Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Friday Stock Market CRASH Following Israel Attack on Iranian Nuclear Facilities - 19th Apr 24
All Measures to Combat Global Warming Are Smoke and Mirrors! - 18th Apr 24
Cisco Then vs. Nvidia Now - 18th Apr 24
Is the Biden Administration Trying To Destroy the Dollar? - 18th Apr 24
S&P Stock Market Trend Forecast to Dec 2024 - 16th Apr 24
No Deposit Bonuses: Boost Your Finances - 16th Apr 24
Global Warming ClImate Change Mega Death Trend - 8th Apr 24
Gold Is Rallying Again, But Silver Could Get REALLY Interesting - 8th Apr 24
Media Elite Belittle Inflation Struggles of Ordinary Americans - 8th Apr 24
Profit from the Roaring AI 2020's Tech Stocks Economic Boom - 8th Apr 24
Stock Market Election Year Five Nights at Freddy's - 7th Apr 24
It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- 7th Apr 24
AI Revolution and NVDA: Why Tough Going May Be Ahead - 7th Apr 24
Hidden cost of US homeownership just saw its biggest spike in 5 years - 7th Apr 24
What Happens To Gold Price If The Fed Doesn’t Cut Rates? - 7th Apr 24
The Fed is becoming increasingly divided on interest rates - 7th Apr 24
The Evils of Paper Money Have no End - 7th Apr 24
Stock Market Presidential Election Cycle Seasonal Trend Analysis - 3rd Apr 24
Stock Market Presidential Election Cycle Seasonal Trend - 2nd Apr 24
Dow Stock Market Annual Percent Change Analysis 2024 - 2nd Apr 24
Bitcoin S&P Pattern - 31st Mar 24
S&P Stock Market Correlating Seasonal Swings - 31st Mar 24
S&P SEASONAL ANALYSIS - 31st Mar 24
Here's a Dirty Little Secret: Federal Reserve Monetary Policy Is Still Loose - 31st Mar 24
Tandem Chairman Paul Pester on Fintech, AI, and the Future of Banking in the UK - 31st Mar 24
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Economic Growth Is Obsolete

Economics / Economic Theory Oct 23, 2011 - 02:14 AM GMT

By: Andrew_McKillop

Economics

Best Financial Markets Analysis ArticleThe last 'classic economic growth interval' can be almost exactly defined as the years 2004-2007.

After that, we enter a zone of permanent disaster for the late, unlamented by myself, Growth Economy which can only and does only operate in a series of boom-slump cycles. What we have now, since 2008 is however different: this slump is vastly greater than the nicely doctored official economic numbers can show. True numbers would not only be terrifying, but also hard to believe.


We can unfortunately be almost sure there is no Happy Ending at the end of this unlit tunnel. Due to the incredibly massive injections of borrowed and printed public money being desperately thrown by politicians and central bankers at European and US high street banks, and their debtor victim countries like Greece the official hope of a 'classic economic rebound' is a pious vow by unbelievers in a ruined cathedral. It has no sense at all. The global economy is almost fatally doomed to rapidly abort.

How the knockout blow happens is conjectural. It could arise from another spiral of oil prices, the unstoppable return of inflation, from interest rate hikes to defend the critically weak dollar and euro, yen and other moneys. It could be triggered by other factors like the Global 99 Percent sit-ins and protest rallies right across the planet. Great power rivalry and conflict could or might be ignited by ever rising trade and money conflicts. They could also be triggered by the Arab spring revolutions going into higher gear, following the "death clip video" killing of Gaddafi, spilling over to the oil producing heartlands of the GCC countries and causing a scrabble for oil, but in any case the survivability of what we can call a classic economic rebound is extremely low - if that rebound even started.

