Mad Sci,
Obv I was being provocative for fun, and I was careful not to say x will happen. There are lots of interesting possibilities though.
I think chances of hyperinflation in Japan are close to 100% though. When it will happen is very unclear. I know Dylan Grice at Soc Gen, and he's forecast 5 -10 years which is where I go my numbers from.
I think that the Eurozone will definitely break up, because it's not possible for it to continue without a political union which it doesn't look like the europeans citizens will vote for. I also think it will carry on for a long time because there's is so much political capital tied up in it.
I've read several pieces about how the USA might break up within a few generations. There are some very strong arguments that suggest that there are likely future circumstances which will make the Union extremely hard to sustain.
Two thoughts of my own which I'd be interested in comments on:
1. The extremely wealthy countries countries like the USA could take a 50% fall in GDP and still be twice as rich as Peru. The idea that financial collapse on that scale will cause revolution because it always has in the past seems to me to be less secure when the new poor are not going hungry.
2. The information and power assymetry between the people and the government in the US has reached a point where revolutionary overthrow of the government (I think a constitutional "right") is probably no longer physically conceivable in the USA (hence I think break up can only come from States seceding)
The standard calculation for GDP [GDP = private consumption + gross investment + government spending + (exports − imports)] is recognised as a poor figure on which to base calculations of economic growth.
As the inventor of the calculation said himself:
"Distinctions must be kept in mind between quantity and quality of growth, between costs and returns, and between the short and long run. Goals for more growth should specify more growth of what and for what."
In this era where public and private debt plays such a huge role in macroeconomics, the calculation is badly skewed because so much of private consumption and government spending comes from borrowed money.
You normally see debt/gdp ratios, but Debt/government revenues can be more interesting! That is what is the government debt as a % of total annual tax receipts. Presenting the information this way makes Japan's situation somewhat clearer:
Nations are not households, and can sustain much larger ratios, especially if, as is supposed to be the case, the debt is incurred for +EV infrastructure investments. But when the debt is incurred almost entirely to finance public consumption, that's a different kettle of fish.
It's OK to borrow 3x your annual income to buy a home, but borrowing 1x your annual income to pay for nights out in stripclubs is not economically sound. But that is effectively what our governments (in developed countries, or as someone I recently read suggested they should be called, insolvent welfare state nations) have been doing for the last 20-30 years.
Japan's borrowing is almost entirely to finance strip club visits, the country isn't going to make a penny profit from the money it has borrowed - the reckoning will come soon.
For all the other countries in that graph with ratios above 100% I believe that there will be severe economic consequences that will lead to these countries becoming very much poorer than they are today.
I think of it like this: if your GDP is artificially inflated because your government has borrowed 10% of GDP per annum to finance consumption, then at some point your GDP must reduce to reflect not just the level it would be at without the borrowing, but also the interest payments on the debt that have been accrued.
Economic growth (in terms of Total Factor Productivity - which basically measures growth excluding government spending) has averaged 1.35% since the end of WW2. There is no reason to think that future "real" growth in developed nations will be above this figure. When one adds that this figure has been obtained during a period of awesome and unprecedented technological advance it would be prudent to assume that it is the upper bound for sustainable growth, not a baseline from which we expect to advance.
The idea that economic growth will deal with the debt is probably not a realistic aspiration: it will require a restucturing of the economy to ensure that tax receipts exceed government spending possible for decades.
I have exactly no confidence that elected politicians in the USA or UK can actually achieve this. Hence my pessimism and reference to Oswald Spengler who saw liberal democracies as but a step on the road to more dictatorial forms of government.
http://en.wikipedia.org/wiki/The_Decline_of_the_West
Well worth a read - the whole book is available as a free download (it's out of copyright
here.)
Two Plus Two
.
Linear Mode
