Topic: Economics
2015: The Year Keynesian Economics Fails Epically Debt isn't fixing what it used to...by DustoneGT
(libertarian)
Monday, November 10, 2008
This graph from The Market Ticker shows that the time is soon approaching when the government can't debt away the economic problems. This may happen sooner....the progression of reduced debt effectiveness is only accelerated by debt.
When this happens, the government will see a shrinking economy and thus shrinking tax revenues. They will be unable to service the debt. The national government will be bankrupt. The buzzards will circle.
The most obvious (and the only available) answer to this situation will be to fire up the printing presses to service the debt and try to 'fix' the economy. Because debt quit working, they will steal the value of money right out of your wallet and hope you don't notice (and most will not notice at all....the rising prices are caused by speculators after all...).
Perhaps a more important question to ask is this: Why is public debt not helping like it used to?
When the government diverts capital to inefficient uses (Like bailing out GM, Ford and Chrysler), that money is taken away from other, more efficient uses. To save jobs at the auto plants, more productive jobs elsewhere are either destroyed or never created. The GDP doesn't grow as well as it would if the free market were to allocate the capital.
This is the basic problem with government intervention in the market. The free market always allocates resources (money, capital) to the most efficient use. Men think they are wise and can do a better job allocating the wealth. They are not God and they do not know everything, much less enough to know what is the most efficient use.
When the intervention fails, the politicians tell us that it failed because there wasn't enough intervention. More intervention ensues and things only get worse because more and more of the economy falls victim to government control and manipulation.
The unavoidable conclusion that politicians will arrive at is that an absolute power is needed to solve the mounting problems. An increasingly powerful executive branch is given all of our economic liberty and with that they take the rest of our liberties away, mostly because they can. We will not fight them because there will be a crisis of some sort going on that scares the living excrement out of us.
"Help me big government, you're my only hope."
I know this is 180* off what the commentators at CNN and Fox News are saying (this isn't the destructive big government you're looking for, move along), but it's true and people have known it for thousands of years.
Sima Qian, an ancient Confucian philosopher said that when the price is the same for all shoes, be they cheaply-made or finely-crafted, nobody will make the finely-crafted shoes. There is no incentive to do so.
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Posted By: Jahfre Fire Eater
Date: 2008-11-10 07:07:42
Hi DustoneGT,
Given that Obama will do all he can to accelerate the collapse of US society as we have come to know it over the past several decades, I think 2015 much too far away even though it matches the graphic. I expect to see the collapse before 2012 and it will be spectacular.
As I have said for quite some time now, the underlying burden of debt will eventually consume economic viability. Stress cracks began to show within the last couple of decades when the tolerance spread between economic growth and interest rates began to narrow. At one time the economy could tolerate a rise in rates and continue to grow, that factor has steadily declined over the years.
Ultimately, the Debt Standard of Fiat Money always follows the same pattern of destruction, the foundation of debt upon which the economy is built upon becomes an irreversible force that is multiplied exponentially until the level of debt can no longer be serviced by the economy.
By destroying the value of the dollar, the government (all) is going to make itself irrelevant. A commodity-based currency can fill the void. I don't think it will be gold. It will be gasoline. Here's why.
In order to get to your job, you need to fill your tank. Your employer can give you a gift card, not demoninated in dollars, but in gallons of gas. Regardless of the price, it will be redeemable at any participating gas station. If these gift cards can be traded for other things AND can be redeemed for fuel, why would anyone want to keep useless Federal Reserve Notes?
Over time, one commodity can be traded for a quantity of another commodity, with no currency needed at all. We have the technology to make this happen. Hyper-barter will follow hyper-inflation.
A lot could happen in your seven-year scenario. Hang on tight!
If I'm understanding your graph, you're saying that the real cost of interest on the debt will soon surpass the real growth rate of the economy, meaning that at some point soon, additional debt will immediately make us poorer (rather than just making our children poorer) because the additional interest overwhelm the small real growth margin we've left for ourselves. Correct?
A similar factor is that our debt % of GDP is approaching 100% rather quickly... I suspect that the "bailout" will do the trick once the trillions are accounted for. This crisis is uniquely illustrative of your point, having been precipitated by a huge dollar bubble that no one in the media seems to want to talk about.
Just to add a little cream to your coffee, let me add an answer to your famous Sima Qian quotation to show how limited his (and yours, perhaps) understanding of the principle of price is ~
The person who will make the finely-crafted shoe when the price for all shoes is the same is the person who: 1) makes the shoe for themselves, 2) makes it as a gift for someone they regard highly, 3) someone who gets more reward from MAKING the shoe than they get from SELLING the shoe.
Do you think Einstein contributed his thinking because of the MONEY he got from it? Or Copernicus? Or even Jonas Salk, or Alexander Graham Bell?
Anyone who thinks that PRICE is the determinant of QUALITY doesn't know that the most precious things are PRICE-LESS!
Maybe those Chinese aren't as bright as we think they are, huh?
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