The Crash Course - Chris Martenson [35]
This was a fair view of wealth in the late eighteenth century. Given the limitless natural abundance of the time, those who could transform primary into secondary wealth faster and more productively created wealth the quickest.
We live under very different circumstances than Smith, but the question of how we create wealth remains as relevant today as it was in his day. There are thousands of books to help you navigate tertiary wealth, virtually all of them assuming that the future will resemble the present, only bigger. But here we take a very different stance, recalling that all wealth starts from the bottom of the wealth pyramid with primary wealth and observing that the creation of secondary wealth, without exception, requires energy, which seems the least likely candidate to continue its exponential trend of the past 300 years for very much longer.
By swiveling our gaze to a long-forgotten and dusty intellectual realm, we have the chance to rediscover some basic truths and stake out our positions in relative quiet before the masses arrive like so many wild-eyed land-rush speculators bent on grabbing their share while they still can. The basic truth is this: Our money, debts, stocks, and bonds have a high value in a world of constant economic growth—and a much, much lower value in a world without economic growth. Constant economic growth requires constant inputs of primary resources, especially energy, and someday those will undoubtedly fail to expand any further.
The question is, when?
1 Maslow was a psychologist who proposed that humans have many needs existing in a hierarchical structure in which the higher levels will not be sought and met until the lower ones are met. At the bottom of his pyramid are the physiological needs of breathing, being fed, obtaining water, sleeping, and excreting. The next layer up covers our safety and security, and self-actualization resides at the very top of the pyramid.
PART III
Economy
CHAPTER 10
Debt
If something cannot go on forever, it will stop.
—Herbert Stein, Economist (1916–1999)1
The United States and much of the developed world suffer from a condition that I call “too much debt.” We could spend an entire book just on the subject of debt, because debt by itself has the capacity to initiate a chaotic and diminished future. But we’re only going to spend just enough time on debt to get to my main conclusion: Debt markets are making an enormous collective bet that the future economy will be exponentially larger than the present. It is a dangerous wager, and one which, if it doesn’t pan out, places the collective wealth of entire nations at risk.
When debt markets have been disappointed in the past, standards of living have suffered, governments have been tossed, currencies have been destroyed, and/or countries have fallen. We therefore care very deeply about whether our debt markets are at risk of being disappointed, and, if so, what the source of their disappointment might be.
What Is Debt?
In Chapter 7 (Our Money System), we learned that all money is loaned into existence. The other side of the loaned money is the loan itself. We now need to spend some time looking at the nature and quantity of those “loans,” which are also sometimes referred to as “credit” or “debt.” All three terms are interchangeable, and sometimes we’ll switch back and forth between them to follow established conventions. For example, government debt and some consumer loans trade on and are part of the credit markets. To really mix it all together, we’ll examine a data series called “total credit market debt.” If at any time you find the use of a term confusing, feel free to mentally insert whichever word you prefer—loan, credit, or debt—they’re essentially the same thing, and their minor differences