Economics Can’t Violate the Laws of Physics: Rising Systemic Risk and Multiple Black Swans

Friday, November 23, 2012
By Paul Martin

By: DK Matai
Market Oracle
Nov 23, 2012

In the aftermath of the colossal damage caused around the world by extreme weather induced floods, fuel and food shortages, questions are constantly being posed about the improbability of endless growth of human population and over consumption on a planet with finite resources. There are limits to growth and humanity is colliding with them head on. High fuel and food prices and floods caused by climate chaos are all symptomatic of those growth limits.

No matter how much quantitative easing or printing of money is undertaken by central banks, money is not a substitute for energy. Making debt grow faster than GDP in order to stimulate the economy just leads to a situation where nobody can afford to make payments and the whole financial system begins to crack further and to implode. Further infusions of cash by central banks may give the impression of containing that implosion but real robust economic growth is not possible via artificially boosting money supply which also increases the price of food, fuel and commodities at the same time. Note how five years on from the start of The Great Unwind, which began in 2007, the real GDP of most of the developed world is either at par or below where it was then. The economic growth recovery and performance, on this occasion, is a lot worse than during the 1930s in the aftermath of The Great Crash of 1929. Why?

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