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I feel that what we are arguing about is similar to how passengers of a slowing down, malfunctioning car argue about which way and what speed they should drive on, but when they look under the bonnet they find that they lost the engine.

Unfortunately today no political or financial leader dares to look under the bonnet, or even if they looked they do not dare to speak about what they found, because they only care about re-elections, or short term effects.

So they try to push the car with all their might and tricks but it cannot be restarted again.

We are continually arguing about how to resuscitate an economic model that has run its course and became dysfunctional for multiple reason, and all those reasons are reinforcing each other making any superficial adjustment impossible.

Both stimulus packages and austerity is based on the belief that we only need temporary adjustments until growth will restart again as if we were in a cyclical process. But this is not a crisis or depression but a system failure as some distinguished experts stated it before on this very forum.

All the bubbles based on the the unnecessary, vastly beyond necessity consumption fuelled by vastly over the capabilities credit, in a closed finite system where constant growth is impossible, producing mostly goods we simply do not need and which are mostly harmful are bursting now one after the other, the seams of our present social and political system (regardless of country or culture) which was created to serve the disproportional profit hoarding and distribution is coming apart.

There are no simple solutions, there is no overnight fix. Our present way of life is falling apart, what we need to concentrate on is how to shorten, and “sweeten” the transitional period, and what we build after.

In this respect austerity is better as at least by not running ahead blindly we are not causing even more problems, and deeper crisis according to the saying “if you do not know where you are going, it is better to sit and do nothing”.

Before we plan or move any further we have to study this global, integral and totally interdependent network we evolved into, and then build new social, political and economical strtuctures based on factual and objective knowledge which is mostly already available around us.

The new world will be based on necessities and available resources instead of false hopes and fabrications, and since we are all interconnected within the same system everything we do will be based on mutuality and true equality which in turn is based on the consideration and acknowledgment of everybody’s individual strengths and weaknesses.


from Zsolt comment in this commentary.

…debt can be used to finance four different financial transactions:
1. productive investment
2. innovation
3. consumption
4. speculation

The first two add to the productive capacity of an economy. When the government builds roads, dams that produce hydro-electric power, or other infrastructure projects, debt is being used productively. Similarly, when debt is used by companies for research and development or new ventures, it may lead to the production of new goods or services, which then can lead to an expansion of GDP.

Debt that is used for consumption, however, is considered a dissipation of capital. Nothing is produced; rather, something is consumed. After something is consumed—such as a basic necessity like food—the debt remains even though the item consumed no longer exists. When debt is added for consumption purposes it enables the debtor to pull tomorrow’s demand forward into the present. As debt is used to expand consumption in the present period, it is in essence borrowing from the future therefore reducing future demand.

Debt taken on for speculative purposes is also unproductive as it can lead to asset bubbles or overinflated prices for assets. Eventually all asset bubbles go bust. The overinflated asset values decline but the debt still remains. Think of the recent housing bust and the technology bubble as an example of speculative bubbles financed by debt for unproductive purposes.


from this article.

So, “Is debt good or bad?”

My response, “Debt for what?”

How to make a civilization fail? Borrow until broke, from future generation.

Inspired by this column.

If it is true, the international politics as we know will not sustain very long.



Update: debt, subsidy reform, fuel price rises, political crisis.

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