I have not faced the prospect of a new year with so much trepidation as when I contemplate what is in store for 2013. Systemic risks abound, which of themselves are not the main story, only milestones on the road to final currency destruction, unless governments somehow regain their senses.
To help understand the perils of 2013 I shall give them their background context first before listing them individually. No such list can be exhaustive or temporally sequenced, but all on it have the same root: the long-term accumulation of a burden of unsupportable debt.
This is a story that started with the end of the First World War, and involves a world which replaced laissez-faire with political motivation in economic and monetary affairs, moving away from wealth-creation into wealth-destruction in the cause of the common good. This was what motivated Keynes. In his Concluding Notes to his General Theory he said as much: he looked forward to the “euthanasia of the rentier” (a term for saver he intended to convey disdain), to be replaced by “communal saving by the agency of the state to be maintained at a level which will allow the growth of capital up to the point where it ceases to be scarce”. Monetarists in charge of central banks join Keynes in this objective, acting as the agency by which savings are destroyed and capital is made to be no longer scarce.
I shall not go into business cycle theory, beyond to say that government and central bank manipulation of their economies and fiat monies has succeeded in deferring the bankruptcies and liquidation of accumulated malinvestments, to the point where their cost can no longer be sustained. By 2007/08 the accumulation of debt was too large for distorted, burdened and weakened economies to support. And this is not just a single-country problem, because it has become a problem everywhere. The United States, the United Kingdom and the eurozone countries reached this terminal point together while Japan had been waiting in the wings for them to catch up. These nations alone account for about half global GDP. The banks to which all this debt is owed are financially interconnected and also linked to other banks in countries where the debt bubble is not so acute.
The coincidence of all nations following the same path to destruction is the result of international coordination that has increasingly dominated global politics since the Bretton Woods Conference in 1944. The response to the financial crisis of 2008 was to draw in more participants, leading to the G20 becoming the post-crisis forum for international economic coordination. Never in modern history have we seen so many governments agreeing to make the same mistakes; and it is hard to see, with the underlying inter-connectivity of their banks, how there is room for dissent.