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ECONOMICS

The great economic rethink?

  • 20 August 2020
On the website of the decidedly creepy World Economic Forum, there is a call for a ‘Great Reset’ in the wake of the COVID-19 catastrophe. Along with the expression ‘the new normal’, this phrase is perhaps the most common cliché being used by the business and economic community.

The prescriptions for the WEF’s reset are nothing if not utopian. It talks about laying the 'foundations of our economic and social system for a more fair, sustainable and resilient future'; creating a 'new social contract centred on human dignity, social justice', and devising 'decent, meaningful jobs'.

Such blandishments, coming as they do from the global corporate elites and their acolytes, are about as convincing as a 55 line sonnet. Especially concerning is the WEF pointing to the 'inconsistencies, inadequacies and contradictions of multiple systems', which, at least on the face of it, seems to be an admonition to create even more intense global monocultures, the very ones that have been responsible for a great deal of the aforesaid inequality, injustice, loss of dignity and lack of resilience.

The WEF is right, though, that there will be Great Reset in finance and economics. It is inevitable because the shock has been so great. The first problem is what to do with global debt, which was already at unsustainable levels before the COVID-19 hit: over 320 per cent of global GDP. The only way to prevent system-wide failure has been to lower interest rates to near zero levels.

In response to the COVID-19 crisis governments, including the Australian government, have borrowed heavily (albeit at low interest rates) to keep their economies from collapsing. That means the debt will increase even further. China also has a huge debt problem, with the country’s domestic money supply now running at two and a half times the size of the economy: a money printing exercise, or rather Ponzi scheme, designed to keep the nation’s banks from collapsing. To say the least, it is a short term solution only.

There are typically only two ways out of a debt build up: inflation, which erodes the real value of the debt, or debt forgiveness. It is hard to see how the former will happen. There has already been ridiculous inflation in assets such as shares and property, bubbles that would seem to have mostly run its course. Inflation in the prices of goods seems unlikely because of global oversupply in most sectors. And inflation
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