not 100% sure if this is correct, but it seems to suggest a work around for the Congress to buy debt and of course it can undo any legislation if it so desires. RMM just talks about matching the deficit, but the government can also just buy its debts. I don’t see the act affecting that if it’s off budget. Governments here have clauses which allow relief payments for rebuilding after natural calamities. They don’t show in budget accounts as far as I know.
What’s your take?
Well, the data is from the BIS – what it means, of course, is open to debate.
OK, got a link to the right pages?
https://www.bis.org/statistics/totcredit.htm?m=6%7C326
Teacher pensions are paid out of current teacher’s contributions. Hence this should provided a certain amount of inflation protection. That’s my hope, in any case. Please feel free to relieve me of my delusion with some well reasoned arguments.
I can’t comment on the teachers’ fund, but have heard it is better than other public sector schemes.
Generally, however, public sector pensions are unfunded – that is, instead of investing contributors’ inputs for their own future pensions, pensioners are paid out of current contributions, with the government making up the difference. That difference has been widening markedly and, looking ahead, the mismatch has a net present equivalent of around £1.5tn.
Dolphin, I partly agree with you. First though there is no law or statute that gives banks the right to create currency, according to Richard Werner. It’s just grown up through usage and custom. To complicate it Banks don’t actually create money, they create credit and use the state currency to fill it out, make it liquid. So only the federal government creates currency which it does every time it buys something or pays for something like your government wage or a pension. That payment goes straight out to a commercial bank before it can become liquid.
The Fed has no money. It does store other peoples’ money, in bonds etc. Money is all in the non government sector. Most bank loans never see cash, its just numbers shifting around the different banks. The little cash that does appear has to be bought by your bank from the Fed or the BoE. Some is kept as vault cash to meet demand.
ejhr2015: In the US at least, the sole authority to issue currency is vested in the Federal Reserve banks as stipulated in the Federal Reserve Act of 1913. In the context of the current conversation, this means that the US government cannot legally print its own currency to cover its deficit spending, but must borrow the money from the banking system and private individuals. This almost always means “primary dealers”, who are universally member banks of the Federal Reserve system. The Federal Reserve serves as the currency issuer (check the wording on the note) and as the clearing house through which government bonds are issued for cash. We might ask ourselves why, if the government can print up bonds and exchange them for cash, it can’t just print up the cash itself and avoid the interest burden, but that’s where we are. And those who have amassed enormous wealth, power, and influence through this scheme will act to make sure we stay there.
So perhaps there is some semantic difference between your description of the mechanism by which money (= “credit”, given the mechanism involved) needed by the Federal Government is created, but the overall operation is the same under either description: the Federal Government has no authority to create money (other than the very minor amount represented by coins). It has delegated this authority to the Federal Reserve and its member banks, and must borrow — at interest — the difference between its expenditures and its tax receipts and other forms of revenue. This has, of course, rendered the Federal Government subservient to the banking system, with results that are becoming painfully obvious to all.
I had originally thought that the Federal Reserve was created as part of the 16th amendment to the US Constitution. However, your post prompted me to do some fact checking and I discovered that the Federal Reserve was actually created by an act of Congress rather than a Constitutional Amendment. Wresting control of the money supply from the Federal Reserve would therefore only require a countervailing act of Congress rather than a Constitutional Amendment. While this is a much less rigorous process, the bottom line is that the Congress is still a wholly-owned subsidiary of BankCorp America, and so the prospects for remedying the situation we are in through legal means remain dim.
My apologies for incorrect information in my original post.
Thanks for pointing out the 1913 Federal Reserve Act. I had not been referred to it before. It amazes that the government would legislate away its constitutional right to issue its currency. That is just so idiotic, there must be an error there.[?] I know they legislated a debt ceiling, also a choice piece of idiocy. Congress can as you said retake its right.
Trust the bankers to get their way. I did read once that J P Morgans deliberately created the 1907 recession. Earlier ones were also artificial events engineered by the banks.
Also now I see why Wilson was so depressed by the 1913 deal. It didn’t make sense before.
