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    The Financial System Limit: The world's real debt burden
    The Financial System Limit: The world's real debt burden
    The Financial System Limit: The world's real debt burden
    Ebook153 pages1 hour

    The Financial System Limit: The world's real debt burden

    By David Kauders

    3.5/5

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    About this ebook

    “Neither Keynes nor his disciples foresaw the eventual creation of unaffordable debt nearly a century later.”
    “One of the most fascinating books I’ve ever read” - Reviewer

    A deeper problem lies behind the inflationary crisis. Every past economic problem has been "solved" by stimulus, i.e. more credit, which is debt. Now the world cannot afford its existing debt burden. And the debt problem is in the private sector, not governments' own borrowing. Expanding credit has pushed house prices up so that younger people cannot afford a home. Continued stimulus therefore makes our economic plight worse. Economies were sluggish before the pandemic arrived.

    In The Financial System Limit, British investment manager David Kauders FRSA puts forward three radical theories which show that Keynesian economics has gradually turned from a benefit to society, into a damaging scheme. Other economic policies are also not addressing the fundamental problem, which is the world’s inability to afford private sector debts already created.

    The author challenges the existing academic and political consensus about how economies should be managed. The old arguments about sound money versus stimulus, as well as contemporary arguments that governments controlling their own currency can create as much credit as they wish, are fundamentally inappropriate to a world in which private sector debt far exceeds public debt and carries a higher, rising, interest cost.

    Whether you are a concerned individual, an academic, politician, banker or even a policymaker, read about a different view of the current financial orthodoxies, one that will provoke serious debate and even action.

    “Radical thinkers might have a point” was how the Financial Times described David Kauders’ first book The Greatest Crash. This new book offers further original thought.

    LanguageEnglish
    PublisherSparkling Books Limited
    Release dateJul 27, 2020
    ISBN9781907230776
    The Financial System Limit: The world's real debt burden
    Author

    David Kauders

    David Kauders FRSA was educated at Latymer Upper School, Jesus College Cambridge and Cranfield School of Management. He is an investment manager and author.

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    Reviews for The Financial System Limit

    3.5/5

    11 ratings5 reviews

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    • 4/5
      This is a decent book on credit expansion and debt limits. This is good knowledge to have.
    • 4/5
      I received this book from the Early Reviewer programme.This book, The Financial System Limit, raises awareness of the limits inherent in the way financial systems work globally. It questions the wisdom of stimuli as a mechanism for recovery after a financial crash. The fundamental premise is that stimuli require increased debt and that the economic activity created will lead to further debt and that ultimately the amount an economy is spending on serving that debt, i.e. paying interest, will represent such a high proportion of economic output that it will be impossible to repay.The author does not pretend to have all the answers but wants to stir debate on how to avoid the inevitable cycle of boom and bust which is inherent in the way banks and economies currently operate. David Kauders uses national examples to demonstrate his points and uses the best estimates he can find for global estimates of government, corporate, and personal debt.David Kauders's arguments are made within the context of the current banking and economic frameworks. He provides ample evidence that the current approach to managing economies with actions taken by central banks and governments is not working and ultimately leads to economic and financial catastrophe. His arguments are, however, confined to the existing banking and economic frameworks. He does suggest a few radical actions to reducing debt (e.g. members of the public investing in state enterprises providing state services rather than pure privatisation) but admits that these initiatives would contribute just a drop in the ocean in terms of addressing the problems faced by national governments and citizens.This is a useful contribution to the debate on global economic and financial problems, but its greatest contribution is in demonstrating and highlighting the problem. I feel it is constrained in its search for solutions (which, to be fair, was not the author's primary purpose in writing the book) by limiting its scope within the context of the existing financial and economic frameworks.
    • 4/5
      David Kauders whose Bear Markets I reviewed in 2017, is back with a new book that shows that all schemes that borrow from the future are thwarted by three related concepts: the true cost of debt to society, central banking economic cycle, and the financial system limit. The Financial System Limit: Radical Thoughts About Money kicks off with the notion that one-fifth of all economic output is spent on paying interest. Various ideas have circulated for how to escape the debt trap: fiscal policy, prevent banks creating credit, helicopter money, canceling both debt and an equal amount of credit, paying off the world debts by liquidating assets, taxing wealth to pay down debt, debt to equity conversion, government debt can only be repaid slowly, if at all., expanding Special Drawing Rights, abandoning economic stimulus.None of the ideas, neither classic Keynes, Thatcherism, Piketty, the FED or ECB money press can work. The recent COVID-19 pandemic panic reactions add to the misery. The book pleas to measure interest cost on total debt in relation to economic output. A deep recession and consequential financial upset were inevitable in a world that could not resolve the conflict between stimulus and austerity, a world that remained addicted to debt, a world that refused to admit the limit to the growth of debt caused by the cost of servicing it. That's what David Kauders wants to highlight in this rather short read.
    • 3/5
      This was a decent book. I agree with the basic premise that eventually if we keep borrowing, the interest on the debt will exceed production. The problem is that the book was rather short on solutions and the things the author did suggest weren't so great (e.g. page 38 where it is suggested that records could be provided to law enforcement on request not necessarily on production of a warrant).I received this book in exchange for an honest review from the LibraryThing Early Reviewer program.
    • 3/5
      In this short tract one is reminded that we are living in the era of 'peak debt and zero interest' - in the way David Stockman described it in 'The Great Deformation' in 2013.Imagine the figures: The world pays roughly $18,5 trillion - yearly - for interest cost on debt, so the estimates of the author. This is a fifth of the world economic output!Modern Monetary Theory doesn't recognize the problem of this unaffordable debt: Inflating exiting debts away is already failing.But is there really no theory which could cope with such problems (as the author proclaims)?Since I studied the Austrian School of Economics intensively, I don't agree.Anyway, it is invigorating to read that one is not alone wondering how the abyss of this debt trap will look like.

