Rob’s comments below are in italics.Derek’s comments below are in normal font.
We're going to revisit a topic today that we've been talking about quite a bit recently - debt. So yeah, what's going on that people need to know about?
What prompted me to think about this again was a broadcast I listened to the other day. It gave a rundown of the state of the United Kingdom's finances, which are in a dreadful state. We recently borrowed an additional £20 billion, and three-quarters of that is simply going to pay interest on the debt we already have.
We have also discussed interest rates in the past and how they've been artificially held down. There's only so long that you can do this before the markets will no longer trade debt at the prices and interest rates that governments have been used to for the last 20 years or so.
In this context, I would like to revisit the distinction between good debt and bad debt that I've previously discussed. From the point of view of business, personal finances and national level, there are parallels between the three. The easiest one to grasp is with business.
Business Level
Suppose you're running a business and you negotiate a loan with the bank, for example. That's not necessarily a bad thing. If you are investing that in something which is going to—
If there's a bigger rate of return than the interest that you're paying on the loan, then it makes sense to do.
Yeah, absolutely. That's the one-line summary. If you buy, for instance, a piece of machinery that you can use to manufacture things that you wouldn't have been able to do previously, and there's a ready market for those, you can sell them and make more profit than you're paying on the loan. Then it's a sound proposition.
If, on the other hand, you take that loan and use it for frivolous purposes - you redecorate your office or use it to pay yourself to go on holiday - then all that's happened is you've spent it on things that don't actually bring any new customers in.
Or splashed it on Google Ads!
Exactly, there are any number of ways that it can be frittered away. That means you then have to repay the loan, paying the interest on it, and your balance sheet is worse off than if you hadn't done it.
Personal Level
It's very easy to see that parallel if we bring it down to a personal level. There are all manner of things that we might not be able to afford, but if we had them, it would increase our ability to bring in an income. There are also any number of ways that we could just fritter it away. We could go out for a lot of expensive meals, or go on holiday. Once again, that means we still have to pay the money back. We will still pay the interest on it.
National Level
The same principle applies at the national level. There are things that a nation-state could invest in which make the nation a more viable proposition. This was John Maynard Keynes' advice to governments during the Great Depression of the 1930s.
The whole thing had seized up. There was nobody to harvest the crops. They were rotting in the fields because there was no money to pay the labourers to do the harvesting. Because there was no money to pay the labourers, they were unable to go out and buy things in the local shops, which kept the local businesses going. It was all stagnant.
So Keynes's solution was that the governments should effectively create money out of thin air. Whether they do it themselves or have the banks do it and then the banks give it to them, it comes to the same thing. It's money that hadn't been earned previously. But then by paying people to do something constructive, that creates a certain amount of wealth and puts money into their hands. There is also a cumulative effect from it.
It creates circulation, doesn't it?
Now Keynes receives a lot of criticism from economists who accuse him of encouraging fiscal irresponsibility in governments, which is somewhat unfair to him. He planned that when the business cycle picked up again as a result of that stimulation, we would go into the boom phase. At that point, the governments could pay back the loans.
I don't know whether he was being naive here or simply being realistic and dealing with the most pressing problem that was immediately at hand. However, the trouble is that when the boom times come, governments are only too ready to take advantage of them and enjoy the benefits. They don't want to start spoiling the party by running things down and being tight on expenditure, so they have the money to pay back the debt.
There's no incentive for them to do that. If you just follow the incentives, it's pretty clear what any government is going to do.
Exactly so. The worst possible thing we could do, particularly in the current circumstances of this country, is to run down the situation regarding the scale of debt in the United States. The UK's relative to its economic activity is probably even worse.
At times when all manner of penny-pinching measures are being taken by the government, such as cutting off winter fuel payments for old age pensioners and attempting to reduce disability allowances, we can't run our health service adequately. We can't maintain the buildings of our schools. We can't fill the holes in our roads.
Against this background, Starmer appears to be seriously considering purchasing a substantial amount of weaponry and sending it to Ukraine, where, as we've seen, it rapidly becomes scrap. So this makes no sense whatsoever.
We said that there is a terrible situation if you borrow money and then do nothing constructive with it. Of course, it's even worse if you're spending it on weapons and ammunition, which actually have a negative impact on the total amount of wealth and circulation, as we're seeing.
It's essential to go beyond merely financial accounting of this and examine what it means in terms of the cost of energy, in particular, and raw materials generally. One of these days, I'm going to conduct an analysis of the amount of energy invested in the two notable conflicts currently underway - the one in Israel and the one in Ukraine.
Bearing in mind that it seems pretty clear to me that over the course of the next 20 years, we're going to pretty much exhaust our readily available sources of fossil fuels. As we've discussed at other times, there doesn't seem to be any contingency plan in place for maintaining the standard of living we've come to expect.
As that goes out, it's not at all impossible that we could rejig things to live within the budget of our available solar energy. This is surely what must happen. Whether it's through a significantly reduced human population living a much more primitive lifestyle, or whether we make a smooth transition to a high-tech one based on completely different energy sources.
Yes, my understanding is that the small proportion of people in the world who essentially own and control everything will have plenty of energy, while the rest of us will either not exist or be left in the cold. That seems to be the grand plot.
