• Debt/Bailout Bubbles May Burst. Brighter Future Beyond 2012!

A stressed American consciousness focusing on material acquisition to the virtual exclusion of satisfying higher inner values has given rise to an unwieldy debt mountain. Now the U.S. government is borrowing and spending massively as it tries to pump-up the economy while backstopping much of the countries debt. Consumers and companies have largely hit a ‘debt wall.’ And with a possible derivative meltdown and the recognition of enormous unfunded U.S. liabilities, we may see the U.S. government itself hit the debt wall in the not-so-distant future. The subsequent reaction would topple the debt mountain and pop the bailout bubble. But I believe a new higher consciousness will arise from these extraordinary events creating a truly enlightened economy mirroring our higher, inner human values.

Bailouts, guarantees, and write-offs galore
So far in this phase of the crisis the U.S. federal government and Federal Reserve have already guaranteed or spent around $13 trillion! And the current 2009 U.S. federal budget deficit will top $2 trillion, or about 14% of U.S. GDP. More stimulus packages are likely and massive deficits for years into the future are projected as it is unlikely that the economy will gain self-sustaining traction to stop unemployment from increasing. Economists such as 2008 Nobel Laureate Paul Krugman and others in the Obama administration are already discussing the possibility of another huge stimulus package.

Furthermore, the International Monetary Fund (IMF) on April 21, 2009, estimated global financial system write-offs to exceed $4,100 billion. The write-offs to-date are not anywhere close to that figure therefore, enormous additional financial system losses are yet to come.

A two-phased crisis
I see two phases to the U.S. financial crises. Each alone is capable of bursting the bailout bubble. Phase 1, which we are currently in, involves the write-offs of bad mortgages, loans, deleveraging, extraordinary U.S. government and Federal Reserve guarantees and financing, and a potential derivative implosion. Any sudden interest rate hikes and/or currency movements could trigger an implosion in the $450 trillion (ISDA April 22 press release) derivatives market and cause further financial chaos.

To enable U.S. government bond sales, it is probable that the U.S. federal government will, if it is not doing so already, pressure the banks with whom it has ‘invested in,’ to purchase considerable amounts of its bonds. The banks in turn will get substantial loans from the Federal Reserve for these purchases. In essence this is back-door ‘monetization’ (read ‘quantitative easing’) of U.S. government debt. Monetization simply means the printing of new money by central banks to purchase assets, in this case, U.S. government bonds.

Of course the U.S. Federal Reserve, the Bank of England, and other central banks have already engaged or have announced significant monetization efforts. The central banks claim that they will be able to drain this liquidity (excess money) out of the system as their economies recover. Unfortunately, historical examples do not give much reassurance that this can be done, especially in a global trading environment and where the major countries have amassed such extraordinary levels of debt.

Deeply indebted governments and societies have the choice of trying to reduce their debt levels—which can produce a potentially deflationary recession/depression—or they can encourage central bank monetization efforts that offer a ‘chance’ to get the economy rolling and create sufficient inflation, thus lessening the relative debt load. However, once started hefty monetization efforts often prove impossible to contain, leading to uncontrollable inflation—and even hyper-inflation. Subsequently, interest rates soar, the countries currency plunges in value, its debt mountain topples, and bailout bubbles burst.

Adding to the impetus for monetization will be when Phase 2 of this crisis kicks-in in 2010 as the U.S. begins to face its looming, huge, unfunded liabilities for medicare and social security. These are estimated by Shadowstats at $65.5 trillion. To properly fund this liability would require the U.S. government to put aside trillions of dollars yearly. Clearly, the U.S. government has no possibility or desire to put aside such funds. In addition, the current proposals for health care reform may add considerably to these numbers.

Taken together, these two phases of economic crisis make it unlikely that the U.S. can escape its fate of the bursting of its debt and bail-out bubbles.

Beyond 2012 a brighter future
I believe the underlying collective consciousness of U.S. society is moving toward higher values, and the more balanced approach to consumption and savings is evidence of this. However, in the course of these changes the likelihood of the debt mountain toppling, the bailout bubble bursting, and the onset of high or hyperinflation are real possibilities. By the end of this process, sometime around 2012, the American collective consciousness will have sufficiently evolved to begin the path of developing a truly sustainable economy mirroring the values of an economics based on our higher inner human values and consciousness—and that path is the realm of Enlightened Economics.

