In the Name of Debt


A front-page photo in Tuesday’s Financial Times shows lightning striking near the Parthenon. Zeus must be reading the paper.

Greece is supposed to cut its public spending by an amount equal to 10% of its GDP. Even so, its public debt is expected to rise to nearly 150% of GDP by 2016 – or three times the level of Argentina when it defaulted in 2001.

It should be obvious that the Greeks owe too much. But so does almost everyone. Every kind of debt is so heroic it poses an affront to nature and a challenge to the gods. Much of it is unpayable. Private debt. Public debt. Short term. Long term. US. England. Europe. All kinds of debt in all kinds of places. In America’s private sector, for example, debt exploded 6 times faster than GDP since 1950. And today, the whole world staggers under debt, with more than $3.50 of debt for every dollar of GDP.

Today’s global economic problem is breathtakingly obvious: too much debt. The solution is obvious too; debt that cannot be repaid must be destroyed – by defaults, foreclosures, bankruptcies, write-downs, and restructurings.

Nouriel Roubini, writing in The Financial Times this week, is on the right track. Greece cannot bear the weight of all its debt, he says. Since it will default sooner or later, better to restructure the debt now…reducing it to a level the Greeks can actually pay. Fair enough. Creditors would take their losses in an orderly way.

When the debtor cannot pay, the creditor should take the loss. But practically the entire burden of modern economics over the last 3 years has been a scammy effort to shift the losses to someone else.

To bring the readers fully into the picture, the great debt build-up began with Reagan in the White House and Thatcher at #10. Reagan added to deficits. Thatcher cut them. On the west side of the Atlantic, economists called on Reagan to stop spending. On the east side, 346 economists implored Maggie Thatcher to spend more.

Reagan’s young budget director, David Stockman, resigned in protest when the Republicans wouldn’t bring deficits under control. Meanwhile, Maggie Thatcher was told that her austerity policies would “deepen the depression, erode the industrial base and threaten social stability.” She should do a U-turn immediately, said the august economists. “This lady’s not for turning,” she replied.

It didn’t seem to matter what anyone thought or did. Markets do what they want. Back then, interest rates were coming down. The US 10-year Treasury yield fell from 15% in 1980 down to under 3% today. In that tender, delightful world, debt was no problem for anyone. Even if you wanted to default, the banks wouldn’t let you. They offered to refinance your debt at a lower rate. Both Britain and America grew; their debts grew too.

Private sector debt peaked out in 2007. Households and corporations have been de-leveraging ever since. But as the private sector taketh away, the public sector giveth more debt. And again, markets are doing what they want. Interest rates are already at the lowest levels in a generation. This time, economies cannot cut rates and grow their way out of debt. Instead, someone will have to pay. Who?

The world’s economists have no better idea what is happening in the 21st century than they had in the 20th. They neither saw the crisis coming, nor knew what to do when it arrived. Their panicky ‘rescue’ attempts wasted $10 trillion. They claimed they had put the world on the road to ‘recovery’ and claimed victory over the credit cycle. They might just as well have claimed to have conquered sin or exterminated cockroaches.

Neither governments nor their economic advisors can make bad debt disappear. They know that as well as we do. All their sweating and grunting has another purpose – to decide who gets stuck holding the bag.

Taxpayers, for example. That is the general drift of the Germano-Anglo- Canadian proposal. ‘Austerity,’ as they call it, means higher taxes, fewer services, and bailouts of the financial sector. The big banks won’t pay for their mistakes. The public will. Martin Wolf and Paul Krugman are wrong about many things, but they’re probably right about the side effects of this bitter medicine; it will probably deepen and prolong the slump. It will cause a ‘third depression,’ says Krugman.

On the other hand, Krugman, Wolf and the other neo-Keynesians have a bad proposal of their own.

“…governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending,” writes Krugman.

If too little spending were the real problem, it would invite the most agreeable fix since sex therapy. Every government would lend a hand. Alas, the real problem is the opposite. It is the consequence of too much spending – debt. More government spending means more debt.

