Over the past four decades, the developed economies have gone on the biggest debt bender in history. The current level of global indebtedness, coupled with the massive unfunded government entitlement promises, are conservatively valued at over six times (6x) global GDP. Greece, and the other Club Med countries, are a mere warm up act considering the financial insolvency of the European Union, United Kingdom, Japan, and the U.S.
Simply stated, none of these jurisdictions have a hope of ever paying down even a portion of their accumulated liabilities, with non-debased money. They are each so strapped with debt and entitlement that none of them can currently service their interest (despite rates being close to zero), without borrowing more money or resorting to the printing press. The problem is clear and flooding the financial markets with baseless liquidity and "creating inflation" will not fix a solvency crisis.
Only morally insolvent central bankers with dilapidated spreadsheets, and no real world knowledge, could equate inflation with growth and continue to argue for more monetization of debt.
There are three things that I find shocking in all of this bungling. First, the short-termism of our policymakers is breathtaking. How can more debt, more money printing, more government, more manipulation of the markets and interest rates do anything but strangle private initiative and drive real capital and savings out of the economy? At the very moment when we need more capital and savings to de-leverage us from this debt nightmare, policymakers undermine the very formation of savings and investment by taking interest rates to zero.
The second stunning aspect is the willingness, nay desperation on the part of the "market" and its participants to go along with our leaders knowing the increasing danger ahead. Lastly, it is astonishing to see how easily the concepts of democracy and the rule of law—two significant pillars of the Western world—can be tossed aside and trampled on when the will of the people varies from the political elite and their twisted ideology.
The four components of GDP are government spending, consumption, investments, and net exports. It is remarkable that the most important component of our GDP, investments, is the very one that policymakers continue to emasculate! On the other hand, the bloated government sector, which is inefficient and indebted and needs to dramatically downsize, continues to grow.
This cannot continue. Citizens, whether they like it or not, will have to assume a substantial portion of their own retirement, healthcare, and education costs. The free or "borrowed" lunch is over.
In order to ensure the long-term prosperity of our economy, consumption—which is approximately 70% of our GDP—must also shrink, with the difference going directly into savings and investments. It is only a capital-rich, competitive, and efficient economy that will be able to effectively compete in the global economy, enhance our net export opportunities, and grow real long-term jobs in our country.
The path our policymakers should be pursuing is to slowly increase interest rates, to reward savings, and to re-establish a cost to our money.
Concurrently, they must put an end to the reckless debasement of our paper currencies through so-called quantitative easing which, in the short run, only benefits debtors and speculators—the very ones that should be punished and subjected to competitive market forces. We must immediately normalize the market mechanism and restore real non-manipulated prices so that wealth flows back into the hands of the frugal, enterprising, entrepreneurial, and saving class where it belongs, and away from the debtors, bankers, and the public sector.