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Debt Delinquancy - Seamless Collapse Economics

Economics / Global Debt Crisis 2013 Feb 03, 2013 - 03:34 PM GMT

By: Andrew_McKillop


The New Age mystics told us that the Mayans told them the world would end in Dec 2012, but in reality the world ran out of Mayans an awful long time ago: about 1550 AD. Nearer to us, the world has already run out of credit, more than 5 years ago, or 1800 days back in time from today.

The US fiscal cliff, in December, morphed into the "debt ceiling" of a supposed theoretical $16.39 trillion limit, but this promises to disappear a lot faster than the Mayans. Big spending on little wars for example has to go on a little longer, at around $4 billion-a-week to prop up the "democratizing quest" in the mountains of Afghanistan, almost identical with the approximate $4 billion weekly needed to pay interest on US national debt.

Mayans of course had no problems with opposition parties and the media, or central banks, and managed to destroy their economy with no outside help at all, exactly like the US. Outside the US, to be sure, everybody else is doing the same trick - rebuilding credit and depreciating old debt - and in the case of heavily debt strapped France, has now offered itself a "designer war" in Mali. Timbuktu is now liberated. Rejoice!

The major point is that so-called "opposition parties", and of course the media, will flock to support any new increase in debt and - whyever not? - a new but modest designer war somewhere over the horizon. The spin, both political and mediatic will surely be professional, the insults can fly, and the nicely organized TV debates will seem furious. But long before the end of the day there will be "all party support" to lifting the borrowing caps, stretching the limits of debt, and waving a magic wand at the see-through glass debt ceiling, which in any case has had a name change as well as botox treatment.

For the US, and in Europe and Japan, the "oppostion party" ritual of nodding through more debt, after the theatricals and with slavish media support at all times, is tried, trusted and proven. Since the inception of the limit on US Treasury borrowing in 1913, the Congress has always voted to raise the debt ceiling. With each passing decade, and dramatically in the present decade the debt amounts owed by the Federal government has massively grown: by about 155 percent only since 2002. Logically in fact, it should go on growing, rather fast, until the US economy openly collapses.

Certainly ahead of the US in "smoothing" the debt machine's operation, each decision of the European Central Bank to hand out more cash to failing banks by way of and via failing governments is effectively a technocrats mission carried out in private. European politicians whether inside government or the "loyal Opposition", do not have to face the ritual music. In January, US Federal Reserve chairman Ben Bernanke was forced to call for the Federal debt ceiling to be scrapped. According to Mr. Bernanke, preventing the Treasury from unlimited borrowing from the Federal Reserve is an "antiquated fiscal statute with no practical value". Europeans do this better.

The all-party solution is to keep the party going. We could imagine what would happen if all financial institutions and credit card companies followed the European, Japanese or Bernanke-preferred line and eliminated all credit limits on all borrowers. This would not last very long at all, but "its all we got".

The political and media "debate" on fiscal responsibility and the lack of it is a sham, and certainly worse, government and opposition parties play the game of trapping their replacements in power with more debt. This is through blocking or slowing the growth of debt by the ruling party, when they are in opposition, then declaring themselves "obliged" to raise debt when they take over power "due to the irresponsibility of their predecessors". A variant of this, even more irresponsible, is to use austerity politics to cripple the economy's capacity to repay debt, while increasing this debt.

Supposedly, this is the top in democratic politics and state of the art national financial management. In the US case, European case and Japanese case the outcome is simple: few persons will bet that the "debt ceilings" will not be increased. After that, the "controversial question" will be: is it regrettable but necessary to default on national debt?

All-party support is therefore locked on to the "liberal solution" of inflating the nominal value and the market price of anything tradable: stocks, gold, silver, real estate, oil and energy, food. This becomes a surrogate for economic growth and keeps the biggest players happy. In the case of Japan, trying to "bring back inflation" has become a "solemn goal"of its ruling party, with a linked quest to inflate Japan's leading stock exchange indices. Feel good economics!

In the US, Europe and Japan political deciders (or rather non-deciders), both in power and when in opposition have not only allowed, but enabled the banking system to run out-of-control and their central banks to become systematically and systemically corrupt - that is unable to prevent private bank collapse and sovereign debt explosion, except through printing money. By political decision and supposedly due to the "ideological imperative" of free markets and deregulation, government control of the process has been reduced to nothing. The "fourth estate" or the media has faultlessly conspired to accelerate the creation of a no-win endgame scenario being the only rational scenario.

To be sure this is easy for the media: who is interested in central banking, who can understand the numbers? The wall of incomprehension is built thicker by draping the central banks with a "technocratic" image, and "economic issues" are shifted to mean ever-growing stock market indices and this week's mega bankruptcy or corporate shutdown. Simply snce the start of 2008 using data from the BIS, economic institutes and the media, the central banks of the US, Europe and Japan have probably printed or made "engagements" to print of an additional combined $15 trillion - and that is a low estimate. In theory, but only in theory, hyperinflation should have started long ago.

All the central banks of the "mature democracies" have an undeclared, but certain and sure goal of creating all and any kinds of asset bubble, basically through running zero interest rate policies, of course for "prime borrowers", starting with the banks. The bankster-fraudster "community" or fraternity, which runs a permanent and gigantic Ponzi fraud, finances all and any speculation in any tradable asset.

The asset bubble now "seamlessly" runs from paper equities to paper futures on so-called hard commodities. The permanent quest to inflate nominal values - with occasional complete reversals - has produced dramatic results for "homely things" like house and rental prices, food goods, fuel and electricity with Big Government, that is ruling political parties playing their part in the game through loading sales, value added and consumption taxes, even carbon taxes onto basic necessities. But official inflation figures, loyally presented by the media as "at most 2% a year", play their own role in justifying further cuts in interest rates, for prime borrowers.

Showing the schizoid dysfunctionality of the "thinking" behind this, the permanent asset bubble is presented as proof that things are alright and economic growth is back! If you pay more for the same thing, you are doing better! If you cant pay, the gutter awaits you.

Being fantastically divisive in its social effects in a stagnant economy, the political result of supposed "stealth" inflation is an ever growing Us-and-Them divide in society, most certainly and surely creating the potential for civil strife, and civil war. The Faustian Bargain of the political players and central bankers is that public fear of inflation is big enough to keep the public cowed. Fear of inflation includes the fear that paper assets will return to their intrinsic value, of zero, the fear of government bankruptcy resulting in extreme austerity (and chaos), and the fear of housing markets collapsing. All these fears are carefully and constantly maintained by the government-friendly media.

We therefore have a choice of two no-wins: massive state debt, increasing austerity, rising real inflation and social injustice - or economic collapse and chaos. Imagining this can be called "sustainable" or able to be prolonged on a semi-permanent basis is surely one of the most incredible false beliefs that exist.

By Andrew McKillop


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

Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012

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.

© 2013 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 advisor.

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Biggest Debt Bomb in History