The importance of generating an inflation

[rdouthwaite]

The importance of generating an inflation


It sounds totally over the top to say so, but I believe that the survival of an advanced civilisation depends on the public rejecting the plans made by the rich-country G-20 government at their recent meeting in Toronto. One element of their plans is that their budget deficits will be sharply reduced over the next few years. Another is that bank lending will be restricted until the banks have increased their capital so that they can better withstand future financial stocks without government report. Taken together, as many economists have warned, these measures will cause as deep depression which could last for many years. According to a story in yesterday's Observer, British banks fear that a trillion pounds will be drained from the global system by the proposed bank rules. http://www.guardian.co.uk/business/2010 ... it-warning

A prolonged depression will not destroy our civilisation directly, but, if one happens, its consequences will because it will almost certainly mean that the transition to an ultra-low-carbon, renewable-energy-based society does not take place while there still is enough fossil energy to make the transition possible. The resulting lack of energy as fossil fuels run out would make it impossible to support the 9 billion people the world is expected to have in 2050. In short, a long depression now could cost biilions of people their lives. The debt crisis needs to be ended by organising an inflation instead.

I have written an article about this for the next issue of Construct Ireland which you can download here. Comments would be very welcome.

[Oscar Kjellberg]

I like your arguments and I agree to your conclusion but I wonder about your assumption about the price of oil during a prolonged depression.

A prolonged depression will not destroy our civilisation directly, but, if one happens, its consequences almost certainly will. I'll explain. Suppose the depression lasts for ten years. During that period, fossil energy prices would be low because demand would be suppressed. This is likely to remove any price incentive for a move to non-fossil fuel sources.

IEA has been, and still is, I guess, concerned about the very much lower investments in oil production than planned. They have said that unless these investments are made, production will decline 6 to 8 percent per year. In a depression we might have supply and demand chasing each other to the bottom and then no one can tell what happens to the price of oil and the price incentive for a move to non-fossil fuel sources.