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For Whom the Debt Tolls

30 May

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Pick Up Your Cross (courtesy Google Images)

Michael Snyder (Economic Collapse Blog) is an intelligent, prolific author of articles concerning the U.S. and global economies. He’s not optimistic. As you can tell from the name of his blog, he’s expecting an economic collapse. He recently published an article entitled “Global Debt Bomb Ready To Explode – $21,714 For Every Man, Woman And Child”.  That article got me thinking; agreeing in part, but also disagreeing—or at least quibbling. What follows are excerpts from that article and my comments:

 

According to the International Monetary Fund, global debt has grown to a staggering grand total of 152 trillion dollars. Other estimates put that figure closer to 200 trillion dollars.”

Note that some persons including the Congressional Budget Office (CBO) and economist Laurence Kotlikoff think that, including unfunded liabilities, the U.S. government’s real National Debt (claimed to be “just” $20 trillion) may actually be over $200 trillion. Thus, if the $20 trillion National Debt of the U.S. is understated by $180 trillion, then the global debt estimate of $152 trillion referenced by Michael Snyder should also be understated by (at least) $180 trillion. If so, the real, total global debt could be at least $330 trillion.

Nevertheless, for the purposes of this article, let’s use $152 trillion dollar number.

If you take 152 trillion dollars and divide it by the seven billion people living on the planet, you get $21,714, which would be the fair share of that debt for every man, woman and child in the world if it was divided up equally.

If you have a family of four, your family’s “fair share” of the global debt load would be $86,856.

If the real global debt is $330 trillion and the real global population is 7.5 billion, then each individual’s “fair share” of the global debt would be about $44,000 and each family of four would theoretically owe about $176,000.  As I’ve said for years, there’s no way our National Debt can be paid in full. There’s also no way the global debt can be paid in full. What can’t be paid, won’t be paid, etc.

We are living during the greatest debt bubble in the history of the world, and our financial engineers have got to keep figuring out ways to keep it growing much faster than global GDP because if it ever stops growing it will burst and destroy the entire global financial system.”

Exactly. As I’ve argued in the last four articles in my “Debt-Based Monetary System” series, we’ve abandoned our constitutionally-mandated, asset-based monetary system. We’ve replaced our asset-based (gold- and silver-backed) monetary system with our current DebtBased Monetary System (DBMS) that’s backed by nothing but promises to pay.  I can’t yet prove it, but I’m convinced that this DBMS doesn’t merely allow us to go deeper into debt, it compels us to do so.

If we don’t go deeper into debt, I believe our DBMS will collapse and take our economy down with it into chaos. Michael Snyder’s comment that if the debt “ever stops growing it will burst and destroy the entire global financial system implies that he agrees with that conclusion.

The financial crisis of 2008 represented an opportunity to learn from our mistakes, but instead we just papered over our errors and cranked up the global debt creation machine to levels never seen before.”

But which of our several “mistakes” should we learn from?

Should we learn that it was stupid to elect G.W. Bush?

How ‘bout Barack Hussein Obama?

Of course, we should probably learn that it’s wrong to go deeply into debt.  But, to some extent, don’t we already know that we shouldn’t go deeper into debt? And yet, we do dive in.

Why? Because we’re stupid? Because we’re weak?  Because we’re public high school graduates?  Because we’re all stoned on alcohol or crack?  Or, could it be that virtually all of us go deeper into debt because we live in a debt-based monetary system (DBMS) that gives us no other choice?  Do we dive deeper into debt because we can–or because we must?

If we’re determined to “learn from our mistakes,” could it be that our #1 mistake was allowing government to abandon our constitutionally-mandated, asset-based (gold- & silver-based) monetary system in A.D. 1971 and replace it with the debt-based monetary system that’s now destroying our economy and possibly our nation?

Bill Gross: The crux of the debt problem was that in 2017, the global economy has created more credit relative to GDP than that at the beginning of 2008’s disaster.”

Credit” seems like a nice, harmless and even desirable word.  We’d all like to have more credit, right?  But “credit” means “debt”.  Mr. Gross is saying that the “crux” of our global problem is that the global economy is increasing the amount debt faster than it’s increasing the amount of GDP.

