The End of Abundance

27 Aug

The End of Abundance

“What we are currently living through is a kind of major tipping point or a great upheaval … we are living the end of what could have seemed an era of abundance … the end of the abundance of products of technologies that seemed always available … the end of the abundance of land and materials including water.” 

French President Emmanuel Macron, August 24, 2022

Is it the end of abundance?  Not just for France, but for much of the rest of the world including us?

Well, of course, it is.  Governments like theirs and like ours have killed the goose that laid the golden egg.  And it is just that simple.

Look no further than President Biden’s new student debt initiative.  Some people owe other people a lot of money.   Now Biden says they don’t owe it anymore.  But his public relations people are unable to answer the simple question, “Who pays for it?  Who eats the loss?”

There is no understanding in Washington and most of the media that there are two sides to the balance sheet.  So, we hear a great deal about the wonderful benefits to those who are relieved of their debt.  And we get no answers about who is left holding the bag, and who pays for it.

The political calculation is obvious.  Biden isn’t actually paying for anything himself.  He’s not forgiving anyone who owes him money.  He’s shifting the burden from the visible 20 million borrowers who will benefit, to the less visible those not identified by the White House, who will now carry the load.

But months before the election, Biden expects that he and his party will be rewarded for this burden shifting by the votes of the grateful.

This has prompted newsletter writer Bill Bonner to remark that Biden should “take aim at all the other disagreeable debits in our lives; he should cancel auto-loans… and mortgage loans… and payday loans… revolving loans… government debt… pawn shop loans… bank loans… credit card debt… margin loans… social obligations (‘they invited us…we need to reciprocate’) …loans for solar panels and EVs… child support… alimony… gambling debts… and bar tabs too.”

When governments spend without regard to who pays the bills and how debt leads to disaster!

The world is struggling under the weight of unsupportable debt. Total world debt is about $300 trillion.  That is more than 350 percent of the global GDP.  It is more debt than can honestly be repaid.   There will be huge losses.  And it is growing ever more difficult for governments and central bankers to conceal the extent of the crisis.  That is why Macron admits that France has been living under a series of crises, “each worse than the last.”

We can’t let the governing classes blame all this debt on the pandemic.  Debt began growing rapidly long before anyone heard the word Covid.

What will be done?   The same thing has been done many times in many places.  The authorities will print ever more worthless money to pay their bills and service their debt.  It is really a painful way of defaulting over time.  Creditors, savers, pensioners, and Social Security recipients get the nominal amount they expect, but it doesn’t buy as much.  We are seeing this already.  

The Federal Reserve holds trillions of dollars of US Treasury debt.  Think for a minute just how weird that is.  The government spends money it doesn’t have, so it borrows it by issuing and selling Treasury bonds.  Then the Federal Reserve purchases those bonds with money that it doesn’t have.  It purchases those bonds by digitally “printing” new dollars.

We think that the goose that laid the golden egg is being slaughtered.  But this business of the Fed covering the US deficit by printing money suggests a different animal metaphor:

The snake swallowing its own tail!  

Either way, it is the end of abundance.