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• Short-Term Thinking Created Economic Pain

Short-term unbalanced thinking has gotten us economic pain. The dangers of short-term thinking in economic matters became particularly evident to me in the late 1990s. At that time I said to colleagues that if the U.S. does not change its course, it is heading towards major economic difficulties. I made that statement after studying the trends of many economic statistics, particularly those of debt accumulation and savings rates.

Illustrating the short-term thinking at its worst is the current dire situation of Detroit’s Big Three auto makers.

In 2001, I quoted Maryann Keller, a top auto industry analyst in my still unfinished book, Investing for the Soul. She said in a Forbes article that year, “[That] Chrysler, GM and Ford spent billions of dollars to buy their stock in the open market since the mid-1990s… It was always obvious that product spending [developing new autos] was being sacrificed to provide trading liquidity [ease of selling stock] for big investors while boosting earnings per share. GM, Ford and the Chrysler Group today [remember this was 2001] find themselves with growing gaps in their product portfolios as they lose market share…”

Short-termism pervades current thinking in economics, finance and business. Examples of this are everywhere. In economics, the U.S. Federal Reserve is always trying to fine-tune interest rates to effect relatively short-term changes. In finance, managers of ‘long-term’ mutual funds turnover their portfolios more than 100% a year (refer to page 18) as they are primarily evaluated on their latest quarterly results. In business, many CEOs who want to embed in their companies’ long term beneficial environmental, social and governance (ESG) actions—are handicapped by investors looking for short-term gains.

Even today, the financial bailouts are ad hoc arising from the immediate financial market chaos. However, over the next year it will become apparent that this short-term oriented government borrowing and spending binge will not solve the basic long-term problem of excessive debt. In fact, it only adds to it. Every family knows that you cannot forever borrow more than you earn and spend your way out of debt.

Soon, the U.S.A. will have to face-up to the reality that, either willingly or coerced, it will have to save more and spend less. It would be best if this could happen gradually over say, seven to ten years. That might well have been possible in the 1990s. But today though, it is unlikely as many consumers have hit the ‘debt wall.’ Unable (or unwilling) to borrow, they are reducing their spending significantly.

I believe next to hit the debt wall will be numerous businesses in the first half of 2009 followed by the possibility of the U.S. government itself, perhaps in the final six months of that year. Then a new reality will dawn in the minds of Americans and people everywhere. Their thinking will have to change.

Very few economists and financial market participants attempt to understand the connection between our thought processes and economic behaviour. Yet it is so obvious! The only permanent way out of this mess is for people everywhere to gain an inner sense of balance and well-being while developing their creativity and intelligence to earn more.

Such balanced, developed individuals will not sacrifice their longer-term material and spiritual goals for short-term gains like a drug addict needing an immediate ‘fix.’ This is the central, unacknowledged task, for individuals everywhere amidst this economic turmoil. When accepted, it will usher in an age of Enlightened Economics and bring unprecedented global affluence.

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• U.S. Personal Savings Rate To See Big Gains

There is good news coming. Americans are about to save more, much more. A new consciousness is dawning. It is one that brings enhanced balance to Americans material and inner personal lives as they re-evaluate their futures due to changed circumstances. Boomers approaching retirement are seeing their homes decline in value, their stock market investments in difficulty, and concerned about government support—are realizing the importance of savings as never before.

Recently, U.S. tax-payers received up to $600 in cash from their government. It seems that Americans are choosing to save it. In May 2008 the savings rate as a percentage of personal disposable income shot-up to 4.9% and in June to 2.5%. This occurred after the rate was near zero for about three years and the lowest since 1933. These higher savings rates are just the beginning of a trend that I believe will crest with savings rates in excess of 10% in the next few years.

Higher savings rates will eventually create a new economic equilibrium and allow for vigorous economic expansion. However, until this new economic equilibrium emerges, the increased savings rates have some downsides. It begins with a significant reduction in consumer expenditure. The U.S. is the world’s leader among developed countries in having the highest consumption relative to its gross domestic product (GDP). Stephen Roach of Morgan Stanley shows that U.S. consumption is about 71% of GDP, compared to 56-57% in most other developed countries. The U.S. average for the years 1975–2000 was 67% of GDP, and for 1950-1975 around 64%. Now the U.S. is likely to head back to the latter figure.

Why Americans will save more
Another consequence of lower consumption will be further downward pressure on Americans most important asset – their homes. Until recently, Americans saw their homes as the safe place to invest in and build equity for retirement. But they now understand this strategy may not work well in the future. Purchasing a home for investment purposes will be de-emphasized. Home prices are likely to fall even further, scaring particularly those boomers to save in other ways.

