Tuesday, October 18, 2011

Too Much Debt Occupies Us


The one idea that the current 'Occupy' movement needs to grasp is that of debt.

It's all very well to jump on a Marxist or Liberal bandwagon, but unless the fundamental reason for the current crisis is understood, then the message will be mixed and no real positive outcomes will ensue.

The problem isn't so much private debt levels, although these are high, but public debt levels. Governments always end up spending more than they receive. Historically this is evident in most empires. The empire gets stretched as politicians strive to up their power and resource base. Eventually they overreach themselves and go into debt and an inflationary spiral.

Just look at the figure below which shows the devaluation of the Roman monetary unit over some 200 years. The decline in the silver content debased the face value of the coins and yet the Romans somehow thought this wouldn't affect the purchasing power of that monetary unit. But people cotton on fast to the wiles of the governing classes. They quickly pick up where value and investing needs to shift in order to make money and preserve wealth. This Roman debasement saw the destruction of that system and the same will probably happen today.





There is no way that the current problem of debt can be fixed by creating more debt to pay. The spiral of debt increase now is exponential and cannot be covered with new debt. Politicians are calling for fancy named funds like EFSF or QE or Bank Recapitalisation. Under any name this is money printing (debt creation) to pay for the past maturing debt. It will not work and the time is coming very soon when the system will simply not function. A time when interest payments consume all income.

This is the story the 'Occupy' people must understand and offer constructive opinion on. They have made their feelings known, now perhaps they need to make their practical answers known before revolution spirals into disintegration.



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