Who will pay it?

Taxpayers? Consumers? Savers? Investors? Lenders? The young? The old? Nobody knows for sure. But everybody is surely going to find out.

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.


  1. Well, lucky I have paid off all my debts then.
    Or should I borrow up to my eyeballs and ride on the coatails of all the other borrowers(voters) who are going to seek government help to save them from living beyond their means.

  2. “Some of the people I know lost millions [in the crash of 1929]. I was luckier. All I lost was two hundred and forty thousand dollars. I would have lost more, but that was all the money I had” – Groucho Marx.

    Harpo lost $250,000; J.P. Morgan, Jr. lost between $20 and $60 million and the Rockerfeller family lost four fifths of its fortune (Harold Evans, The American Century, p.231).

    Michael Pento, in the article below, addresses the financial/economic aspect of the crisis that the world is soon to go through, but the technological (cp. Michael A. Bernstein, The Great Depression, Delayed Recovery and Economic Change, 1929-1939)and hegemonic aspects also need to be incorporated into the argument – to better understand it.

    “Why the Greater Depression Still Lies Ahead”

    Michael Pento,, June 30, 2010:

    If one does not know the real cause of a problem, they should also be unable to provide a genuine solution.

    Messer’s Obama, Bernanke and Geithner do not understand the real cause of this debt crisis. They are politicians first and economists or students of the market second; if at all. Therefore, it is not wise to ask them if the great recession is indeed over, or for them to provide a plan to prevent another from occurring in the future.

    The cause of the Great Depression in the 1930’s and the Great Recession beginning in 2007 was an overleveraged economy. An overleveraged economy is the direct result of artificially-provided low interest rates from the central bank and superfluous lending on the part of commercial banks. That easy money provided by banks eventually brings debt levels in the economy to an unsustainable level. At that point, the only real and viable solution is for the public and private sector to undergo a protracted period of deleveraging. The ensuing depression is, in actuality, the healing process at work, which is marked by the selling of assets and the paying down of debt.

    However, all efforts on the part of our politicians today are to fight the natural healing process and to promote the accumulation of more debt. During this latest economic contraction, the Fed took interest rates to near zero percent and the administration is leveraging up the public sector to record levels in order to re-leverage the private sector. The government’s philosophy is tantamount to sticking a frost bitten man in the freezer so he won’t have to suffer the pain associated with thawing off his extremities.

    During the Great Depression, real GDP plummeted 32%. According to the National Bureau of Economic Research, this Great Recession–which we are still struggling through–began in December of 2007. In contrast to the 1930’s, during this recession GDP shrank only 3.6% from Q4 2007 to its low point, which was reached in Q2 of 2009. And from Q4 2007 to the latest reading on output in Q1 2010, GDP contracted a total of just 1.1%.

    But the contraction in GDP which occurred during the Great Depression was the direct result of consumers paying down debt and selling off assets. Household debt as a percentage of GDP reached nearly 100% in 1929. The only other year it approached that level was in Q1 of 2009. To put that number into perspective, after the depression ended Household debt did not go back above 50% of GDP until the third quarter of 1985.

    From the start of the depression to the end of WW11, Household debt fell from 100% to just above 20% of GDP. Although it was a painful process, it was the only real solution to an economy soaked in debt. But today, thanks to government efforts to carry on our debt-fueled consumption binge, this current Great Recession has witnessed Household debt barely contract at all; it fell to 92.53% of GDP in Q1 2010.

    To make matters even worse, during this current crisis our government’s response to the economic contraction has been to dramatically increase their borrowing. At the start of the great depression, gross Federal debt was just 16% of GDP. It peaked at just fewer than 44% by the time the depression ended. So while the National debt did increase significantly during that period, it still was relatively benign when viewed from a historical perspective. At the start of this Great Recession, the gross National Debt was 65% of GDP. Today it has exploded to 90% of GDP! Therefore, if you compare the relatively innocuous level of debt in the 1930’s with that of today, it clearly illustrates the perilous state of the economy.

