Transcript here - Feasta

Collapse and stabilisation
instead of degrowth?
Why the global debt burden means there will be no recovery
Richard Douthwaite
Feasta, Foundation for the Economics of Sustainability
The debt problem...
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Debt presents a serious problem for de-growth
The share of national income required to service it
grows as the economy shrinks
A way to reduce debt is therefore an essential part of
any de-growth strategy.
Massive debt write-downs seem inevitable in the near
future as a result of an economic collapse.
The collapse will give the de-growth we want. Our task
will be to stop the pro-growth systems being restored
afterwards.
World debt has grown 250% in the past decade
Some countries' debt has become unsupportable
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Why debts and asset values rose so much
There are two types of money – stratospheric and
grounded – disguised as one
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Banks created lots of stratospheric money by
lending against assets.
Grounded money also became stratospheric
money when it was used for buying energy and
other commodities at the height of the boom
and the producers could not spend it all back
with their customers.
Debt has not been stimulating the US economy
recently
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The massive growth of debt within the United States
US stockmarket valuation as % of GDP
For four years, world oil production was on a near plateau
Relationship between spending on oil as a
percentage of US GDP and economic activity.
British debt growth since 1987 – mostly financial
Small (under $300 m assets) US banks in big trouble
• The green curve shows the
drop in the proportion of
'healthy' loans by small US
banks from about 80% in
2005 to under 43% today,
the lowest on record.
• The blue line is the growth
in the % of non-performing
loans to total loans. At 3% it
is the highest for 20 years
When one major bank goes, they will all go
Global oil production has fallen from the plateau and
gone into decline
The range of rates at which it was predicted that oil output
might fall
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Poor prospects of a real return
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Global situation (2009)
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Debt plus stock market value equals 345% of global product.
6.9% real growth required to give 2% real return
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German situation (2009)
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Total debt plus stock market value is about 560% of GDP .
5.6% real growth required annually to give 1% real return.
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US situation (2009)
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Total debt plus stock market value is about 505% of GDP. 5%
real growth required annual for a 1% real return.
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Source: Hannes Kunz, IIER
Short-term solutions
Injecting debt-based money into an economy adds to the
debt burden so it needs to be spent in a way which
increases incomes rather than asset values. A better
solution would be to
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Create non-debt money by quantitative easing
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Give it to everyone equally to pay off debts
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Those without debt could spend
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This would boost demand, lower unemployment and
boost taxes. And cause inflation, which would raise
incomes in relation to debt.
The alternative...
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The banks go bust. Everyone's deposits are lost. Riots
break out.
Asset values plunge to near-nothing.
Trade breaks down. Russian barter companies thrive
but most people are unemployed.
Social welfare payments and pensions become distant
memories. Many are cold and hungry. Some starve.
Attempts are made to establish new money systems.
Further de-growth is unattractive. Everyone wants the
abundant life they enjoyed “before”.
A longer-term solution
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Have two types of money, one for spending, the other
for saving, with a variable exchange rate between
them.
Saving the spending currency would be discouraged,
perhaps by inflation, perhaps by demurrage.
Would-be savers would convert their spending
currency to the saving one at the current rate of
exchange.
Anyone selling an asset would be paid in the savings
currency and have to convert it to the spending
currency if they wanted to use the payment as income.