Debates about the letter of the recovery – “V”, “U”, “W”, “L”– assume the inevitable return to robust economic growth. Economic growth has become the universal solution for all political and economic problems, from reducing poverty to now solving the problems of over-indebted individuals, businesses and nations.
 
The dirty secret is that recent economic growth and the wealth created relied on borrowed money and speculation – and on allowing unsustainable degradation of the environment in the form of climate change. It was based on the uneconomic, profligate use of mispriced, non-renewable natural resources such as oil.
 
Since 2001, borrowing against the rising value of houses contributed to around half the recorded economic growth in the United States. By 2008, $4 to $5 of debt was required to create $1 of growth. China now needs $6 to $8 of credit to generate $1 of growth – an increase from around $1 to $2 of credit for every $1 of growth.

Global trade is built on a financing model where sellers of goods and services, such as China, Japan and Germany, indirectly finance the purchase by lending foreign exchange reserves to countries such as the United States.
 
The ability to maintain high rates of economic growth through additional debt is now questionable. Debt allows society to borrow from the future. It accelerates consumption because debt is used to purchase something today against the promise of repaying the borrowing in the future.
 
There are striking similarities between the problems of the financial system, irreversible climate change, and shortages of vital resources like oil, food and water. Toxic debt and toxic emissions are increasingly clamouring simultaneously for attention. In each area, society borrowed from and pushed problems into the future.

Short-term profits were pursued at the expense of risks that were not evident immediately and which would emerge later.
 
In the period leading up to the global financial crisis, risk, especially the ability of individuals and firms to repay borrowings, was underpriced. The true cost of polluting the environment or consuming certain resources has also been underpriced. In all cases, there was significant privatisation of gains while losses were socialised.
 
The global financial crisis may mark the end of an unprecedented period of Ponzi Prosperity where the wealth was based on either borrowing from or pushing problems into the future.