In addition, declining consumption could mean even lower stock market returns than even the abysmal ones seen in recent years. Adrian Ash in his article, The Decade of No Returns, says, “… the total return [capital gains and dividends] on the S&P500 [the pre-eminent U.S. large companies stock index] was actually negative for the decade ending on 30th June 2008.” The numbers were adjusted for inflation as well. By far the largest proportion of Americans’ stock investments are held in companies that make-up the S&P 500 Index.

Incidentally, if you account for the declining value of the dollar internationally, then performance of the S&P 500 delivered a negative real return of about -20 to -40% over the past 10 years! And Americans investing in S&P 500 companies did also participate significantly in the growth of foreign market as well. Such revenues grew rapidly to around 40% of total S&P 500 sales during this period.

Therefore Americans planning to retire in the next few years cannot rely on the stock market to replicate its gains seen between 1980 and 2000, to fund their retirement. They simply have to save more and place some of those savings away from the stock market. (Note: I do not anticipate Americans abandoning stocks. And there will be some market sectors that will do very well even if the broad market struggles.)

Boomers also have to question the ability of the U.S. government to fund their medical needs and pensions in retirement, as the U.S. government is in one heck of a hole – a hole of around $70 TRILLION! The enormity of this funding gap cannot be easily grasped. But let us try. In an article, U.S. ‘fiscal gap’ paving the road to meltdown, by Derek DeCloet in the Canadian Globe & Mail he states, “To earn $70-trillion in profit, you’d need 1,723 companies the size of ExxonMobil; $70-trillion would be equal to the annual sales at 1.35 million Wal-Mart stores. [Now that’s]… not the size of the U.S. government’s debt, though. It’s the shortfall between its projected future revenues and what it plans to spend (in today’s dollars).”

It is evident from the U.S. government’s financial position that its promised benefits to its citizens could be cut significantly – while substantially raising taxes as well. In such an environment boomers have no other option but to urgently save a heck of lot more now.

A new consciousness arising bringing balance to spending and saving
Americans, whether they be boomers or from generations X, Y and Z, are at the cusp of a new consciousness. They will bring a new balance to their material life and inner desires. The rapidly changing financial picture together with a fundamental shift in their consciousness concerning what is important in life, will place a renewed emphasis on savings. In years to come, this will be seen as a great turning point for the American economy, a turn towards a more balanced Enlightened Economics.

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• Pre-Conditions for a Sustained US Economic Revival

The US has achieved many periods of sustained and rapid economic growth. And it can do so again. However, as history demonstrates, a big bust results if the growth is spurred by excessive monetary and credit expansion. For the past 25 years or so the US economic expansion has followed the woefully excessive monetary and credit expansion script. The US will not be able to pull itself out of the present economic malaise without dealing with its inordinate levels of debt and ‘exponential’ credit growth. 

It is rather sad when most economists and investment industry professionals do not talk about the enormity of the debt and credit expansion problem. Unfortunately, it seems these ‘experts’ are either told to shut-up, prefer to overlook the obvious, or to simply lie about it being a problem! After all, what bank economist wants to tell his bank that its customers should reduce their borrowings, and thereby reduce the bank’s lending and subsequent earnings! More than likely the bank’s stock price would plummet. There is simply no incentive for most establishment economists to be truthful and every reason for them to lie. 

For the US to experience a true long-term economic revival, I believe four things need to happen. 

1. US debt growth will have to about match, dollar for dollar, GDP and income growth.
Presently it takes around $6 of new debt to create $1 increase in GDP and $4.75 of new debt for every $1 increase in national income. This is bubble territory. Look at this historical chart showing the explosive growth of America’s debt in relation to its national income.

Source: Michael Hodges America’s Total Debt Report

If income grows slowly while borrowing grows rapidly, eventually there is a solvency problem. That is where the US is today. If the borrowing were primarily to increase overall productive capacity – the increase in production would have created greater income to help offset massively increased borrowing. But this has not happened. Much of this bloated US debt load is concentrated in the financial, mortgage and government sectors, and for the financing of its trade deficits. The debt contraction will be particularly acute in areas related to the financial and mortgage industries and generate extraordinary difficulties for the economy at large. 

