The biggest delusion about debt is that most of it is going to be repaid.
On the macro level, we have nations that have debt that will never be repaid. Greece and Italy are in the news right now. Those countries are deeply in debt to European banks. Austerity measures won’t work and may make the problem worse by taking money of the economies. Never mind that the average Joe in the street is outraged. Expect protests and civil unrest.
Other European countries are not doing much better. Portugal and Spain are on the edge, but bigger economies like the UK aren’t doing all that much better. Anyone think Japan’s economy will produce enough income to pay off it’s massive debt? It wasn’t doing all that well before the earthquake, tsunami and the on going nuclear disaster.
US debt is in a category all its own. People don’t even want to really think about it. Maybe as far as national economies go, the US is the country equivalent of the banks that are “too big to fail.”
Speaking about banks. They are still holding a lot of phony wealth on their books. They know if they release their foreclosed houses on the market, the housing market would plummet. It would reveal that the rest of their holdings aren’t worth anywhere near what they claim they are worth. The government has even floated the idea of buying up most the foreclosed houses and then renting them out. Quite the sketchy scheme to keep prices inflated.
Then there’s the individual level. I know quite a few people who’ve stopped paying on their debts. Some people have stopped payment on their credit cards, student loans and car payments. They are keeping up the house payments. They drive a junker car after the nice one got repossessed. Others have taken the opposite track. They let the house payment go so they can save up for a deposit on a rent. The car payments are kept current as they need a good car for their jobs. Minimum credit card payments are made so they can keep charging on them. Some people have done unofficial bankruptcies. They don’t have the money to pay a lawyer to do it legally, so they just stop paying their bills.
Back up to the macro level. Iceland renounced their debts and the country is on the road to recovery. It worked years ago for Argentina. Sure beats being shackled by IMF loans and austerity measures.
On the micro level, individuals are catching on, if only on a gut level, that something major has changed. The infinite growth paradigm is dead. Rising debt and interest rates only worked in a growing economy. The world has reached the limits to growth. The yeast has reached the edge of the petri dish. We’ll all have to figure out a way to live with stagnant growth or even decline. It’s the new normal.
The sooner we accept that, the sooner the world can figure out a new economy. The big problem is how to avoid getting hit by the death throes of the dying economic monster.
Tuesday Night Mega Meme Madness
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