We spent the last ten years producing the illusion of prosperity through credit, which simply pulled forward final demand from tomorrow. But then tomorrow came and we did it again - and again...
If it was just government debt we might be able to get away with this. But it's not. The system is overstuffed with both government and private credit, and as such the "borrow more!" mantra simply won't work. It can't - there is no more credit capacity in the economy.
The 2003 mantra of "low rates and liar loans for everyone" allowed one more extension of idiocy in borrowing - one more "pulling forward" of demand. We doubled outstanding credit during the last decade - about 15% of our so-called "demand" each and every year was in fact false, created out of nothing more than a promise to pay tomorrow.
The "low interest rates" spurred borrowing last time - the reaction was immediate and powerful (if suicidal) - this time it has done nothing, as there is simply no more credit-carrying capacity in the economy.
So the government stepped in and replaced 11% of private final demand with more borrowing as the only able and willing borrower. But that cannot continue forever. Eventually those who lend us capital will discern that we're not going to pay, as that actual private final demand will not recover.
This is in fact precisely the same recognition that led to Greece's problems, and it will come here.
