Olduvaiblog: Musings on the coming collapse

Home » Collapse » IMF report: ‘Debt is good’. What are these people smoking?

IMF report: ‘Debt is good’. What are these people smoking?


IMF report: ‘Debt is good’. What are these people smoking?.

February 18, 2014
Sovereign Valley Farm, Chile

Probably every kid in the world has at some point dreamed of having a time machine and being able to travel back to the past… usually to see dinosaurs or something like that.

Time travel is an almost universal fantasy. And if I could snap my fingers and turn the pages of time, I’d be seriously curious to check out the thousand-year period between the decline of the Western Roman Empire and the rise of the Renaissance.

They used to refer to this period as ‘the Dark Ages’ (though historians have since given up that moniker), a time when the entire European continent was practically at an intellectual standstill.

The Church became THE authority on everything– Science. Technology. Medicine. Education. And they kept the most vital information out of the hands of the people… instead simply telling everyone what to believe.

People living in that time had to trust that the high priests were smart guys and knew what they were talking about.

Interpreting facts and observations for yourself was heresy, and anyone who formed original thought and challenged the authority of church and state was burned at the stake.

Granted, human civilization has come a long way since then. But the basic building blocks are not terribly different than before.

Anyone who challenges the state is still burned at the stake. And our entire monetary system requires that we all trust the high priests of central banking and economics. Those that stray from the state’s message and spread economic heresy are cast down and vilified.

You may recall the case of Harvard professors Ken Rogoff and Carmen Reinhart who wrote the seminal work: “This Time is Different: Eight Centuries of Financial Folly”.

The book highlighted dozens of shocking historical patterns where once powerful nations accumulated too much debt and entered into terminal decline.

Spain, for example, defaulted on its debt six times between 1500 and 1800, then another seven times in the 19th century alone.

France defaulted on its debt EIGHT times between 1500 and 1800, including on the eve of the French Revolution in 1788. And Greece has defaulted five times since 1800.

The premise of their book was very simple: debt is bad. And when nations rack up too much of it, they get into serious trouble.

This message was not terribly convenient for governments that have racked up unprecedented levels of debt. So critics found some calculation errors in their Excel formulas, and the two professors were very publicly discredited.

Afterwards, it was as if the entire idea of debt being bad simply vanished.

Not to worry, though, the IMF has now stepped up with a work of its own to fill the void.

And surprise, surprise, their new paper “[does] not identify any clear debt threshold above which medium-term growth prospects are dramatically compromised.”

Translation: Keep racking up that debt, boys and girls, it’s nothing but smooth sailing ahead.

But that’s not all. They go much further, suggesting that once a nation reaches VERY HIGH levels of debt, there is even LESS of a correlation between debt and growth.

Clearly this is the problem for Europe and the US: $17 trillion? Pish posh. The economy will really be on fire once the debt hits $20 trillion.

There’s just one minor caveat. The IMF admits that they had to invent a completely different method to arrive to their conclusions, and that “caution should be used in the interpretation of our empirical results.”

But such details are not important.

What is important is that the economic high priests have proven once and for all that there are absolutely no consequences for countries who are deeply in debt.

And rather than pontificate what these people are smoking, we should all fall in line with unquestionable belief and devotion to their supreme wisdom.

Advertisements

1 Comment

  1. My comment:
    Collapse is coming. What will cause it is uncertain at this time and may even be unknowable afterwards, but it will come. It is naive to believe that our society can avoid it as none have heretofore: Aztec, Inca, Roman, Chacoan, Egyptian, and on and on. History and prehistory is a record of these cycles of increasing sociopolitical complexity to be followed at some time by loss of that complexity. It could be a number of factors that play into collapse: pandemics, war, natural disasters, etc.. And economic collapse is almost always there too. Whether it is a consequence or antecedent to collapse is not fully understood. However, in this complex world of dynamical systems with feedback loops here, there, and everywhere, it only takes collapse of the weakest link to cause a cascade of failure throughout the system. Now, would you like the red pill or the blue pill?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

Enter your email address to follow this blog and receive notifications of new posts by email.

Join 314 other followers

  • 56,195
February 2014
S M T W T F S
« Jan   Mar »
 1
2345678
9101112131415
16171819202122
232425262728  

Archives