Debt is not sustainable

The Party is nearly over.

Economic bubbles seem to be normal and some hurt more than others. The banking crisis was a nasty one but there are more out there lurking in the back waters of the board rooms. Occasionally they raise their dorsal fins in the press.

Bailing out banks is one thing. Bailing out entire countries is entirely different. The very nature of the way we do things on a large scale is that these things operate as highly integrated and interconnected systems. We know from systems theory that co-systems co-create other systems and that one system collapse can precipitate another.

I ask myself: can governments collapse financially? The answer is simply "yes". Can it happen again? Yes. Will it happen soon? Well as a futurist we look for early warning signs, trend breaks and things we call "weak signals". So here's a weak signal to consider:

"The markets remain sceptical that Greece will be able to pay its debts, and speculation is rife that the EU is preparing to bail the country out."

It's a weak signal because it only refers to one country and creates the impression that it is an isolated problem and the big boys and girls in Europe will be able to manage. Looking at it systemically it is a symptom of a much problem that is much more widely manifested.

People have been warning about the dangers of operating large deficits and there seems to be lots of it around: The deterioration in UK public finances is unprecedented, US deficit hits record since world war II, EU deficits, Japan's worst deficit on record, IMF has been concerned about the India deficit for several years, while China seems to be running a small deficit, but this is set to grow a lot in 2010. Everyone seems to be borrowing from everyone else - and just how stable is that after we saw what happened to the banks?

This could potentially lead to a shift in economic power or global melt down. Things an economist should be able to tell us: Who has deficits. How do they compare historically (E.g. The US deficit history)? Can the books be balanced by those who don't have deficits? If not then a global "market correction" is in store.

If it does all come down like a pack of cards or a string of dominoes then it's going to get dark. It may be possible to plug the holes on the leaking ship and coast a little while longer but the resource shortage that will hit us around 2020 is probably going to be the final straw before a real back to basics correction steps in. That's when several places will feel the pinch because of a shortage of water (which indirectly means food) and the world's oil supply would have peaked. There will be absolutely no reason to believe in any growth after that and the economic paradigm of today will collapse. It won't be the end of the world because people are incredibly resilient. It will however be very different to the place we know now.

The party is nearly over... should we enjoy it while we can, or start putting some stratgeically important sustainable investments? I wonder how bad the hang-over is going to be?