    Book preview

    The Financial System Limit - David Kauders

    PART ONE

    THREE RADICAL THOUGHTS

    1THE FINANCIAL SYSTEM LIMIT

    When someone borrows money to put food on the table, they are in financial difficulty. When they have no hope of even paying the mounting interest bill, let alone repaying their debt, they are bust. This can also happen to a country, when so many people are in financial difficulty that there is no hope of the indebted population honouring its debts even if some people within it are debt-free. In this situation the said country has reached its financial system limit. Neither action by the individual, nor policy change by the authorities, can work off the debt because too much is being spent on paying interest. The underlying problem will manifest itself in many ways: curtailed business activity; inability of consumers to keep spending; falling prices of assets that were propped up by easy credit; almost continual recession with only brief flashes of recovery. The financial system limit of any society is the debt level at which repayment ceases to be viable.

    It is customary for economic statisticians to define highly indebted countries according to their government debt levels. However, for the purposes of this book, it is total debt that matters. Total debt is the sum of government debt, corporate plus banking system debt and personal debt. Personal debt itself consists of overdrafts, bank loans, mortgages and credit card debt.

    Of the 36 current members of the Organisation for Economic Co-operation and Development (OECD), 28 feature in a list of countries having high levels of personal debt.² Personal debt is a developed-country problem. Prosperity has been bought, literally, on credit.

    We have become used to central banks being able to conjure recoveries out of recessions. Each time a downturn has occurred, it has been swept away but downturns became deeper as the natural economic cycles of the past were augmented by policy-driven cycles. For example, in the United Kingdom, according to the Office for National Statistics, GDP fell by 4.2% in 2009, whereas in 1991 it only fell by 1.1%. In GDP terms, the dot com bust was represented by a lower growth rate.³

    Serious financial and business journals have carried many reports and opinions about how central banks need to find new ways to counteract the recession that has unfolded around the world. The fashionable proposal is to use fiscal policy (that is, tax cuts and increased government expenditure) to stimulate economic activity. Such a policy can have no lasting benefit, for three reasons:

    1. Stimulating economic activity needs increased credit, but banks will not lend to bad risks just because governments have changed accounting rules for bank capital and bad debts.

    2. Tax cuts and/or increased government spending cause government deficits to rise. One could describe this as paying Peter now, to rob Paul in a few years time. This will lead the world into deflation.

    3. New money raised by governments through borrowing will incur low positive real interest rates at the outset, but turn into high positive real interest rates when general price levels

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