Monday
Jan032011
by 
Bishop Hill
Bishop Hill Starck message
Jan 3, 2011 Climate: other Economics Walter Starck surveys the global economy and wonders about the focus on climate change.
All over the developed world, governments have committed to unfunded liabilities and fostered a proliferation of bureaucracy which their increasingly uncompetitive productive sectors cannot sustain. Most are now running on empty with no credit left, no plan B and no apparent recognition that the path they are on leads only to the edge of a cliff.
Reader Comments (19)
I hope his science is better than his economics. I'd like to see his case to support this quote "In the U.S., Japan and most of the EU, government debt and deficits have passed a point of no return and are rapidly escalating.".
The deficits are awful but I have not seen serious justification for the above comment.
How accurate this statement is and it fits very well with the comments of CEDARHILL in the "more wind" thread a day or so back.
We are already well beyond affordability of the liabilities produced by our last government, and the current lot show no signs of changing. CUTs - what cuts? - just Titanic deck-chair arranging. Another £23billion borrowed last month, the highest amount ever.
So how can we make matters worse? - that is something politicians are good at.
Unfortunately - do you know a politician that can recognise a cliff edge?
I thought those who are warning that the US and UK governments were aiming at inflation or default were wildly exaggerating - but who knows? How can it end well?.
Germany declares eco-martial law!!!
EUSRR will be next!!!
P Gosselin reports here...
http://notrickszone.com/2011/01/03/germany-passes-energy-tyranny-act-will-force-energy-rationing/
Angusfreak - I hope you are right, but there is no evidence he is wrong.
China stopped taking US treasures for a while 6 months ago, if they did it full time (and warning shots have been fired about mutual destruction etc.) matters could get very bad very fast. China and Japan now each own $850bn+ of US treasuries and are worried that the US is going to inflate them away. The UK owns $450bn!!!!??
The current UK liabilities are not really affordable - even on the treasury's rose-tinted figures, just the interest on the debt will be closing on £3k per household by 2015. As many (about 17%) of those households contribute nothing, it is a lot worse than even that.
Politicians are piling up costs for our future with no regard to how we can pay.
With some warning of further bank debt crisis to come (banks apparently are still hiding toxic assets) and even ignoring the Euro problems - we live in very interesting times.
Can you give me any pointers to brighter news??
Retired Dave
I think it is for the prosecution to prove its case rather than for an assumption that the accused is guilty and for the defence to find a "get out of Jail" card. However.... From a mainly UK perspective this is how I would respond.
Brighter news. Well I'd say the fact the financial markets are not in meltdown is a good start.
Your own comments are not really persuasive aguments:
"banks apparently are still hiding toxic assets". Still holding some - sure. But any evidence that these cannot be worked through given time? Banks are generally surprisingly well-capitalised and making good profits. Bear in mind banks are famed for writing asset values down too low during the recession so they can add back any uplift during the recovery to normal trading profits.
"Politicians are piling up costs for our future with no regard to how we can pay." I'd argue that while horrible recurring costs were built up a credible plan is building to gradually reverse the deficit.
"The current UK liabilities are not really affordable". Matter of opinion I guess but personally I think they are affordable at current 5 year interest rates. We need to get a grip of things in that period but, as above, a credible plan is building. UK still has very good credit ratings.
The China/US/$ question is huge of course but the bottom line there is that any extreme action will hurt both. So game theory indicates they should tiptoe through the probems without rocking the boat.
I am neither a scientist nor an economist but i would agree with most of what is in this report. There is (in my opinion) more truth in this report than in AGW. We are being herded into a further financial meltdown by so called representatives of the people who have completely lost touch with reality. As far as they are concerned, the climate debate is over. They, our leaders are bowing to the whims of enviromental lobbyists who in turn are following an agenda which is bereft of any common sense. Should it continue, and it looks as though it will, i see very little about which to be positive. It is becoming more like a bad dream every day.
Although government is much too large and powerful, the problem is not that simple. The root of the problem is control of government and the supposedly democratic political process by corporate oligarchs. They make liberal noises and make donations to charities of their choosing from their vast personal fortunes while they steer government policy to enrich themselves at the expense of the economic and politically powerless wage slave. Obama has attempted to be the new Franklin Roosevelt, but in the face of resistance from the financiers, he has lacked the fearlessness Franklin and the fierceness of Teddy. The government allows the oligarchs to eat our lunch while setting up the Chinese to eat our future, i.e., our children.
Argusfreak "In the U.S., Japan and most of the EU, government debt and deficits have passed a point of no return and are rapidly escalating.". The deficits are awful but I have not seen serious justification for the above comment.