2. Debt to GDP ratio has to come down by around one-third
Debt at around 350% of GDP and growing 50-100% faster than the rate of GDP growth for more than 25 years – is utterly unsustainable. Following on from point 1 above, the US is basically beginning to experience an insolvency problem. Credit availability is declining while default rates soar. As a result, it has to reduce its overall debt burden. Nations frequently resort to inflating their money supply to deal with their debt burden, as Germany did in the early 1920s and Zimbabwe is doing today. So with the significantly increased amount of money swashing around, debts not being indexed to the growth of the money supply, are more easily paid off. Present moves by the US Federal Reserve now indicate that this is the path they have chosen. According to shadowstats.com, the broadest measure of US money supply is growing at an annual rate of around 17%! 

3. Personal savings rates have to move beyond 10% per annum– from around zero at present.
High growth economies have high savings rates. It is that simple. The savings go towards spurring productive capacity – rather than to consumption – and produce fast income growth. In most years between 1952 to the late 1980s, the US enjoyed a personal savings rate above 10% of income. (See this graph by the Bureau of Economic Analysis.)

4. The above 3 conditions have to persist.
It is no secret as to what are good, or bad, macro-economic conditions. The above are key conditions that have to be met to ensure true, long-term, high growth macro-economic performance. 

Summary
The message is that the US must significantly reduce its overall debt levels, avoid building-up new debt in excess of GDP or income growth, and for individuals to start saving again. I have no-doubt that these conditions will be met. But before they are met the US is likely to experience an extended period of rolling recessions over many years. And a depression cannot be ruled out either. During this process I expect to see among Americans a transformation to higher consciousness and a growing understanding of economics and its relationship to natural law and the environment. Americans, and people everywhere, will come through this much wiser. A new global Enlightened Economics framework will be created and form the basis for improving living standards and quality of life for all in our world in the years to come.

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• Free Markets Are Rare Indeed

Most major markets influencing business and consumer decisions are not ‘free.’ They are manipulated by governments to varying degrees. Governments feel that it is for ‘social good’ that they intervene. Here is a brief list of key markets and descriptions of the government interventions. You can decide about the worthiness of these interventions yourself.

Currencies
The world’s most important currency, the US dollar, does not really trade freely. The US Treasury established in 1934 the ‘Exchange Stabilization Fund’ specifically to ‘manage’ the US dollar exchange rate. Its dealings are secret. In 1987, 1998, 2003/4 and likely at many other times, the treasury departments and possibly central banks of the US, Japan, the EU and other countries collectively intervened to manipulate currency values. China has pegged its currency, the renminbi, to the US dollar for many years. As the US complains about Chinese currency manipulation, it needs to come clean about its own efforts first.

I suggest that currency traders and speculators should not be blamed for strong currency movements. They are nearly always reacting to bad or anti-market policies of governments and central banks and generally reflecting the ‘collective consciousness’ of the global financial community.

Stock markets
Stock markets are not free of government intervention either. After the 1987 US stock market crash, President Reagan established the Working Group on Financial Markets, (the ‘plunge protection team’), to effectively stop stock market crashes. How and when it operates is again secret. Journalists and others have tried for years to get information of the Working Group’s meetings and activities, but to no avail. On January 22, 2008, it was believed that the US Federal Reserve purposely reduced its Federal Funds rate by 0.75% just before the US Dow Jones Index was due to open 600 points (over 5%) lower! This move potentially saved the US stock markets from a major crash that day. Here we have a clear – and public case – of market intervention for the purported ‘public good.’

Interest rates
The US Federal Reserve, the EU Central Bank, Bank of Japan – in fact nearly all central banks regularly announce interest rate changes to short term securities. And through their buying and selling of government bonds, they also influence rates on all longer-term securities.

Unfortunately, a largely economically illiterate public clamours for manipulated, low interest rates. Central banks generally oblige, despite them supposedly being mostly ‘independent.’ Artificially induced low interest rates then create excessive borrowing, such as we have seen in housing. A housing bust follows and everyone blames the government – rather than themselves! (Question: who is really best able to set interest rate policy? Is it a country’s central bank or the free market?)

Oil
By controlling over 40% of global oil production, OPEC (the Organization of Petroleum Exporting Countries), stage-manages global oil production and prices. Not only do they control production levels, but they have been free to cite their oil reserves’ data with no independent verification of what they do actually have in the ground. And there are many reasons – as Matt Simons, eminent oil analyst, suggests – why we need to be sceptical of the Gulf States oil reserve numbers. Again, with the reserves being unaudited by any reputable international agency, OPEC is able to abnormally influence oil prices.

