Wednesday, January 4, 2017

The Cost Of Growth

Here are some sobering statistics:

What is more intriguing than straightforward growth projections, and surely more important too, is the trajectory of indebtedness accompanying these growth estimates. Between 2000 and 2015, and expressed at constant 2015 dollar values, global real GDP expanded by $27 trillion – but this came at the expense of $87 trillion in additional indebtedness (a number which excludes the inter-bank or “financial” sector). This meant that, in inflation-adjusted terms, each growth dollar cost $3.25 in net new debt.

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Adding everything together, the world would be $116 trillion more indebted in 2020 than in 2000, whilst real GDP would have increased by $35 trillion.

Obviously, this is not a sustainable way to behave.

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Altogether, what we are witnessing is a Ponzi-style financial economy heading for end-game, for four main reasons.

First, we have made growth dependent on borrowing, which was never a sustainable model.

Second, the ratio of efficiency with which we turn borrowing into growth is getting steadily worse.

Third, the demands being made on us by the deterioration of the resource scarcity equation are worsening.

Fourth, the ageing of the population is adding further strains to a system that is already nearing over-stretch.

One thing seems certain – we cannot, for much longer, carry on as we are.

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Make America great again? Good luck with that.

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