Why the World Is Financially Doomed in Four Charts

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Previously
by Charles Hugh Smith: Post-Election
Postmortem: What’sDifferent?

 

 
 

The global
economy is doomed to implosion, and here are four charts which explain
why.

Though the
complexities may appear endless, the global economy’s coming implosion
is really fairly easy to understand: here are four charts which
do the heavy lifting.
It boils down to these basics:

1. When money
is dear and difficult to borrow, then productivity and capital accumulation
are encouraged, speculation, malinvestment and debt-based consumption
are discouraged.

2. When money
is "free" (zero-interest rate policy) and liquidity is
unlimited, then the opposite conditions hold: speculation in risk
assets, malinvestment and debt-based consumption are all encouraged,
and productivity and capital accumulation are heavily discouraged.

3. When debts
exceed the value of the underlying assets, the only way out of the
Tyranny of Debt is to write off the debt on both the borrower and
lender’s balance sheets, wiping out their capital via liquidation
and bankruptcy.

4. The "extend
and pretend" policy pursued by all major nations is simply
transferring the impaired debt from private hands to the taxpayers
(public debt), crippling the economy with higher taxes and higher
debt service.

5. The Central
State’s "extend and pretend" policy requires heavy borrowing
every year to prop up the status quo, pushing the Central State
(or equivalent, i.e. the Eurozone) into an inescapable double-bind:
either continue increasing public debt and cripple the economy with
high taxes and high public-debt servicing costs, or let the financial
status quo of "profits are private, losses are public"
implode.

The first path
leads to default, as the Tyranny of Debt cannot be masked for long,
while the second path wipes out the Financial Power Elite which
feeds the politicians.

Read
the rest of the article

January
14, 2011

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