Food
Governments influence agricultural markets to a massive degree. Annual agricultural subsidies in the EU amount to about $75 billion; in the US $55 billion. These subsidies with those of many other countries dramatically distort global agricultural production and prices. The Doha round of World Trade Organization (WTO) free-trade talks floundered largely because developing countries demanded that agricultural trade distorting practices be reduced and eliminated. The developed countries resisted and the trade talks collapsed. For much of the developing world the one area where they could compete – and potentially bring them out of poverty – is with agricultural exports, even with today’s significantly increased transportation costs.

Ethanol and biofuels is another area where government intervention to support markets has caused dramatic negative market dislocations. Food cropland and food crops now going towards the production of ethanol and biofuels has resulted in significantly increasing food prices around the world. In numerous developing countries it has contributed to food shortages and riots.

Two final thoughts…
Unfair economic or financial advantage is often gained by those who have inside knowledge of where and when governments intervene. Indeed, they can ‘front-run’ the governments’ actions and make huge fortunes without the public ever knowing what is going-on. This probably occurs especially in stock markets, where it might be welcomed by the governments who see it aiding their efforts to manipulate markets.

This discussion demonstrates that society does not have, nor apparently really believes in, wholly free markets at this time. Why? It feels that individuals cannot be trusted to do the ‘right’ thing. Yet, as we see here, governments frequently do not do the right thing either! In other posts I demonstrate that high consciousness individuals are much more likely to do the’ better’ thing. Such individuals will allow truly free markets to function and will create affluence, environmental sustainability, and fulfillment, beyond anything envisaged today. To turn things around and to begin to understand how free markets with higher consciousness individuals can work, see these posts Free Markets Need ‘High Consciousness’ Individuals and The Missing Ingredient in Economics – Consciousness! 

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• Free Markets Need ‘High Consciousness’ Individuals

Adam Smith in 1776 said in his “Wealth of Nations” masterpiece that prices in a free market are as if determined by an ‘invisible hand.’ This invisible hand in free markets exists due to innumerable individuals voluntarily buying and selling goods and services by mutual consent. Such exchanges are at prices and quantities unhindered by monopolistic, oligopolistic or governmental influences. I believe that this ideal can only be optimally attained when individuals are fully free and fulfilled within themselves, enjoying higher consciousness.

Critics of free markets today, such as Joseph Stiglitz, Nobel Economics Laureate, say that true free markets can only exist if pertinent knowledge is fully and equitably distributed among all market participants. Now he says since this is rarely the case ‘free markets’ usually need some form of government regulation. This is a popular proposition, witness the increased US Federal Reserve’s tightening of loan standards for sub-prime mortgage loans. (I refer again to this below.)

But suppose markets can be made more efficient and uniform in the way knowledge about them is promulgated? Today, we have the internet. This allows for the mass transmission of knowledge. As the internet becomes increasingly ‘dense’ in terms of knowledge and society ever more sophisticated in its use, the argument about knowledge in any given market not being widely disseminated becomes less plausible.

Another criticism which I see regularly and is particularly apt, say in regard to the sub-prime mortgage mess, is this: That many individuals lack the knowledge and/or intellectual ability in distinguishing fact from fiction when making purchases, and therefore need ‘protection’ by the government or some other party. Were there no means of counteracting this insufficiency in individuals, those proposing such intervention would have a valid point. However, there is a way of counteracting this human insufficiency and that is because our individual and collective consciousness is now undergoing an extraordinary transformation where these deficits are being righted. This development is a core premise of this Enlightened Economics blog, integrating the knowledge of consciousness into economic theory.

The new evolving theory of Enlightened Economics will demonstrate that as higher consciousness permeates society, individuals will have the required insight and intellectual facility for optimal purchasing decisions, without much need, if any, of government regulation. Thus, with individuals enjoying higher consciousness free markets can rise to their optimal state and produce affluence and fulfillment for all.

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• Is the Amazing US Debt Productivity Decline Coming to a Bad End?

For decades, each dollar of new debt has created increasingly less and less national income and economic activity. With this ‘debt productivity decline,’ new evidence suggests we could be near the end-game in this economic cycle. American collective consciousness will need to change to accept the new reality.

Getting less and less economic benefit from each dollar of new debt is becoming an enormous and onerous problem for the US. Quoting Michael Hodges in his Total America Debt Report, “In 1957 there was $1.86 in debt for each dollar of net national income, but in 2006 there was $4.60 of debt for each dollar of national income – up 147%. It also means this extra $2.74 of debt per dollar of national income produced zilch extra national income. In 2006 alone it took $6.32 of new debt to produce one dollar of national income.” (Underlining added.) See his chart below.

