I continue to be surprised that no-one seems to be writing about the big picture (including the guy with the eponymous blog). By “the big picture” I mean the epochal perspective that we are at the end of the post-war (WWII) experiment with social democracy. What follows is unclear, but social democracy has turned out to be an unsustainable economic model (except in a few Nordic countries, where the social glue still sticks).

Social democracy has created a great expansion of expectations, and people have rushed to accumulate debt to realize their expectations far beyond their actual ability to honor those obligations in the future. The present massive expansion of government deficit spending and associated debt as a substitute for continued expansion of private sector debt cannot and will not last. Governments are simply treading the same path that has led the private sector to exhaust its capacity to fund consumption with debt. Despite the earnest desire of politicians and Keynesian economists, there is no way to grow out of these debts. There is only a choice between deflation(default) and hyperinflation(devaluation), both destructive but with the edge in unpleasantness going to the hyperinflationary outcome.

Either way, the present imbalances where countries are building up debt by producing less than they consume and failing to invest for the future will be rectified. The over-consumers will be forcibly restrained, and their lifestyles and social institutions will be drastically changed. In addition to the economic distortions introduced by government and politics, demographics will have a large part to play. Falling birth rates and increased longevity mean that the resources to deliver the services that politicians have promised to the elderly will simply not exist because there will not be enough people working to provide them. One could go on, but the message remains the same. It is the end of the world as we have known it since 1945. The world will not end with a bang, but with a whimper. A long drawn out whimper, at that. The process may last another twenty or thirty years. Or much less. We’ll see.

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