Thread: Greece 2012 vs today

Originally Posted by FenceFurniture

An economist me is not, but wouldn't a small amount of growth be required to keep up with an expanding population (so that the slightly expanded economy is ready for the pop expansion)?

Brett

That may be the case if the population is expanding, but my impression is that amongst the developed, western countries population growth on average is static.

Regards
Paul

Glad you asked.

Populations in ALL western and "first world" economies are in precipitous decline. EVERY SINGLE ONE has a birth rate dramatically lower than the replacement value. Every single one is propped up from the bottom with new immigrants from poorer, war torn or economically undeveloped nations.

Every one of them is getting older. Much older. This is the exact reason why the governments of the world have flung open the doors to immigrants under 30... its to ensure the Great Ponzi scheme stays alive. Its a Ponzi, plain and simple.

Open your eyes. This is why the Intergenerational report is being flogged: http://www.challengeofchange.gov.au/

Personally, I'm sick to death of living in an old-white-mans-western society and fully welcome the rich diversity other cultures bring. My area of Canberra is fantastic. Love it.

BUT, it solves the problem only by staving it off for a short while.

BushMiller, you wrote "Consequently, the ability of the US to pull itself out of the mire by printing more money was bewildering to say the least. Why then doesn't Australia do the same thing as we are half way into a recession ourselves? I had reluctantly concluded that the Americans are just better printers than us."

Good question. WE ARE!!!!. Every advanced economy of the world is experiencing a titanic money-explosion of galactic scale never before seen in history. The printing presses you point out are now not physical machines, but Reserve banks selling debt paper to banks... with the major buyer being governments. This explanation is going to get complex, so bear with me, it might be over simplified, but its true...... (I will warn you, as you understand this more you will rip you hair out and wail. If you don't break out in a cold sweat and have the dread cold grip of death in your guts, you don't understand it enough)....

-- A Reserve Bank sells a Bond (an IOU) via auction to anyone. Anyone is a Bank. The Banks will bid for this "paper". This bidding essentially sets the price, or base interest rate.
-- The Banks will re-lend this money to anyone. Anyone is usually the government. The government will get this at 0.01% above what the banks paid for it. The government uses this money to build infrastructure, pay public servants or entitlements. ($360 billion. This can be seen here: http://aofm.gov.au/ )
-- The second market for bonds is the banks themselves. They essentially magnify this debt by re-lending it to you for credit cards, boats, cars and home loans.

The last point is where Fractional Reserve Banking comes from. They take $100 (from the reserve bank), lend $99 of it to Adam. Adam buys a thing. That things money is reposited. Bank then lends it to Bob.. then Carl, then Dave, then Evan... and so down to Zachary. That $100 is turned into $X-zillion. The "zillion" is restricted by lending ratios and mandatory reserve holdings. This number used to be something like 10%... i.e $1 in $10 needed to be held in case too many chickens came home to roost at once. This was one of the reasons for bank runs of the past (its called capital adequacy).... BUT, this number, now, is effectively zero. The government (reserve bank) will guarantee deposits, so the need for the old capital adequacy is essentially gone. (this is a deep deep rabbit hole, so I'll stop there - ok ok, its not zero, but as it approaches zero the bank just buy more bonds, so it never gets there)

As the lending ratios and reserves approach zero, something horrific occurs... the amount of "money" very quickly goes exponential.

This is why there is so much debt. As the amount of debt increases, the price of money decreases (please read below). This is partly why interest rates are effectively zero around the world. (this is not entirely true: the real reason is that *people* are repaying debt, but not companies nor governments).

The entire system is entirely reliant on debt. MONEY IS DEBT.

Normally (normally!) the more money that is created causes inflation. A natural balance to inflation is those with capital (money) want a higher interest rate to counter inflation. Why would you lend money at 5% when inflation is 10%? (you'd go backwards). A natural process would have the interest rate just above inflation. Normal and Natural, however don't apply any more.

What is occurring, however, is people are repaying debt (but not companies and governments). As people repay their loans, the total amount of money decreases. Remember above how I showed fractional reserve levels and it effect on exponential growth? Well, that can happen in reverse too. Exponential deflation.

THIS IS HAPPENING. This is why central banks around the world are seeling bonds (printing money) at unholy rates. They are desperately trying to reverse the titanic deflation caused by debt repayment.

The value of money is doing a VERY CURIOUS THING. It is both inflating (because the various reserve banks of the world are selling bonds like there is no tomorrow) and deflating as loans are being repaid (except Australia, it would seem). Everyone knows about hyperinflation and wheelbarrows of cash to buy bread, but there are things like deflation, stagflation and biflation - concepts that are foreign and are difficult ideas to grasp.

So, while companies are loading up on debt (never to be repaid) and governments are loading up on mind boggling debt ( http://www.usdebtclock.org/ and http://www.australiandebtclock.com.au ) poor taxed Joe Citizen (people) is trying to swim against their own rip-tide..... (Aussie houses anyone?). When this consumerism ending apocalypse ends, Poor Joe Citizen is going to feel the wrong end of the pineapple in the wrong place for a looooonnnngggg time!

Now, this is going to bake your noodle. Company debt and Gov debt have to be repaid. Hmmmm. How? Taxes. You will be bailing big companies out forever (its already happening. "To Big To Fail"... look it up), Enforced inflation with negative interest rates will be the end result(you will PAY to deposit cash with the banks and banks will PAY you to borrow it) .... taxes, silver/gold confiscation, super gone, cash over $x illegal.... remember, I mentioned in a post above, inflation is the value of money decreasing, not the price of margarine/car/boat going up.

Want to try something really scary? How about the idea that governments FORCE you to borrow money? $50 grand. All yours. Catch? The repayments... but guess what? You will be charged to have the money in your account (negative interest rates) and large holdings of cash will be illegal/difficult. (I KNOW that there are conversations for removing $100 and $50 notes from circulation or changing them every few years... making the old ones "void").

Now, if you're really keen to know where this magical fairy story will end, the answer is simple. Zero. You, your kids, your great grand kids, the billionaire next door, broke. Gone. Evaporated. Confiscated. Zero. Nil. Null.

As I mentioned in a post above. Print this out and take it to an accountant, economist or stock broker and ask them if its "the truth". The answer will mortify you.