Environmental Engineering Reference
In-Depth Information
If there were indeed limits to a country's ability to perpetually grow GDP by increasing its total
debt (government plus private), a warning sign would likely come in the form of a trend toward
diminishing GDP returns on each new unit of credit created. Bingo: that's exactly what we've been
seeing in the United States in recent years. Back in the 1960s, each dollar of increase in total US
debt was reflected in nearly a dollar of rise in GDP. By 2000, each new dollar of debt corresponded
with only 20 cents of GDP growth. The trend line looked set to reach zero by about 2015.
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Meanwhile, it seems that Americans have taken on about as much household debt as they can
manage, as rates of consumer borrowing have been stuck in neutral since the start of the Great
Recession. To keep debt growing (and the economy expanding, if only statistically), the Federal
Reserve has kept interest rates low by creating up to $85 billion per month through a mere adjust-
ment of its ledgers (yes, it can do that); it uses the money to buy Treasury bills (US government
debt) from Wall Street banks. When interest rates are low, people find it easier to buy houses and
cars (hence the recent rise in house prices and the auto industry's rebound); it also makes it cheaper
for the government to borrow—and, in case you haven't noticed, the federal government has bor-
rowed a lot lately. The Fed's quantitative easing (QE) program (by which that entity simply creates
tens of billions of dollars a month with a few computer keystrokes, using much of the money to buy
government debt instruments) props up the banks, the auto companies, the housing market, and the
Treasury. But with overall consumer spending still anemic, the trillions of dollars the Fed has cre-
ated cumulatively have generally not been loaned out to households and small businesses; instead,
they've simply pooled up in the big banks. This is money that's constantly prowling for significant
financial returns, nearly all of which go to the “one percenters.”
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Fed policy has thus generated a
stock market bubble, as well as a bubble of investments in emerging markets, and these can only
continue to inflate for as long as QE persists.
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The only way to keep these bubbles from growing and eventually bursting (with attendant fin-
ancial toxicity spilling over into the rest of the economy) is to stop QE. But doing that will under-
mine the “recovery,” such as it is, and might even send the economy careening into depression. The
Fed's solution to this “damned if you do, damned if you don't” quandary is to “taper” QE, reducing
it gradually over time. However, this doesn't really solve anything; it's just a way to delay and pre-
tend.
With money as with energy, we're doing extremely well at keeping up appearances by charac-
terizing our situation with a few cherry-picked numbers. But behind the jolly statistics lurks a men-
acing reality. Collectively, we're like a dietician who has adopted the attitude:
the more you weigh,
the healthier you are!
How gross would that be?
The world is changing. Cheap, high-EROEI energy and genuine economic growth are disappearing.
Rather than recognizing this fact, we hide it from ourselves with misleading figures. All that this
does is make it harder to adapt to our new reality.
The irony is, if we recognized the trends and did a little planning, there could be an upside to all
of this. We've become overspecialized anyway. We teach our kids to operate machines so sophist-
icated that almost no one can build one from scratch, but not how to cook, sew, repair broken tools,
