Some parts of this analysis has value but when Mr Hickman goes to cash flows between nations he goes off track.. . "But cash flowed to the owners of the resource and high level manufacturers, who lived in rich nations. Thus workers got poorer and the rich got richer."

Well, no - one of the marked trends of the past couple of decades has been a massive shift in the number of people out of poverty, largely as a result of India and China adopting market policies. The shift in manufacturing he writes about is one of the contributing factors and shows a distinct cycle in Japan, then Korea and now in China.

All that said the world's financial problems (wouldn't call it a crisis) have proved odd, and intractable. But part of the problem is that advanced economies have proved reluctant to bite the bullet and stop the QE Hickman refers to, as well as the currency wars and it is difficult to know just where it will all end.

Whether this is a great collapse or a minor hiccup depends mainly on how politicians react to it. Central bankers have been flooring the accelerator, but politicians pursuing surpluses (or even smaller deficits) have their feet firmly on the brakes. Fixing this should not be a tough decision, though no doubt they'll regard it as one.

Syd Hickman seems to have failed to comprehend that although the vast majority of individual loans can be repaid (or at least serviced) it is essential that the total amount of gross debt keeps rising. Essentially if we get rid of debt, we get rid of money.

Yes Syd, and a clarion called for those, who like warm and comfortable frogs are being gradually boiled to death; and only take notice when it's far too late.

The elephant in the room is record foreign and domestic debt.

None of which are helped by our current trade deficit or terms of trade!

And as you say quantitative easing (borrowing against the future) has only made unaffordable housing more so!

We had little to do with the flood of derivatives tha created the GFC in the first place and we just can't allow ourselves to be made to pay for something we had no part in creating!

Nor can we allow ourselves to be steered in any direction we don't wish to steer, by the winds of imposed financial or Global imperatives. But rather steer our own course.

A good start would be genuine tax reform that simply eliminates all tax avoidance! And with all avoidance eliminated the tax burden on those currently shouldering the entire load can be quite massively reduced. If say I.e., an entirely unavoidable expenditure tax forced some marginal operators (the world owes me a living) out of business paving the way open for more success oriented entrepreneurs to succeed. that would be no bad thing!

To that end we need to quite massively reduce the cost of energy, even if that means resurrecting the publicly owned and operated, essential services model.

Albeit as competing for market share duopolies or trilogies or co-ops.

We don't need to become a tax haven, by reducing the necessary tax take?

Even so, if it is low enough to, along with the cheapest possible energy provision, encourage the high tech industries and cashed up self funded retirees to relocate here, lock stock and barrell.

That would be no bad thing and indeed our only possible future, along with investing in our own people and their better ideas, that doesn't include economic disaster?
Rhrosty.

Below relates to federal government taxes needed to pay for government expenditure, government using budget deficits scare stories to distract people from doing any constructive thinking. Setting people up to except a bad future.

I remember during the 1970s, when Malcolm Fraser was Prime Minister 1975 to 1983. A high rate of inflation was being experienced by Australia and other capitalist world economies. The 1970s media constantly mentioned high inflation. High inflation, low economic growth, called Stagflation.
Guessing around 1976, Malcolm Fraser made a statement relating to Australia's limited supply of money in circulation. Malcolm compared a pie could only be cut up between a limited number of people. That as inflation continues, fewer employment opportunities will be available.

The Malcolm Fraser's pie theory seemed to have failed.

During years following 1965s, the post second world war baby boom generation were entering the work force. Few post first world war baby boom generation were retiring.
Capitalist supply and demand economic theory should have had higher unemployment competition for available employment reducing wages, deflation. Failure to have deflation during 1970s increasing work force, exposes printing money credits to inflate wages.

I assume during the 1970s, “we're all Keynsians now”, the work force would have doubled. The 1980s would have been the decade most post first world war babies would have retired.

In 1970, a reasonable adult weekly wage would have been $100. 1980 same working skill adult wage would have been $240. Add doubling the work force allows the pie theory to be pretty dumb. During all the growth, reported unemployment stayed around 10%.