    While it is true that the National Debt did rise dramatically during WW11 (120% in 1946), consumer debt plunged concurrently. So while the nation was adding on debt during the process of fighting and winning the Second World War, households were taking the necessary steps to ensure their balance sheets were well prepared for the aftermath of the battle.

    Today, for the first time in our history both the gross national debt and household debt are at or above 90% of GDP.

    Many are contending – unfortunately most of those in power at this time – that the government must spend more while the consumer contracts. Their hopes are based in the belief that once the economy gets going they can unwind that debt. There are two problems with this Keynesian theory. One is that government spending doesn’t increase GDP; it only serves to choke off private sector growth. And the other is that the government never believes it’s ever a good time to pay off the debt incurred. Therefore, the country is left with a private sector that is contracting and with a massive overhang of debt. That contraction in growth exacerbates debt to GDP levels even further.

    Since we have yet to address the real cause of this recession, we are moving inexorably closer to causing The Greater Depression. And a long period of debt reconciliation still lies ahead.

    If one does not understand that the progenitor of a depression is debt, they will also be unable to provide the genuine solution, which is deleveraging.

  3. “Messer’s Obama, Bernanke and Geithner do not understand the real cause of this debt crisis. They are politicians first and economists or students of the market second; if at all.”

    If they actually realise(d) it, would they do anything different?

    As you say:: “…the government never believes it’s ever a good time to pay off the debt incurred.”

    Political survival is always placed well ahead of tough, concerted action.
    For those always watching the windsock, public perception will always determine action, or lack of it. Let the turbulance happen during the next guy’s watch.

    There’s little doubt that the excreta will hit the propellor at some time in the future. The question is when it will impact… and how far south it will spread, Ron.

    Can’t think of a place I’d rather be when the Northern Hemisphere implodes.

  4. Watcher7 – I Remember when we were kids, the cure for sunburn was to take a hot shower. Talk about an old wives tale!
    Watcher7 – everything you say is true but I think you maybe haven’t delved deep enough. Debt in our society/economy cascades upwards in a ponzi like triangle. Those at the top of the triangle stand to lose much more (in purely material terms)that those at the bottom on so called “main street”. So the powers that be have socialised the debt losses of those at the top while cutting main street adrift. All the de-leveraging going on now involves people losing their homes and livelihoods (in the US – yet to happen in OZ but will be no different).
    The lesson is that if you are in lots of debt and are not at or pretty bloody close to the top of the pyramid sooner or later you’re stuffed.
    However as I’ve oft stated in this forum before, the whole system is built on contradictions that are not sustainable – in short – the top of a pyramid requires a base to stay up – pretty simple but way beyond the greedster elite.
    Biker – you’re spot on – the crap is about to fly – I reckon 2012 with a pretty sickening slide gathering pace in 2011. I don’t think places like Sydney or Melbourne will be healthy to be in either.

    David Bode
    July 5, 2010
  5. Great piece watcher7!

    BP I’d rather be here too than anywhere else although I do see our economy has important ties with the global economy eg carry trade effects on AUD. But who here will stop maiming the breeding herd with debt. Maybe when the “Best Party” (if thats what I think you mean) gets in we may see at least some efforts made. Its going to be a difficult test. It may be that nations who can stay up with or ahead of the austerity pack (as insufficient as the measures may be) may get a cushioned ride as capital gravitates there.

  6. Something must be terribly wrong if Krugman is right. :)

    Tony Hansen
    July 5, 2010
  7. I was astonished when no one challenged my mention of The Best Party, Lachlan!~ :)

  8. David: “…the crap is about to fly – I reckon 2012 with a pretty sickening slide gathering pace in 2011. I don’t think places like Sydney or Melbourne will be healthy to be in either.”

    My view, not universally shared here, is that we’ll enjoy comparative immunity; but that the largest centres will be worst hit. Like nuclear hits on major cities, I think the further you are from these zones, the less you’ll feel the pain.