Source: Michael Hodges America’s Total Debt Report

According to Dr. Kurt Richebacher, writing for The Daily Reckoning, US credit expansion in 2005 was $3,335.9 billion and matched by nominal GDP growth of $752.8 billion, equalling $4.43 in new debt for each dollar of GDP growth. In 2006 total credit market debt increased $3.9 trillion while nominal GDP (seasonally adjusted) grew by $686.8 billion showing that it took $5.68 of new debt for each dollar increase in GDP. What must be noted is that for the thirty years prior to the late 1970s the credit-to-GDP ratio held steady around 1:1.4.

Exponential debt growth in relation to income and GDP growth stops at some point. I believe we could be there now. The following chart illustrates that US household debt service costs as a percentage of disposable income seems to have reached a plateau at around 14.4%.

Source: www.contraryinvestor.com…

And this chart shows US savings rates at around zero as a percentage of personal income.

Source: Michael Hodges America’s Total Debt Report

These three charts together indicate that US households may already have hit a ‘debt wall.’ That is, with no savings additional new expenditures require additional debt.

It is no wonder that mortgage foreclosures, auto and credit delinquencies, etc., are rising dramatically. Americans have gotten to this point as they sought fulfillment almost exclusively in the material world around them.

It is possible that the US Federal Reserve and the financial system will continue to produce ever increasing amounts of debt relative to national income and GDP. This would only further exacerbate the decline in debt productivity. However, should this happen, watch out for much higher inflation.

In the years ahead many Americans will need to look more within themselves, rather than to material goods, to find personal fulfillment.

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• The Missing Ingredient In Economics — Consciousness!

Revised January 13, 2008

Lost to modern economics: Consciousness governs human economic behaviour. Enlightened Economics brings consciousness back.
Modern economics seems to have forgotten the obvious. The quality and actions of our individual and collective consciousness governs economic behaviour. For example, in the US it has become fashionable to believe that accumulating debt does not matter. That is fine until the bills mount, become unpaid, and causes debt defaults which then precipitate an economic crisis! Thus, the quality of our consciousness and thinking process profoundly impacts economics. Yet there is no discussion of this in economics today.

A new economics that accounts for changes in the quality and development of our individual and collective consciousness is needed. I call this new economics, Enlightened Economics! Here I examine what consciousness is, its underpinning in natural law, and how it functions. I emphasize that consciousness in its fulfilled, developed state, will bring the ‘dismal science’ of economics to an evolved and higher level — to the status of Enlightened Economics.

What is consciousness?
Human consciousness is defined in many ways. I find it preferable to understand it in an Indian Vedic, or Jungian, sense. That is, at its basis it is interconnected to everything else, is supremely intelligent, and infinitely dimensioned. In physics, it is represented as the ultimate field of super-unification in unified field theories. In Vedic terms, it is spoken of ‘Brahm’ or totality, the ultimate universal entity, and embodied as ‘atma’ in the individual.

For if our very own consciousness is at the basis of everything, it then also possesses the ability to be ‘all-knowing.’ From a ‘markets sense’ this infers the theoretical ability to be knowledgeable about all things at all times. Not that one is cognizant of all things simultaneously, but one has the ability to act from that level of all knowledge in a way that proves spontaneously in accord with the fundamental laws of nature. In this way, individuals with a developed consciousness think and act in accordance with natural law.

Consciousness, the basis of evolution
Nature is forever changing and evolving. However, when one looks back over millennia, for many of us it seems as if there is pattern, an underlying intelligence governing change and the evolution of the entire universe. For instance, the human embryo grows into a baby. It does not grow into an elephant! Natural laws exist governing the evolution of all life.

Consciousness the governor of individual activity
For individuals to fully engage this level of nature’s functioning requires transcending the surface levels of thought and mental functioning. Arriving at that source of thought, the fountainhead of consciousness, is the unified field of natural law. Here the individual experiences peace, silence and bliss. (Personally, I have found Transcendental Meditation to be the most effortless, practical and effective scientific technique to accomplish this. On a collective level, extraordinary research shows that it only takes a few individuals rising in higher consciousness to effect positive changes in collective consciousness. Another research project, among many, demonstrating the existence of a collective consciousness is based at Princeton University, and called the Global Consciousness Research Project.)