I agree the banks won’t let go. They’ll have to outsmart themselves or engineer a end of civilization crash. We can’t avoid that any more. Too many triggers now. Not a nice solution however.
ejhr2015: It strikes me as odd that the precursor to the Federal Reserve Act (the “Aldrich Bill”) was introduced literally weeks after the 16th amendment became law. The 16th amendment provides for the income tax, which would otherwise be illegal under the constitution. I can’t help but wonder whether the bankers understood that the Federal Reserve Act would indebt the US Government to them, and that the government would therefore need the authority to tax the people directly in order to make good on those “debts.”
Sounds plausible. I’ve asked around to see if they understand more about this Federal Reserve Act. So I”ll reply after I hear back. Thanks for the info though. It matters to get the facts. I’m not in the USA either.
Hello ejhr2015. I have noticed in a number of your posts reference to the Magic Money Tree theory and sovereign governments creating their own money. Unfortunately this is not so, except for printed notes and minted coins, which only make up about 3% of the money supply. The other 97% is created by commercial banks, ex-nihilo, when they extend credit.
Even the Bank of England has finally acknowledged where money comes from:
http://bit.ly/1kLQqwS
I think it was Frederick Soddy who first exposed the fraud of bank created money in his book The Role of Money:
http://bit.ly/1p2mGyM
As an alternative to the turgid prose of Soddy there is the entertaining publication of Paul Grignon:
http://bit.ly/1avjuFt
Tell me, where did you see reference to a magic money tree? Not me. We don’t need a tree. Imagine you were scoring a soccer match. Do they pluck the points from an equivalent tree? We just need the Constitution’s written clause or clauses giving the government every power to create and manage the currency. Banks don’t have that power. They make use of the created currency. There were no US dollars before 1776. It’s all from thin air , the constitution, the laws, statutes etc. everything and it’s all subject to the whimsy of parliament as well.
The Federal government has NO money of its own. All it does is issue instructions, such as to mark up numbers in accounts held by commercial banks in the Federal Reserve bank. Treasury controls this operation. So when the numbers are transferred to a main street commercial bank the numbers can become money – the liquid stuff. Cash however has to be purchased from the Fed and becomes vault money. But mostly banks just transfer numbers from various accounts in the normal course of business. They certainly don’t turn it all into cash. Two thirds of the US cash they have used is held overseas.
So Banks have ALL the money, not just 97%. But you can say they do and don’t have money. It’s just numbers in accounts. The Fed just has other peoples’ money [bonds etc] in their accounts.
I have those links you show, except for Soddy’s book.which I now have.
You might find Murray Rothbard helpful regarding the history of the FED.
http://bit.ly/1JVnYE4
And also Glyn Davies
http://bit.ly/1qUi2iU
And Stephen Zarlenga (Chapter 19) is instructive:
http://bit.ly/2plmAra
More mainstream nonsense? Are you sure about this Zarlenga book? I don’t want to waste my time with the mainstream fables. Ay least the other reference was only a few pages but it was squirm inducing enough.
And ‘is it money or is it credit’ by Paul Grignon is helpful:
http://bit.ly/2plEF8z
Sorry, I read part of it. It is replete with errors. It is mostly mainstream nonsense. One sentence will be fine, the next will be wrong. The federal government does NOT need to raise bonds to create money. That is absurdly ridiculous. It creates currency by buying debt, by net spending into the economy. Government bonds are not debt. They are corporate welfare. [they are debt instruments]. The government has ZERO need for bonds. It spends only new money. It has no need to save or borrow its own money. To think otherwise is the stupid part, but the mainstream won’t see that.
The mainstream somehow has gotten the politicians to think that these illogical actions are legitimate. It’s because the banks are playing them for suckers of course. Banks want to be the source of finance so they talk the government out of buying its debts directly, which it is empowered to do, and instead the borrow themselves the government’s own money in order to get the interest, the banks life blood.
Also the Central Bank is not free to create money or currency ad hoc. It has to be instructed by Treasury [what’s in the name?] to buy its debts, such as wages for its employees, or your welfare payment. That part is the act of currency creation. It’s not a liability whereas bank debt is a liability and the banks have to pay it back. The government does not pay it back directly. The government will have outsourced the work to the private sector and they have to borrow from a bank and pay back the loans created. The government then reimburses the banks, at the banks interest etc inflated prices. This bank interference ends up doubling or even tripling the total cost for the project. Clever banks! Stupid Government! The government can afford it as its money is debt free, but it doesn’t look good in the accounts.
Dr T, I appreciate that looking at energy as the main resource driving real economies is the best way to understand what underpins civilisations even today, but it’d be interesting to look holistically at all precious resources, by which I mean those absolutely fundamental to our basic survival.