If any man, woman, government, nation or world persistently creates more debt than income/revenue, that entity will inevitably go broke and collapse into bankruptcy and chaos.  I understand the principle; Michael Snyder understands it; Bill Gross understands it; you understand it; the nation understands it: our incredible debt is going to wreck our national and global economies.

Our global debt poses a global threat comparable to that of a third world war. And yet, we continue to go deeper into debt.  Are we all stupid, suicidal or somehow compelled?

In the U.S., credit [private debt] of $65 trillion is roughly 350% of annual GDP and the ratio is rising. In China, the ratio has more than doubled in the past decade to nearly 300%.”

That’s just more evidence that: 1) the existing debt is too enormous to ever be repaid; 2) the only way to sustain the existing, debt-based economic system is to go even deeper into debt; and, 3) the DBMS is a kind of global madness that will soon cause millions to die.

Capitalism, with its adopted fractional reserve banking system, depends on credit expansion and the printing of additional reserves by central banks, which in turn are re-lent by private banks to create pizza stores, cell phones and a myriad of other products and business enterprises.”

The previous statement about “capitalism” offers much potential insight even though the statement is false in at least two regards:

First, writing that “Capitalism . . . depends on credit expansion” is, at best, misleading. It would be more honest to say that “Capitalism . . . depends on debt expansion”—but even that could be a lie.

Real “capitalism” does not depend on debt expansion. Quite the contrary. Capitalism depends on the expansion and accumulation of capital.

And, what is capital? It’s assets. Gold, silver, tools, equipment, land, natural resources, well-trained workers. Capital is something tangible that’s conducive to more productivity.

More, capital already exists. It’s already been produced. It’s the evidence of past productivity and sufficient discipline to save rather than spend.

Debt is not tangible. Debt is nothing but an intangible, subjective promise to pay at some future date. Debt is not evidence of past productivity.  Debt is not fundamentally about the past.  Debt is about the future which, by definition, is unknowable.  Oh, sure, I can promise to repay the $100,000 I borrowed from you on next April 1st. But how do you know I won’t die, go bankrupt or take the borrowed money and run off to Tahiti before we reach next April 1st? Can you predict the future? No? Then you can’t predict the real value of my promise to repay debt I owe to you.

Debt is evidence of the debtor’s ability to inspire confidence in his ability to be productive in the future. Those who are most adept at inspiring confidence in the future will have the most access to more credit and more debt. Those who are merely productive but lack the capacity to inspire confidence in a promised and imagined future will have little access to credit and debt.

An asset-based monetary system and economy favor those who are hard-working, productive and disciplined. A debt-based monetary system and economy favor those who are visionaries, but also those who are liars and consummate con-artists.

To say or imply that “capitalism” depends on more debt is false.  Capitalism depends on more capital. More assets. More payments.  Not more promises to pay.

Second, over the past year or two, it’s become fashionable for writers to complain that “capitalism” has failed or is, at least, in the process of failing.

I disagree with those complaints.

I think that in order to have “capitalism” you must first have, use and rely on “capital”. I don’t believe that the debt-based Federal Reserve Notes we carry around in our wallets or the debt-based digital FRNs that we store in our bank accounts are “capital”.  I don’t believe that imaginary, debt-based currency that’s spun out of thin air by fractional reserve banks is “capital”.

I believe that “capital” must be a tangible asset (like gold, silver, tools, factories, buildings, land, etc.) that’s been previously produced, acquired and actually accumulated, rather than a debt (again, only a subjective promise to pay in the future).

Capitalism hasn’t failed us. We’ve failed it. We failed capitalism when we allowed government to subject us to a pure, debt-based monetary system (DBMS). We failed capitalism in A.D. 1971 when we allowed President Nixon to completely sever the U.S. dollar’s relationship to gold and thereby changed our currency from asset-based to debt-based. Once we unwittingly abandoned our “asset-based money” and accept the DBMS, we didn’t know it, but we were thereby compelled to also abandon “capitalism”.

Looking back, our standard of living hasn’t increased since we abandoned asset-based money in A.D. 1971. Our debt has soared and payment is coming due. Since we abandoned gold, silver and capital, our economic and political future has become increasingly bleak.