SIMPLE OBSOLESCENCE

To be sure, the last good years of 2004-2007 were not used to any reasoned purpose by war-crazed leaders such as G W Bush and his downized imitators in other G8 countries, including Putin. Playing the only games they know, those conventional political leaders levered up trade tensions and rivalries, geopolitical power plays and local wars, and capped this with climate change hysteria and doomsterism while ignoring all real resource and environmental limits to conventional economic growth. The gameplan was set in concrete: economic recovery is now impossible because it is simply obsolescent.

In 2003 the outlook seemed different. From that standpoint in time it was possible to predict a mild but constant growth in Commodity prices and Equity prices. Oil prices might have topped out at close to    $ 100, other key commodities like copper and the food grains would have shown similar profiles, the global economy could have kept on gorwing at rates as high as 5% a year, trawling and dredging the sluggish "mature postindustrial democracies" of the OECD up from their long-term deathwish of ever slower growth. the right level to constantly stimulate world economic growth by what I call ‘Petro Keynesian Growth’. This is what in fact happened, only through 2004-2007.

Oil prices overshot, food prices overshot, credit growth overshot and sovereign debt overshot. Global economic growth then undershot, and collapsed. Today's "rearview mirror" figures, further doctored by anxious and lying official agencies, give no real inkling of how far down we have gone. Looking back to that black swan song of old-style economic growth we can see that even it was not enough. It could not right the "troubling underperformance" of economic growth in the OECD countries, it could not save US and European banks and insurance players on the roulette wheels and casino tables of the late stage, post-mature global finance industry. Confetti money bred confetti debts and losses, just like in the Sorceror's Apprentice story. Today these debts and liabilities are totally unmanageable, perhaps even unknown, perhaps impossible to calculate.

WHY NO BOUNCE

This paper asset implosion will not be followed by a quick and reassuring 'real economy bounce', as in 1987, or following the crises of the 1990s, or in fact what happened fleetingly in the 2009-2010 period. The so-called 'real economy' could previously and quickly, or relatively quickly shake off the mountain of paper asset losses. It could return to hewing wood in the world's disappearing tropical forests, drawing oil from its depleting oil-bearing source rocks, and producing food from its declining arable land areas, using irrigation water from depleting deep mined acquifers - while Great Leaders whined about climate change, but had no time for the planet's 900 million human beings who do not eat enough, or the thousands of animal and plant species chased and hounded to extinction every year. As for youth unemplyment rates of 40% or 50% in so-called "mature democracies" who gave a damn ?

The new industrial powerhouses of the world, China and India, burning about 2.7 billion tons of coal per year, were there to reassure lovers of 19th century-style industrial wealth creation that this game was still possible. Even today, late in 2011, with a trace of nostalgia and a lot of naivety, political and business leaders in the OECD countries still invoke 'China and India decoupling'. This fantasist theory supposedly allows hope these two emerging economy giants will play steam locomotive and pull the "postindustrial" and oil-fired OECD out of permanent recession.

For the OECD countries the reality is economic obsolescence. One easy conclusion is that most, or nearly all OECD economies, led by the USA, have been shifting for at least 20 years one-way to economic growth only meaning credit-based personal consumption growth. Through about 15 years this model received an additional, fixed-term life extension through massive imports of decreasingly cheap Chinese industrial goods and decreasingly cheap services from India and elsewhere. This of course only generated permanent and massive trade deficits, openly admitted today, by the political deciders who cranked up this No Alternative. After this mea culpa, we move on to the real meat of their programme: untold billions of borrowed and printed money 'injected' into the most unreal and fragile sub-economy that exists: the financial industry.

THE NON-SOLUTIONS: KEYNES AND THE NEOLIBERALS

Touching faith in 1930s-style Keynesian solutions - borrow and spend - has a perfect counterpart opposite, faith in the equally failed doctrine of tax less and spend more.

Neither work; both drive up state borrowing and debt. Both end in failure.

