Best of the Week
Most Popular
1.Stock Market Continues Defying Gravity, Dow New All Time High - Nadeem_Walayat
2.America Superpower 2016 - Ian Bremmer
3.The US Dollar and the Precious Metals Complex - Rambus_Chartology
4.UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - Nadeem_Walayat
5.The “Real Flash Crash” Will Scare You to Death - Shah Gilani
6.Gold Price Trend Forecast - Bob_Louka
7.UK Deflation Warning - Bank of England Economic Propaganda to Print and Inflate Debt - Nadeem_Walayat
8.Gold Lifeboat to Global Economies “Titanic Problem” Warn HSBC - GoldCore
9.Will Interest Rates Ever Rise? - BATR
10.Who’s Killing the Stock Market? - Shah Gilani
Last 5 days
Best Cash ISA SBI 2.3% - 2.8 Year Fix, UK Interest Rates 2016 - 26th May 15
China Sets Up Gold Bullion Fund For Central Banks - 25th May 15
Is The Silver Trade Getting Crowded? - 25th May 15
Money Murder Mystery: Who Killed the Stock Market? - 25th May 15
Why Do We Celebrate Rising U.S. House Prices? - 24th May 15
Mario Draghi’s Slippery Downward Slope - 24th May 15
Gold : Truth is Stranger than Fiction - 24th May 15
Facebook Stock Price Forecast - 24th May 15
Make a Killing on the Coming Energy "Debt Bubble" - 24th May 15
Stock Market SPX Uptrend Inflection Point - 23rd May 15
What You Know for Certain - Huge Demand for Gold And Silver - 23rd May 15
Are We in Another Credit Bubble? And Is It Different than Before? - 23rd May 15
The “Real Flash Crash” Will Scare You to Death - 23rd May 15
Venezuela: No Rule of Law, Bad Money - 23rd May 15
Robots That Can Beat the Market by 100% - 23rd May 15
Why Shake Shack Stock Is a Bad Investment - 23rd May 15
Gold Price Primary Driver Bullish - 23rd May 15
Time To Get Real About China - 22nd May 15
Gold Lifeboat to Global Economies “Titanic Problem” Warn HSBC - 22nd May 15
One Investment Could Save Two Generations' Retirements - 22nd May 15
Investing is About Identifying Gifted and Talented Camps - 22nd May 15
One of Europe's Latest Debt Nightmares - 22nd May 15
UK Immigration Crisis Could Prompt BREXIT, Propelling Britain Out of EU Despite German Factor - 22nd May 15
America Superpower 2016 - 21st May 15
Stock Market Secular Versus Cyclical Investing - 21st May 15
Banking Stocks Break Out with Higher Bond Yields - 21st May 15
The Tech Portfolio Built to Beat the Market - 21st May 15
Gold “Less Sexy” Than Bitcoin … For Now - GoldCore on CNBC - 21st May 15
The Russia-West Rivalry in the Balkans - 21st May 15
The US Dollar and the Precious Metals Complex - 21st May 15
Gold GLD ETF Drawdown Continues Unabated - 21st May 15
Who’s Killing the Stock Market? - 21st May 15
Your Best Way to Profit from the Narrowest Market in 20 Years - 21st May 15
Government Regulation and Economic Stagnation - 20th May 15
It’s Time to Hold More Cash and Buy Gold - 20th May 15
Choppy Asian Stock Markets - 20th May 15
Countdown to Global Financial Collapse - 20th May 15
Will Interest Rates Ever Rise? - 20th May 15
How to Cash in on Amazon Stock’s Amazing Cloud Success - 20th May 15
Three Hidden Forces Pushing Crude Oil Price Back Up - 20th May 15
U.S. Housing Market Strong Numbers in Perspective - 20th May 15
Greece Debt Crisis - Obama Has A Big Fat Greek Finger - 20th May 15
Now Is the Time to Own the Oil & Gas Leaders - 20th May 15
UK Deflation Warning - Bank of England Economic Propaganda to Print and Inflate Debt - 20th May 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Biggest Debt Bomb in History

The Quadrillion Dollar Deflationary Debt Raft

Interest-Rates / US Debt Sep 05, 2012 - 02:03 AM GMT

By: Raul_I_Meijer

Interest-Rates

Best Financial Markets Analysis ArticleOur Down Under roving reporter Skip came up with a few interesting questions when watching an interview that Russia Today recently ran with economist Richard Duncan.

