Debt, risk and employment are in a death-spiral of malinvestment and debt-based consumption.
Standard-issue financial pundits (SIFPs) and economists look at debt, risk and the job market as separate issues. No wonder they can’t make sense of our “jobless recovery”: the three are intimately and causally connected. An entire book could be written about debt, risk and jobs, but let’s see if we can’t shed some light on a complex dynamic in a few paragraphs.
Risk: As I described in Resistance, Revolution, Liberation: A Model for Positive Change, risk cannot be eliminated, it can only be shifted to others or temporarily masked.
Masking risk simply lets it pile up beneath the surface until it brings down the entire system. Transferring it to others is a neat “solution” but when it blows up then those who took the fall are not pleased.
Risk and gain are causally connected: no risk, no gain. The ideal setup is to keep the gain but transfer the risk to others. This was the financial meltdown in a nutshell: the bankers kept their gains and transferred the losses/risk to the taxpayers via the bankers’ toadies and apparatchiks in Congress, the White House and the Federal Reserve.
Risk is like the dog that didn’t bark. In the story Silver Blaze, Sherlock Holmes calls the police inspector’s attention to the fact that a dog did something curious the night in question: it did not bark when it should have.
When scarce capital is misallocated to unproductive uses such as duplicate tests that can be billed to Medicare, sprawling McMansions in the middle of nowhere, etc., “the dog that didn’t bark” is this question: what productive uses for that scarce capital have been passed over to squander the scarce capital on Medicare fraud, McMansions, Homeland Security (“Papers, please! No papers? Take him away”), etc.
Once the capital has been squandered, it’s gone, and the opportunity to invest it in productive uses has been irrevocably lost.
Debt: Debt has a funny cost called interest. If you have a corrupt, self-serving central bank (a redundancy) that can lower interest rates by printing money to buy government bonds, then this funny thing called interest can be lowered to, say, 1%.
At 1% interest, the government can borrow $100 and only pay 1% in annual interest. That is almost “free,” isn’t it? The key word here is “almost.” If you borrow enough, then that silly 1% can become rather oppressive.
Let’s say the Federal Reserve is willing to loan you $100 billion at zero interest. You have an incredible sum of cash to use for speculation, and it doesn’t cost anything! Wow, you must be an investment banker….
Now what happens when the interest rate goes from zero to 1%? Yikes, you suddenly owe $1 billion a year in interest. That is some serious change. You can of course pay the interest out of the borrowed $100 billion, unless you’ve spent it building bridges to nowhere and supporting crony capitalism.
To Read More CLICK HERE
