Debt and the economy

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Observations and Conclusions

The economy looks to me like a type of Ponzi Scheme. It depends on both rising energy consumption and rising debt. Judging from the problems we are having now, it seems to be reaching its limit in the near term. Raising interest rates will tend to push it even further toward its limit, or over the limit.

Debt is used to pay participants in the economy using a promise for future goods and services. This allows the economy to appear to distribute more goods and services than are actually available. In a way, adding debt is like being able to manufacture future energy supplies that can be used to pay those who participate in making the goods and services we produce today. When energy products are high-cost to produce, and delayed in timing (such as wind and solar PV), the need for debt especially rises.

Part of our problem today is the extent of specialization of those analyzing our current problems with energy and the economy. This means that virtually no one understands the full problem. Bankers seem to think that debt, and interest rates on debt, can solve all problems. Energy analysts think that energy resources in the ground are all important. They both create incorrect analyses of the overall problem. Rising debt is needed, if energy products that have been created are to be absorbed by the world economy. The energy gluts we are seeing are signs of inadequate wage growth. A major function of growing debt is to add wages. Unwinding debt leads to the kinds of problems that we encountered in 2008.
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"You can't fix a problem until you know what the problem is." Logtroll