Global Ponzi scheme approaching ‘day of reckoning’ – US, China, Europe nearing ‘Minsky moment,’ warns Economist

 Global Economy Utopia the Collapse
October 2014GLOBAL ECONOMYThe world’s three economic superpowers – the U.S., China and Europe – are heading for a major collapse in asset values because their economic models favor consumption instead of productivity, one economist has warned. “We’re still not wise enough to realize that our current model is a ‘Ponzi scheme’ rushing toward its inevitable ‘Minsky moment,” Steen Jakobsen, a chief economist at Danish investment bank Saxo Bank, said in a research note on Friday. The term “Minsky moment” refers to a phrase coined for the Asian debt crisis of the late 1990s by Pimco’s Paul McCulley. Unsustainable debt will be the cause of the crash, according to Jakobsen, and will occur when the cash returns on assets become insufficient to service the debt taken on to acquire those assets in the first place. He gives no timeframe for his thesis but says that the problem of huge debts has been swept under the carpet by central bankers and policymakers and will come back as low inflation or even deflation.
“We’re still working with the same dog-eared script we were introduced to all of five years ago,” he said. “Maintain sufficiently low interest rates to service the debt burden, pretend to have credible plan, but never address the structural problem and simply buy more time. But while we were able to get away with this theme for an awfully long time, the dynamic is now changing.” Central banks across the world launched bond-buying programs following the economic crash of 2008. Aside from injecting fresh funds into the economy, some economists have argued that bond-buying could also have deliberately helped to stoke inflation, which then erases sovereign debt – as debt loads lose their value when consumer price growth is strong. High-profile economists including former U.S. Treasury Secretary Larry Summers have warned on the potential for “secular stagnation,” when a lack of investment in a developed economy leads to falling incomes and stagnant demand.
Jakobsen calls debt the “elephant in the room” and uses a simple equation on the U.S. economy to put across his point. He argues that U.S. productivity growth is low when if you consider that any shortfall in growth is being made up by increased debt. “The move onto the internet has ironically made us bigger consumers and less productive. Had we remained at pre-1970s productivity, the U.S. GDP (gross domestic product) would have been 55 percent higher and the outstanding debt to GDP would be easily fundable,” he claims in his note. “No serious policymaker or central banker is talking about the truth told by simple maths and hoping that things turn out well. Hope is not good policy and it belongs in church, not in the real economy.” –CNBC
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This entry was posted in Age of Decadence, Austerity, Bank Run, Bankruptcy, Boom and Bust Cycles, Civil Unrest, Economic Collapse, Economic impact of natural disasters, Fiat Money Printing Fiasco, Financial market turmoil, Greed and Corruption, Hierarchal Control, Infrastructure collapse, New World Order, Squandered Resources, Struggle for Survival, The Pyramid Model, Troubled Banks, Unsustainable Debt Burden, Widening gap between rich and poor. Bookmark the permalink.

2 Responses to Global Ponzi scheme approaching ‘day of reckoning’ – US, China, Europe nearing ‘Minsky moment,’ warns Economist

  1. niebo says:

    So, the bankers, in conjunction with the politicians, chose (in the 90’s, e.g., NAFTA) to maximize profits by exporting jobs from “expensive” labor markets (the US/Canada) to “cheap” markets (Mexico) at the expense of domestic workers; consider that, since the bailouts of 2008, GM builds 70 percent of its cars in Mexico (so, no wonder Detroit is a wreck):

    http://www.zerohedge.com/news/2014-08-15/nafta-20-years-old-%E2%80%93-here-are-20-facts-show-how-it-destroying-economy

    Also, consider that the 1999 repeal of the Glass-Steagall Act dissolved the separation between investment banks and “savings” banks: “It was Glass-Steagall that prevented the banks from using insured depositories to underwrite private securities and dump them on their own customers.”

    http://www.usnews.com/opinion/blogs/economic-intelligence/2012/08/27/repeal-of-glass-steagall-caused-the-financial-crisis

    Consider who has gotten rich from going bankrupt . . . and who has gotten rich by bankrupting you.
    Then read the ugly truth about our, er, propaganda “enemies” . . . who have made safe bets while our leaders have just . . . gambled. Maybe there needs to be a reckoning:

    http://www.zerohedge.com/news/2014-09-20/why-china-russia-china-are-now-enemy

    • tom says:

      The sad thing is that we the American people let it happen. Our forefathers are rolling in their graves, we are a bunch of cowards.

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