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Some recent entries at Rice Farmers Blog

http://www.ricefarmer.blogspot.com/

Public Debt, Default and Prosperity

In a previous post, Defaults by Developed Nations?, I said of Japan’s public debt-to-GDP ratio, “It’s a prime example that a lot of our ‘prosperity’ is actually financed with debt.” I don’t mean to say that I told you so, but in this article The Telegraph’s economic commentator Ambrose Evans-Pritchard outlines Japan’s — let’s be honest — absolutely hopeless financial situation.

Japan’s skyrocketing debt-to-GDP ratio is projected to keep shooting for the stars:
The IMF expects Japan’s gross public debt to reach 218pc of gross domestic product (GDP) this year, 227pc next year, and 246pc by 2014.With the industrial system in decline and no more hope for economic growth as in the good old days, this is tantamount to digging one’s own grave. You’ll find more sobering (terrifying?) facts in the article, so I encourage everyone to read it themselves.

Of course, Japan isn’t the only country headed for a train wreck. The world is full of toxic and unsustainable debt, with a raft of matter-of-time defaults and bankruptcies just waiting to happen. China looks hot, but upon closer inspection appears to be growing a big bubble. What’s more, the world as a whole is sitting on a huge derivatives time bomb. The amount is so big that just one glitch could prove catastrophic. So, name your poison.

But to return to the matter of prosperity, it’s abundantly clear that modern industrial prosperity has come from cheap fossil fuel energy and from debt. Further, all this debt accumulated because the world has always counted on cheap energy to fuel still more growth, which would, in theory at least, make it possible to pay off the debt. At least that was Plan A, and now we have come to the point where Plan A has failed and, mired in denial, we still have no Plan B. Even at this date, all governments in the world preach more economic expansion and assure their citizens that the good old days will return and that we’ll achieve sustainable growth.

So again, name your poison. And strap yourself in — it’s going to be a rough ride.


.........On America Going Broke

Quite germane to our current topic of sovereign default is a column titled Could America go broke? in that venerable medium of news and opinion, The Washington Post. The columnist — who likewise uses the US and Japan as examples — makes it sound as though a default by either country is highly unlikely. But of course he omits mention of the primary reason why both countries are almost certain to go bust and default: Peak oil. For example:

Governments of rich countries are borrowing so much that it’s conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend and that governments will continue to pay) might collapse.Certainly these are two of the assumptions, but they are most definitely not the only ones. Everyone also assumes that cheap energy will make more economic growth possible. Naturally, the columnist can’t bring up the expensive energy factor because that would make it immediately evident that the US, Japan, and a number of other countries are already on their way to fiscal doomsday. And by the way, America is already broke.


............More on “Collapse”

Time for an update on the documentary “Collapse,” which is about to start its theater run.
First, the November 4 Wall Street Journal has an article on the film, including a short interview with the film’s star, Michael Ruppert. Despite the shortness of the interview, a few important points are brought out. One very important fact that Ruppert states is that “money is useless without energy.” Some readers of this blog will perhaps recall this post from June of this year in which I made this same point and illustrated it with an example. We tend to put all costs in terms of money, and lose sight of the fact that actually energy is doing the work, with money merely being the means of accessing and mobilizing energy. If you are concerned about this and much more, definitely take any opportunity you have to see the movie. Since I am in Japan, I’ll have to wait until a DVD is available, but having followed Ruppert’s work for some years, I can well imagine the barrage of uncomfortable facts that assault the viewer...........