Blog | CB Investment Management

Our Economic Paradigm Is Stuck In a Negative Feedback Loop

New car loans for anyone in the US. New housing loans in the UK. Will a little more credit induced spending finally do the trick this time?
The current economic paradigm believes that growth can be induced by debt. Always. Apparently, its just that simple. In any circumstance this will always make us feel a little better. At least for a little while. Why bother even thinking beyond these alluring thoughts? Simple answer. It is blatantly obvious that the world is just a little more complicated than that. Furthermore, however attractive this idea may appear to be, it is actually toxic.
This fallacy is really astonishingly easy to see and understand. It has even been going on now, in clearly defined trends, for over 40 years. The charts in the article below show that debt has been growing exponentially faster than GDP for all those 40 years. Total debt has grown to a new record of over 3 times GDP!
How much growth has this brilliant economic paradigm produced? This is also an astonishingly clear 40 year trend, which if anything is accelerating. GDP growth has been persistently declining for 40 years! Take a look at the chart.
In effect 5th grade math can easily dismiss PHD economic nonsense. Beyond any sugar shock of debt induced growth is overall declining growth. When the growth declines once again, the credit medicine needs to be induced again. Over time this weakens the economy once more, etc….
So this is where we are. The long term trends in debt and growth are diverging in a reinforcing negative feedback loop. That apparently is the genius of our policy makers, and the punishment will continue until morale improves.
We can all do so much better, but first their needs to be enough consciousness to understand the blatant and obvious fallacy of our current economic paradigm.

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Chris Belchamber is an IRMAA Certified Planner

Medicare’s IRMAA impacts every retirement plan. Learning how to mitigate it is available via IRMAA Certified Planners designation.

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