    If there is pain, it won’t be limited to property. There will be few safe havens. I guess the question that the general public will ask of their politicians is: “What are you doing to reduce the pain?” If recent events are any indicator, _well_ before that happens there will be government intervention(s) to reduce unemployment, save people’s cash-in-the-bank, and protect people’s major financial investment (their homes). As we learned from the last little correction (-55.4%) there’s not a great deal done to protect the sharemarket. Perhaps the next time will be different…

    Lest you mistake my drift, I’m an optimist. I think we Aussies will be better insulated than much of the rest of the world… not really by any particular virtue… but rather by happenstance… and by lucky timing. Yes, you can chuck in some particular Aussie traits indiscernible to some visitors here, but our conservatism and isolation have meant we get to learn from the f*ckups of our northern neighbours. There’s no doubt we’ll overdo stimulus, again, but the result may well be an echo from the last events.

    It may be Lachlan’s grandchildren who end up paying the price for our inability to force-feed today’s generation rice. I doubt it will be ours… . As Ron states: “…government never believes it’s ever a good time to pay off the debt incurred.” Putting off debt is a pattern we’re likely to see continued for a couple more decades… .

  9. HRN: Do you think a return to the gold standard would constrain government abuse?

    Jim Rogers: Well, it never has. The Romans had precious metals as their currency and do you know the term “debase”? The Roman politicians had the brilliant idea that if a coin was 100% pure precious metal, they could slip a little base metal in and, over a couple of hundred years, they went from 100% pure precious metal to almost 0%. That’s where the term “debase” comes from. So, we’ve tried it. (Ron Hera, Interview: Jim Rogers on Currencies and Inflation,, June 4, 2010).

    This how I see the debt situation David:

    Biblical Financial Cycles (part 1)

    “The thing that hath been, it is that which shall be; and that which is done is that which shall be done: and there is no new thing under the sun” (Ecclesiastes 1:9, KJV).

    In what is erroneously called the Old Testament God chose Israel to be His model nation. Israel was to be an example of an orderly and prosperous society. As a result other nations would esteem Israel as a wise and understanding people (Deuteronomy 4:6).

    For Israel to achieve this God gave her laws for the smooth running of society. These laws were in harmony with the cyclical pattern that we see in life.

    In keeping with this pattern God established a 50-year financial cycle, which included seven smaller ones within it. The financial laws regulating these cycles enable a new cycle to begin afresh without the burdens and inequalities of the previous one.

    “At the end of every seven years you shall grant a release of debts And this is the form of the release: Every creditor who has lent anything to his neighbour shall release it…” (Deuteronomy 15:1-2, NKJV).

    “And you shall count…seven times seven years…forty-nine years. Then you shall cause the trumpet of the Jubilee to sound on the tenth day of the seventh month; on the day of Atonement [Yom Kippur] you shall make the trumpet to sound throughout all your land. For the fiftieth year shall be holy, a time to proclaim liberty throughout the land to all enslaved debtors, and a time for cancelling of all public and private debts. It shall be a year when all the family estates sold to others shall be returned to the original owners or their heirs” (Leviticus 25:8-10, NKJV/Living Bible).

    “…if the land is sold or bought during the preceding forty-nine years, a fair price shall be arrived at by counting the number of years until the Jubilee. If the Jubilee is many years away, the price will be high; if few years, the price will be low; for what you are really doing is selling the number of crops the new owner will get from the land before it is returned to you” (Leviticus 25:14-16, Living Bible).

    These laws for a then agricultural-based society are the principles on which judgments are to be made for any society.


    “Recessions are a normal debt-cleansing part of the economic cycle” (James Stack, Pushing on a string?,, “Market Analyst”, February 8, 2008, p.5).

    “The severity and frequency of financial crises, especially the combined currency and banking collapses of the past decade, have made financial instability a scourge of our times, one that bears comparison with damage inflicted by famine and war. In a new paper for the Copenhagen Consensus, Barry Eichengreen, from the University of California, Berkeley, has reviewed the literature, attempted to count these costs, and to weigh them against the costs of a particular proposal for remedial action.

