THE GREAT RESTORATION AND THE RISK OF A GREAT INTERVENTION. ERASING YOUR DEBT MEANS ERASING YOUR SAVINGS

THE GREAT RESTORATION AND THE RISK OF A GREAT INTERVENTION. ERASING YOUR DEBT MEANS ERASING YOUR SAVINGS

According to the Institute of International Finance, global debt is expected to hit a record $ 277 trillion by the end of 2020 .

Total developed market debt – government, business and households – increased to 432% of GDP in the third quarter. The debt-to-GDP ratio for emerging markets has also increased to nearly 250% over the same time period, with China's ratio reaching 335% and expected to reach around 365% of global GDP for the full year.

Most of this massive $ 15 trillion one-year increase comes from government and corporate responses to the pandemic. However, we must remember that the total debt figure had already reached record highs in 2019 before any pandemic and in a period of growth.

The main problem is that most of this debt is unproductive. Governments are using unprecedented fiscal space to perpetuate inflated current spending, which generates no real economic return, so the likely result will be that debt will continue to grow after the pandemic crisis ends and that the level of growth and productivity achieved it will not be sufficient to reduce the financial burden on public accounts.

The great restoration

In this context, the World Economic Forum presented a roadmap for what has been called “ The Great Reset. "It is a plan that aims to seize the current opportunity to" shape the recovery "and" help inform all those who determine the future state of global relations, the direction of national economies, the priorities of societies, the nature of models of business and management of a global common good ".

According to the World Economic Forum , the world must also adapt to current reality "by guiding [ing] the market towards more equitable results …, ensuring that investments promote shared goals, such as equality and sustainability …, [and] by exploiting innovations. of the fourth industrial revolution to support the public good “.

These goals are obviously shared by all of us and the reality shows that the private sector is already implementing these ideas, as we see technology, renewable investments and sustainability plans thriving around the world.

We are seeing real-time evidence that businesses adapt quickly and provide better goods and services at affordable prices for all, achieving a level of progress in environmental and welfare goals that would be unthinkable if governments were in office.

This crisis shows that the world has escaped the risk of scarcity and hyperinflation thanks to a private sector that has exceeded all expectations in a seemingly insurmountable crisis.

Danger of interventionism

The overall message of the World Economic Forum looks promising. There are only three words that spoil the whole positive message: “leading the market” . The risk of governments taking these ideas to promote massive interventionism is not small. The idea of ​​The Great Reset was quickly embraced by the more bureaucratic and interventionist economies by the government as validation of the growing government intervention in the economy. However, this is incorrect.

The idea that governments will promote an economic system that reduces inflation, improves competition and empowers citizens is more than far-fetched. As such, the World Economic Forum cannot ignore the risk of government intervention within this idea of ​​a grand restoration, which does not need to be applied as it has already been in place for years.

Technology, competition and open markets will do more for sustainability, social well-being and the environment than government action, because even the best-intentioned governments will try to defend at all costs three things that go against well-meaning messages. of the World Economic Forum: their national champions, rising inflation and greater control of the economy. These three things run counter to the idea of ​​a new world with better and more accessible goods and services for all, with better welfare, lower unemployment and a thriving high-productivity private sector.

We should always be concerned about well-meaning ideas when the first to embrace them are those who are against freedom and competition.

Wipe out the debt

There is an even darker part. Many interventionists have welcomed this proposal as an opportunity to cancel debt. It all looks nice until we understand what it really entails.

There is a huge risk that governments will use the excuse of canceling part of their debt along with the decision to cancel a large part of our savings. We must remember that this is not even a conspiracy theory. Most proponents of modern monetary theory begin their premise by stating that government deficits are offset by household and private sector savings, so there is no problem. Well, the only minor problem (note the irony) is matching your debt with someone else's savings.

If we understand the global monetary system, then we will understand that canceling trillions of public debt would also mean canceling trillions of citizens' savings.

The idea of ​​a more sustainable, cleaner and more social economic system is not new and does not need governments to impose it. It's happening as we speak thanks to competition and technology. Governments should not be allowed to curtail and limit the freedom, savings and real wages of citizens even for a well-meaning promise.

The best way to ensure that governments or large corporations do not use this excuse to eliminate individual freedom and rights is to promote free markets and greater competition. Forward-looking investments and ideas for wellbeing must not be pushed or forced: consumers are already making sure that companies around the world implement increasingly sustainable and environmentally friendly policies.

This market-driven approach is more successful than letting the risk of government intervention and meddling take hold, because once it happens, it's nearly impossible to reverse it.

If we want a more sustainable world, we need to advocate for sound monetary policies and less government intervention. Free markets, not governments, will make this world better for everyone.

Daniel Lacalle, Ph.D., is chief economist at hedge fund Tressis and the author of "Freedom or Equality", "Escape from the Central Bank Trap" and "Life in the Financial Markets".

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THE GREAT RESTORATION AND THE RISK OF A GREAT INTERVENTION. CLEARING THE DEBT MEANS CANCELING THE SAVINGS comes from Database Italia .


This is a machine translation from Italian language of a post published on DataBase Italia at the URL https://www.databaseitalia.it/il-grande-ripristino-e-il-rischio-di-un-grande-interventismo-cancellare-il-debito-vuol-dire-cancellare-i-risparmi/ on Wed, 25 Nov 2020 18:51:01 +0000.