2017 - When bad turns worse

Sweeping the pengő inflation banknotes after the introduction of the forint in August 1946. Source: Mizerák István (CC-BY-SA 3.0)
I must say that I'm amazed over the fact that the international monetary system is still intact. It's now eight years since the global financial crisis first broke out. Irresponsible lax monetary policy in the belief of a "perpetual money machine", i.e lowering interest rates and expanding monetary supply, has lead to several bubbles and bursts. A process that started in the 1980s when industrial economies stopped generating GDP growth from productivity increases. And eight years is about the interval between every bubble bursting since then. 2017 could be the year when people finally lose faith in the system.

Of course there's a much deeper story to all this. The massive debt explosion that started in the 1980s has to do with diminishing returns on resource extraction. As real GDP growth slowed down, and wages stagnated, the cost of basic goods and living increased. People and governments started taking on huge loans to cover their continued consumption. An act of postponing the harsh consequences of going broke into the future, on to the next generation, while enjoying the present. By now we all know that most nations, and its peoples, are basically bankrupt since global GDP growth has come to a standstill while debts, not even including liabilities, have increased and are now impossible to pay back.

Instead of dealing with the real underlying issue, most nations have decided to double down on a failing policy of ever lower interest rates that keeps inflating markets and creating massive bubbles in stocks, bonds and housing. Sweden is a prime example of a country that never deleveraged during the last crisis and thus runs a much higher risk of having to face a major financial crisis soon. It doesn't take a genius to figure out that with its negative interest rates and  massive housing bubble Swedes are living way beyond their means. A small 40 m2 flat in central Stockholm cost at least 2-3 million SEK which makes it the third most overvalued housing market in the world, after Vancouver and London.
Mainstream media is still mostly blind to all this, claiming rising prosperity and a bright future ahead. And the few people who do stick their neck out are ridiculed based on silly arguments like "if it's a bubble why hasn't it popped yet?" as if that proves anything but faulty linear thinking of complex systems. It takes time for instabilities to build up. At a certain point, incremental change is suddenly replaced by abrupt change that can collapse the entire system. This is well-known within systems theory. To bad most economist never even study this and thus understands nothing about how the financial system or economy actually works as a whole.

Who knows how long this pretend and extend game can go on for, but one thing is certain, people are starting to lose faith in the system. We see that clearly in the political arena and spread of alternative media. We also see it in the rise of ever more elaborate conspiracy theories. The status quo is breaking down.

Unfortunately there are plenty of madmen and privileged people who are ready to use the resulting polarisation and confusion for their own benefit. The "let's blame immigrants" card is already in full swing. Cutting funding for climate change research is another type of witch hunt that's not happening only in the US, for example, the Sweden Democrats want to do something similar here claiming the meteorological authority's scenarios, which are based on IPCC's research,  are too alarmist. For us who study the topic of climate change this statement is laughable as it's more like the other way around, most projections underestimate the risks. Also, the increasing flow of refugees are partly a consequence of depleting resources and climate change. Perhaps politicians fear a loss of voters if the public understood that fact properly.

Anyway, 2017 looks to me as a year of high risk of political turmoil, social unrest, and financial calamity. Drawing most attention away from the underlying issues: resource depletion, biodiversity loss, climate change and overpopulation.


Out of the ashes into the fire

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