“The real problem of humanity is the following: we have paleolithic emotions; medieval institutions; and god-like technology.”
- Dr. E.O. Wilson, biologist, Harvard University.
Greece has been an interesting diversion this past week, but the “successful” passage of austerity and reform bills through the Greek parliament changes nothing. The country is just as likely to default at some point in the near future, particularly if the mood of its rioters is any guide. All that the EU has bought, with its next tranche of bail-out money, is a bit of time. Procrastination comes very expensively these days. Here in the UK, the last week brought a more orderly degree of protest on the part of public sector workers who have failed to grasp the underlying reality: a generation of citizens aboard a bus of entitlement – to free healthcare, to wide-ranging benefits, and to universal and generous state pension provision – is shortly going to run headlong into a brick wall of disappointment and fiscal inevitability.
Kevin Phillips and Dr. Michael Hudson christened it the FIRE economy, indicating the extent to which the (United States’) productive economy had become subservient to the forces of Finance, Insurance and Real Estate. As Eric Janszen points out in his masterful study, ‘The post-catastrophe economy’ (Penguin, 2010), the sandy foundations of the FIRE economy comprised debt-based economic growth. So what happens if the western economies have essentially allowed accumulated debts to grow to such a level that they can never realistically be paid back ? Well, we are about to find out, and investors in Greek bonds will probably find out ahead of anyone else.
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