Another economic crash is coming; how did
this happen?
Well, I hate to break it to you but David
Cameron was right. But don’t worry - predictably,
he was right for all the wrong reasons. He’s
said that Britain is facing another economic
crisis - which is true - but not for the reasons
that he has given.
The bankers, economists and politicians who
apparently saved the world from economic armageddon
in 2008, told us that this could never happen
again. So what’s going on? Well, economists
are - once again - looking at the wrong indicators
and politicians are beginning to realise that
they’ve bailed out the wrong industry.
After the crash, instead of channelling money
into the real economy where most of us live
and work, politicians used Quantitative Easing
or money printing to repair the balance sheets
of banks, naïvely claiming that this would
kick-start growth. This was the first massive fail.
In fact, all it did was incentivise banks
to reflate the dysfunctional housing market
through selling mortgages to support government
schemes like ‘help to buy’. So instead
of financing real investment, politicians
financed more speculation. Second massive fail.
The outcome? Well, kind of predictably, the
only industry to grow since 2008 has been
financial services. Third massive fail.
So, we find ourselves back in a very familiar
position where we have a bloated financial
sector that has us all servicing mountains
of private debt - most of which has been used
to pay for unproductive assets like houses.
If our wages could support current house prices
then there wouldn’t be a problem, but the
fact is that these prices are built on mountains
of private debt.
Bankers and politicians have encouraged us
to take on this debt, seemingly still not
realising that you can’t solve a private
debt crisis with more private debt.
So, why do mainstream economists ignore private
debt, despite the fact that today private
debt is at the greatest levels in recorded
human history? Because the core business of
banks who employ economists is selling debt
and, as Upton Sinclair once said, “It’s
difficult to get a man to understand something
if his salary depends on him not understanding it.”
So, am I the only person talking about this?
Thankfully, no.
Meet Professor Steve Keen, Head of Economics
at London’s Kingston University. A highly
respected economist who predicted the financial
crisis in 2008. Keen is again voicing his
concerns about the fragility of the global
economy.
Keen believes that the level of private debt
and the speed in which it’s growing are
two vital economic indicators. In medical
terms, it’s as important as taking your blood pressure.
When household and business debt is above
150 percent of GDP and when it grows at 20
percent or more over the course of 5 years,
you’re in real trouble.
So, what are the stats now? Well, including
the financial sector, private debt in the
UK today stands at over 350 percent of GDP.
Yes, that’s more than double Keen’s warning
figure and it wasn’t mentioned once in George
Osborne's Autumn statement.
The only thing that’s now keeping the UK
from becoming a zombie economy is government
spending, but ironically they’re trying
to slash that because, despite their budget
trickery and skewed statistics, borrowing
is at record highs. Further austerity economics
won’t work - they lead to something that
I call backdoor privatisation. This is when
you starve a public asset of cash and then
sell the beleaguered asset at a firesale price
to the private sector.
Escaping from our private debt trap will either
require a lost generation or policies that
run counter to conventional economic thought.
Only by making this leap can we begin to understand
the real reasons that we’re in this mess,
and then instruct a government to favour the
real economy instead of the predatory short
term interests of the financial sector.
