Noilly Prattle: on Government life support

Monday, July 16, 2012

on Government life support

There exists one of the most remarkably lucid and intelligent, non-hyperbolic and sobering analyses of the financial meltdown that began in 2007 and continues to affect a significant proportion of the working population in many countries—the US being no exception.

Richard Duncan
Richard Duncan, the author of the book, The New Depression: The Breakdown of the Paper Money Economy, is no left-wing, long-haired, Commie pinko navel gazer. Uh-uh, he's on the management team of a straight shooting, upright (probably Chamber of Commerce card-carrying) investment firm out of Singapore (Lee Kwan Yew's Asian Tiger) that goes by the name of Blackhorse Asset Management.

A short list of the kudos that make you sit up and take notice of what he says:
  • worked in the investment industry for more than 20 years
  • spent two years at the World Bank in Washington, D. C
  • author of the bestselling book The Dollar Crisis: Causes, Consequences
  • 1993, one of the first to warn of the impending collapse of the Thai economy
  • consultant for the International Monetary Fund
Duncan, contrary to what you might expect from an investment consultant, is an advocate of government spending. He compares the present “New Depression” with elements of the Great Depression of the 1930s. [See table below.] Both are the result of the bursting of credit/debt bubbles wherein the normal flow of credit freezes up and debts can no longer be paid. In the 1930s “the banking system … and global trade collapsed ... the US economy shrank by 46% … and unemployment ranged from 15 to 25% for a decade.”*

                  The Great Depression & The New Depression
                                 1. Gold Standard Breaks Down (1914) = Bretton Woods Breaks Down (1971)
                                 2. Credit Boom: The Roaring Twenties = Credit Boom: Global Economic Bubble
                                 3. Boom Leads to Bust When The Credit Can’t Be Repaid (1930 and 2008)
                                 4. Banking Collapse (1930 and 2008)
                                 5. International Trade Collapses (1930 and 2008)

Franklin D. Roosevelt's “New Deal” helped to alleviate some of the worst effects of high unemployment with government programs in infrastructure spending such as building dams and creating national parks. But, in fact, it was World War II that really ended the depression with massive government spending. “At that time government spending ... increased 900 percent; not 9 percent, not 90 percent. 900 percent.”* Duncan ironically notes that WWII not only ended the depression but also ended 60,000,000 lives. He calls this his “disaster scenario” but is not calling a repeat, necessarily.

I won't go into the details, anyone interested can read a transcript of the quoted interview. There is also an audio version <>, or, better still, you can buy and read his book. 
To conclude this post with what some might find to be a shocking notion, Duncan believes that we no longer live under the sacred cow of Capitalism as an economic system, but something he calls “Creditism”. With the collapse of the credit bubble, Duncan says that credit can no longer expand, the private sector can't take on any more debt because of the nature of the economic cycle of supply and demand (fewer jobs, less money, less demand, less need for supply, reduced economic activity and higher unemployment). Only the government can take on more debt. “So this means we're dependent on government spending whether we like it or not.”* Duncan is not enamored of this situation, but he shrugs his shoulders. 

Under the “dynamic” of Capitalism businesses would invest, profit, accumulate capital, invest, profit, accumulate capital, invest, infinitum The system no longer works this way, says, Duncan. In the new dynamic of “Creditism” the system is “driven by credit (he equates credit with debt) creation, consumption, [debt] credit creation, consumption, [more debt] credit creation, consumption ....”*
The global economy is on life support, says Duncan, and governments are the ICU—like it or not. 

Looks like the governments of the world will just have to keep throwing money at it. That's OK for another five, maybe 10 years, says Duncan, but beyond that, if we keep throwing a few billions at Wall Street to encourage consumption every time the Dow tanks, we are going to find ourselves Greece revisited. Neither do we want WWIII. Duncan advocates government spending as investment in renewable energy technology, infrastructure, investment that, theoretically at least, would both create work and lay the foundation for future expansion. [Currently, 13% of the US's energy comes from renewables including dams. Solar is still <1%. The rest is from coal 42%, natural gas 25%, nuclear 19% and petroleum <1%.] 

Looks like the Tea Party types, austerity advocates and those pitching only-private-enterprise-can-“create jobs” are living in a world that went out with Lehman Brothers in 2008.

Riddle: What happened when Marie Antoinette went out with Versailles! They conceived “la Guillotine”!

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