Tuesday, January 20, 2009

 

Peak Debt

Here is an article about why the US is going to have “ghost malls” all over the place, but the reasons are more noteworthy than the malls themselves.

In short, we have reached not only peak oil, but also peak debt. When you look at the way the world works, it’s readily apparent that everything depends on debt. The ordinary “consumer” (I have never liked that word) runs his or her life on debt, not only for big-ticket items like cars and homes, but even for electronics and everyday purchases with credit cards (these should rightly be called “debt cards”). And with businesses it’s the same; they borrow money to do just about everything you can imagine, and more. And finally there are governments, which sell bonds to finance their debts. So what we’ve got now is a global financial system in which all entities — from the lowly “consumer” to governments — are up to their eyeballs in debt.

The world is also overly dependent on personal consumption (here we shall set aside the fact that such consumption itself is unsustainable), and especially on consumption by Americans. So it is that, to keep Americans spending beyond their means, other countries — notably Japan and China — lent the US huge gobs of money to keep Americans spending. Now, is that insane, or what? Could you imagine the owner of a store handing out his money to people in the neighborhood so they could shop at his store? And yet such is the stupidity that fuels the “global economy.” It’s an organism that feeds on itself.

Generally, debts must be repaid with interest. So people and businesses and governments are supposed to pay back more than what they borrow. What makes this possible is the eternal-growth economy (powered by cheap, plentiful energy), which is eating the planet alive and is reportedly already consuming more than the Earth can produce.

So, that puts us in a fine pickle, which — judging from official pronouncements — the finest economic minds in the world didn’t predict.

What we need to do to get out of this crisis, we are told, is to print still more money and create still more debt. But wait — if we can’t pay back the mountain of debt already accumulated, how are we going to pay back all this new debt? The answer to anyone with a functioning brain is, of course, that it won’t be paid back. A crash and “reset” of the world economy is going to happen. In the Great Unwind a lot of phantom wealth is going to disappear, and we will be operating at a much lower energy level than before.

In the meantime, get out of debt if you can.



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