In the past, when scarce, remember it was said that salt was worth more than gold in those areas? Today, I’m thinking water & agricultural land, before things that seem less important on the surface, but can boost the carrying capacity of land, like the ability to trade. That sort of thing isn’t really noticed until you see the effect of the lack of this variable in isolated countries, like restricted access dictatorships say, where there’s mainly only local produce available. [N. Korea]
I understand that a country with ample reserves of water & good land for example will still be poor unless it has the energy resources to develop the others, but similarly, without trade, the gulf states can starve/die of thirst while sitting on a sea of the richest energy source on the planet…..
Hello Dr. Morgan. I read a lot and your blog is my new favorite. Thank you for the clear insights.
An important issue that I’ve struggled to understand is who or what controls interest rates? Do rates move where central banks want them to go, or do rates move where market forces beyond anyone’s control push them to go?
Given our high debt load there can be few more important questions. I would be grateful for an explanation from you.
Thank you – and that’s a hard question to answer with brevity!
For starters, practicalities. There are two main interest rates. There is the policy rate set by the central bank, and this governs how the CB interacts with commercial banks. Mortgages etc are sometimes linked to it. Then there’s the market rate – essentially, bond yields (think of this as the coupon or payment, a fixed amount, as a % of the price at which the bond trades – a simplification, but pretty much how it works). CBs can’t buck the market, but can influence it a great deal. If bond prices rise, yields (interest rates) fall. So if a lot of bonds are bought, rates are pushed down – which is what some of us think QE was really designed to do.
Cutting rates is supposed to stimulate the economy. I say “supposed to” because recent experience makes this debateable. For instance, if low rates impair pension funds (as they do), people may turn cautious, spending less, not more.
Rates should reflect risk – so a safer government (such as the US) can borrow at lower rates than a riskier one (say Greece).
Rates influence exchange rates. If interest rates are high in, say, the US, investors might want to take advantage – but to do so they have to buy dollars, so the dollar strengthens. That’s good news for US consumers (cheaper imports) but bad news for US exporters.
So there are several moving parts. In 2008, rates were slashed for two main reasons. First, to stimulate the economy, by making borrowing cheaper (which encourages spending) and saver rates lower (discourages saving = boosts spending). Second, debt was so big that cuts were required to enable borrowers to remain solvent during a downturn. Hence ZIRP – zero interest rate policy. Some would say this didn’t boost the economy as much as expected – though, in fairness, we can’t know what would have happened without ZIRP. This was why the idea of NIRP – negative interest rate policy – gained a lot of traction.
Very low interest rates may help borrowers, and stimulate activity. But there is significant downside – fr instance, low rates can stifle “creative destruction” by keeping dud businesses afloat, when we need them to fail to free up space and capital for new, more vibrant ones. ZIRP is abnormal – and was an emergency measure, that has now lasted longer than WW2. This is why Janet Yellen wants to raise rates – to signal a return to normality. She thinks the US no longer needs the support (and with it the downside) of ultra low rates. But debt is now so big that large rises could put individuals and businesses at risk – including, says the IMF, 20% of American corporates, which have been using cheap borrowing to buy back their own stock.
Logically, higher rates would drive bond and equity markets down, but therefore yields up – which pension funds (in particular) require.
So it’s a tough call!
Thank you for the explanation. I think I understand everything you said but there is a piece that still confuses me.
Given the risk of default caused by the depletion of low cost energy and resulting low real growth, it seems to me an aware market would demand a risk premium much higher than the historically normal rate of say 5%. Yet even 5% would bankrupt many borrowers today.
Are the wheels staying on today because the market does not understand the underlying energy driver and its influence on growth?
Can central banks control rates if the market wakes up?
Are we depending on ignorance to avoid collapse?
Ouch!
First, some economists increasingly recognize that things aren’t happening as conventional thinking says they should, and even admit that they don’t know why. But no, the essential energy equation isn’t understood.
Second, I’m convinced that prosperity is deteriorating, and can track this with stats – which seems reinforced by voter discontent in America, Britain, Italy, France and far beyond.
Third, we’re keeping afloat in two main ways. First, monetary manipulation – enormous borrowing, zero- and near-zero rates, QE, etc. Second, mortgaging the future – evident even more importantly in pension deficits than in debt.
