Without massive debt forgiveness and a new capitalist model, there is no alternative future.

The US public debt climbed to $14.58 trillion at the end of August 2012. This made it slightly bigger than the $14.53 trillion size of America’s GDP in 2010.

I typed that fact in bold because I’m beginning to wonder what it takes to make global citizens wake up to the fact of America’s depth of indebtedness. The planet’s pivotal economy will, from here on in, be required to make an extra 10cents on the Dollar export profit each year – at the rate of the total deficit in turnover – to start paying off any of the debt. (And that assumes interest rates and import tariffs stay exactly as they are).

Here’s another fab factoid:

The deficit – that’s the annually accruing debt – is now perilously close to being 10% of GDP. This means that, even if earnings stay as they are, the USA will be treading water before it earns a single cent by the end of 2023.
The only way in which that extrapolation is simplistic involves the assumption that things will remain as now. That is highly unlikely: America faces the same global depression as the rest of us, and is losing share of global trade every year. The United States is piling up foreign debt and losing export capacity, and the growing trade deficit with China has been a prime contributor to the crisis in U.S. manufacturing employment. Between 2001 and 2011, the trade deficit with China eliminated or displaced more than 2.7 million U.S. jobs, over 2.1 million of which (76.9%) were in manufacturing.
A total of 453,100 jobs were lost or displaced from 2008 to 2010 alone — even though imports from China and the rest of world collapsed in 2009 during the height of the global financial crisis.
Neither QE1 or QE2 changed that situation to the slightest degree. But Ben Bernanke declared last Thursday that he’d do “whatever it takes” to lower stubbornly high unemployment with a third bout of QE. I’m told that this bout will be different and better. But if so, why wasn’t it tried at the 1 & 2 stages? And will it be different? I doubt it: and Reuters agrees with me (my emphasis):
‘By giving an open-ended commitment to pour money into the market for mortgage-backed securities, the Fed will likely keep on supporting stocks and other asset classes by keeping returns low on MBS. Investors in search of yield will have more reason to buy equities and to lend money to companies. Peter Hooper, an economist at Deutsche Bank in New York, thinks the Fed’s bond buying program will add at least a half a percentage point to gross domestic product over the next year, largely by boosting stock prices and making people feel more wealthy. “The main transmission mechanism is through the stock market,” Hooper said.’
Sounds like the same-old-same-old to me: the stock rises will increase bonuses and dividends for the rich, piling yet more money into the already obscenely wealthy 3%. And the money will be lent to large multinationals, to fund mergers and kill/move offshore yet more US jobs. Ratings agency Egan-Jones has this to say:

‘The Fed’s new round of quantitative easing, or QE3, will hurt the U.S. economy. The Fed’s plan of buying $40 billion in mortgage-backed securities a month and keeping interest rates near zero does little to raise GDP, reduces the value of the dollar, and raises the price of commodities. From 2006 to present, the US’s debt to GDP rose from 66% to 104% and will probably rise to 110% a year from today under current circumstances; the annual budget deficit is 8%. In comparison, Spain has a debt to GDP of 68.5% and an annual budget deficit of 8.5%.’

At Jackson Hole in 2011, Bernanke told his audience that the Fed “has lots of alternative strategies still to be tried”. Is this latest repeat seen as an alternative, or is Benny waiting until he’s more double-dog certain that Armageddon is the only alternative to some creativity being applied to the problem?

Look across the Western world: in the UK, over £400bn has been thrown at QE, to no effect. The expenditure has dwarfed any savings made by Chancellor George Osborne, and the economy continues to flatline, with the only job creation occurring thanks to lower wages and  shorter hours. The debts of all EU States (but especially the southern members) are astronomical: Greece has no chance at all of repaying hers, and both Spain and Italy are heading down the same road. If Germany commits to being the last resort saviour of the eurozone, its fiscal probity will implode. But Mario Draghi is now set to embark upon  ‘unlimited’ bond buying…aka, QE.

Bernanke, Osborne and Draghi are pissing against a Tsunami. The Establishments have run out of ideas, and people around the world know it: that’s why the megamoney has started investing bigtime in property and gold. Because fiat currencies are being eroded by treasury thinkers who believe (along with the risk-taking banker/bondholder axis) that somehow, over time, the populace can be used to monetise their fantasies.

None of this matters any more. The calculations of the self-styled clever are so hopelessly out, so ridiculously poorly thought through, the elastic will snap and create a hyperinflated global slump long, long before any of the crazy obligations they took on have been soaked up by the mugs. Only then will somebody with courage wake up to the only solution: wind the debt/surplus clock back to zero, or face a future in which nobody can afford to export, because nobody can afford to buy.

At that moment – who knows? – it might occur to the mercantile globalism fanatics that we need a real alternative.