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World Debt Paid Off By Future Work, So Demand Needs To Increase With Debt?

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The world is accumulating more and more debt, which in theory is paid off by future work. So then....to get more future work, we need to make sure the demand for stuff commensurately increases with the increases in debt, right?

But....isn't demand actually falling? The Chinese government are going to be laying off 5 to 6 million workers over the next 5 years or so as but one example. Look at commodity prices, Baltic Dry Index - demand is falling.....

So - isn't a massive global economic crash absolutely nailed-on? I mean - there's literally no chance to avoid it, except delay it by weeks or months?

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The world is accumulating more and more debt, which in theory is paid off by future work. So then....to get more future work, we need to make sure the demand for stuff commensurately increases with the increases in debt, right?

But....isn't demand actually falling? The Chinese government are going to be laying off 5 to 6 million workers over the next 5 years or so as but one example. Look at commodity prices, Baltic Dry Index - demand is falling.....

So - isn't a massive global economic crash absolutely nailed-on? I mean - there's literally no chance to avoid it, except delay it by weeks or months?

hopium is a strong antedote to this analysis

Edited by Bloo Loo

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The world is accumulating more and more debt, which in theory is paid off by future work. So then....to get more future work, we need to make sure the demand for stuff commensurately increases with the increases in debt, right?

But....isn't demand actually falling? The Chinese government are going to be laying off 5 to 6 million workers over the next 5 years or so as but one example. Look at commodity prices, Baltic Dry Index - demand is falling.....

So - isn't a massive global economic crash absolutely nailed-on? I mean - there's literally no chance to avoid it, except delay it by weeks or months?

by asking yourself this question, you are diving down rabbit hole you might not come out of. It is a very deep question, which you could write a few books on.

I started to ask myself questions like this after the financial crisis crisis of 2008. The only answer I have come up with so far, is that the system has to fail eventually. But if I say this in public I am considered a lunatic, and even though part of me feels the system will fail, another part ignores it and continues as normal.

When it first occurred to me example Britain cannot grow without taking on debt, and there is no plan to pay that debt back, it was a huge shock, I thought the system would fail within weeks!! Now I realise there are ways to deal with it, but even so, I cannot see how we can go for say more than 20-30 years without "financial reset".

Edited by reddog

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by asking yourself this question, you are diving down rabbit hole you might not come out of. It is a very deep question, which you could write a few books on.

I started to ask myself questions like this after the financial crisis crisis of 2008. The only answer I have come up with so far, is that the system has to fail eventually. But if I say this in public I am considered a lunatic, and even though part of me feels the system will fail, another part ignores it and continues as normal.

When it first occurred to me example Britain cannot grow without taking on debt, and there is no plan to pay that debt back, it was a huge shock, I thought the system would fail within weeks!! Now I realise there are ways to deal with it, but even so, I cannot see how we can go for say more than 20-30 years without "financial reset".

The system doent have to fail...what makes it weak are the protections given to the fail safes in the system, instead of collapsing due to bad decisions, they are kept going to compete with those that didnt make those same decisions. The more resource drwan from the good to support the bad make the good weaker and the bad as useless as ever.

you could lose a wheel on a trailer and the thing will still roll...but if you take air from the other wheels to keep the bad one inflated, all that happens is all wheels deflate...

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The system doent have to fail...what makes it weak are the protections given to the fail safes in the system, instead of collapsing due to bad decisions, they are kept going to compete with those that didnt make those same decisions. The more resource drwan from the good to support the bad make the good weaker and the bad as useless as ever.

you could lose a wheel on a trailer and the thing will still roll...but if you take air from the other wheels to keep the bad one inflated, all that happens is all wheels deflate...

I agree with this point, but I guess we have to wonder if it is too late to tackle this issue? If we were to tackle it in the way you suggest, a good time to start would have been the late 90s. So many people are dependent on "the system" that maybe we can't reform, because not enough people would have an interest in reforming. Edited by reddog

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The world is accumulating more and more debt, which in theory is paid off by future work. So then....to get more future work, we need to make sure the demand for stuff commensurately increases with the increases in debt, right?

This point at least partly explained by increasing debt becoming increasingly ineffective in increasing GDP.

Apparently for the G7 the ratio is now running around 20 - so to get 5% of annual GDP you have to increase debt by 100%.

http://www.zerohedge.com/news/2013-09-12/five-years-later-18-dollars-debt-every-dollar-gdp-total-g7-debtgdp-440

(dated 2013)

In other words, over the past five years in the developed world, it took $18 dollars of debt (of which 28% was provided by central banks) to generate $1 of growth.

http://investmentwatchblog.com/economic-growth-per-dollar-of-debt-increase/

(dated 2010)

Edited by billybong

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Reddog...are you the same Reddog from the bike racing forums? Sorry to ask an off-topic question?

no I'm not, don't know much about cycling or motorcycling (nott that that is a reason for not commenting on an internet forum!!)

I do use the names on 2 other forums, and it is always interesting to see people that I know from one forum, crop up on other forums.

Edited by reddog

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Debt does get written off and unencumbered money created - every time there is a bankruptcy.

No it doesn't. When a debtor defaults on a bank the bank still has the associated liabilities to pay. This destroys a portion of the banks capital.

You could view the banks capital as unencumbered, unleveraged money. Thus, unencumbered money gets destroyed by defaults.

If you default on a personal loan that I made to you using my own capital, then my capital is destroyed.

