End of the Great Age - what does it mean for banking and capitalism?

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scepticus's picture
scepticus
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Joined: Jan 16 2009
Posts: 129
End of the Great Age - what does it mean for banking and capitalism?

Hi All,

I'm new here. I had a quick run through the crash course - nothing really new there for me but it is a great resource!

 In any case, I'm hoping some-one here can help me with a conundrum that's been bothering me.

Let me state the problem as a series of hopefully obvious statements:

1)  The UN population division predicts that world population growth is slowing and most likely begin declining around 2050. They reckon europe is already declining.

2) GDP growth is primarily driven by population growth. Therefore GDP will fall off as population growth falls off. When population growth turns -ve worldwide after 2050, so will GDP growth. GDP and pop growth has already fallen off considerably since the end of WWII.

3) From the above, at some point this century the world will be in 'permanent recession', even if gdp-per-capita is rising.

4) As stated in the crash course, the debt-money, private fractional reserve banking system does not work in reverse - it needs absolute growth to survive.

5) Ergo, the banking system will fail sometime this century as a result of slowing population growth.

 

Note that zero or -ve growth is not required for this to happen. Just sufficiently low long term growth trend (sub 2%) will see the world plunged into recessions ona  very regular basis. I can't see how the banking system and associated political economy can survive this.

However, there seems to be little or no appreciation of this fact out there - this is the closest I can find:

http://www.capital-flow-analysis.com/investment-tutorial/lesson_18.html 

There are a few people starting to realise that slowing and declining population growth puts us in profoundly uncharted territory with regard to the economy, and this transition is starting to happen now. Or is there something wrong with my reasoning?

 

 

 

 

 

 

RubberRims's picture
RubberRims
Status: Silver Member (Offline)
Joined: Nov 22 2008
Posts: 145
Re: End of the Great Age - what does it mean for banking ...
scepticus wrote:

1)  The UN population division predicts that world population growth is slowing and most likely begin declining around 2050. They reckon europe is already declining.

2) GDP growth is primarily driven by population growth. Therefore GDP will fall off as population growth falls off. When population growth turns -ve worldwide after 2050, so will GDP growth. GDP and pop growth has already fallen off considerably since the end of WWII.

3) From the above, at some point this century the world will be in 'permanent recession', even if gdp-per-capita is rising.

4) As stated in the crash course, the debt-money, private fractional reserve banking system does not work in reverse - it needs absolute growth to survive.

5) Ergo, the banking system will fail sometime this century as a result of slowing population growth.

Hi scepticus

Quote 1 is nonsense, Population growth has been and will continue to grow. In the future there canonly be one event that will allow this UN statement to be factual or true. And this is if the US wages a war against the middle east.

2, GDP is not what it would appear to be. Gross Domestic product from the UK's perspective what is that? as we export very little, most of all the most important sectors of privet services are in the public sector. What is left under government control to spend money on. The NHS, MOD, Public Private Partnerships... The list is extensive yet what the government spends it's money on is paid for by us and by money that does not exist. Money printed in to circulation. You are going to have to think! about the fraudulent money supply.

3, Are we not already at the point of saturation, You just have to look around, how many businesses are in an unsustainable dept environment with overheads exceeding their cash flow. Have not all privet managed companies pushed the envelope of investment, allmost owing everything to the banks, and now on life support living of investment loans.

4, A printing press is all that is needed to create inflation. Once we have moved full cycle and have fallen to new lows, then there can only be one way out. This is why new money will replace old money.

5, The law of averages has allowed the money supply to be extremely creative in the last 12 years. It is fair to say people who are cash rich are loosing confidence fast. Multiply that on a global scale, and any effort by a totalitarian government to sway the population to think otherwise will be conceived as hard times ahead. Now is time to pay down your depts or save-your-capital. Because there will be only one way out from this mess? they would have you spend more? more of what? Dept you and me cannot afford.   

I was in a meeting today with my local MP. within the conversation about problems with the UK economy. I was enlightened to find out Richard Branson with his own money saved Virgin Media from falling in to bankruptcy last week. How deep are the ramifications for businesses and services? when the system collapse witch it will. Remember we have not experienced or seen the real truth given from behind closed doors.

RR 

 

 

 

scepticus's picture
scepticus
Status: Silver Member (Offline)
Joined: Jan 16 2009
Posts: 129
Re: End of the Great Age - what does it mean for banking ...

Quote 1 is true. It is borne out by all the data, you can read the UN report yourself. If you want to continue to believe otherwise, then OK, but it doesn't really help me answer my question.

And yes I know all about the fiat-money-inflation-usury-collapse  doo-da, so I don't need any lectures on that score.

