We live in a monetary system that is debt-based. This is a situation that creates a host of problems especially when the natural clearing out mechanisms of the economy are thwarted.
In this video I discuss how this is fatal to the long term growth of the global economy, enriching those who are dependent upon overfinancialization while the rest of the economy contracts.
▶️ 3Speak
Summary:
In this macroeconomic analysis, the speaker discusses debt-based economies, highlighting how the monetary system is structured around debt instruments, leading to a cycle of borrowing, interest, and potential defaults. The speaker emphasizes the flaws in the current system, where central banks intervene to prevent market corrections, resulting in the survival of zombie companies and misallocation of resources. The discussion warns about the repercussions of perpetual debt accumulation and the avoidance of natural market clearing processes.
Detailed Analysis:
The speaker delves into the concept of debt-based economies, pointing out that reserve notes are essentially debt instruments with interest tied to them. He explains how this results in a scenario where there may not be enough currency to pay back what is owed due to interest. The discussion touches on how bankruptcies are inherent in the system because of this fundamental flaw.
The speaker discusses the role of central banks in preventing market corrections through interventions like easing and keeping interest rates low, under the guise of stimulating the economy. However, he argues that such actions have diminishing returns and can lead to prolonged economic issues, as seen in Japan's persistent struggle with deflation despite numerous quantitative easing programs.
The analysis moves on to the consequences of low interest rates, leading to the rise of zombie companies that survive by taking on more debt to service existing debts. The speaker emphasizes that these companies should ideally go out of business to allow more productive companies to utilize resources efficiently. The lack of the clear-and-out process in the economy is highlighted as unhealthy in the current economic and monetary environment.
Furthermore, the speaker warns about the dangers of pushing more debt into already heavily indebted sectors, leading to a misallocation of resources and hindering economic growth. He points out that servicing debt does not contribute to economic output or productivity, thus creating a financialized economy that benefits the banking and financial sector while stifling real economic growth.
In the conclusion, the speaker stresses that the current system's aversion to losses, corrections, and bankruptcies is unsustainable and can eventually lead to market collapses, the demise of zombie corporations, and economic contractions. The imminent risk faced by the EU in this regard is mentioned, wrapping up the analysis with a cautionary note about the precarious state of debt-based economies.