The Present: Disaster is Near
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A catastrophic economic breakdown may be unavoidable international tax lawyers say.
Government intervention on a multi-trillion dollar scale is the only thing preventing a worldwide collapse into a new great depression. The global economy is in crisis.
This crisis is structural, not cyclical. At its core is the fact that global production, swollen by limitless credit denominated in fiat money, greatly exceeds the consumption that can be financed by the income of the individuals who comprise the world’s population. Governments around the world are borrowing, printing and spending on an unprecedented scale to absorb the global excess capacity and to prevent asset prices from deflating, but these measures cannot continue indefinitely. The structure of the global economy is unstable and unsustainable.
Internationalization has put intense downward pressure on wage rates in industrialized countries at a time when the abandonment of sound money unleashed an explosion of credit that allowed industrial production around the world to soar.
The prevailing wage rate in the manufacturing sector is roughly $5 per day across much of the developing world. To put this wage structure into perspective consider that two billion out of the world’s seven billion people live on less than $2 per day.Tens of millions of new manufacturing jobs have been created in developing economies, but adverse demographic trends have prevented wages from rising. This crisis then must be understood in terms of excess production relative to purchasing power.
Between 1970 and 2008, the ratio of total credit to GDP rose from 170% to 370% in the United States as American consumers became caught up in the culture of credit. Credit-financed consumption pulled imports into the US. Rapid credit expansion fuelled asset price bubbles in stocks and property that allowed Americans to continue spending more each year even though average wage rates had stagnated.
The credit boom allowed the American social contract, premised on steadily rising prosperity, to remain intact despite the downward pressure internationalization exerted on wages. The rest of the world responded by expanding industrial production to sell into the US market.