For the same reason Australian Prime Minister statements are false. Money, no more the a token of exchange. Money was merely invented to suit planned increased wages expenditure. Australian inflation somewhat blamed on Prime Minister Whitlam and an OPEC price rise oil shock. Thereafter Whitlam, wage inflation excuses were blamed on worker's accustom to yearly wage increases. I believe unions were taking blame for yearly wage increases imposed by the establishment.
Establishment controls unions. Union leaders don't get to be leaders unless the establishment allows people to stand for union positions.
Building industry ruff looking union leaders were blamed for building industry corruption and wage inflation during the 1970s and 1980s.

All western capitalism countries were undergoing high inflation.

Protestant religion developed land owner capitalism doesn't work in wealthy, predominately working class societies.

Capitalism works in rich class repressing working class wage societies.
Capitalism works in UK Downton Abbey pre-1914 country house societies.
Middle class town and city societies where a percentage of certified high education secure government bureaucratic employment system allows working class repressed wages to be affordable: house maids, low wage room and board; chimney sweeps; domestic and train transport coal fire coal mining; building trains, railways and train stations; small navy and Commonwealth commercial trade ship building. Transporting raw and manufactured materials consumed through the Commonwealth, using what may have been highly subsidised labour.

Post 1800s railways being completed. Year 1900 high unemployment leads to British government kick starting employment, in wanting commodity materials to build 1900-02 many British dreadnought war ships, consuming labours. Market traded capitalist companies provide management to build factories, hiring working class labour, producing machinery to build government financed war ships on grounds of defence, competing with Germany, who is also building dreadnoughts. Where capitalist private profits can't provide employment, government invents credits, allowing market investments to soak up spare money credits.

Placing taxes on rich class to pay for the many working class employment, merely reduces rich class's ability to hire and pay for working class services.

If left entirely to 10% of rich class to support 90% of working class workers. Once a rich class has satisfied their luxurious living environments as in 1780s France. High unemployment and long lists of recorded grievances leads to a French style revolution.

Modern day fake capitalist, working class wage inflation supports: building; buying and owning property, wealthy working class investors buy: motor vehicles; insurances products and service 30 year bank loans to retirement. Wage inflation reduces working class's ability to buy other working class labours. Value of money tokens are reduced by working class wage inflation.
Old building property yearly depreciation is offset by new building inflated costs by increasing long term wage inflation.

US federal government 2008 deficit of US$10 trillion. In 2015 was US$18 trillion.
The seven years US$8 trillion increase was not do to Keynesian economic theory. US$8 trillion credits said to have provided US banks with zero interest loans, supporting US banks reserves. US banks took credits and purchased US bonds to collect a 1.5% interest payment. US federal reserve holds the credits for the credits invented, returned back to US federal reserve bank. US federal bank holds US$8 trillion in credits.
Several years ago, media reports Ben Bernanke buys US$85 billion per month of US bonds back from banks, so banks have credits to lend to borrowers.

Alan Greenspan excepts part of the blame for 2007 the Sub-prime mortgage crises, holding 911 lowered interest rates down for too longer period at too lowers rates. Leaders can only use the same excuse once, using new easily believed excuses (by badly educated thought traumatised citizens) for following busts.

Aidan: The best debt is that which is owed to you and not that which claims around 30-50% of your productive enterprise? And puts you or the nation on a debt merry-go-round you can never get off of.

Yes you can build some income earning infrastructure using debt instruments or, "your social credit"!

And it has been done elsewhere. But like all successful social credit arrangements not allowed to survive? Thanks to the greed is good imperative and antisocial individualism?

To make social credit work you first need a national income, like state owned forestry, that just selectively logs then exports quality finished timber products.

Social credit works if you exclusively use the credit you have created internally for income earning infrastructure or investments.

And having created a brand new asset, replace the debit side of the leger, (the borrowing) with and brand new realisable asset on the credit side of the ledger.

This was how my Canuck friends explained it to me and there are unbreakable rules, and mean none of this new money can ever be used for recurrent expenditure!

Even given it works as explained, there are dark forces lining up against it and anything that even smells of socialism?

As I recall, the government corporation was eventually "privatised" for a comparative pittance by elected (you can't do that) idealogues, with very deep pockets?

And its healthy income used to draw down the debt used to buy/obtain it?

My Canuck friends were ever so pleased to have to cope with new levels of back breaking work for a pittance and a fraction of what they previously earned as citizen shareholders from government funded co-operative endevour!