US debt is out of control (likewise the UK) - unsustainable even at present levels - yet accelerating upwards.
The madness of governments in coniving in this headlong rush to financial disaster makes the global warming nonsense a small sideshow in the overall insanity.
Martin A
With the measures coming into place, such as the VAT rise in 33 minutes, the UK deficit is not unsustainable nor about to accelerate through 2011. The measures will take time to come into play, hence the high borrowing in November which was a result of decisions in previous years. The deficit is far higher than it should be. But can be brought back into line.
The US is more of a challenge but with GDP growth at between 3% & 4% the sums can be made to work even there. They need to take some medicine though and pork barrel politices weigh against that.
Argusfreak
Well I hope you are right. BUT like others here I don't feel confident that it will be managed. The projected DEBT will continue to rise throughout the 5 years you speak of to at least £1.35 trillion (treasury estimate). As I said earlier the interest alone will be around £1000 per head of population by then. The deficit will be higher this year than last and shows no sign that it will be easy to move downwards easily.
The worse thing is that most citizens still do not see the need for cuts or tax rises. MORI polls have improved slightly in the last year in this regard but not much.
There will be no North Sea Oil bonanza this time.
Happy 2011 everyone
And capitalism will be blamed for the failure.
Capitalism is not the problem. Corporate/oligarchic ownership of the government is. Capitalism is the great engine that powers human economic advancement. Unregulated capitalism ensures that only the few advance. It is not only the tension between the branches of government that preserves democracy, but also the tension between government and the private sector. If either is too powerful, we lose. When they become the same thing, we lose big.
From my perspective in Australia, at least the new UK government is making an effort to correct the economic problem. Time will tell if it will work.
The elephant in the UK room is the problem of being able to generate enough electrcity all through this new decade, while at the same time closing down all your necular and coal fired power stations.
That is a big ask.
The huge, enormous dynasor in the room for all advanced nations is the heroic effort that most governments have embarked on, of a complete rejig of our economies to enable us to live in a carbon dioxide free world.
Now perhaps I'm too old to get it in perspective, but the risk of jumping off our fossil fed ship in mid ocean and hoping we can invest, build and learn to effeciently operate a brand new sailing ship -
BEFORE we hit the water, seems rather too high to be acceptable.
From my understanding, the US economy is growing rather less than 3 or 4% per year.
I do not see clear signs of a government plan to move forward and the hostile House of Representatives and doubtful Senate will make the government's task much harder.
I am really surprised in these difficult times to see the government apparently attempting to sidestep the congress altogether and use the EPA and other administrative means to further hobble the economy.
The 2010 year that is just past was a real watershead.
It was the year in which all the scientific arguements supporting the AGW were shown to be, at the very, very least, subject to some doubt as to their validity.
That news does not seemed to have reached the MSN or the politicians, althought the general public are deserting the sinking ship with some speed. So we still live in fairyland.
It will be necessary to come back down to earth very quickly, if the present economic problems are to be delt with and disaster adverted.
Walter Starck is both right and wrong: he's right about the debt, he's right about Government's abrogation of their responsibilites but he is wrong about the basic causes. Try reading this article,
from an economic historian Dr. Michael Hudson, for more about what is heading down the highway:
http://michael-hudson.com/2010/10/who-wins/
It's not pretty.
Angusfreak Your post is from a western perspective. I live and work in China (until the a.m. and then it's a warmer Singapore!).
China has a huge housing bubble that has to burst sooner or later. My expat friends here in the financial sector have a huge down on U.S./Europe financial policy. I am no expert but listening to them fills me with dread!
I was able to get my family away from the UK some years ago and I weep for the debt that friends and family are being lumped with by inept politicians and greedy bankers.
The real problem? I see no one in politics that has the guts or intelligence to stand up and take the hard decisions! Just a bunch of people that have never had a real job running a company or managing a department. Then again, they can spend billions on bloody wind turbines, make promises to reduce a non existent problem with not only a huge monetary cost but with a promise that the jobs will go over to the Asian markets! Make a person want to weep!
Retired Dave,
There's also the Public Sector Pensions liability of something like £4 trillion and the PFI liabilities.
It all adds up to the better part of a not inconsiderable sum of money.
The Coalition appears to have reduced the 4th derivative of the rate of increase of the debt to zero.
I have read through the thread this evening. I still see nothing that definitively demonstrates that budgets are out of control and accelerating away.
Lots of hints and scare stories. Rather like many of the arguments in favour of AGW. The equivalent of six degree rises, sea level up two metres etc.
Don't get me wrong, there are severe economic issues in play. But the uncertainties mirror AGW. Spouting worst case outcomes does not mean they are going to happen. The parallels with AGW are surprising.