Both of these failed doctrines are also similar in playacting faith in the so-called global economy. The reason is simple: even if economic growth is obsolete in whate were called "the rich countries", it exists somewhere out there, probably in China and India, or possibly the dark side of the moon. It is our only  hope for restoring economic growth in the mature postindustrial OECD countries – whose societies have never consumed so many industrial goods and hi-tech services in any past period of their entire history! If this is "postindustrialism" Obama is the most popular US president of all time !

When teamed together as they are now, in a final death embrace, these two failed doctrines can only deliver economic rout and financial armageddon. At some stage, now for example, sovereign debts have to be paid down and the banks and investor funds which lent them money at sky high interest rates have to be saved - but the debt wont be paid and the banks cant be saved. The entire economic model, and even the infrastructures of what New Economists claimed was the 'no alternative postindustrial mature democracy' model for the entire world are increasingly obsolete.

When something is obsolete it gets replaced and superceded. It disappears from the scene, it no longer has any relevance.

HOW THE NO BOUNCE PLAYS OUT

Previous boom and bust sequence, for example after six years of recession in the late 1930s, again in the 1970s, in 1987 and after the Asian and Russian crises of the late 1990s, tended to show a comforting long-term trend: the real economy always bounced back, always faster.

The reason was simple but hidden: the real economy had been diluted with papaer and electronic assets of zero value, but high decorative appeal. The financial industry superstructure was - and is - divorced from and unrelated to the real economy infrastructure that it feeds on, far below. Much worse than any Marxist nightmare, the false and fake superstructure has devoured its host. The comforting PPP real and purchasing power corrected comparisons of how much a McDonalds burger costs in Pekin or Paris are the wrong way round: the OECD superstructure economy is downsizing year-in and year-out, supplying the core reality of pleas and prayers for the "Asian steam powered locomotive" to come along and save the flailing postindustrial economy marooned on an empty platform of a disused station.

There has been no "real economy" growth for a decade in the OECD countries - for two decades in Japan. To be sure this painful 'economic adjustment', or permanent austerity, is ignored but the chances of this being turned around by more borrowing, or by more tax cuts are absurdly low. Late stage capitalism is a death trip for the real economy and No Bounce is the only rational outlook.

The fond hope that quick bounces of the 1980s and 1990s sort could or might happen again, today,  are obliged to imagine that 1929-type crises are obsolete, consigned to the wastebin of history by the now increasingly fuzzy and out of focus New Economy. The real fundamentals of the New Economy have drifted, fast and one-way only, to something much closer to No Future than No Alternative. Already from the late 1980s, the real economy was out of steam, that is steam coal, oil and cheap resources. Real economy growth surges in the OECD countries could only be fleeting, low, unstable, inflationary, and shorter, following each levering of the paper asset bubble. It is light years away from Chicago School 1960s dreamings of sustained belle epoque growth on the back of oil at $1.50 a barrel, with year-on-year growth at 4% or more, with no inflation, with balanced trade accounts, low unemployment and confident consumers - and above all for political deciders and business leaders, economic predictability and manageability.

The New Economy which we can date at around 1985-2005 supposedly set out to recapture the lost age of economic bliss, but is now a minefield of danger delivering ever shorter cycles of unstable growth always followed by ever more violent meltdowns. The present crisis is the first of a new-old genre, closer to 1929-36 than the previous New Economy crises, of the 1980s or 1990s. From 2009, the rational outlook is for 10 years of stagnation, maybe longer. The bottom line is simple: the New Economy is obsolete. What comes after it is simple: Long recession. ******

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2011 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

Rachel Styles
23 Oct 11, 18:43
what the US did

If the US didn't use all their money on the war, the economy wouldn't be as bad as it is. Americans blame the federal government more for the nation's economic plight than they do the primary target of the Occupy Wall Street protests --- big financial institutions. If you don't know why the US economy is so bad, this article gives a great explanation on what the US did.

http://explainlikeakid.blogspot.com/2011/10/why-economy-in-america-is-bad.html


Post Comment

Only logged in users are allowed to post comments. Register/ Log in