From the Debt Mountain to Where?

Most of us cannot help but ask, what does the future hold? Now, any guesses are obviously fraught with difficulty because the future is not all that obliging, but since my novels are set in the future, I still have to make guesses. About 2005 I started writing a nearer to now novel (Puppeteer) and I made two guesses: terrorism would continue and grow more serious, and the economies of the world would be in trouble because of excess debt, insufficient tax collection, and the constraints of resource depletion, and in particular, oil. When I finished that, while I was trying to get an agent, I started another (Troubles) where the world economies had collapsed, and the planet had the extra problem of sea level rising. This novel was about recovery, because suddenly fusion had been developed, and energy would be plentiful. In the first chapter of that I pointed out a lot of money would be made, largely through “financial products”. (The story is essentially one of greed.) Somewhere while writing that we had Lehmans, but I decided that did not change much.

So, how good were these guesses so far, bearing in mind we have a way to go before the setting of the first story? I never saw fracking coming, at least to the extent it has, so the oil shortage is somewhat questionable, but what is interesting here is that while the price of oil has collapsed to some extent, it has not helped the economy.

In New Zealand there is a real economic problem, at least in my opinion. Statistics show that the economy seems to be doing extremely well, but it is largely due to the construction sector. The earthquake sequence wiped out about a third of the houses in Christchurch, and most of the rest needed some fixing. The central business district had to be largely demolished. (In terms of energy, the quakes were only modest, at about 7 on the Richter scale, but it was their location. The lump of basalt known as Banks Peninsula reflected the waves, leading to odd wave interference patterns and very large momentary accelerations.) Rebuilding that has strongly helped the economy.

There is also a lot of house construction going on elsewhere, but herein lies a problem: house prices are rising because of a shortage, but exacerbated by low interest rates. The low interest rates have led to an awful lot of borrowing, and that is not restricted to us. I see the national debts of the US and UK are not exactly small, at about 80% GDP (If you look at Wikipedia, there are various fudges that make an exact total impossible.) Most other European countries are somewhere around this, but Russia, interestingly enough, lies at 15% GDP. Japan gets in at 218%. Now, the question is, in the event of a major economic crisis, what happens?

In principle, with very low interest rates people could afford to invest and grow the economy, but that does not seem to be happening, at least here in New Zealand. People are borrowing to spend, and while that keeps the existing economy bubbling along, it is not getting the virtuous economic growth that is desired. Nor will it if the current philosophies towards money remain the same, and money is created at will to support debt. What happens is eventually far too many people have all of what should be disposable income devoted to repaying bank debts. Everyone works for the bank! The problem then is that they cannot purchase, and if they do not consume at all, there is not much point in producing, which leads to massive unemployment, which in turn leads to the inability to pay the interest on the debts. Now what? A major depression seems to be the minimum that could happen.

The US is a rather odd position as its dollar is also a world reserve currency, so it has gone out and printed a lot more. That should stimulate the economy, or lead to inflation, but it seems to have done neither to any serious extent, the reason seemingly being that tax avoiders are secreting away large dollops of it in tax havens, where it sits doing nothing, and is effectively being taken out of circulation. It would be a bit scary if it all suddenly reappeared.

The problem is, in my opinion, that either interest rates must eventually rise to a more normal level or they will stay where they are in perpetuity. If they rise, then all those who have taken on the maximum debt at the low rate will become insolvent because they cannot maintain the interest repayments. If they stay the same, then saving becomes somewhat foolish, particularly if the currency starts to inflate, which in principle it should be doing with all the printing, were it not for the tax evasion, and surely it cannot be in the governments’ interests to support tax evasion? So, how do we get out of this mess? The needs for plot in my two novels led to a fragmentation of society. As governments had less to offer, it became every man for himself, so to speak, and those with wealth went into enclaves to protect themselves and their wealth from the masses. Obviously that is hardly the only outcome, but what do you think will happen?


2 thoughts on “From the Debt Mountain to Where?

  1. Interesting thoughts, Ian! (Pun intended). I have no idea how this will work out, but after reading your post, I suspect at least some portion of the world’s population will be unhappy. But then, many already are, so if the unhappiness shifts around a bit, perhaps that will be an improvement.

  2. Thanks for the comment, Audrey. Nobody knows how it will work out, especially me, but in my thriller type novels, nobody is particularly happy. Of course that is more of a plot requirement than a prediction 🙂

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