Overnight, nearly everyone in the house got sick with a flu, so the plans for the day got cancelled and might be for the weekend also. Still, I am "functioning", but I can definitely feel the discomfort building in my body, so I will try to get some thoughts out prior to implosion, just in case. Though, I do tend to "test" writing under lots of conditions, to see what comes out. Sometimes it is comprehensible, sometimes it is rubbish - so let's see what this will be today, with a fever.
I used this graph the other day which depicts the US public debt growth over time from almost zero, to about 37 trillion today.
Why this is important to pay attention to in my opinion, is that it shows how policy shifted into "increase shareholder wealth" and away from what took the average American, and indeed the average global citizen, forward. This increase in public debt is a mechanism to borrow from the future to line the pockets of the minority now, effectively forcing tax payers and everyone else who isn't increasing their wealth at the same rate to finance the few.
This has allowed the US with 5% of the population, to "grow" their economy to be 30% of the global total, funded almost entirely by debt. However, being the largest single consumer market, comes with concessions and benefits in global control, as well as discounts on all things, meaning that with this power, they are able to command the rest of the world to come into line with them, forcing hands, and taking advantage of markets. For instance, with all the trade tariff talks back and forwards, services are not being brough into question, because these are massive for the US. Just imagine if Apple and Amazon had to pay their taxes where the money was earned. For instance in Australia, Apple generated 9B in revenue, but paid less than 140M in tax in the country. That is almost the entire amount leaving Australian shores. Where does it go?
To increase shareholder wealth.
That is the metric of business since the early 70s. However prior to this, businesses still felt some duty of care toward the community, meaning that it wasn't an outright maximisation of profit strategy, there was a little more balance. Especially in a globalised world where a head office for a trillion dollar company can be a post office box in Delaware, duty of care for a community has eroded to nothing, because the profits are coming in from all over the globe, with no single community, let alone one that the average company CEO lives within.
But as we know, this is unsustainable, because ultimately the wealth gap collapses the system. As I said the other day, while stock values have increased 300% in the last couple decades, wage growth has only increased 50%. This means that while people can buy less from the companies, the companies are still increasing their values. This is because the investors keep investing, pushing up the value of the companies, even though the companies themselves aren't able to maintain that kind of consumer demand required to justify the evaluation. Eventually, it has to collapse.
Yesterday a client was talking about how he sees young people (he is in his 60s) driving around in cars and having houses that he doesn't think they can afford, and wonders how much of it is on a credit card. A lot and it is growing. This credit spending of course allows for demand on goods and services using resources from the future, just like the US government has done to pad pockets now. The problem comes when the over extension happens, and it can't be paid back.
For instance, imagine your neighbour upgrades their home to something really fancy, buys a Ferrari and a new boat, and goes on a lot of holidays suddenly. The assumption is that they won the lottery or something. But if it is on credit, eventually the creditors will send around the guys with baseball bats. They will lose what they have, and still be in debt, right?
However, think about it at a country level where the same thing has happened, but instead of just the nation losing its stuff, there is a global network of industries that have all aligned themselves to the overconsumption of goods and services that were buying on debt. This is essentially what is happening with the US now, and the rest of the world doesn't want to stop supplying the US debt mindset, because we have aligned ourselves to making money from that model. This is why the "When the US sneezes, the rest of the world catches a cold" is true.
It is a very, very poor strategy from the rest of the world to tie itself to the obviously unhealthy economic model of the US, yet it has been the way a few people have been able to become extremely wealthy and create an illusion of some kind of economic stability. But, that stability falls down once the debt model is no longer serviceable.
As I have said many times before now, the rest of the world needs to ween itself off the debt addicted US in order to sell goods, and build up a diverse set of markets to account for the disruption or complete loss of the US market. The rest of the world really only needs to increase its own consumption of "something" by about 4% in order to replace the entire US economy. That something can be anything really, but it would be great if it was something that was useful for building a healthy society, rather than maximising wealth.
Despite all the bravado, the US economic model is increasingly fragile because it relies on the illusion of wealth through lines of credit in order to maintain its control. Ultimately, the stability of the nation is going to come down to its people and their ability to cope in what is becoming a rapidly untenable political and economic environment at the global level. The US can't shut itself off from the world because it needs the rest of the world for goods and services, but more importantly, those discounted profits coming in from the globalised companies that get pushed to generate shareholder wealth. If those taps get closed, the US economy falters massively.
The profit from useless consumption has a ceiling on it, but the desire for infinite return on investment does not. This means that eventually, especially because people won't be able to afford to consume, the reality of the markets will force a massive devaluation of all of these companies that were previously able to attract massive investment wealth. With no demand coming in, where does the profit keep coming from? It is a bit like Tesla selling large numbers of cyber trucks to other Musk businesses. It doesn't add up to good business.