The quality of our consciousness governs what we buy as well as our ability to fulfill desires
I believe human evolution is all about the development of our consciousness and its alignment with natural law. And that this is where humanity is heading. Our desires, wants, actions and purchases will be reflective of what nature ‘itself” (us) wants and increasingly reflective of the higher aspirations of a more integrated collective consciousness. Since humans everywhere want very similar things – prosperity, happiness, health, safety, and higher consciousness – it will mean that as human consciousness evolves our needs will be more refined.

The goods and services purchased by people with stressed-out, unfulfilled minds – and likely the largest consumers of tobacco, gambling products, etc. – will be be very different from individuals who enjoy higher consciousness and fulfilled minds. As an example, the latter may well be greater consumers of ‘green’ products, educational services, etc. In addition, a fully-developed mind will have the ability, creativity, and capacity to much more easily fulfill desires.

Unevolved consciousness and its headlong pursuit of Gross Domestic Product (GDP), debt, and other sins
The maddening preoccupation with GDP today is typical of the stressed, unfulfilled, unenlightened mind. Without the experience of the profundity of the peace and bliss that characterizes the enlightened mind, individuals believe their desires and happiness can only be fulfilled in the material world. For such individuals, they are as if lost in a fog containing fleeting worldly pleasures. Driven like a drug addict they borrow (as mentioned earlier) far beyond their means to keep spending. Last year (2007), according to Stephen Roach of Morgan Stanley, consumption in the US was at an all time high of 72% of GDP. This is significantly beyond the range of other developed countries. It leaves a legacy of extraordinarily bloated trade and current account deficits and total credit market debt of over 350% of GDP.

There has never been a time in US history, nor in any modern developed country, where debt has grown to such a staggering proportion of its economy. The vast majority of Americans are unable to appreciate the formidable challenge this poses to its economic viability. (And, unfortunately, the prescription being advanced by economic elites and most of the American presidential hopefuls to heal this wound in US society is – more spending and debt!)

Consciousness is the missing ingredient to advancing economic understanding
No, the only way out for Americans to avoid an extraordinary economic decline in the years ahead is for them to experience that field of inner peace and intelligence within their own consciousness. It will create greater balance and creativity in their minds and eliminate their ‘drug dependent’ like attachment to the fog of only desiring material wants.

Thus the missing ingredient — the introduction of the role of consciousness (and the knowledge of natural law) — is what will bring fulfillment to economics, both in America and around the world. Enlightened Economics and its incorporation of consciousness will bring a new light to the dismal science.

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• Debt. Americans Search For fulfillment.

For each of the past thirty years or so, total US debt (government, business, consumer, etc.) has grown much faster than either national income or Gross Domestic Product (GDP). (See chart below: ‘Total America Debt.’)

Graph from the Grandfather Economic Report by Michael Hodges

I believe that this debt growth is likely to end in the next few years — or sooner — for the simple reason that creditors will fear non-repayment of principal! Consumers’ ability to take-on more debt is extremely limited, as savings rates are close to zero and continue trending down (see chart below ‘Personal Savings Rate’). When creditors begin to back-off lending, the effects on US growth will be decidedly negative unless the country can learn to create growth on much less debt. This is possible, as the US came close to that between 1950 -1980 (again, see above chart ‘Total America Debt’).

Graph from the Grandfather Economic Report by Michael Hodges

Why has debt grown so much faster than income or GDP?
I believe there are two ways of understanding the furious pace of US debt growth. Firstly, I think it is a failure of individual consciousness, and secondly, a failure of collective consciousness as it relates to federal and international economic or financial structures.

It is primarily a failure of individual consciousness as it relates to the lack of personal fulfillment and critical thinking. Bereft of inner fulfillment, the individual seeks it mostly in material well-being. Thus he or she focuses, uncritically, on material accumulation, no matter what the cost, and avails themselves with massive amounts of debt to satisfy that material quest. Just like a drug junkie, they need more and more ‘stuff’ to sustain the thrill.

It is a failure of federal and international economic or financial structures because they have encouraged mass, loose credit, and unfettered monetary expansion and leverage. Examples of this are many. They include:

• The lowering of bank lending standards (i.e. the sub-prime mortgage fiasco).
• Massive growth of money supply (http://www.shadowstats.com/cgi-bin/sgs/data modeling US M3 growth at 14+% annually, many times faster than GDP growth).
• US Federal Reserve’s forcibly reducing market interest rates (especially between the years 2002-5).
• Foreign lending to the US of huge, accumulated dollar surplus holdings by China, Japan, and others in order to help keep US interest rates low and maintain, forced, low rates of exchange for their own currencies.
• The lack of international oversight (read collective consciousness) regarding financial leverage and the development of over five hundred trillion dollars in derivatives (with a ‘notional’ value forty times the size of the US economy) and which Warren Buffett has labeled, ‘potential weapons of financial mass destruction.’

