- Debt rose to unsustainable levels in 2007
- Imbalances in the world economy reached unprecedented levels - the Chinese trade surplus approaching $1 trillion, American public deficits around half a trillion dollars...
- Oil and other commodities soared to historic highs
- The financial system became overleveraged on the assumption that a permanent era of stable growth had been reached; removing the margin of error for slowdowns
But is it true?
Why do we think that household debt at 150% of GDP, or oil at $150 a barrel, or US public debt of $10 trillion, is unsustainable?
I'm quite prepared to believe that enough people were worried about debt to stop accumulating more of it; and that this was a contributing factor to a slowing of monetary velocity which led to the recession.
But this doesn't mean the "correct" level of debt is whatever it was ten years, or twenty years, ago.
So it's logically conceivable that we are in a Ponzi game, as William Greider, via Brenda Rosser at Econospeak suggests. But why should this be the end of it?
None of the predictions outlined in Greider's book appear to have any quantitative component; they are pure narrative and completely untestable. And even if you believe in their plausibility, there's no way to know whether the unstable level of debt is 100%, 200% or 900% of GDP; whether the concentration of power he fears is 500, 100, 30 or 2 big companies; and whether the "eventual" end of the game he predicted was to come in 1995, 2008 or 2090.
Skip over the eccentric references to "huge military expenditures on the Vietnam War as well as through what is arguably, an accompanied global oil price hike that was deliberately manipulated to help pay for it" and ask yourself this question:
Does anyone have a theory which predicts a stable long-term level for public debt, private debt, Chinese trade surpluses, oil prices or the dollar exchange rate?
If not, then it's nonsense to suggest oil is "too expensive" or there's "too much debt". I'd be confident in placing a bet that in 2030, one of the figures mentioned in this article will be at least three times its current level. I don't know which one, but I know we need to lose our attachment to the nominal values of today's economic variables.