    “The costs can be reckoned in stalled growth and stunted lives. The typical financial crisis claims 9% of GDP, and the worst crises, such as those recently afflicting Argentina and Indonesia, wiped out over 20% of GDP, a loss greater even than those endured as a result of the Great Depression. According to one authoritative study, the Asian financial crisis of 1997 pushed 22m people in the region into poverty. For developing countries, currency crises are an important subset of financial crises. Mr Eichengreen, while cautioning against taking the precision of such estimates too seriously, reckons that the benefit which emerging-market countries would reap if such crises could be avoided altogether would be some $107 billion a year…

    “A fair reading of the studies, and there have been many, suggests that, for most countries, opening up to foreign capital will deliver faster growth in most years – punctuated by a damaging financial crisis about every ten years. Some economists argue that periodic credit crunches are the price emerging markets must pay for faster growth…” (The Economist, A remedy for financial turbulence? April 17, 2004, p.72).

    “Bankruptcy serves a vital economic purpose. Most filings are prompted by a catastrophic event – unemployment, divorce, accident or illness. Filers generally have lower and more volatile incomes. Some are surely able to repay part of their debts, but for most it would entail a tremendous hardship. It will also be a burden on the entire economy. Forcing more households on debt repayment plans will constrain the economy’s ability to recover from recessions. As unemployment rises and incomes weaken during a downturn, bankruptcy provides households, and thus the economy, with a fresh start…” (Mark Zandi, It’s Time To Raise The Flag of Surrender on Bankruptcy Laws,, March 22, 2005).

    “Periods of recession implicitly reflected the liquidation of the borrowing and spending excesses that had accumulated during the prior boom. In this way, businesses came out of recessions with strong balance sheets and great gains in efficiency.

    “The thing to see is that the borrowing and spending excesses that accumulate in the course of the boom essentially disrupt the economy’s established pattern of demand, output, incomes, relative prices and profits. These distortions hamper economic growth directly over time, irrespective of the level of interest rates…” (Kurt Richebäche, The Great Deluder,, April 20, 2004).

    “…recessions are traditionally a period where bloated inventories are thinned, while excessive consumer and corporate debt loads are reduced to more manageable levels. Uneconomic enterprises are liquidated, improving profitability for the survivors. Unsustainable macro imbalances, such as outsized trade deficits, are brought back into balance. The concomitant financial bear market is an opportunity for an impaired system to rid itself of the individuals, institutions, and mechanisms that were misallocating resources (financial and real), inciting unsound excesses (economic and financial), and fostering economic vulnerability and financial fragility. We experienced somewhat of a healthy purging process during the early nineties recession, with the downfall of Michael Milken, Drexel Burnham, the S&Ls, the Bank of New England, and such…” (Doug Noland, North Atlantic Tides, July 11, 2003).

    “Business cycle. A recurring series of expansions and contractions in economic activity associated with industrial economies…

    “Business cycles are not uniform in frequency, amplitude, or duration. Joseph A. Schumpeter categorised business cycles into three groups, which he named after the pioneers of business cycle theory: (a) long waves, or Kondratieff cycles, lasting from 54 to 60 years; (b) shorter term waves, or Juglar cycles, lasting from nine to ten years and (c) very short term waves, or Kitchen cycles, lasting a 40 month period.

    “Since it is difficult to identify regularly recurring expansions and contractions, analysis of the business cycle is often replaced by an analysis of fluctuations” (Richard Tardif – editor, The Penguin Macquarie Dictionary of Economics & Finance, (Ringwood Penguin Books, 1988), p.35).

    While it maybe difficult to identify regularly expansions and contractions there are enough hints to suggest the need for regular short and long wave cycles governed by protective laws.

    “The United States’ economy has been in recession only nine times in the last 60 years, or roughly once every seven years. Before the last recession in 2001, the economy even expanded for a full ten years. And the average recession has only lasted for about four quarters” (Joachim Fels, Recession 2007,, November 18, 2005).

    Though it has been 19 years since the end of the last recession in Australia, the last three recessions occurred in 8-year intervals, in 1974-75, 1982-83, 1990-91. Each recession was more severe than the last, involving sharp rises in unemployment (Ross Gittins, Softies have to get tough, SMH, May 10, 1997).

