“A superpower that has lost its grip on reality is very dangerous indeed”
Will Hutton, Observer 24 April 2011
25 April 2011
Norman Pagett writes:
Individuals and states have the same optimism when borrowing money: that the accrued debt will be repaid by future prosperity. Money accepted as a loan (and the interest on that loan) can only be repaid if the debtor acquires the additional wealth necessary to repay it. The laws of finance are inflexible: either you repay the loan or you go bankrupt and lose everything. Go forward or go bust.
You could, of course, persuade people to lend you still more money to repay the initial loan and interest, but that devalues your future ‘prosperity’ because you will have to repay two loans out of it. It’s a high-risk strategy, but that effectively is what the USA has been doing for nearly three decades, using the collateral of its own industrial output.
The value of the mighty dollar has long been considered unassailable, but in fact the USA has been supporting its way of life by borrowing money, always with new loans to pay off old loans and as a result federal debt has now reached a staggering 14 trillion dollars. The GDP of the USA economy is 15 trillion dollars, so when national debt exceeds income, as it is forecast to do within two years, the country will become technically insolvent and the dollar will be supported only by the optimism of external creditors.
The USA will then be in the same predicament as Ireland, Portugal and Greece, except on a significantly larger scale, which is why Standard & Poor’s is already warning of a downgrade in the nation’s credit rating. The country is now faced with three options: to cut services, print money or default. The fourth option, increasing GDP so that it races ahead of debt interest, (the holy grail of growth) is not available. The debt is growing faster than wealth can be created.
Why should the state of the US dollar be of any concern to us? Because as the world reserve currency it is critical to the global trading system.
As the US federal debt climbs beyond the national GDP, the production capacity of the entire nation will be consumed by the effort of servicing its debt and sustaining an illusion of prosperity.
As the USA defaults into collapse, as it must, its social structure will become unsupportable. Already nearly 40 million people there are on direct food aid.
Irrespective of the present positioning of Democrat and Republican politicians, the average American sees conspicuous consumption as a right. The reality of poverty will hit hard as the country drifts into insolvency. Three hundred million people cannot grasp that ‘the American way of life’ is about to turn into a nightmare, and when it does their reaction is likely to be violent.
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The End of MoreBecause the economy of the developed world has locked itself into the delusion of infinite growth, we have no option but to demand more. Though the lives of seven billion of us literally depend on more always being available, we are collectively incapable of recognizing that our profligate lifestyle has reached its limits. Yet two billion more people are going to turn up over the next forty years, they too will insist on being fed.
But we remain in denial. It is in our short term interests to accept cornucopian economics and political wishful thinking so that we can have a little while longer to reject the reality of overpopulation, resource depletion and climate change.
We must face the fact that we have reached the End of More.
Doomsday ClockWatch the rate at which we are consuming resources, decide how long this can go on posted courtesy of www.collapseofindustrialcivilization.com