Thread: Excess Inventory At Great Depression Levels

There's no quick fix to the global economy's excess capacity

There is one overwhelming fact about the world economy that cannot be wished away. Excess capacity in industry is hovering at levels not seen since the Great Depression.

By Ambrose Evans-Pritchard
Published: 6:57PM BST 15 Aug 2009

Comments 43

Too many steel mills have been built, too many plants making cars, computer chips or solar panels, too many ships, too many houses. They have outstripped the spending power of those supposed to buy the products. This is more or less what happened in the 1920s when electrification and Ford’s assembly line methods lifted output faster than wages. It is a key reason why the Slump proved so intractable, though debt then was far lower than today.

Thankfully, leaders in the US and Europe have this time prevented an implosion of the money supply and domino bank failures. But they have not resolved the elemental causes of our (misnamed) Credit Crisis; nor can they.

Excess plant will hang over us like an oppressive fog until cleared by liquidation, or incomes slowly catch up, or both. Until this occurs, we risk lurching from one false dawn to another, endlessly disappointed.

Justin Lin, the World Bank’s chief economist, warned last month that half-empty factories risk setting off a “deflationary spiralâ€

This is exactly what I have been preaching about the fallacy of "growth" at all levels of governing. There comes a point where growth surpasses sustainability and we have passed that point with the help of our, and the worlds’ failed economic gimmicks. Now the pendulum must swing and momentum will cause it to surpass what would have been the median sustainable point and business and government will foolishly start the process again of promoting growth, growth, growth instead of using intelligent critical thinking and finding the point of reasonable sustainability and striving to maintain that. This is a means, I believe, to rob the common populace of its wealth and keep us subservient to the elites of the world.