Now that debt is rising sooner than “progress,” and “progress” depends on speculative credit-asset bubbles, the collapse of the Keynesian dream looms giant.
Unbeknownst to economists, the Keynesian bedrock of recent economics–using monetary repression and authorities spending funded by debt to handle the enterprise cycle of progress and recession–is an artifact of a century of expansive low cost vitality and virtuous demographics.
Introduced as quasi-scientific “legal guidelines of economics,” Keynesian insurance policies of suppressing rates of interest and funding stimulus with debt had been solely doable in an period during which vitality per capita (per particular person) at all times turned extra ample and reasonably priced by way of the buying energy of wages, i.e. what number of hours of labor does it take to purchase the vitality to gasoline a car, put together a meal, and so forth.
The demographics of the 100 years of Keynesian supremacy had been additionally uniquely favorable. The workforce paying taxes and funding pay-as-you-go social advantages to retirees (Social Safety and Medicare) and the much less lucky (welfare, Medicaid) expanded well decade after decade, increasing authorities revenues and spending because the pure results of an increasing workforce.
A 3rd uniquely favorable situation was the huge pool of pure capital that had not but been financialized, i.e. changed into a commodity that might be used as collateral for brand new debt and leverage. Tapping this untapped pool of capital enabled the huge growth of dent, private and non-private. (See charts beneath)
A fourth uniquely favorable situation was globalization, a benign-sounding time period for the brazen exploitation of the planet’s remaining reserves of sources and low cost labor. Earnings swelled as these final pockets of easy-to-exploit sources of wealth had been tapped.
These 4 situations have all topped out and are actually reversing. A budget-to-access vitality has been consumed, the workforce has shifted from growth to stagnation whereas the populace of retirees explodes, globalization has run its course, having stripmined the planet and human populace, and each potential supply of latest collateral has been financialized / leveraged to the hilt.
Keynesian insurance policies of pushing rates of interest to near-zero to spice up non-public debt and authorities deficit spending morphed from being “emergency insurance policies” to everlasting established order. Provided that greed and laziness are the human default settings, it was at all times unrealistic to assume that the “emergency instruments” of borrow-and-spend could be reserved for recessions / depressions. Now consumption, non-public and public, relies upon fully on the everlasting growth of debt to fund not solely consumption however the rising prices of servicing the ballooning debt.
The Keynesian fantasy at all times rested on one dynamic: we are able to increase manufacturing and consumption sooner than we’re increasing debt and the price of servicing that debt. With the 4 virtuous situations now reversing, the price of debt is rising far sooner than the tepid will increase in manufacturing and consumption generated by debt-funded spending.
The ultimate determined trick of the Keynesian fantasy is the wealth impact generated by speculative credit-asset bubbles, during which belongings that had been as soon as grounded in utility and prices escape gravity and soar into the stratosphere,
producing trillions of {dollars} in “free cash” for these lucky to have purchased the belongings earlier than the bubble inflated.
The consumption afforded by this bubble-generated “free cash” was the final supply of Keynesian “progress”: simply suppress rates of interest to juice non-public borrowing, flood the monetary system with liquidity, and voila, trillions in unearned “free cash” flows to those that had been already wealthy sufficient to personal the belongings catapulted to the moon.
However all goals finish, even the Keynesian one. The dangers and prices of rising debt can’t be dreamed away, and the inevitable result’s the price of capital rises together with the dangers and prices of hovering debt. Bubbles inflated by insurance policies encouraging speculative leverage all pop, devastating those that thought the “free cash” would by no means finish.
The planet has already been stripmined of cheap-to-access sources and low cost labor. Prices are rising and enjoying monetary video games with rates of interest cannot reverse real-world prices or the rising prices of capital. Demographics cannot be reversed by monetary trickery, both.
The Keynesian fantasy is drawing to a detailed. Financialization and countless debt-funded stimulus had been artifacts of 4 distinctive situations (low cost, ample vitality, demographics, globalization and financialization) which have all topped out and are actually sliding down the bottom of the S-Curve. AI can put lipstick on the mirror however it’s incapable of reversing the end-game decay of those 4 distinctive situations.
Since there isn’t any various to the Keynesian dream of everlasting “progress” funded by magic, we’re doing extra of what is failed till the system collapses in a heap: we’ll do extra of what is failed till it fails spectacularly.
It is value recalling Peter Drucker’s commentary that enterprises do not have earnings, they solely have prices. The identical might be mentioned of governments and full economies. Borrowing to pay rising prices has a short-half life as a result of debt accrues its personal prices and piles up dangers which have their very own uniquely uneven dynamics.
Now that debt is rising sooner than “progress,” and “progress” depends on speculative credit-asset bubbles, the collapse of the Keynesian dream looms giant. Plan accordingly, i.e. scale back your personal publicity to danger by way of Self-Reliance.
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