I don't know why you can't do that, save you need a comparatively small population and some native resources, (like Australia) plus politicians working exclusively in the national interest!

The last part an impossible ask?
Rhrosty.

The author has hit a few salient points on the head.

A primary point moving forward will be the extreme levels of personal debt, ones which will become harder and harder to pay off as employment declines. This is inevitable as the state and federal governments attempt to rein in spending (redundancy and layoffs) and the private sector shrinks as our commodity based economy continues to retract.

This ever expanding decline is evident now and will only increase in magnitude as global governments and central banks interfere more and more in the financial arena. The train wreck ahead is inevitable, the debt burden too large and the middle and lower class left with an ever decreasing ability to spend into the economy to boost economic activity, thus the cycle continues.

The share and housing markets are ridiculously over valued, wealth destruction, once corrected, which is inevitable noting my points above, will see Australians so much poorer in the coming years. My advice, get out of debt if possible, if you have moderate or high debt sell your house whilst it still retains some vale, the same goes for investments, get into cash and some physical gold/silver. Beware of the new bank bail-in legislation and hold on tight, 2016 is going to be ugly

Dr Paul Craig Roberts explains the US version of what is ahead for Australia here partially below, plus a link to the entire article at the bottom, great reading.

"The US Economy Has Not Recovered And Will Not Recover — Paul Craig Roberts

There is no “New Economy.” The “New Economy” is like the neoconservatives’ promise that the Iraq war would be a six-week “cake walk” paid for by Iraqi oil revenues, not a $3 trillion dollar expense to American taxpayers (according to Joseph Stiglitz and Linda Bilmes) and a war that has lasted the entirely of the 21st century to date and is getting more dangerous.

The American “New Economy” is the American Third World economy in which the only jobs created are low productivity, low paid nontradable domestic service jobs incapable of producing export earnings with which to pay for the goods and services produced offshore for US consumption.

The massive debt arising from Washington’s endless wars for neoconservative hegemony now threaten Social Security and the entirety of the social safety net. The presstitute media are blaming not the policy that has devasted Americans, but, instead, the Americans who have been devasted by the policy.

Earlier this month I posted readers’ reports on the job situation in Ohio, Southern Illinois, and Texas. In the March issue of Chronicles, Wayne Allensworth describes America’s declining rural towns and once great industrial cities as consequences of “globalizing capitalism.” A thin layer of very rich people rule over those “who have been left behind”—a shrinking middle class and a growing underclass. According to a poll last autumn, 53 percent of Americans say that they feel like a stranger in their own country."

The link is here http://www.paulcraigroberts.org/2016/02/17/the-us-economy-has-not-recovered-and-will-not-recover-paul-craig-roberts

Rhosty:
"The best debt is that which is owed to you and not that which claims around 30-50% of your productive enterprise?"
No, the best debt is that which enables your enterprise to become so productive in the first place.

"And puts you or the nation on a debt merry-go-round you can never get off of."
Unlike humans, which have a limited working life, there is no reason for nations to ever get off the merry go round. There is always a future to invest in.

Taxation provides a revenue stream; you don't need a separate national income (which doesn't mean having one is or isn't desirable).

Technically the money could be used for recurrent expenditure, though doing so is likely to result in a devaluing currency.

__________________________________________________________________________________

Geoff of Perth,
As the economy grows, its ability to service debt grows.
Cutting interest rates also enables more debt to be serviced.
So the train wreck is very far from inevitable. We have a choice.

Reading these posts is interesting.
There is a problem, and I think we are all in agreement on that.
No one seems to be pushing a scheme to get the economy back to its
late 1980's to 1990's parameters.
Few of us are offering firm techniques to fix things.
Does this mean no one is sure what the hell to do ?

I have no answer either, but at least I believe I know the cause of
all the troubles.
The whole period of the post war period was driven by cheap energy.
It ended with the Chinese power house of manufacturing finally reaching saturation.
It co-coincided with the end of cheap oil after peak crude oil in 2006.
There is no way around the low GDP era we now have, or the zero growth era ahead.

We need a cheap energy system NOW, not in 20 years time.
Nuclear as we know it is not cheap to build so do we have the money ?

I haven't a clue as to what can be done to keep us at our present standard of living.

Do you ?

Bazz you are right on the money with cheap energy, and that's not coal!

