Wednesday, June 29, 2011

Gloomy thoughts.

As a conservative, it's with quite a bit of dismay that I read of other supposed conservative commentators calling for Greece to restructure (not to pay back) it's debts. Others are calling for Greece to opt out of the Euro and to go back to the drachma, thereby being able to manipulate its currency to pay back its debt. Amongst far too many commentators there is the notion that a bit of inflation is not too bad a thing, as it makes stealing paying back debts easier.

The problem with this line of thinking is that they haven't thought about the problem very deeply, else they wouldn't be advocating such a stupid notion.

We need to remind ourselves one of the ways that banks make money is by lending out other peoples money. That "other peoples money" is usually someone else's saving or investment. Hence, when commentators are advocating that Greece give the bankers "the finger" what they're advocating is that Greeks give the finger to the bankers,........and the little old lady who saved up for their retirement..........and the nurses pension fund...........and the couple saving for their first home.

The biggest losers of any debt restructuring will be both the Greeks, whom afterwards no one will want to lend to(austerity then won't be an option), and some baby boomers whose retirement funds will be vapourised in the process. It's a lose/lose situation.

However it would be a mistake to think that this is just a Greek Crisis. I've got the feeling that the birthplace of democracy will also end up having its burial of it there.

The problem is that nearly all the western countries have borrowed more than prudent, and at the moment, systemic debt is so great that there is simply no way to pay it back. The net result of this is that a lot of people, particularly baby boomers who were encouraged to save for their retirement, are going to be poorer--a lot poorer--as a result of global debt "restructuring". 

Previously, given the pyramidal demographic structure of the West. Inflation which eroded the savings of retiree's could be compensated for by increasing taxation and hence spending on social security.  However as birth rates collapsed, the pyramidal demographic structure has become a rectangle, the ratio of workers to retirees is much smaller.

The cultural and political implications of this make for unsettling prognostication for  a conservative. The baby boomers, who are still a very large demographic block,  are not going to give up the retirement which they were counting on just because their own funds vapourised, rather they will vote for politicians who promise them "social justice". Just as there was in the Great Depression, there will be a cultural and political lurch to the left. The New Deal would have been impossible without the Great Depression.

Futhermore, taxation social security spending will continue to remain high for a long time yet, a least until the baby boomers cease being viable political force. 

We're in this recession for a long long time.