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That sounds like the situation in the USA between Federal public debt, state public debt and municipal public debt. But all of these appear to be dwarfed by private sector debt, and most of the holders of debt don't have the same options as the Treasury and Fed. So if states, municipalities, corporations, private companies and individuals are to get out of debt they can only do so if either the Federal debt expands or they can export at a profit.

But debt that was based on counterfeit assets should be considered to be counterfeit debt and should be written down in a default like resolution. Even with such debt write-down, which had largely occurred during the Great Depression of the 1930 in the USA by 1933, government spending was still all that kept the system going -- really until after WWII.

Social perception and solidarity combined with government coercion via rationing and price controls during the war led to a large savings due to War Bonds and huge pent up demand that spurred a recovery that lasted until the wind-down from Viet Nam. And that recovery worked in the context of a quasi-gold standard, but the USA had the only large, intact economy left after the war.

This time the US Government has done all that it can to prevent the write down of bogus debt and devoted all efforts to propping up the vampire financial sector that is currently extracting ~$700 billion/yr from the productive and consumer economy, thanks to policies and regulatory forbearance, such as the Zero Interest Rate Policy or ZIRP combined with voracious interest rates and fees on individuals by the banking sector and the ability of TBTFs to borrow at zero and "invest" at whatever.

Were that $700 billion/yr injected into the base of the economy via infrastructure projects, increased benefits to retirees and unemployed, etc. And were policies, regulations and tax laws revised to favor domestic manufacturing, the real economy could start to recover.

Neither will the economy will recover with steadily rising energy costs, so investments in renewable energy would make possible a future in an environment of >$120/bl oil prices, which seems assured in any but a global collapse scenario. So renewable energy generation and both goods and passenger transportation via renewable energy both would help the economy recover from collapse and make a future possible in a post peak oil world.

The problems are more political than technical or resource constrained. Resource constraints can be dealt with if the power of economic incumbents can be overcome.    

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Sat Oct 16th, 2010 at 01:27:48 PM EST
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