Yeah. Against this, we must consider the enormous amounts of energy that are being wasted. Even if you are using all of your munitions effectively in battle, it's still a tremendous amount of energy that's gone into that shell or that bomb or that missile, which all gets consumed in a matter of a few seconds or a few minutes.
Every time one of these military aircraft goes on a sortie, that's a huge amount of fuel consumed. This is even before you get into the situation where there's an ammunition depot and the whole thing gets exploded without even being used, which is happening all the time in Ukraine.
There are wanton, vandalistic attacks on oil refineries, gas pumping stations, and oil pipelines, which have also been carried out extensively by both sides. This is a consumption of energy that could have provided years or decades of continued constructive civilian use.
More importantly, it will take energy to construct the solar infrastructure, which we need to make a transition to a technologically sophisticated, sustainable life. To me, that should be a clear priority.
Yeah, looking at the climate narrative and how we're being told to worry about carbon dioxide and all of these things - if that actually were true, then that would apply first and foremost to the war-making activities that have by far and away the biggest environmental impact. This just shows that what they are saying and what they value are completely different things.
Absolutely, yeah. You could go on a lot of car trips, foreign holidays, or even hot baths for the cost of one missile strike.
Yeah. If I were attending a climate conference and actually cared about these things, I probably wouldn't take a private jet there. But there we go.
Yeah, we've gone into that before, too. So, against this background, there has been, of course, an apparent attempt to bring a conclusion to the Ukrainian war with the summit meeting between Putin and Trump.
Of course, there's been a chorus of shrill complaints that this even took place. Why should anybody imagine that we're going to improve our chances of survival by cutting off communication between nuclear-armed superpowers? I cannot imagine. It can only increase the likelihood of some catastrophe occurring due to misjudgment or confusion.
I would have thought it was critical to restore the diplomatic relationship to a situation that was regarded as normal and essential until the last decade or so. Whatever else one thinks of Trump, that it was a monumental achievement to have even made this start.
Of course, the fact that the primary objective many people assumed was to settle the war in Ukraine, obviously hasn't happened. That doesn't make a difference because we have no idea what other agreements they've made.
The most important one is that they're talking to each other, which gives some chance that the Strategic Arms Limitation Treaty, which is due to expire next February, will be renewed. The world will clearly be in a more perilous situation if that's allowed to expire. That's in none of our interests.
Once again, the best way to avoid warfare is to have mutually beneficial trade going on between nations. So that would be a bonus too. There seems to be every intention to wreck the likelihood of that on the parts of some of the players. So who knows how that will come out?
The notion that a ceasefire should be declared now, while the combatants simply regroup and rearm, was obviously a ridiculous suggestion. The fact that this has now been taken off the table, and we've said that what we need is an actual peacemaking agreement, which is clear and addresses the underlying problems, once again, this appears to me to be elementary common sense. In contrast, it has been depicted as a sellout, particularly by our own government and that of all Western European leaders.
How much the population at large supports this position isn't at all clear to me. Probably a majority are still swallowing the official propaganda line. What's your view?
I probably live in my own echo chamber. I've been reading Caitlin Johnstone's emails recently, and she actually has more hope in the next generation than in the current or previous ones. So in the longer term, maybe there was some hope there as well.
Yeah, well, one of the things that I'm interested in - as I said in a recent podcast of ours - I look at the alternative viewpoints on YouTube. I'm greatly heartened by, first of all, the fact that views that go against the mainstream narrative get through and aren't censored. But also by the size of the followings of some of these commentators. There are excellent channels by Scott Ritter, Douglas MacGregor, John Mearsheimer, and many others.
I see that the material initially produced on those channels is being repurposed on many other podcasts. Many of these have followings in the hundreds of thousands, and some reach millions. So amongst the younger generation, there are probably more followers of that. Let's see how we go from here.
The only other thing I'd say is that there has been a lot of confusion since the meetings that Trump had with Zelensky and the European leaders that followed. They've been talking about security guarantees and a lot of this, which is a vague term. It's not spelt out what that actually means.
But a lot of the things that have been speculated by Western leaders and commentary in the media are clearly not going to be acceptable to Russians and could not possibly have been agreed to at Trump's talk with Putin. They're unlikely to be approved anytime soon.
Whether Trump deliberately misdirected, provided some misdirection, or allowed people to read more into his remarks than he intended - or whether people have taken the ball and run with wishful thinking - I don't know.
Of course, the next question is whether there will be a meeting between Trump, Putin, and Zelensky, or a bilateral meeting between Zelensky and Putin. We don't know.
I personally think it's unlikely to be a three-way meeting purely because it will likely fail. Zelensky's position is totally incompatible with Putin's, and there's no point in having a meeting at that level unless all the details are finalised, which was clearly not the case with the Trump-Putin meeting.
That would not have happened unless both of them had an obvious idea about what they were going to discuss beforehand, which had clearly been arranged through the discussions that Steve Witkoff had with Putin and through direct conversations between Trump and Putin before they began.
Yeah, so the meeting itself is like a PR exercise for something that's already been agreed...
Yeah, yeah. Although that was announced at a week's notice, it was absolutely clear that there was much more than a week's worth of planning to get all of that in place. They must have been aiming for that for at least a couple of months, if not longer.
So interesting times. Many things are not what they seem. Short answer: watch this space.
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