Anyone else care to answer my question?

 

 

 

eb_riesling's picture
eb_riesling
Status: Bronze Member (Offline)
Joined: Oct 28 2008
Posts: 53
Re: End of the Great Age - what does it mean for banking ...

My dear Scepticus,

 If you are suggesting that the population can continue to grow until 2050 I think you need to revisit section 17 of the crash course.  the world will not make it that far with our energy situation.  There will still be billions of barrels of oil in the ground that we will never bother to get out because the net energy will make it worthless no matter what the price is. 

Ergo the economy will cease to exit long before we get to this point and there will be a serious natural limit to the population of the earth and most likely a large scale die off as well.  We need to invent a new type of economy based on zero growth ,GDP, energy, and population.  If we do not do it ourselves mother nature will do it for us but we will have a lot less natural resources to deal with the ramifications.

 So in the end, I think banking is dead as we know it. 

Sorry for the bad news,

 

E

 

mihaibarsan's picture
mihaibarsan
Status: Member (Offline)
Joined: Jan 7 2009
Posts: 15
Re: End of the Great Age - what does it mean for banking ...
eb_riesling wrote:

My dear Scepticus,

 If you are suggesting that the population can continue to grow until 2050 I think you need to revisit section 17 of the crash course.  the world will not make it that far with our energy situation.  There will still be billions of barrels of oil in the ground that we will never bother to get out because the net energy will make it worthless no matter what the price is. 

A head in Europe might use more oil than 10 heads in India. So when we make predictions on population vs. energy we need to differentiate the trends, and balance population movements with oil/head consumption. Otherwise we are also manipulating reality by using average, only in opposite direction vs governments.

I guess this is what Scepticus is asking, and I'm curious too if someone has answers.

scepticus's picture
scepticus
Status: Silver Member (Offline)
Joined: Jan 16 2009
Posts: 129
Re: End of the Great Age - what does it mean for banking ...

@mihaibarsan, thanks - a voice of reason and moderation!

 Before I continue, let me make a couple of statements:

 1) I fully agree that we have reached peak oil.

 2) I am fully cognizant of the banking/currency meltdown theory and the reasoning behind it.

 3) I do not believe the world is going to melt down in the next months, years or even decades. Otherwise, I would be setting about building my bunker - not pontificanting on the internet. Here's why:

 

Peak Oil prevents imminent recovery: while we are at peak oil, possibility for economic recovery is slim, since the price will simply spike again one activity picks up.

Debt build up and ongoing bailouts prevent imminet recovery: Until the world has cleared sufficient debt there will be no recovery. This alone could take a decade -it'sgoing to be like japan, but on a  worldwide scale.

Demographics#1:  The world is aging, or at least the eocnomies that matter do. Old people sell assets (like stocks) to cover their retirements- this will keep asset prices depressed. As the relative proportion of old people grows, assets will continue to be depressed in price for this reason and due to the fact that younger people will see what is going on and save harder for retirement.This creates a second liquidity trap in addition to the debt based liquidity trap.

Demographics #2: Population growth is fallnig off rapidly in developed economies. This results in very low or even negative GDP growth going forward - which depresses the return on capital over and above the depressive effects of all the above.

Therefore, I reason that return on capital witll be very low, zero or negative for a very long time. Capitalism only works when return on capital is sufficient to stimulate investment. 

So what pulls us out of the slump? We're in a catch-22 - we must invest to develop alternative energy sources before we can recover, but while return on capital is so razor thin there will not be funds forthcoming, until we get a recovery.

I see two outcomes:

Firstly, government directed initiatives to develop alternatives to oil. We don't need oil for electricity - most nations have plenty of coal left. Likewise nuclear is an option as well as renewables (and yes, I know that this would have significant additional climate impacts). This path is a long one, and is likely to lead to socialism as capitalism fails to create the required investment.

 Secondly,we deliberately allow and accelerate the fall in developed nation populations so as to carefully increase GDP-per-capita as an alternative to further growth. As I point out above, this will also break capitalism, since in this scenrio return on capital is pretty much zero, or negative. Energy alternatives would be developed over a longer term in this scenario.

To summarise, we are in an energy trap, a debt-liquidity-trap, and before long a permanent asset-price depression liquidity trap. Therefore oil usage is going to be low, and prices rock bottom for the forseeable future. This represents the end of 500 years of population growth, and the capitalist system that grew with it. However I expect to be a drawn out process that lasts many years or decades.

 Very few people are looknig ahead to what the demographic changes mean for us. I suggest that they are of similar magnitude to peak oil, in terms of impact on our economies.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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