The Great Devaluation

7The Never-Ending Story

You might be asking, are things really this bad? Isn't there a solution that allows us to earn our way out of the problem? Couldn't we overcome this through some good old-fashioned growth? The answer, unfortunately, is no.

Imagine running in a marathon. At the 10-mile marker, you completely run out of steam and are unable to continue. Suppose at this moment you are given a choice: drop out of the race for a couple of hours and then continue, or, take a second route that would allow you to stay in the race and keep running. The new route option is great because it allows you to run the next 15 miles of the race all downhill, but with one condition. The new route requires you to run the last one mile uphill on an incline that increases relative to your energy and speed. The faster you run the last mile of the race, the steeper the incline.

The analogy represents a deal with the devil. The last mile of the race will never be completed. During this last leg, any effort to climb faster will be met with a steeper incline. The deal you have made will be like running on a treadmill that goes nowhere. The harder you run, the higher the hill.

This is a good analogy to describe the situation and challenges presented by the global debt crisis. We made a deal with the devil. Rather than run a harder race and endure more pain earlier on, we opted for the easier course in the short term. In 2008, rather than drop out of the race and have an extended recession, we