Fourth, yes, interest rates should reflect risk – but they also reflect supply and demand. So, if you pump enough credit into the system, you can keep rates low. But doing this destroys returns – hence the appalling plight of pension funds.
Globally, and at constant (2016) values, the world borrowed $59tn between 2000 and 2008 – but has borrowed $83tn since 2008. So much for the “lessons” of the banking crisis.
Between 2000 and 2008, each dollar of growth came with $2.30 of new borrowing. Since 2008 it’s been $3.67 – and continues to rise.
At least one leading expert on collapse theory now thinks the crash he expected for the 2020s is now getting much more imminent.
And billionaires are buying self-sufficient estates in New Zealand…….
Thanks. It is amazing how few people understand what is going on. Even if the majority never understands the relationship between energy and the economy, I suspect at some point, regardless of QE and other manipulations, lenders will come to recognize the systemic risks in today’s economy and price money accordingly.
In addition to default risk, there is of course the cost to lenders of inflation. What do you think might cause lenders to view the extreme manipulation of credit supply as a leading indicator of inflation?
Credit that cannot be repaid due to insufficient growth in affordable energy, and that is not permitted to default due to credit market manipulation, is stored inflation waiting to explode. Yet despite huge quantities of stored inflation we have near zero interest rates. It’s really quite amazing.
Which really sucks. I had hoped to retire to New Zealand one day, but I’ve now been priced out of the market.
Well, asset prices are inflated everywhere – and the “bolt-hole in New Zealand” idea is a bit like something out of an early Bond film, i.e. a good story but unlikely to work in practice.
New Zealand is not exactly rich in resources, especially food resources. It was quite poor under the Maoris who ended up eating each other after they ate all the moas etc. The only native food I heard was taro. It’s obviously better today but it wouldn’t take much to regress in the future. Just the same, it’s sort of out of harms way, except for being volcanic. Another supereruption like 26,000 years ago would be a major catastrophe.
The idea of NZ as a last refuge for neoliberal billionaires does seem a bit far-fetched – more “The Boys from Brazil” than “Goldfinger”. If the scenario of world populist revolution were to happen, the only safe place for them might be Russia – which would be a neat reversal of 1917!
I really must write something about chaos theory and collapse, when time permits – I think we would have a very interesting discussion.
Rob, if i may, central banks are key players in this imo. Draghi said ‘ whatever it takes’ to keep rates down for southern Europe. That included outright buying through the ECB of souvereign bonds. Without central bank interventions the whole system collapses, period. Central banks have bought 40% of world gdp in financial assets so far. There are no markets, there are only interventions.
I agree central banks have been doing whatever it takes. A severe depression would no doubt jeopardize their job security. But so would destroying the value of the product they create. It will be interesting to see if they choose extreme deflation or inflation when they are forced to choose one. Or maybe the pressure they have created won’t provide them a choice.
Dr. Tim & ejhr2015: Actually, I wasn’t looking for a “bolt-hole” in New Zealand. I lived there for a time in the 1970s and found it to be delightful: very decent people, beautiful country side, decent climate and high standard of living at (back-then) reasonable cost. And it’s hard to think of a country having 2.5 times as many cows and 6 times as many sheep as it has people as being deficient in food resources. Plus it has modest but not insignificant petroleum reserves. It also has the very great advantage of being in the southern hemisphere, so it has a better chance of surviving a nuclear exchange, which appears to be the likely outcome of the current madness in the Northern Hemisphere.
So it was a nice place to live once upon a time and I was thinking it would be a good retirement option. Alas I have been disabused of that notion, as the cost of living — property in particular — has been driven to infeasible levels by the Chinese getting their money out of harm’s way and the bolt-holers bidding up prime properties.
That stacks up to $3.90 of borrowing for each $1 of reported growth, even if we assume that prudence reigned supreme, such that nobody borrowed at all in the three months running up to Christmas.
Is that not a prima facie error? It should be $2.90 per $1.00. (11.4/3.9)
I’ll wager the under and state that borrowing will stack up to $2 of borrowing for each $1 of reported growth in 2016, i.e., borrowing will be ~ $8.0 trillion.
There is a numeraire issue. The broad trade weighted $ index appreciated 5.5% in Q4 2016 which will reduce rest of world debt outstanding relative to Q3 2016 in $ terms.
