Pieces of paper. That's all they are. Whether they're cash, government bonds, equities or pension promises, they all amount to the same thing. They represent claims on future economic output. What happens, though, when we discover these accumulated claims are simply too big to be satisfied? What happens when we discover that the future is neither bright nor orange but, instead, a depressing shade of grey?
This, unfortunately, is the reality that's befallen the Western world. While it's convenient to blame the financial crisis, we need to dig a little deeper. As Western populations age, we end up with an inverted population pyramid: the boomers head off into retirement while the population of those who are working age shrinks.
But if the boomers' savings are made up of pieces of paper – claims on future economic activity – and the working-age population is shrinking as a share of the total population, it's hardly surprising that, collectively, these pieces of paper may turn out to be worth less than they originally appeared to be. If future output is lower than the claims made upon it, those claims will have to be reduced.
Without growth, many 'pieces of paper' become worthless/less value - how much is a British government gilt in a era stagnation? And this ignores the stark implications of PO and the impact on our economy.So, if activity remains persistently depressed, we will slowly discover that our collective claims on future economic output may not add up: we have been relying on a pace of economic growth which may now be beyond our reach.
This realisation is already establishing battle lines at home and abroad. Should we raise tuition fees or, instead, increase the retirement age? Must we protect the pension rights of the old at the expense of the educational ambitions of the young? Should the Greeks repay their German creditors or, instead, should they look after their own interests, all the while risking a major financial implosion across Europe as a whole? And, if the Americans cannot resolve their own budgetary difficulties, will they find a way of shifting the burden on to foreign powers, either through a major dollar decline or through a descent into protectionism?
It is mathmatically impossible for the current financial fiat based system to survive much longer.
One poster refers to PO (the elephant in the room)... here is his post;
Mbremertrainor 6 hours ago
Amen
you are all mostly correct but too narrow and too specific in your thinking. Our economy is truly global but as such has reached the natural limits of growth. All of what we are seeing in the world today, whether it be resource wars in the middle east, uprisings over the cost of food or against dictators, national governments faced finally with the reality that they can and will never pay back their debts, and the dawning realisation in world markets that a world without economic growth means a world without banks, insurance, pensions, and ultimately even, money, is evidence of this unavoidable fact. Since our departure from currencies underpinned by gold, the paper money issued has become a claim not on something already existing ie. gold, but on goods, energy or labour yet to be produced. Essentially we have been eating into our future for some time and can borrow no longer.
The single biggest factor in this situation is the peaking of conventional crude oil production (2006), ie. the point at which we have consumed 50% of the oil in existence. Beyond this point, less oil will be available year on year, exascerbated by the fact that the 50% already gone was the easy stuff and the next 50% will be both more expensive and much more difficult to extract. Enter tar sands, deep sea and artic (unconventional) oil. But, some would say, market fundamentals of supply and demand will ensure a realistic price. Wrong. Because there is both a monetary cost and an energy cost associated with extracting oil. Money in this case is not the problem. The energy return on energy invested (EROEI) means that as a resource depletes we require increasing amounts of energy to extract the same amount, of (in this case) oil, (or indeed copper, nickel, tin, uranium, selenium etc).
So when oil hits $200/barrel, the aviation industry will pretty much collapse; that alone will have far reaching consequences for most economies. Further, the cost of driving (commuting) and transportation of food etc will be crippling to most consumers and businesses. By the time we all begin to accept what is happening, it will be far to late to do anything about it. it will be a case of every man (and country) for himself.
If you are not convinced, or terrified by the fact that civilization is in the deepest shit it has ever been in, you are not paying attention. Ask our government what they are doing about Peak Oil. The answer will be, and has hitherto been, absolutely nothing! Why? Because they, like every other government now knows, they can do nothing other than deny there is a problem, and make their own survival plans.
When was that last Peak?
