The Financial System Limit

How I realised there is afinancial system limit, and wrote a book about it:-

In 2018, I wondered how much economic output was being consumed by interest. Occasionally, when I had time for research, I looked for economic texts relating the cost of interest to economic output. There wasnothing. Nobody seemed interested in investigating the connection between cost of borrowing and economic growth.

After a few months I tried collecting data myself. Economic output (GDP, gross domestic product) was easy. And I found many statistics about government debt. Private sector debt? One could find borrowing figures for particular types of debts, but no interest expense. How much do people and businesses actually pay for interest? There is not much reliable information.

Therefore I built my own estimates. The result: a calculation that one-fifth of economic activity is spent on interest. It’s an awful figure. Yet nobody thinks about this. Journalists and politicians run after government debt data, but are quiet about how much the private sector wastes.

I then tried to find a trend, which produced another surprise: using sample credit card costs, interest rates paid by households and businesses have been rising even though interest paid to depositors has fallen to nothing. Again, a problem that nobody is concerned about. Is the cost of interest a brake on economic progress?

About eight years ago, I gave a couple of talks based around another concept. Central banks stimulate to escape recessions, creating extra private sector debt that itself causes the next economic upset a decade or so later. This central banking cycle, the cost of private sector interest, and one-fifth of economic output wasted interest, set out the basics of the theory. All that remained was to establish the shortcomings of popular solutions to excess debt, add some case studies, and a book was born. There are two case studies, a country (Puerto Rico) and the UK company Carillion.

You can read the first chapter free, with no registration requirement, on the publisher’s website. The text is clearly written so that anyone can follow the argument. A modestly-priced e-book is available now and a paperback edition is on sale in some countries. The hard cover edition will be published in the United States on 21st June and in Britain on 23rd August.


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