The move to shareholder wealth at any cost, means that business and community are no longer tied together. Before, businesses would provide for the community, and the community would provide for the business. It was part of the symbiotic relationship. Yet, even though there is still the practical need for that relationship on both sides, the corporate side has been able to change the rules of the contract to continually reduce its responsibility for the community. That means that in the quest to increase shareholder wealth, they can take more from the community than they offer back.
It is a doomed relationship.
If the countries are going to be using debt, what they should be doing with it is encouraging people to spend on wellbeing activities, encouraging people to be more human, more dynamic, more community focused in their consumption to drive the kinds of demand that makes life better. The businesses that should be incentivised are the ones that take us forward as a species, not the ones that harm us. But, that is not what has been happening for the last fifty years, where instead of improving wellbeing, we are now in contraction, because we have got to a point where to increase wealth further, we have to take away from people's improved lives.
All that public debt was spent on enriching the few.
And here we are, in a world that has people who are closing in on being trillionaires, while the majority of the global population is finding it harder and harder to survive in the current economy. The thing is though, this is exactly what the economy has been built to do, because that is the inevitability of tying the success of business to the accumulation of wealth, rather than the accumulation of health.
Debt well spent?
We are all going to catch a cold.
Taraz
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It's "funny" to see how the Spanish Prime Minister says Spain is doing quite well as we are growing way more than any other European economy.
While one of every four citizens are in poverty.
This week, congress could not approve a new law intending to increase taxes to freelancers, we are the country with the biggest ones in Europe. The leading party was not able to find support in any other party.
And in a little vilage, cityzens kept the city representatives in the town hall for 4 hours as they were protesting for trash tax increase, the local government was intending to increase them by a 30%. See video
Little by little, "non financial" educated citizens are protesting more and more as social tension. I wonder how long it will take for bigger protests...
I suspect not long and with the amount of people on the edge emotionally and the current appetite for violence, I suspect protests from now on are going to get far less peaceful.
Well, cutting off dependency from the United States is a nice idea, but it isn't a very practicable one, at least for now. The rest of the world has to wean themselves off that reliance on the US bit by bit, somewhat like in medical practice with drugs, and this might take decades or even beyond a century. Still, I agree that it's the right thing to do. And if the rest of the world decides to do that, the US will try to fight back and a lot of nastiness is going to ensue.
The one way it might work is if countries of the world, like from the Eastern Bloc, form their own financial organizations, and become economically independent of the US in every way. Like Russia is trying to do with BRICS. Whatever happens, sooner or later, American will tumble from the summit and another nation will replace it as the number one nation in the world. When saturation is reached, deterioration becomes inevitable.
There isn't the time I think. It has to be moved ahead significantly within the next decade or so, or it is too late to do anything that will improve much of this world. We will kill ourselves not too far into the future, due to our greed.
And all that Chinese underreported gold.
Yes. The thing is though, human wellbeing has no ceiling, no saturation point. That should be the indicator of success in the economy. How far we advance as a species.
I hope that your household will feel better soon. I am also I coughing more than usual.
I heard that Lithuania will borrow 10 billion(?) next year. So I don't think that individuals borrowing is surprising. I just wish that countries would stop fighting and arms racing. Can you imagine how much the world be better if countries would not spend billions on weapons and instead invest that money into bitcoin and Hive/ HBD?😛Of course this will never happen. After all humans are stupid creatures who prefer to destroy themselves than to create a better world...
Yeah, people are idiots. If all investment went into making the world better for the next decade, the world would be much better.
Wishing you all speedy recovery Taraz.
I'll leave the macroeconomics for another day 🙂
Where's the fun in that? :D
This is the situation we need to understand. The United States has completely invaded the global market today. Even if you are engaged in business outside the United States, if the parent company is American, all the taxes, etc. go to the United States. This is truly an injustice. For the first time in our lives, we are bound by debt limits due to the conservative methods of our governments. Imagine being a consumer in a world that only seeks profit. Dedicate your time honestly to your two children.
We are beholden to a system that is designed to crush us.
As you stated, when companies fail to help local economies, it leads to a cycle of reliance that ends up affecting everyone in the negative way in long-term.
No one cares, as long as their ROI is coming in.
:( hope u feel better soon. yea.. too much debt. :( the usa is stuck in that mode..
You wrote this when you had a fever??? Wow.
I am in the U.S. I am in debt, because of my government, but personally I have no debt. My husband drove a car for years with a bashed in passenger door. We didn't borrow to buy a new one, and when we bought a new one we only wanted two 'luxuries': a radio and spare tire. I know we've been lucky to stay out of debt, because sometimes debt is incurred for basic necessities. As for my country and the rest of the world that is caught up in our debt spiral...I don't know.
We should all try to own tangibles because someday money may be worthless. It's happened so many times before. The whole house of cards falls down and then crazy starts to happen, not just economically but socially.
I think we're at a point where those in power have to keep the stock market up no matter what, because everyone who is productive has their assets invested in the market if market tanks the economy is done.
So government is doing anything they can to keep it up. Because that is the only thing that matters.