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.
Like this:
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Chuck I am generally impressed by how savvy you are about markets and economics but please don’t believe everything (really, anything) you read at Zero Hedge.
Your comparison to a marriage gone sour is apt. A lot of people in bad marriages are going to have to stick it out because they won’t be able to afford a divorce.
Was the chart adjusted for money supply increase (inflation)? It’s also exponential. The question is what grows faster.
mike,
ZH has some harebrained stuff on there, but most of the contributors seem to know what they’re talking about. And either way, our debt overhang will have to come to a head at some point.
Krakonos,
The thing is that we have monetized debt. Money as we know it is attached to a certain amount of debt. When a dollar is created, b/c of fractional reserve banking, it is offset by a dollar of debt that someone else owns. So we are operating under the belief that we are ever paying off debt, but we aren’t. Debt is payed off by even more debt. But at some point the amount of resources we can draw on to continue servicing debt will fall below a certain level. And when that happens (seems to be happening now), the world will delever and suffering will commence.
(as I’m working on getting banned for off-topicality…)
What is it with flamboyant gay singers and nonsense/random lyrics? Working with two data-points here: Freddie Mercury “Bohemian Rhapsody” and Andrew Wood (Mother Love Bone) “Stargazer”? OK, a third Honorary Homo datapoint: Michael Stipe of REM, with his “Out of Time” album, and its indecipherable songs.
On a personal note, there is something, musically, about “Stargazer” that hits all the sweet spots with me. Especially the bridge and last verse. Very targeted, very emotional. The evocative words, the swell of the guitars and backup vocals…
One of my recent satisfactions is having learned to play on the guitar and sing that song semi-competently.
To expand on PA’s off-topic, Mother Love Bone served up sonic goodness. They were very informed by the time in which they existed, but they were far more musically inventive and interesting than most of their compatriots. Lyrically, I think Woods heroin use was a compounding factor to his particular writing style. “Till kingdom come, thy work is done, on earth as it is in Dallas.” To me, that’s beyond odd.