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Climate Change – Our Real Bequest to Future Generations

Dean Baker, Guardian/UK
Deficit hawks try to scare us about the debt we’re leaving. That’s economic nonsense – unlike the costs of global warming

It is remarkable how efforts to reduce the government deficit/debt are often portrayed as a generational issue, while efforts to reduce global warming are almost never framed in this way. This contrast is striking because the issues involved in reducing the deficit or debt have little direct relevance to distribution between generations, whereas global warming is almost entirely a question of distribution between generations.

Seeing the debt as an issue between generations is wrong in almost every dimension. The idea that future generations will somehow be stuck with some huge tab in the form of the national debt suffers from the simple logical problem that we are all going to die. At some point, everyone who owns the debt being issued today, or over the next two decades, will be dead. They will have to pass the ownership of the debt to someone else – in other words, their children or grandchildren. This means that the debt is not money that our children and grandchildren will be paying to someone else. It is money that they will be paying to themselves.
(3 January 2012)
Money and debt are social constructs; climate change is physical reality.

Austerity Reigns Over Euro Zone as Crisis Deepens

Nelson D. Schwartz, New York Times
Europe’s leaders braced their nations for a turbulent year, with their beleaguered economies facing a threat on two fronts: widening deficits that force more borrowing but increasing austerity measures that put growth further out of reach.

Saying that Europe was facing its “harshest test in decades,” Chancellor Angela Merkel of Germany warned on New Year’s Eve that “next year will no doubt be more difficult than 2011” — a marked change in tone from a year ago, when she praised Germans for “mastering the crisis as no other nation.”

Her blunt message was echoed in Italy, France and Greece, the epicenter of the debt crisis …
(1 January 2012)

Nobody Understands Debt

Paul Krugman, New York Times
… Deficit-worriers portray a future in which we’re impoverished by the need to pay back money we’ve been borrowing. They see America as being like a family that took out too large a mortgage, and will have a hard time making the monthly payments.

This is, however, a really bad analogy in at least two ways.

First, families have to pay back their debt. Governments don’t — all they need to do is ensure that debt grows more slowly than their tax base. The debt from World War II was never repaid; it just became increasingly irrelevant as the U.S. economy grew, and with it the income subject to taxation.

Second — and this is the point almost nobody seems to get — an over-borrowed family owes money to someone else; U.S. debt is, to a large extent, money we owe to ourselves.

This was clearly true of the debt incurred to win World War II. Taxpayers were on the hook for a debt that was significantly bigger, as a percentage of G.D.P., than debt today; but that debt was also owned by taxpayers, such as all the people who bought savings bonds. So the debt didn’t make postwar America poorer. In particular, the debt didn’t prevent the postwar generation from experiencing the biggest rise in incomes and living standards in our nation’s history.

But isn’t this time different? Not as much as you think.
(1 January 2012)

The Danger Debt Poses to the Western World

Alexander Jung, Der Spiegel
Ponzi Planet

Countries around the world, particularly in the West, are hopelessly in the red, with debt rising every day. Even worse, politicians seem paralyzed, unable — or unwilling — to do anything about it. It is a global disaster that threatens the immediate future. But there might be a way out.

… Western economies have not acted much differently than the fraudster Madoff. In 2011, they were virtually inundated with bad news and old sins. Almost everyone — in Europe and in the United States — has been living beyond their means, from consumers to politicians to entire countries. Governments have become servants to the markets upon which they have become dependent.

… Part 5: Strategies for Reducing Debt

What can a country do to not only curb increasing debt, but also to reduce the size of its overall debt? There are many possibilities, and they are differentiated mainly by the magnitude of the sacrifices, and by who bears most of the burden.

The most brutal method is the debt haircut, which is reserved for hopeless cases like Greece. Creditors are forced to give up a large share of the funds they are owed. Banks and insurance companies and, ultimately, ordinary savers and the insured, whose portfolios and policies also contain Greek bonds, are the ones who suffer.

… Growth is undoubtedly the best way to get out of the debt trap. After World War II, the American economy grew at a faster rate than the national debt. As a result, the debt ratio was automatically reduced.

Nowadays, however, an aging and shrinking population makes it far more difficult to increase economic output. This means that slow-growing countries like Japan or Germany can hardly serve as the reliable borrowers of tomorrow. Rising economies like China, India, Indonesia, the Philippines or Vietnam offer more security. Ironically, for the rating agencies, it is the shaky candidates of the past that could very well be the most reliable economies of the future.

In the West, on the other hand, it is now the state that must increasingly assume the role of growth engine. To do so, it borrows money and tries to reduce government debt with the additional value added. Kurt Biedenkopf (CDU), the former governor of the eastern German state of Saxony, describes this as a fatal process in which the government takes on new debt to finance growth in order to pay off old debt.
(5 January 2012)
Suggested by Ric S. who writes, “Some very nice, if conventional, thinking on managing national debt levels.”

Long article. Personally, I think this analysis is off the mark. It focuses on one problem (debt) and completely ignores the bigger problems of climate change, peak oil, and social/economic turmoil. Let us take 2 scenarios:

1. The debt problems are solved. BUT: The economy is in the pits, unemployment is sky high, riots/strikes are a daily occurrence, the rich/poor divide is worse than ever, the politics are polarized between an exteme left and an extreme right. No progress has been made on climate change or moving to a sustainable infrastructure.

2. Just as during World War II, debt levels go up to meet a national crisis. Debt is incurred to move to an energy efficient infrastructure (rail, renewables and walkable cities). Discontent is funneled through social-democrat and other left-leaning parties which accept the democratic process. Social programs are expanded to help the population through the crisis.

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