G.L.Piggy [at] gmail.com
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Currently, I’m fascinated with the idea that the global economy is undergoing a structural shift which will rip apart social fabrics across the globe. The name of the game is deleveraging. The West has spent the past several decades living high on the hog. Our jobs, our cars, our happiness, our comfort, our diets, our vacations, our educations, our luxuries – they’re all debt-figments. The problem is – much like a soured marriage – we were never as happy during the thing as we were upset during the breakup.
Given that our way of life has been debt financed, a necessary decrease in debt financing will translate into a decrease in household utility. Given that wages and well-being are sticky – retreating from a baseline economic level is psychologically debilitating therefore it creates a hard hurdle to overcome – debt deflation will translate into unhappiness, civil unrest, and – at the extreme end – revolution. But, of course, the explanation will never be quite so sophisticated. Instead, the masses will just be angry or disenfranchised or screwed-over or sick and tired of hegemony. They won’t understand the essential components causing their frustration.
I like this chart and I like this post from Chris Martenson which was cross-posted at Zero Hedge:
This chart shows that for the past 40 years, debt has been growing at an exponential rate. Our economy – our very way of life – is based upon exponentially-growing debt. Our way of life was predicated on more debt being generated to help pay off interest on previous loans. And along the way, with the newer and newer loans, we bought some things that made us happy. Our economic status quo – because of the need to continuously pay interest on the ever-growing level of debt – requires an exponential trajectory. But when lenders become wary of lending more money, the actual level of debt borrowing ventures from the path needed to maintain a certain economic level and people start poking at the weakest Jenga block at the bottom of the tower.
The thing is that all of the various pistons that had to be firing on all cylinders for us to maintain our collective complacency have petered out. We can’t continue to finance a certain amount of material wealth and widespread comfort. Government spending, wages, and pensions can’t maintain their current trajectory. As the economy necessarily contracts, nearly everyone across the developed world will have to hunker down in some way. And hunkering is closely related to feeling ashamed which hardly ever elicits a good response.