  We argue that the present crisis and stalling economy continuing since 2007
are rooted in the delusionary belief in policies based on a "perpetual money
machine" type of thinking. We document strong evidence that, since the early
1980s, consumption has been increasingly funded by smaller savings, booming
financial profits, wealth extracted from house price appreciation and explosive
debt. This is in stark contrast with the productivity-fueled growth that was
seen in the 1950s and 1960s. This transition, starting in the early 1980s, was
further supported by a climate of deregulation and a massive growth in
financial derivatives designed to spread and diversify the risks globally. The
result has been a succession of bubbles and crashes, including the worldwide
stock market bubble and great crash of October 1987, the savings and loans
crisis of the 1980s, the burst in 1991 of the enormous Japanese real estate and
stock market bubbles, the emerging markets bubbles and crashes in 1994 and
1997, the LTCM crisis of 1998, the dotcom bubble bursting in 2000, the recent
house price bubbles, the financialization bubble via special investment
vehicles, the stock market bubble, the commodity and oil bubbles and the debt
bubbles, all developing jointly and feeding on each other. Rather than still
hoping that real wealth will come out of money creation, we need fundamentally
new ways of thinking. In uncertain times, it is essential, more than ever, to
think in scenarios: what can happen in the future, and, what would be the
effect on your wealth and capital? How can you protect against adverse
scenarios? We thus end by examining the question "what can we do?" from the
macro level, discussing the fundamental issue of incentives and of constructing
and predicting scenarios as well as developing investment insights.