I’ll have to check back to that earlier number, whether it’s the same time period (it sounds like 10Y, not 8Y as in this article), and whether current or constant – but the system has recently been through big upgrades, refinement and checking ahead of going live early next month.
The numbers for 2016 are pretty straightforward, but only run (for debt) until 30/9/16, ie nine months. World GDP PPP increased by $4,784bn (nominal, full year 2016). Total debt (nonfinancial) increased by $11,178bn (from 31/12/15 to 30/9/16), at market rates of conversion, nominal. The PPP equivalent was $13,669bn, nominal.
For the period 2008 to 2016, world GDP PPP nominal increased by $35.3tn. Applying the GDP deflator (which I calculate – it is not published), that growth is $22.6tn in 2016 constant PPP USD. The debt increase, global, converted to USD at PPP rates, was $106tn nominal, or $83.1tn inflation-adjusted, from 31/12/08 to 30/9/16.
OK. So you have amended your 2016 original debt:GDP growth ratio of of 3.9:1 in your blog post to 2.85:1 (13.7/4.8) in PPP $ numeraire terms in the comments section. I’m on board. Not much different than 2.9:1 in my prior post.
I’ll wait for the BIS 2016 numeraire data on ~June 10 for my estimated 2016 2:1 ratio. Going forward, the $ rise in Q4 2016 will be partially offset by the $ decline in Q1 2017.
https://fred.stlouisfed.org/graph/fredgraph.png?g=drQa
Thanks. Not sure I’m wholly with you, though, as these may cover different periods.
What might be useful is a sheet giving all of this, which can be made available for download. I’ll think about doing this. Fred is useful, though my most-used sources are BIS and IMF.
The most complicated component (though of course essential) is the global deflator – putting this together was a big project in itself!
Re New Zealand – I relocated there 2+ years ago — and I have concluded that it will not provide any sort of sanctuary from the chaos that is coming.
Almost all food production involves petro-chemical fertilizers and pesticides which kill soil organisms i.e. nothing will grow in soil farmed industrially when the chemicals are not longer available.
So although NZ does produce a lot of food — when BAU collapses — the country will produce next to no food (just like all other countries)
It is possible to repair damaged soil with years of organic inputs but two problems:
– what do you eat while repairing the soil?
– where do you get organic inputs when hungry people eat everything that grows (including bark, grass and each other) — and everything that moves including all domestic animals.
And then there is the coup de grace of 4000 spent fuel ponds that will unleash epic amounts of toxic matter when the water boils off and fuel is exposed.
This is almost certainly an extinction event no matter where you live.
I can see that I really am going to have to tackle the chaos/catastrophe issue!
I’m still planning this, but here are some thoughts.
First of all, we need to draw a clear distinction between the real economy (goods and services, labour and resources, but ultimately energy) and the financial economy of money and credit. Then, third of the trio, there’s politics, essentially an over-lay on top of these “two economies”.
The easiest of these three, for me, is the financial economy. It’s out of control, heading for a crash. Though this will cause huge chaos, it’s not the end of the world. Since money has no intrinsic value, the financial system consists of “claims” on the real economy. We have created far more “claims” than the real economy can meet, so a lot of “claims” (i.e. the supposed value in money and credit) have to be destroyed. That is inescapable.
Then, second-easiest, is politics. Whenever prosperity deteriorates, the public get angry, especially if the contemporary elite is arrogant, and/or greedy, and/or repressive, and/or detached from reality. On this basis, current elites are toast. This is what populism is really about. The incumbent elites could recover, but only if they make real reforms, and there’s no sign of that. So the elites go down, as does much of their wealth, and their neoliberal philosophy. NZ as a bolt-hole won’t work. The only destination that might work for them, as I see it, is Russia.
The real and hardest issue is the real economy. Very simply put, this is flat – in aggregate. There is still real growth in China and India. Other economies (like America) are essentially static. Others again (like the UK) are in a crash-dive. The decline after plateau needn’t be too rapid – it depends how it’s handled.
But the per capita real economy is deteriorating rapidly – basically, more and more people are sharing a total output that has stopped growing. Chinese and Indian citizens are still getting more prosperous, but less rapidly than their national economies. Prosperity in countries like Britain is falling rapidly. Elsewhere there is gradual erosion.
that’s a good summary Tim
Simply Brilliant Tim.
As per usual.