The journey back to health and prosperity

The good news about the push back against austerity in Europe now, is that it forces a desperately needed new phase of thinking.

Over the past 3 years, banks have managed to hold governments hostage by threatening that if they weren’t bailed out by taxpayers and saved harmless from losses on their bond and swap holdings, the economy would collapse.  This has been a self-serving lie and is a large reason why austerity has failed to balance budgets to date.  The truth is that the economy has already collapsed.  Only through further irresponsible debt issuance have governments and bankers together, been able to create the illusion of some economic recovery.

The truth is that there is only so much cash flow to go around, and if bondholders continue to be paid their pounds of flesh in full, there is not enough tax revenue left over to pay for other basic needs of the real economy.  The economic pain of the past few years makes it clear that no matter how much governments cut spending–budgets cannot balance while still paying back debts in full to bankers.

The truth is that debt reorganization and write-downs along with austerity are necessary in order to close budget deficits.  This a recurring fact of human life and the very reason we have bankruptcy procedures as a key reset mechanism in capitalism.   Too much debt eventually leads to default. We have seen this through centuries.  In order to transform debt-paralyzed people and countries back into engines of growth and tax revenue, they have to get first become cash flow positive again.  This requires paying out less than one brings in and building up surplus savings.

Banks have tried to hold themselves harmless at the expense of real economies and workers everywhere.  But in doing so they have smothered growth and recovery prospects.  The workers are down to their tee-shirt and shorts while bankers continue to collect bonuses and doll out dividends.  This let-them-eat-cake approach has always been doomed to fail.

Cleaning up after the financial crisis requires the shared sacrifice of all stake holders.  Those who were purely bank depositors must be held harmless– they did not sign up for capital risk.  Those who agreed to participate in a reckless scheme as ‘investors’ and bond holders will lose.  That is the very nature of investing after all– one agrees to accept capital risk from the outset.  Governments will have to be downsized.  Citizens will have to make do with less.. Yes many banks and individuals will go bankrupt– such is the capitalist way after all!

New ideas will bring us into a more stable future where we waste less and save more.  Here are a couple of articles on trends that are key parts of the solution:

• Renting Prosperity:  “Across the board—for goods ranging from cars to books to clothes—Americans are increasingly acclimatizing to the idea of giving up the stability of being an owner for the flexibility of being a renter. This may sound like a decline in living standards. But the new realities of our increasingly mobile economy make it more likely that this transition from an Ownership Society to what might be called a Rentership Society, far from being a drag, will unleash a wave of economic efficiency that could fuel the next boom.”. Now this is part of the solution back to solvency…getting smarter and more efficient with capital, sharing and renting more, buying less stuff, living leaner and keeping expenses lower…all good for individuals and their families.

• Eat Vegan & Run:  “FOR NEARLY TWO DECADES, SCOTT JUREK has been a dominant force in the rarefied sport of ultrarunning. And perhaps just as impressive as his many victories, including seven consecutive wins at the Western States 100-Mile Endurance Run, is that he achieved these feats on an entirely plant-based diet. In this excerpt from his new memoir, Eat & Run: My Unlikely Journey to Ultramarathon Greatness, Jurek shares how turning vegan transformed his life…” This is part of the solution too.  If people learn to eat less and better and add time for exercise– countries, states and households can find billions (if not trillions) in savings in health and drug costs while making huge gains in population productivity and contentment.

Getting the crushing weight of extractors like bloated banks and drug cos off individuals will help tax payers everywhere afford more.  Money available for productive parts of the economy will then rise significantly:  education, conservation, environmental protection, smarter energy, better infrastructure, arts and scientific research will all be affordable once more.  But first we will have to earn that recovery in the good old-fashioned ways, like sacrifice, discipline, hard work and tough love.