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The Forum > Article Comments > The biophysical story behind ‘secular stagnation’ > Comments

The biophysical story behind ‘secular stagnation’ : Comments

By Jonathan Rutherford, published 27/2/2017

Most economic analysis blames influences inside the system for decline in growth, but what about influences outside, like the environment?

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Arjay,
Before the current debt based money system, the gold backed system we had was far worse. Because the currency values were fixed, trade imbalances weren't self correcting, and speculators were making huge amounts of money at government expense (and in some cases creating a hyperinflation risk). And there was still as much need for debt as there now is, but governments had limited capacity to borrow.

You seem to have overlooked the fact that if productivity increases
and//or if interest rates fall
and/or if inflation occurs,
the capacity of the private sector to borrow increases.
Individual loans will be paid back, but aggregate debt can keep increasing for ever.

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Armchair,
Apart from the US Federal Reserve, all the world's central banks are 100% government owned, despite what conspiracy nuts claim.

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Bazz,
The reason debt is needed is simpler than that; without it, only the rich would have the means to invest in the equipment they need to improve their own productivity.

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Taswegian,
Not only does EROEI not have to exceed any arbitrary figure, but IIRC Weissbach's calculations are way off because he "converted" non energy inputs to energy values.
Posted by Aidan, Tuesday, 28 February 2017 12:08:57 PM
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Alan B.,
There's a lot more to energy than oil. Solar cell prices have been falling rapidly and will continue to fall.

Only countries with their own floating currencies have unlimited capacity to borrow (and only in the currency they create). Anything with a fixed value (whether against gold, the US dollar, the Euro or anything else) creates a hyperinflation risk when it's held above market value.

Countries with their own floating currencies still run the risk of hyperinflation if they print money and immediately sell it to pay off foreign currency debt. Indeed that was one of the causes of Weimar Germany's currency collapse. But AFAICT the last time printing money for domestic investment caused hyperinflation in a country with a floating currency, it was the Confederated States of America (in the American Civil War) which was blockaded thus couldn't trade its way out of trouble.

As for Zimbabwe,I couldn't think of a worse way to run an economy if I tried. It had:
a fixed currency,
foreign currency debt,
policies that discouraged foreign investment,
a lot of its resources devoted to fighting a war in the Congo, and
a government effectively declaring war on the farmers who were the countries main exporters!

I oppose all forms of economic mismanagement. You seem to support one form of economic mismanagement (failure to run deficits when required) because your understanding of what causes a currency to collapse leads you to panic about a danger that isn't really there.

BTW I've never been a CPA.
Posted by Aidan, Tuesday, 28 February 2017 12:16:00 PM
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An interesting group of replies.
Money doesn't have to be borrowed into existence.

That is right, you can get a printing press and print it.
You might have to borrow to pay for the paper & ink.

The reason debt is needed is simpler than that; without it, only the
rich would have the means to invest in the equipment they need to improve their own productivity.

That is the point, productivity is delining, growth is very low.

Weissbach's calculations are way off because he "converted" non
energy inputs to energy values.

ie he took into account other necessary inputs;
The vehicle the maintenance man uses, his wages, the house he lives in,
the food his family eats !
They are all paid for by part of the outputs of the renewable system,
they are sold and passed to the maintenace man.
The rent paid to the farmer on whose land it is installed is also an overhead.
Posted by Bazz, Tuesday, 28 February 2017 12:58:07 PM
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http://mikeyy.org/2017/01/27/heres-how-infrastructure-costs-can-be-halved/
Posted by Armchair Critic, Tuesday, 28 February 2017 2:18:54 PM
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Aldan ,I'm not promoting a gold standard.We can have a better monetary system that is not created as debt if there are rules everyone abides by.The gold standard did stop them from creating too much money and thus your savings and wages were not eroded by too much inflation.

The real rate of inflation created by their debt money system is at least 6% so at 3% bank interest ,you are still losing another 3%. Serious inflation in the USA will begin this yr as many countries trade directly and do not use the US $ as the reserve currency.There is at least $16 trillion out side the USA and when this comes home,serious inflation will begin.
Posted by Arjay, Tuesday, 28 February 2017 5:38:57 PM
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Bazz,
For modern economies, paper money and electronic money are in equilibrium. Thus even if you start off by printing paper, you're likely to end up with electronic (debt based) money because that's what most customers prefer.

"productivity is delining, growth is very low."
But growth is still positive. Across the economy, productivity is rising, even if it's declining in the oil industry.

I made a mistake: Weissbach's calculations are worthless because he used old data; he wasn't one of the people who fudged the figures by "converting" non energy inputs to energy values and still claimed it to be EROEI (which by definition shouldn't take into account any non energy inputs).

In your example, the maintenance man and his family would eat whether he did that or something else. And the formula used for the conversion of money to energy wrongly assumes that money exists from when a profit is made. But in reality the money's borrowed into existence long before there's any profit; the correct formula should be to multiply by zero.

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Arjay,
"We can have a better monetary system that is not created as debt if there are rules everyone abides by."
Well there is the Sharia alternative, but good luck trying to convince people that that's better!

Anyway, why do you think it would be better if money were not created as debt?

"The gold standard did stop them from creating too much money and thus your savings and wages were not eroded by too much inflation."
In some countries. In others it destroyed them by hyperinflation. And in case you haven't noticed, there hasn't been much inflation lately.

"The real rate of inflation... is at least 6%"
How do you figure that?

Countries have been trading directly for years.

IF America's creditors decide they don't want US bonds any more, there will be significant devaluation, but that doesn't necessarily lead to serious inflation. As the US dollar falls, US exports will become more competitive; US industry will become more profitable; the US dollar will become more attractive to investors, and its value will stabilise.
Posted by Aidan, Wednesday, 1 March 2017 11:15:30 AM
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