Where doth debt take us going forward, and, for that matter, where has it - really - taken us so far? If and when Japan implodes, does that force the US out of the possibility of moving - or already being - into the Japanese deflationary scenario and into something more sinister? Will it be a quadrillion dollar long-term drip-feed, in essence prolonging death, or a massive quadrillion dollar diversion into breakthrough technologies? Both perhaps? Go halfsies?


Detroit Publishing Co. "Primitive ferry, High Bridge, Kentucky River" 1907

 

Come to think of it, do we (still?!) live in capitalism or is it really just creditism?

And how come Richard Duncan has this unshakable faith in these "cutting edge" technologies? Why is he so sure that they would make the US a great economic power? Are there any examples out there that would prove this, for instance, or does Duncan simply make it all up as he goes along? Is he a believer in 21st century magical realism?

Skip Breakfast :

Does Richard Duncan have it going on?

Or is this economist missing something?

Richard Duncan on Riding out this Depression on a Deflationary Debt Raft!

He recognizes we are teetering on a deflationary death spiral. But sees more than one possibility unfolding from this point, as follows:

1) the aforementioned deflationary depression;

2) a Japanese scenario in which the government drip-feeds trillion dollar stimulus for 5 to 10 years, keeping America on life-support...but resulting in an un-repayable deficit a decade later and the aforementioned (but delayed) deflationary depression (nevertheless, he adds, postponing certain death until later is better than certain death today); or:

3) the US government learns from the Japanese scenario how spending on "bridges to nowhere" didn't solve the problem, and instead massive government spending is diverted into breakthrough technologies, in particular renewable energy like solar, thereby becoming a world leader in such technologies and securing another century of US economic dominance.

The problems I spotted with Duncan's three-pronged outlook are (unfortunately) within the theoretically preferable option 2 and option 3.

In option 2, Duncan himself points out that Japan is going to implode sooner than later, with its current debts equal to 240% of GDP. And so I wonder how on earth the U.S. could continue to fund the multi-trillion dollar life-support model he pre-supposed can last for 5 to 10 years. I would expect that a Japanese implosion would quickly scuttle such a plan, as the will to follow in Japan's footsteps would immediately be shaken--not to mention that a Japanese implosion would be so brutally devastating on world bond markets that I doubt the U.S. could actually fund such a plan.

Japan has had the benefit of a quarter century of American and European credit-backed "growth". The US would have no such world to borrow from. And so, I can't see the current drip-feed model lasting long enough to emulate Japan in any real respect. Can the U.S. just print at will in such a post-Japanese-default scenario without losing the total faith of the bond market? I don't believe so. So, this route quickly becomes politically and economically untenable.

Finally, his option 3 sounds far too much like spending trillions hoping to learn magic powers. Yes, new technologies will be discovered, and we'll need them. But they won't be sufficient to replace existing but too-expensive technologies (like oil). At least not in nearly enough time. I'm much more persuaded by James Kunstler's arguments in Too Much Magic, wherein he posits that the time for hoping for miracles like flying cars is over, and the time to begin preparing for the long emergency has begun. And so Duncan's option 3 ends up being a risky quadrillion dollar bet that isn't necessarily all that different than option 2's bridges to nowhere.

Which sends me right back to square one and the dreaded deflationary depression.

Would love to know what anyone else thinks are the merits or weaknesses in Duncan's outlook.

By Raul Ilargi Meijer
Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2012 Copyright Raul I Meijer - 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.


© 2005-2015 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

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

Biggest Debt Bomb in History