We are semi-blissfully going about our daily business thinking that maybe the ‘Credit Crunch’ wasn’t so bad after all… a little hiccup maybe, but not so bad. But, actually, there are a lot of problems lurking, not least of which is the massive debt both governments and individuals around the world are contending with.
The problem with debt, basically, is that it needs to be paid back, or, it is necessary to default on it. Either solution messes up the economy. Either solution messes up your and my finances. If we divert funds to paying it back, that money isn’t being spent on productive capital, or even on goods. It is money down the drain. If we default, well, our creditors have money shortages instead. Either way, we all lose.
Economies historically deal with huge national debts in one of two main ways: economic recession (or its extreme version, depression/panic), or inflation (or its extreme version, hyperinflation). Recession sees prices falling, jobs getting lost as businesses can’t make a profit or jobless consumers can’t consume, and so on. Inflation sees prices rising rapidly and consumers not being able to keep up, and, after a time, jobs getting lost as businesses can’t make a profit because they can’t afford the raw materials or customers can’t afford the high prices… Depression and hyperinflation are extreme versions of these and can be quite terrible.
After the Credit Crunch (caused entirely by slack regulation of the financial markets by governments around the world, encouraged by free-market economic theories (not that the alternatives work so well either)), governments had basically two choices: stand back and watch the economies of the world slump into depression, or print money (sorry, euphemism of the day: “quantitative easing”) to try and cancel out the collapsing money supply as shares and banks tumbled. Well, they chose the latter and printed money (or, really, sold treasury bills and reduced interest rates – effectively the same). In the UK they only did this enough to cancel out about half of the slump, however. That is one reason why our economy isn’t recovering much yet although the recession hasn’t been so intense either (on the surface). Nevertheless, this amounts to a huge debt which is going to have to be paid or defaulted on. In the US they’ve gone further and the outcome is much the same so far. This video suggests the outcome is going to be hyperinflation. The video makers have their own political free-market axe to grind (and as I mentioned free-market theories led us into this mess in part), but the evidence that the economic ramifications of this mess are still working out seems pretty good. Oh, and if, unlike me unfortunately, you happen to have some spare cash, it might be worth investing in silver, apparently…