Paul Harrap

Paul Harrap

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Waveriders
Problem: our economy has ridden an unsustainable wave of cheap credit and mounting debt for many years. Cheap credit allows for a massive growth in demand and a corresponding growth in prices. This wave has pushed the price of "things" way above their true value. People have been allowed to borrow even more money based on the current price of the things they own, further fuelling the cycle and pushing thing prices higher.

Some people can't repay their debts, and the prices of their things are falling so they can't even sell the things to repay their debts. Their only answer is to stop spending money - or to simply write off the debt and start again. Thing prices drop, companies earn less money, people get paid less, lenders become loathe to lend - and the demand side of the economy starts to freeze. Soon, nearly everyone stops spending cash, the price of things plummets, companies go bust, VAT and corporation tax income plummets while unemployment rises so tax rates have to rise and so everyone has less cash to spend and the cycle continues ever downward.

In time, the price of things will drop so low that it is clearly, demonstrably, below the true value of things. The companies that remain will be lean and profitable and start to grow. Employment will return and people will start buying things again and the economy starts to rebuild.

The government are trying to prevent the crash by getting back on the debt wave. "Stimulate the economy" is a euphemism for "borrow and spend money we don't have". Trying to find a way to continue riding the wave even higher and faster is not a solution to the problem that you are riding on a wave. The economy is broken and the crash is necessary.
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Paul Harrap