    Therefore it is not just a coincidence that we see in economic history recurring recessions and occasional depressions. This is in fact the years of release [cancellation of short-term debt] and the Jubilee year [cancellation of long-term debt] working in reverse. The orderly way without pain, and the unorderly way with pain have the same effect. Debt and inequalities in an economy are worked-out so that the cycle can begin afresh.

  10. Oh I see…
    Well I was trying to be a little more cheery in my last post BP.
    At least they’re cutting back on the drug use at work…maybe a good first step ;)

  11. Cheer up, Lachlan. It may all just fly past us, leaving us unscathed…!!~
    You’ll recall that both our contenders for the crown tell us they can rid us of the deficit within three years. :) Our grandchildren will enjoy a surplus!~

    I read an interesting Letter to the Editor a couple of weeks back, when the Mining Super Tax debate was raging and prime ministers were dropping off perches and it all looked pretty shaky.

    The writer, from Southern River WA, made a point which resonated, particularly after reading OMG’s post on derivatives here. I’ll quote it verbatim:

    “However there is one group that makes its money without adding any benefit to the world economy. In fact the results of its actions often brings misery to many.

    I’m talking about the day-traders, currency speculators and short sellers. These people are the disciples of the god of greed, the termites of the financial system by manipulating the markets. These are the people who need to pay the super tax. Trades that are reversed within 24 hours should be taxed at 99c in the dollar.”

    It was an interesting perception, one I’d never before considered… .
    Still pondering whether there’s merit to the suggestion… .

  12. BP I dont really know the truth of those matters. I can only say what I think would be the case. As an individual trader I cant see how I could effect the direction of a market because I’m too small and from my own observations private traders lose money into the market on net. On the other hand if one had practically unlimited capital with no risk (printing press, public takes risk) then you would have the grunt to manipulate markets away from their natural course and to the detriment of producers.
    Traders dont just take money out they put it in.
    I need someone who knows better to help with this its beyond me really. ROSS?

  13. So naked short selling would cause a problem I think.

  14. Tricky one isn’t it? Things seemed to work reasonably well when we had:

    a) ‘Producers’ producing stuff in the real world
    b) ‘Capitalists’ ponying up capital for the producers to risk
    c) Traditional style banks as go betweens for a) and b)
    d) Pollies and public servants who figured that they added something to it all and that a), b) and c) should all be compelled to feed them, and
    e) The charity cases that figure even though they add nothing to anything they are entitled to a feed regardless

    But then we got these other sorts of banks that figured they could make big bucks betting on whether a) thru e) stuffed it all up (or not) – Which mightn’t have been a huge big deal (maybe?), except these other banks managed to join themselves at the hip to c) – Dare say someone with way more understanding can correct my various misunderstandings?

  15. That’s a simplification, but it’s pretty much spot-on, Ned. Once the thin line between ethics and profits frayed… and the easy-bucks-brigade summed this up as reduced risk (to them) the US and Europe were open wide.
    You only have to look at the tens of thousands of _immense_ bonuses paid to these crims, to bleed their countrymen dry, to lose all respect for US financial systems.

    I’m not sure many of them ever believed it _would_ collapse. The thing fed on itself for a long time, unchecked. At the point at which these slimers starting selling their neatly-wrapped excrement to our Shire Councils, you’d have thought alarm bells here might have started ringing. Our local CEO fled once it all went down.

    I’m sure that sound regulation of most public institutions prevented more widespread damage in Australia. Managers were totally restricted in their placement of investment money. Very thorough auditing not only prevented risk, but required detailed written explanation of why one lodged funds with this B4 bank, rather than that B4 bank. This is possibly not all that well known by the public. The level of audit intensity was so high that all of us deemed it paranoia, yet it undoubtedly limited the damage here.