We have much cheaper options and will remain so only as long as they remain in public hands?

Nowhere can I find so much as a single example of privatisation resulting in lower power prices, better maintenance and reliability.

As alway we have those who say our energy is too cheap. Even though it was the principal reason for our era of post war productivity and unprecedented prosperity!?

At which time we were the third wealthiest country and a creditor one at that.

Cheap energy, could include solar thermal power using endless free energy and done on a large enough scale to require automation in the manufacture of the solar array, is one example, cheaper than coal thorium could be another( we are waiting on the Indians to roll out a working prototype that generates some 300 MW. in 2016)

Then there is local innovation that sees a two tank system create enough biogas, from the average families biological waste, to power their domiciles 24/7.

Replace the usual diesel engine with ceramic fuel cells and scrubbed biogas; and you all but double the energy coefficient, and at around 80% the best in the world and creating a salable surplus of as much as 50%?

The endless free hot water is also a cost saving, and given the combined savings, money that has been diverted from our combined discretionary spend, put back or into savings or personal debt reduction or healthy consumption? All good things?

Now, given every western style economy rest on just two support pillars,energy and capital, the other parts of the success equation must needs include real and long overdue tax reform, and couple that to a brand new people's bank; so as to give those poor redundant tax practise number crunchers a brand new, more lucrative and vastly more productive career pathway/wealth creation opportunity?

Growing a bigger economic pie is the answer, we just need a good recipe and competent politicians at the helm, and working cooperatively/exclusively for the national interest!

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Geoff mate, I have actually stated that some debt is useful and or productive, when used for productive purpose.

And heaven forbid, even agree with Aidan, that it can be raised internally and just with the stroke of a pen!

As for tax reform, my proposal is to simply jettison the entire can of worms we have at the moment; inclusive of regressive fuel tax and even more regressive ubiquitous and cascading GST; in favor of one only, single, stand alone, unavoidable expenditure tax, collected as money leaves accounts. Meaning in the first instance small business can stop being unpaid tax collectors; and in the second, the ultra expensive ATO can be largely disbanded?

This would make some very "creative accounting"impossible, like the old favorite of having the same sum of money chase itself through several subsidiaries to create an impression of quite dramatic cash flow or outgoings, depending on whether it's done to fool bankers or the ATO.

Even so, this chasing it's tail money needs to enter and exit accounts to create a completely false impression!

Given a modest unavoidable expenditure tax as the only tax impost!

Not an extra impost as some of my "Admirers" would have the rubes in the room believe, just makes such creative accounting impossible and or extremely costly!

And given it is applied exclusively as money leaves accounts, even collet from remittances and offshore transfers! Thereby making nonsense out of tax havens and multinational tax avoidance!

Little wonder I'm attacked at every opportunity by the money men and their special mates, absolutely affronted by the very idea of having to finally pay a fair share or just a share!

I think we face an even worse GFC, which we, if we just use the brains we were born with, can avoid.

Albeit, not with most current policies nor intellectually crippled idealogues given to bare faced denial, total reliance on others and unable to think outside the square!?

Thinking within a fixed circle of ideas, limits the questions, and if the questions are limited, so also are the answers!
Rhrosty.

Rhrosty, I tend to agree with you, it's the vested interests alright.
Cheers Mate
Geoff

Bazz,

"No one seems to be pushing a scheme to get the economy back to its
late 1980's to 1990's parameters."
With good reason: inflation was a big problem in those days, and interest rates were so high they deterred businesses from making long term investments. We should aim to improve the future, not replicate the past!

"Few of us are offering firm techniques to fix things.
Does this mean no one is sure what the hell to do ?"
Solutions are often dismissed out of hand because they contradict the economic myths that most people assume to be true.

The main cause of the trouble isn't anything to do with energy; it's lack of spending. Right now the private sector are reluctant to borrow to spend because they're not confident that doing so would be profitable. And governments are under the false impression that their deficit spending is a bad thing.

We can get cheap energy from solar and wind, but cheap energy alone won't solve the problem.

___________________________________________________________________________________

Rhosty,

It's misleading to cal the GST "cascading". Unlike what you propose, it's only applied once.

Not only would your tax plan be less lucrative and more economically damaging than the GST, it would be easy to avoid by keeping money in overseas bank accounts.

Support free trade: tax profits not transactions!