Wednesday, January 06, 2016

2016 Theme #4: The End-Game of Debt-Fueled "Growth"

This week I am addressing themes I see playing out in 2016.
A number of systemic, structural forces are intersecting in 2016. One is the end-game of debt-fueled "growth."
We can summarize the official "solution" to the Global Financial Meltdown of 2008 in one line: borrow and blow trillions--of yen, yuan, dollars, euros, reals, you name it.
The goal of borrowing and blowing trillions was to re-invigorate "growth"-- any kind of "growth," no matter how wasteful, unproductive or even counter-productive it might be: wars, nation-building, ghost cities, needless MRIs, useless college diplomas, bridge to nowhere--anything the borrowed money was squandered on counts as "growth" in the Keynesian status quo.
Unsurprisingly, this strategy yields diminishing returns as the negative returns on all this debt-fueled spending piles up. While the yield on the "investment" is either negative or only fleetingly positive, the interest due on the debt is forever. That's the source of diminishing returns in a nutshell.
The diminishing returns on additional debt is clearly visible in these charts.
Global debt has soared but this massive stimulus has yielded subpar "growth" (and the final costs of all the astounding mal-investment have yet to be totaled):
Has borrowing and blowing $9 trillion solved any structural problem in the U.S. economy? No.
While total credit in the U.S. has exploded, GDP (a measure of actual output) has under-performed for years. The tiny decline of credit in the 2008-09 financial meltdown almost collapsed the global economy. The strategy of borrowing and blowing trillions has backed the global economy into a corner: expand debt or die.
While U.S. bank credit has expanded by 40%, GDP has risen 21.7%--roughly half the rate of credit expansion. This is diminishing returns on a vast scale.
It's requiring more borrowed yen/yuan/dollars/euros just to keep the global economy from collapsing in a heap of impaired debt. The costs of waste, fraud and mal-investment are finally coming home to roost, and while near-zero interest rates serve to mask the future costs, near-zero rates cannot stem the rising tide of mal-investment.
Rather, near-zero rates have fueled mal-investment, waste and unproductive spending. The diminishing returns on that strategy of "growth" are inescapable.
My new book is #7 in Amazon's Kindle ebooks > Business & Money > International Economics: A Radically Beneficial World: Automation, Technology and Creating Jobs for All. The Kindle edition is $$9.95 and the print edition is currently discounted to $21.60.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Charles M. ($120), for your outrageously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
Thank you, John H. ($50), for your superbly generous contribution to this site -- I am greatly honored by your steadfast support and readership.

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.


Our Privacy Policy:
Correspondents' email is strictly confidential. The third-party advertising placed by Adsense, Investing Channel and/or other ad networks may collect information for ad targeting. Links for commercial sites are paid advertisements. Blog links on the site are posted at my discretion.


Our Commission Policy:
Though I earn a small commission on Amazon.com books and gift certificates purchased via links on my site, I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP