Most economists agree that America’s hope of future prosperity has been compromised by America’s debt. The currency we spend paying the principal or even just the interest on the existing National Debt is currency that we can’t spend investing in new factories or technologies that would increase our productivity and therefore our prosperity.
So long as the National Debt remains or, worse, grows—America will continue to slide towards austerity rather than prosperity.
But, it’s not just America that’s overly indebted. The world is awash in debt. That debt is reducing global productivity and prosperity.
If America—and the world—would become prosperous again, something’s got to be done about paying or otherwise eliminating our excessive National (and global) Debt.
Gold-Eagle.com (“It’s Not Just Deutshe Bank . . . The Whole Financial Sector is Dying”) reports that,
“These are great times for financial assets—and, by implication, for finance companies that make and sell them, right?
“Alas, no! Just the opposite. Each part of the FIRE (Finance, Insurance, Real Estate) economy is imploding as “modern” finance hits the wall.
“Interest rates have fallen for three decades. . . . Stock prices are at record levels . . . . Real estate is revisiting its recent bubble.
“In this paper paradise, it’s no surprise that banks and their cousins have grown fat, happy and arrogant.”
And just what is the essence of this “paper paradise”? It’s debt.
All paper financial instruments are evidence of debt. In financial matters, when we say “paper,” we mean “debt”. We strolled into 30 years of globalism by issuing pure, fiat debt-based currencies and mountains of paper debt instruments.
How can we escape our “paper paradise”?
We must somehow eliminate our debt.
“However, with the above trends now ending, it’s also no surprise that business models premised on their continuance are failing. Everyone by now knows the Deutsche Bank story of bloated costs, horrendous derivatives exposure and debilitating criminal penalties. But lots of other finance companies are staring into the same abyss.”
The Gold-Eagle article then lists a number of prominent banks, financial institutions, and pension funds that are all under dangerous levels of financial stress (debt).
The article continues:
“If every part of the financial sector hits the wall simultaneously, the resulting crisis will overwhelm the ability of governments and central banks to keep the game going. Their last, desperate policy experiment will involve coordinated currency devaluations to make debts less onerous.”
• First, I doubt that “every part of the financial sector” must “hit the wall simultaneously” before we see an overwhelming crisis. Lehman Brothers went bankrupt all by itself in A.D. 2008 and nearly triggered a U.S. and even global financial collapse. Back then, it wasn’t necessary for “every part of the financial sector hit the wall simultaneously” to cause a global financial collapse. It shouldn’t be necessary today, or in the future, either. Once again, just one or two major institutions going bankrupt could be enough to collapse the U.S. and global house of cards.
• Second, whose debts will be made “less onerous”? Governments’? Taxpayers’? World’s? Almost certainly, the only debts that government regards as “onerous” and in need of dramatic reduction will its own and/or the “sovereign debts” of all of the world’s governments.
• Third, how, pray tell, can there be a “coordinated currency devaluation” between all fiat currencies (and therefore a “coordinated” debt reduction) given that the fiat currency values are all measured only in relation to other fiat currencies? In our brave, new world of debt-based currencies, a fiat dollar is worth X-number of euros which are worth Y-number of British pounds that are worth Z-number of dollars—but what the helk is any one of them actually “worth”?
There can be no real answer insofar as the value of each fiat currency is defined only by its relationship to other fiat currencies. There will be no “coordinated currency devaluations” whereby all currencies are proportionately devalued and all debts denominated in those currencies are also proportionately reduced.
The most the world can hope for is that most fiat currencies will be inflated/devalued while only one (or a very few) are deflated. For most fiat currencies to successfully inflate and thereby (temporarily) stimulate their national economies, at least one national debtor (the U.S. government) must be willing to risk being destroyed by deflation.
Why? Because the fiat dollar is the primary world reserve currency. The world reserve currency is the closest thing we have to a “fixed value”. It’s no substitute for the objective reality of gold, but it’s the closest substitute we have.
As I’ve written previously, as the primary world reserve currency, the fiat dollar has a teeter-totter relationship to the remainder of the world’s fiat currencies. When the other fiat currencies go down in value due to inflation, the relative value of the fiat dollar must suffer a correlative deflation and go up. When the dollar inflates, the relative value of the other fiat currencies must deflate.
As everyone knows, the governments and central banks of Japan, the EU, China and most of the world are seeking to cause their own currencies to inflate in order to (temporarily) stimulate their economies. As everyone knows, even the government and Federal Reserve of the United States are determined to cause an annual inflation rate of at least 2% for the fiat dollar.
Everyone seems to want inflation, but everyone can’t have inflation. Because fiat currencies have no objective or intrinsic value, the values of all fiat currencies are ultimately defined in a constantly-shifting relation to other fiat currencies. At least one nation must suffer significant deflation for all the other nations to achieve a “coordinated” inflation.
The problem is that whichever currency suffers deflation, the value (purchasing power) of its government’s national debt will rise. If that nation’s government is already overly-indebted, additional deflation will increase the real size of that debt and make it that much less “payable”. Subjected to significant deflation, an overly-indebted government (like that of the U.S.) will be less able to repay its national debt and could be forced to openly admit that it’s insolvent and bankrupt. An admittedly bankrupt national government could cease to exist. The legal and political repercussions could be catastrophic.
As primary world reserve currency, the fiat dollar is the natural candidate to suffer deflation while the rest of the world chases inflation. Nevertheless, will the U.S. government sacrifice itself to deflation and bankruptcy in order to allow enough inflation in other fiat currencies to stimulate the global economy?
Of course not.
Without the U.S. government’s voluntary agreement to suffer deflation, there can’t be a “coordinated currency devaluation” for the rest of the world’s fiat currencies. All we can expect is an uncoordinated chaos.
• Fourth, while deflation destroys debtors, inflation destroys fiat currencies. Even if there were some way to cause or allow all of the world’s currencies to inflate in some “coordinated” manner, the end result would be the “coordinated” destruction of all fiat currencies.
Look at the fiat dollar. In A.D. 1971, President Nixon stopped redeeming foreign-held dollars with gold. By doing so, Nixon turned the paper dollar into a pure fiat currency. Since then, the dollar has lost over 95% of its purchasing power. That’s a trend. That’s evidence of a 45-year long, governmental policy of inflation.
Q: But what happens if that trend continues and the dollar loses 96%, 97%, 98%, 99% and finally, 99.9% of its purchasing power to inflation?
A: At some point, the public will lose confidence in the fiat dollar. Without that confidence, the fiat dollar dies.
Thus, we’re faced with a national and global financial situation wherein: 1) widespread inflation will inevitably destroy all fiat currencies; and 2) the correlative, teeter-totter deflation will quite probably bankrupt the U.S. government. Heads, we lose; tails, we lose.
I see no third option other than trying to “kick the can down the road” and somehow maintain the current economy at exactly the current inflation/deflation rate. But that kind of maintenance is impossible except on a temporary basis.
Sooner or later we slide into significant inflation (which destroys the fiat dollar) or significant deflation (which bankrupts the federal government).
Where’s the happy ending in that dilemma?
• Fifth—while the overly-indebted U.S. government claims to want inflation to stimulate the U.S. economy, its real motive is to repudiate much of the National Debt. But, how can the U.S. government repudiate any of the National Debt without also destroying a correlative amount of paper wealth tied up in U.S. bonds?
The only ways the National Debts can be reduced are by 1) express repudiation (“Sorry, guys, we can’t pay our bills.”) or, 2) stealthy hyperinflation. If the national debt were subjected to 90% overt repudiation or a more secretive 90% hyperinflation, those who had, say, a $100,000 U.S. bond might be able to sell it for only, say, $10,000 in purchasing power. 90% of their paper wealth stored in U.S. bonds would be destroyed at the same time that 90% of the National Debt was repudiated by express declaration, inflation, or both.
Could the U.S. (or even global) economy survive the destruction of paper wealth (U.S. bonds) equal to 90% (or even 50%) of the official National Debt of $20 trillion?
I don’t see how.
Thus, we’re darned if we do and darned if we don’t.
In short, by embracing fiat currency, we’ve condemned America and the world to monetary “darnation”.
