Saturday, November 17, 2012

Massive Problems come with Massive Debt

Massive government debt is nothing to sneeze at. Particularly when the debt goes to pay off voters and political cronies -- with no possibility of ever paying off the debt. That is not merely "bad debt." It is catastrophic debt.

Here is a good look at central banks, and their pathetic attempts to deal with massive modern debt:
Because governments are in disagreement, bodies are taking their place that are turning into ersatz governments: the central banks. The ECB's decision to buy up unlimited amounts of the sovereign debt of European countries is a replacement for political solutions for which there are currently no majorities in the governments and parliaments of euro-zone countries. The decision by the American Federal Reserve Bank to inject hundreds of billions of dollars into the markets again to stimulate economic growth results for the inability of Democrats and Republicans to agree on a compromise between limiting debt and economic stimulus programs. Printing money -- or betting hundreds of billions once again -- is the last desperate response on both sides of the Atlantic.

What began four years ago with the bursting of a credit bubble in the mortgage market is being combated with more and more new debt in the trillions, thereby inflating the next, even bigger credit bubble.

The fresh trillions circle the world in the search for yield, but only a small part of the money flows into the real economy, where investments in new production plants produce lower returns. Instead, the trillions slosh back and forth, from one financial market to another, from the foreign currency market to the commodities market, and from the gold market to the stock market and back again.

Because these trillions are not reaching the real economy, the risk of inflation is currently smaller than Germany's central bank, the Bundesbank, and its president would have us believe. But every saver and everyone with a life insurance policy pays for the central bank's low interest-rate policy with low interest rates. When central banks keep interest rates close to zero for long periods of time, which they have done for years, they disadvantage ordinary savers and favor major investors, gamblers and banks, which can borrow at low rates and invest the money elsewhere at a profit. _Spiegel

As seen in the image, it requires more and more debt to generate less and less growth, over time. Governments and central banks get caught up in a tangled web feedback loop of out of control debt spending, with no clear way out.

Government officials "play at the problem" with no real intention of addressing the central concern: Governments have grown to an all-encompassing size and degree of control over their now-subservient societies. How can societies be subservient to governments when governments run on the surplus production of societies? Because governments have grown to be parasitic upon their underlying societies.

This story does not have a happy ending. But it will have to have an ending, because better stories will not wait indefinitely to be told.

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