Defaults destroy financial capital. They certainly don't 'create' base money or transform one kind of money into another.

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no I'm not, don't know much about cycling or motorcycling (nott that that is a reason for not commenting on an internet forum!!)

I do use the names on 2 other forums, and it is always interesting to see people that I know from one forum, crop up on other forums.

Thanks for confirming, you have a very cool namesake on a motorcycle road racing forum, a top bloke!

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What should be abso-feckin-lutely obvious by now is that the humongous amount of debt issued is not going to be repaid in anything other than printed money (thus destroying the purchasing power of the capital that is repaid).

There's simply too much debt issuance for it to ever be made good through future production and those who borrowed today, sacrificing income from their productivity in the future.

The options are either hard or soft default. Chosen option will be soft default (money printing) as those inside the system can use it to transfer even more wealth to themselves and it more or less preserves the status quo, at least until it all hyperinflates by which point these leeches will be well offshore. There might be a few uncontrolled hard defaults though.

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The Chinese government are going to be laying off 5 to 6 million workers over the next 5 years or so as but one example.

Some are now claiming that virtually all new debt currently being issued in China is being used to service existing debt obligations- if true this must surely mark the endgame for both China and the global economy as we know it.

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Some are now claiming that virtually all new debt currently being issued in China is being used to service existing debt obligations- if true this must surely mark the endgame for both China and the global economy as we know it.

If that's true, then coupled with the huge imbalance in the sexes due to the misguiged single child policy, China is going to become a very nasty place to live very quickly.

You have to wonder what the Chinese government were thinking - do they have some sort of long term masterplan for World domination which is shortly going to unfold or were they just planning on providing cheap consumer goods (and trashing their environment) in return for Western fiat currency for an indeterminate amount of time?

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No it doesn't. When a debtor defaults on a bank the bank still has the associated liabilities to pay. This destroys a portion of the banks capital.

You could view the banks capital as unencumbered, unleveraged money. Thus, unencumbered money gets destroyed by defaults.

If you default on a personal loan that I made to you using my own capital, then my capital is destroyed.

Defaults destroy financial capital. They certainly don't 'create' base money or transform one kind of money into another.

What associated liabilities?

The bank conjured the money into existence in the first place. The bankrupt has already spent it all. It's out there in the economy sitting in someone else's bank account - but the debt it was created with is gone. Sounds pretty unencumbered to me.

Yes, the bank has lost the future repayments, but it didn't have those yet anyway. This idea that money people owe you but haven't actually paid yet can be counted as an asset the same as coins you're actually in possession of strikes me as a bit mental.

Plus since the money was created by the bank to start with, surely it's the repayments that 'destroy' capital by reducing the amount of conjured money in existence.

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You have to wonder what the Chinese government were thinking - do they have some sort of long term masterplan for World domination which is shortly going to unfold or were they just planning on providing cheap consumer goods (and trashing their environment) in return for Western fiat currency for an indeterminate amount of time?

China's most successful export is the legend of it's own economic infallibility- I've lost count of the number of times I've seen you-tube interviews featuring wall street free marketeers drooling at the fantasy of having a similar kind of state control over markets in the west as they imagine comes out of Beijing- never mind that this contradicts everything they claim to believe in regarding liberty and free trade.

Only it turns out that the magic sauce the Chinese were using to spice up their economy was derived from the same recipe used by Bernie Madoff- a truly gigantic ponzi scheme in which infinite expansion was the primary ingredient. And just as Madoff's scheme blew up when the expansion stopped the same thing will happen in China.

All ponzi schemes have hero's and villains- but unlike most narratives in a ponzi scheme the hero and the villain are the same person- Madoff was a genius at the start- the man could do no wrong- until he blew up. And the boys in Beijing are Superhero's by all accounts- I wonder how that story ends?

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monotonically increasing credit (debt) erodes capital and so erodes GDP growth (also called The Diminishing Marginal Utility of Debt) at some point the economy is unable to service the debt and the whole shebang collapses. We are way past that point, we are in the smoke and mirrors phase.

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when banks loan money they create the exact amount of money off the loan, they don't create the money for the interest payments, which is additional to the principal amount. The money for the interest must either come out of money created for subsequent loans or the velocity of money must be sufficient. As long as we have steady inflation that can be satisfied, it is deflation that absolutely kills this banking system. Deflation, the natural order of n increasing productive economy, is like kryptonite to this sick banking system. Hence QE, negative rates and throwing the kitchen sink at the economy to try and stoke inflation. Alas, we are past the point of no return, the deflationary forces are overwhelming.

Edited by evetsm

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Banks can create the (credit) money for paying the interest by buying goods and services, including the services of bank staff.

The banks thus effectively extract real goods and services from the economy as the rent for the electronic money numbers that they type into circulation when they make loans. An elegant scam.

For example, the bank buys a car for £50,000, thus acquiring on its balance sheet a new asset (the car) and a new equal liability of £50,000 in the bank account of the car seller - still in balance. The money supply has grown by £50,000.

When a banker receives a bonus of £1,000,000 paid into his regular bank account the bank's liabilities increase by £1,000,000.

A corresponding and equal decrease of £1,000,000 occurs in the bank's shareholders' capital account, that is the bank's liability to its shareholders. The integrity of the balance sheet is maintained, aggregate liabilities (and assets) are unchanged, but the money supply has increased by £1,000,000.

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