End of Credit?

Sample American Express-type credit card featuring the Card Security Code on the front (circled in red). (Photo credit: Wikipedia)

Back about A.D. 2000, I briefly met a Chinese man who had an unusual reputation.  According to some, he’d owned a business that had prospered for 10 years—but which he secretly knew to be on the verge of bankruptcy.

Therefore, while his credit rating was still high, he applied for ten credit cards from ten different banks.  Each credit card had a $25,000 limit.  He proceeded to spend the limit on each credit card and rang up a bill of one quarter million dollars.  He didn’t repay one dime.

When the credit card companies came a-callin’ to ask when he’d pay his debt, he replied in writing by registered mail that he’d be happy to pay just as soon as the credit card company verified the alleged debts.  All collection efforts stopped and the Chinese man skated away with $250,000 in goods and services.

 

The War Between the Credit-worthy and the Credit-unworthy

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•  By definition, the only legitimate way a debt-based currency gets into an economy is by lending it.  This lending doesn’t take place just once.  Primary lenders lend to secondary lenders who lend to tertiary lenders, etc..  I.e., the Federal Reserve System lends currency to the Federal Reserve Banks which lend that currency to private banks which lend it to their customers.  The chain of lenders and borrowers can be lengthy and complex.

It’s always possible for people at the bottom of the lender-borrower “pecking order” to acquire currency without actually borrowing it.  For example, they can work for it.  However, for those who have no credit in a debt-based monetary system, their access to currency will be so restricted that they’ll probably live in or near poverty.

 

•  The plight of the credit-unworthy illustrates a fundamental problem with any debt-based monetary system.  By definition, you can’t lend currency to the credit-unworthy and expect to be repaid.  For proof, witness the sub-prime mortgage debacle of the past decade.  Some seemingly smart people lent currency to the credit-unworthy and apparently expected to be repaid.  They fought economic reality and reality won.  The result was a credit collapse in A.D.2008 that nearly caused a global depression—and may yet do so.

 

The Transition from Credit to Savings

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I’m convinced that we’re headed towards a global and national “Greater Depression”.

More, I’m increasingly convinced that a fundamental attribute—perhaps cause—for the coming depression will be the transition from an economy based on credit to an economy based on savings.

As we transit from an economy based on credit (spending our future income) to an economy based on savings (spending our past income), there will necessarily be an intermediate period of several years wherein many will have virtually no credit and virtually no savings—and are thus destitute and unable to buy or sell much of anything.

That intermediate period (wherein we no longer have credit and don’t yet have savings) will mark the dangerous and chaotic bottom of the coming depression.

 

Government Debt Bankrupting America

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Within 10 years, the interest on the national debt will cost $1.1 trillion per year.

The nation is being destroyed by its government and, especially, by its government’s addiction to debt.

Why do we need the debt?  To “stimulate” the economy.

Why does the economy need artificial “stimulation”?  Because We the People don’t have enough jobs to be sufficiently productive to independently maintain the economy and our standard of living.

 

Money as Debt

Image by AMagill via Flickr

Here’s a very well-done, 47-minute introduction to modern banking realities.   It’s educational, easy to follow, and well worth your time.

If this video could be introduced as evidence in a jury trial that involved banking fraud, it might help most jurors to understand that some allegations against banks are not “too fantastic too be true”.

video

00:46:57

http://www.youtube.com/watch?v=Dc3sKwwAaCU

 

$1764

Image via Wikipedia

James Turk interviews Jim Sinclair (video below) about falling confidence in the economy and fiat currencies, and the approaching “Emperor is wearing no clothes” moment.

Most importantly, Mr. Sinclair outlines what he describes as the the mathematical significance of gold reaching the price of $1764.   Mr. Sinclair suggests that beyond $1764, the price of gold could go “exponential“–meaning the price could skyrocket.

Note that the current, “New York Spot Price” of gold is $1664–only $100 less than the $1764 price Sinclair predicts may trigger exponential price increases.  Note also, that the price of gold has jumped $130 in just the past 30 days–including a $40 one-day increase last Thursday.  As of 9:34 PM (Central) on Sunday night (Aug. 7th), the overseas spot market price of gold has jumped $31 to $1695.

Implication:  gold seems virtually certain to hit $1764 within 30 days–perhaps before the end of August–or potentially even this week (August 8th through 15th)

 

Schiff, Napolitano: Don’t Save in Fiat Dollars

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Insofar as most people think at all, most people think that our government’s deficit financing (borrowing) will leave today’s debt to future generations.  We try not to think about it because it makes us feel a little bad about leaving our debts to our kids and grandkids.  But on the other hand, we’ve done so much for the little bastards and bitches that they deserve to pay our debts–right?  Better that “somebody” (even our own kids) be forced to pay our debts than we pay for them, ourselves.

After all, we’re Americans.  We are therefore entitled to “shop til we drop” on credit–and when our credit cards are maxed out, we’re entitled to get newer credit cards.   True–”somebody” may someday have to pay our debts, but so long as that “somebody” isn’t you and me, to hell with ‘em.

Peter Schiff [photo, right] disagrees with the idea that we’ll leave our debts for future generations.  Schiff argues that today’s governmental borrowing will not be passed on as debt for future generations, but will instead cause immediate and significant increases in inflation that will dramatically afflict this generation.  Inflation will essentially “tax” this generation by robbing all who save their wealth in the form of fiat dollars and/or dollar-denominated debt instruments.

By means of inflation, this generation (not the next one) will be called on to “pay” for much of the current debt.

 

Credit as a Function of Morality

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When it comes to moving money, there are only three fundamental mechanisms:  gift, debt and theft.

If Alfred voluntarily gives $1,000 to Donna without receiving Donna’s promise to repay, the transaction is a gift.

If Alfred gives $1,000 to Donna, and Donna reciprocates by providing Alfred with her promise to repay that $1,000 (perhaps with interest), that transaction is a debt.

If Donna takes $1,000 from Alfred without Alfred’s consent and without providing Alfred with Donna’s promise to repay, that’s theft.

Americans live in a “debt-based” economy.  There is no gold or silver coin (real money) in circulation.  As a result, our fiat currency is loaned into circulation and necessarily debt-based.

The essence of every debt is a promise to repay.  The essence of every nation’s debt-based monetary system is that nation’s ability to make good on their promises to repay their debts—and determination to do so.

 

Rich Dad/Poor Dad Prepares for Economic Collapse

Robert Kiyosaki is the author of the “Rich Dad, Poor Dad” series of books.  He’s sold over 26 million books and is recognized as a pragmatic voice on economics.  He’s also recognized as a former Marine and a generally cheerful guy who’s nevertheless unafraid to flip the bird to his critics. (see photo).

In his video (below) Mr. Kiyosaki does not flip the bird, but does declare in part:

#1 ”when the economy crashes as we predict”

#2 ”the crowds come rushing in to buy gold and silver”

#3 ”we could either go into a depression or we go to hyperinflation”

#4 ”or we could also go to war”

 

The Year of the Rats

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Austin Goolsbee was President Obama’s chief economist.  I saw him interviewed on one of last Sunday’s TV-news talk shows.  He looked anxious and defensive.  But he gamely argued that the previous month’s bad job and manufacturing reports were only one-month aberrations and did not compromise the ongoing “recovery”.

So, I was surprised when it was announced the next day that Mr. Goolsbee had resigned from his White House post.  I don’t know if he actually resigned, or was fired.  But his departure can’t be viewed as evidence of an economic recovery.

The “rats” are leaving—or being driven from—what increasingly appears to be a sinking ship.