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1/ There is a Tamil sign we used to see in shops: கடன் உறவைக் கெடுக்கும் (debt destroys relationships). It means "Please pay for your goods, don't ask us to postpone your payment".
That quaint sign of course is against modern practice where we are encouraged to charge it up!
That quaint sign of course is against modern practice where we are encouraged to charge it up!
2/ The entire global trading system, in fact much of the global economy, now runs on the "charge it up" principle.
Countries are encouraged to become "prosperous" by promoting consumption without local production.
It does feel prosperous because we got all these goods.
Countries are encouraged to become "prosperous" by promoting consumption without local production.
It does feel prosperous because we got all these goods.
3/ Here is the problem: global free trade is fundamentally incompatible with ever-expanding global debt (as measured by global debt to GDP ratio).
The old Tamil saw is right after all - debt does destroy relationships, and that's true in the village and true across nations.
The old Tamil saw is right after all - debt does destroy relationships, and that's true in the village and true across nations.
4/ We have erected the entire global economic edifice on "we can pay for it later" and when a crisis erupts "we can keep kicking the can down the road".
The fatal conceit is that this can go on indefinitely. This is the conceit global monetary authorities have been on.
The fatal conceit is that this can go on indefinitely. This is the conceit global monetary authorities have been on.
5/ There are two fundamental reasons it will end: rising trade frictions as countries adopt "beggar thy neighbour" policies. i.e, currency suppression to promote exports - China, Germany, Japan all do it - is one reason. This is based on the mercantalist fallacy "we only sell".
6/ It a country only exports and does not import, eventually it will come to own all assets in other countries. Look at China- India trade. China has to keep looking for investments in India to deploy its surplus and as a mirror image India has to sell itself in bits and pieces.
7/ China has achieved these surpluses by suppressing domestic consumption and focusing on exports.
This system is breaking down because importing nations can no longer afford more debt based "prosperity".
Unemployment and underemplpyment are serious in importing nations.
This system is breaking down because importing nations can no longer afford more debt based "prosperity".
Unemployment and underemplpyment are serious in importing nations.
8/ To restore harmony in international relations and to preserve free global trade, the system has to get back to balance.
To achieve that balance in global trade, we need something like the gold standard to settle inter-country trade. Paying with debt is not a good substitute.
To achieve that balance in global trade, we need something like the gold standard to settle inter-country trade. Paying with debt is not a good substitute.
9/ If that thesis is correct, we can expect a far more chaotic global economy in the decade ahead, with trade wars (which I sincerely hope won't become real wars), extreme currency fluctuations and so on, as policy makers try to hold this rickety edifice together. Be prepared! 