How will this debt growth stop?
The credit growth stops when creditors become nervous about repayment of their principal. Loan standards tighten and a credit crunch ensues. This is beginning to happen. However, we are just in the early stages of this process. Attempting to mitigate a credit collapse, the US Federal Reserve, European Central Bank, Bank of England, Bank of Japan, and others are beginning to provide huge sums to lenders who get into trouble and infuse into financial markets unimaginable sums to aid market liquidity. Thus they hope to convince lenders to keep lending.

However, this whole process of pushing liquidity into the markets is flawed from the start, as it circles round to the numerous Americans not being able to meet their mortgage or other loan payments to begin with. Mortgage default rates are skyrocketing (RealtyTrac Inc. says they are up 100.1% in third quarter of 2007 over one year ago) and credit card debt defaults are rising too. With enormous loan write-offs, the capital of lending institutions will also be lower, requiring them to reduce their outstanding loans even further. Eventually, no matter how much the central banks push money onto the lenders, the lenders begin to balk at offering new loans, while overstretched consumers resist taking on new debt. Before this process ends, monetary and price inflation could escalate and create a possible hyper-inflationary environment, leading to a classic deflationary bust.

The conditions for non-debt growth. The way forward.
Conditions for economic growth where increases in debt and income are better balanced, are possible. This can be attained if Americans — and individuals everywhere — first gain more inner fulfillment and improve their ability to think critically. That will bring greater balance and creativity to their minds and reduce their addiction to material goods. It requires the materialistic drug junkie to go on ‘methadone drug replacement programme’ to ‘chill-out’ and see the world anew.

Please do not misunderstand me about the need for continuing gains in material comforts and economic security. Such things are fundamental to human life and progress. But practically, Americans must get back to much higher rates of saving to reduce their demand for debt and to re-balance their economy.

Historically, American savings rates have been 10-15+% of disposable income. In part, that was due to the fact that individuals living in past decades did not have the comprehensive government and private safety nets of today, nor was credit so easily available.

Over the longer term though, higher savings rates will provide superior financial stability and income for consumers, while providing the foundation for sound economic growth.

On the collective level, a similar psychological transformation has to occur among those who govern federal and international, economic and financial structures. The governors and directors of such institutions have to go back to the mindset of Paul Volker, who as Chairman of the US Federal Reserve in 1980, stood fast against the enormous threat of inflation. He raised interest rates to as high as 19%. America then suffered its worst recession since the 1930s. But he possibly saved the US from something much worse. That could have been a hyper-inflationary event possibly leading to a depression on an unimaginable scale.

I am not saying interest rates need to go anywhere near 19%. What I am saying is that the present mindset of the individuals at the top of the economic and financial establishment of throwing ‘money on to the fire’ by downward manipulation of interest rates and encouraging consumers to take-on even more debt — is simply nuts! (I would love to talk more about the dangers of present day central, and fractional reserve banking, but I will leave that for another post!)

At the present time, despite the protestations to the contrary by Mr. Paulson, the Treasury Secretary, the American government probably wants a lower US dollar versus other major currencies in order to reduce its trade and current account deficits. This would help the US to stimulate exports and jobs at home, as well as pump-up the earnings of US based companies who translate their foreign currency profits into dollars. This, therefore, would also help to support US stock prices. Conversely, at home, higher prices of imported goods would reduce material consumption, help slow down consumer loan demand and encourage savings.

The Euro, Canadian and other floating currencies are rising fast against the US dollar. However, the big Asian ‘partners’, China and Japan do not want to see their currencies appreciate against the US dollar. At this time it looks like there is paralysis at the international level to adjust exchange rates to market levels that allow for free-market determination of rates that incorporate fundamental trade and services imbalances. In fact, we might be close to an era where countries engage in competitive devaluations of their currencies.

Such currency ‘wars’ is what the French President, Mr. Nicolas Sarkozy, recently described as being entirely possible. Following on from that could be trade protectionism and a repeat of the 1930s trade wars.

Such national, international and global deadlocks must, and can only be resolved with a change in consciousness in America and all the participating nations. The reduction of US debt and increasing its savings rates is an international enterprise. And it can be done peacefully with a change in individual and collective consciousness, or forcefully and painfully, which will happen, if the change in consciousness does not occur soon!

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