  16. Throw in the fact that the world never has come up with a reserve currency that actually works, and that a few more billion people became participants in the capitalist system over the last few decades (with most of them not actually needing USD 40k pa to make ends meet), Mr Greenspan figuring that cheap credit and bubbles equated to growth (with the system being stuffed now if the cheap credit should disappear), a few changes on the horizon re global demographics over the next few decades, and the fact that the developed nation’s major innovations over the last decade probably haven’t added all that much in terms of particular productivity or value, and one could be forgiven for suggesting that now might be a good time for ‘us’ to do better perhaps? :)

  17. “…the developed nation’s major innovations over the last decade probably haven’t added all that much in terms of particular productivity or value…”

    And where the West _has_ innovated, the work has gone offshore, to minimise costs. Your point about the major increase in ‘capitalist consumers’ is also worth considering, Ned.

    Once it all started to unravel, we could also analyse where we got it _right_ and where we _screwed up_.

    Looking at stimulus projects across Canada, we heard of a one rort almost as questionable to us as any back home! To boost tourism, this initiative encouraged owners of very large homes to upgrade them to B & Bs, with huge cash incentives for construction work. It’s claimed that once completely renovated, many owners simply erected No Vacancy signs… . I’m sure we also inspected a few immediately put up for sale… .

    But to our astonishment, it appeared that Quebec Province was maximising their windfall, focusing on infrastructure. Certainly they were repairing roads and highways throughout the province. Bummer for travel, initially, but you had to admire their activity. Crossing Canada we saw nothing comparable.

    You have to ask how Canada apparently got most of it right… and we got so much of it wrong. Was it the areas we focused on; our incredible rush towards implementation; or our failure to critically select and monitor the contractors… or all three?

  18. “where the West _has_ innovated, the work has gone offshore, to minimise costs” – I really can’t see any way around that one Biker. (Although Dan Denning does occasionally mention the possibility of de-globalisation.)

    The indications just seem to be that if people have maybe been used to earning USD 500 pa (or less) and they suddenly get the opportunity to earn USD 4k pa and join the new rich who own a scooter and a mobile phone, they are going to see their lives as pretty good – Despite any lessons their western contemporaries may wish to pass on about how they are being exploited in slave labour sweatshops and buggering up the world’s environment in the process.

    Ultimately of course, we could get the issue where lots of clever and hard working young students head back home with their financial engineering degrees etc to countries that are running surpluses I guess? And then things could get real sticky for their direct competitors. (Which makes our approach of continuing to make like wombats and digging holes in the ground sound like a reasonable interim measure for countries that do have that option maybe.)

    There’s plenty of potential issues I guess. And by and large our western pollies probably don’t see much value in telling us too much about them.

  19. “I’m not sure many of them ever believed it _would_ collapse”

    not many, but its the few (elites) who, with my tin foil hat on, I worry about….have they also gone too far? is their own game theory (if it collapses, how to gain) faulty? are there benevolent mystical forces at work? I dont know, but it is not impossible that some agencies have their hands on all the relevant strings (media, culture, trading, government…and our brainwashed and dependent minds). time might tell.

    I’d imagine that most Ozzies would be horrified to live on $200 a week (like myself). but I also know that I am over the global average, and reeking less havock on the environment, so well prepared in that sense for a lower standard of living, if that is to come to pass for most. also aware that I would have to work my bones harder to get that much were we to go back to the 19th century. better to be the clever countries.

    debt forgiveness/default is one option (the biblical seventh year), but was it not also a debt ridden war that is said to have ended the great depression… care for another folks?

    economics… the dismal science. new born sheep bouncing around the paddock… bliss. lamb cutlets tba.

    July 7, 2010
  20. The only workable suggestion for a stable currency that I have read about is that suggested by Lietaer in his book : “The Future of Money”.
    He proposes a world trade currency backed by a weighted group of commodities such as : Gold, Silver, Oil, Wheat, Corn,Copper etc. This has one great advantage in that no government could fraudulently produce them as they can with fiat paper and governments would be forced to keep enough on hand to back their debts.

  21. Keynes had a similar idea:

    Issues with using a national currency as an international reserve currency are discussed here:


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