• Our debt-based monetary and economic systems can’t fall in a “coordinated” and controlled manner into a “soft landing”. When the system finally “snaps,” all helk will break lose.
The only escape from our debt-based, monetary madness will be through economic catastrophe. One day the system will be flying along and seemingly stable. The next day, or week, or month, the system will fail so catastrophically, that it will be gone and cease to exist. That calamity may occur much like that prophesied in Revelation 18:17: “For in one hour so great riches is come to nought. . . .”
How could truly “great riches” be brought to “nought” in just one hour unless those riches were stored in the highly-fragile forms of paper or digital fiat currencies?
• Q: Why can this system only end in catastrophic failure?
A: Because the National Debt:
1) Can’t ever be paid in full—and probably can’t be paid by more than 10% to 20%; and,
2) Can’t be canceled without repudiating the correlative paper assets. Destroy the debt and you destroy an equal amount of paper assets that are currently held as assets in bank vaults and pension funds. Destroy those paper assets, and the banks, pension funds and financial system will collapse.
If the debt can’t be paid and can’t be repudiated (without destroying an equal amount of paper wealth)—but must be substantially reduced before the nation can again become prosperous—what can possibly be done with the debt?
Can government trick Americans into accepting both the repudiation of, say, $10 trillion (half) of the “official” National Debt and also the simultaneous destruction of $10 trillion in paper wealth stored in the form of U.S. Bonds in banks and pension funds?
Not a chance.
In the internet age, there are no secrets. Government can’t openly destroy $10 trillion in paper wealth by express repudiation or by stealthy hyperinflation of the National Debt. We’d know that government was destroying our paper wealth (U.S. bonds) and condemn them for it.
Therefore, it seems certain that there’s no way out of our debt-based, monetary madness besides economic chaos and catastrophe.
Debt today; gone tomorrow.
The only thing we don’t know is when that catastrophic “tomorrow” will arrive.
We’ll see signs of coming collapse. In fact, we already see lots of signs—they’re called “fundamentals”. But, in the end, the economy will snap like a dry stick. Suddenly. No precise warning. Not even hours or days in advance. Snap!—and it’s rubble.
Casey Research recently described the coming calamity:
“This will be a disaster if you work on Wall Street, rely on a public sector pension and/or own a bunch of bank stocks.
“It will be hard, but survivable, if your wealth is in real rather than financial [paper] assets.
“Gold, as always, is the safe haven.”
• Just about everyone who considers economics agrees that the burden of trying to repay or even service our excessive National Debt will prevent us from making the kinds of investments needed to become more productive and more prosperous. Assuming that our government really wants this country to become more prosperous, the debt must be repaid or otherwise repudiated before we can invest in our own future prosperity.
I’ve argued for five years that the National Debt is too great to ever be repaid in full. I have consistently argued that no more that 10% to 20% of the National Debt will ever be repaid.
I’ve seen nothing in five years to dissuade me from those arguments.
Over the past year, I’ve realized and argued that the National Debt can’t be significantly repudiated without destroying a correlative amount of paper wealth (U.S. bonds) and collapsing the U.S. and global economies.
I’ve seen nothing to suggest that this second insight and argument are fundamentally false.
If it’s true that:
1) our government wants us to become prosperous;
2) we can’t become prosperous unless the National Debt is somehow eliminated;
3) the National Debt can’t be paid in full or even in majority; and,
4) the National Debt can’t be repudiated without destroying a correlative sum of paper wealth—
Then we’re trapped between the rock (the debt can’t be paid) and the hard place (the debt can’t be repudiated) in a dilemma that can’t be escaped without pain.
If the National Debt must be eliminated or substantially reduced to regain our prosperity, what can government do other than cause the financial equivalent to 9/11?
The only way to get out from under the monstrous U.S. National Debt is to “bomb it” (figuratively speaking) in a false flag attack that can be blamed on some foreign country, institution or natural disaster other than the U.S. government.
The only way for individual Americans to survive that “bombing” will be to have their wealth saved and stored in a form other than fiat dollars, paper bonds, or other digital debt-instruments.