Everyone knows it. But not many have agreed to the cause of our potential calamity.

I contend that the fundamental cause for the coming debacle was our abandonment of an asset-based money and acceptance of the DBMS.

There is always a price to be paid for going into debt. It’s mystifying that so many Americans seem ignorant this very basic principle.”

I won’t argue that the American people are, on average, well-informed. Even so, I won’t condemn them for going deeper into debt out of simple ignorance.

Again, I suspect that in a DBMS, the vast majority of the people have only two choices: 1) live in poverty; or 2) go deeper into debt.

For most of us, if you want to live the seemingly “good life” with a new car, new house and attractive spouse you must first have the capacity to go deeper into debt.  How many can purchase a car or a house without first getting a bank loan?  In the DBMS, you must be willing to sell your future in order to enjoy your present.

In any case, I believe the people don’t go deeper into debt simply because they’re ignorant. I believe that in a DBMS, they have virtually no choice but to go deeper into debt. The DBMS forces us to go deeper into debt.

Here in the United States, more than 9 trillion dollars were added to the national debt during the Obama years. If we had not taken more than 9 trillion dollars of [future?] consumption and brought it into the present, we would most assuredly be in the midst of an epic economic depression right now.”

Probably so. In a DBMS, debt becomes our measure of wealth.  If you want to live an apparently prosperous life, you need a credit card or a bank loan. But it’s not just the people who are individually compelled to go deeper into debt. In order to survive in our debt-based world, even governments must go deeper into debt in order to survive.

The only institutions in our debt-based world that might not be compelled to go deeper into debt are central banks like the Federal Reserve.  If so, that should give us a clue as to who has devised and is profiting from the Debt-Based Monetary System and debt-based economies.

Instead of taking our pain in the short-term, we have sold future generations of Americans as debt slaves, and if they get the chance someday they will look back and curse us for what we have done to them.”

That may turn out to be true, but only if future generations voluntarily consent to pay their parents’ and grandparents’ debts. What if future generations are so impoverished that can’t pay the National Debt?  What if future generations simply refuse to pay the National Debt?  Who’ll get stuck with the bill, then?

A:  It’ll be all the people, banks and pension funds who have already purchased the US bonds that provided government with enough extra cash to buy “free lunches” for voters and/or to “stimulate” the economy.

It’s useful to understand that the bonds were the means by which today’s creditors loaned enough currency to the government to purchase all of those “free lunches” and illusions of security for the public. Those “free lunches” have already been paid for by today’s bond-purchasers.

Paying the existing debt will not pay for the “free lunches”.  They’re already paid for.  The existing is owed by government to the current bond-holders.  Government produces nothing and therefore can’t pay its own debts from its own earnings. Today’s bond-holders loaned currency to the government based on the fundamental presumption that government can always squeeze the currency needed to pay its debts out of the taxpayers.

But is that presumption reasonable?  Isn’t the National Debt already too huge to be repaid in full?  Won’t the American taxpayers revolt if they’re expected to pay higher taxes?

The question is not simply whether future generations will voluntarily accept liability for repaying the cost of the free lunches. The question may instead be whether any future generation will be able to repay the National Debt or will they be too impoverished by government policies?

If the future generations can’t or won’t pay the National Debt, the current generation of bond-holders will lose their assets.

My guess is that future generations will be too impoverished, too smart or both to repay debt owed to the current bond-holders. My guess is that even if future generations theoretically consent to pay the National Debt, that debt will be so enormous that it’ll be impossible for anyone to pay. (Heck, it already is impossible to pay in full.)

My guess is that the current generation who received the free lunches is the same generation that bought most of the recent U.S. bonds. That generation will consist of today’s elders and the institutions that claim to serve them with pensions.

As I’ve said for a number of years, those mature individuals and institutions that are holding U.S. bonds (promises to pay) are going to see those debts repudiated by future generations.  If I’m right, grandma, grandpa, mom and dad are going to lose their paper assets. They’re going to wake up one day with a handful of worthless paper debt-instruments and no pensions.

That loss will be sad, tragic, and even lethal for some. But it will be just. Harsh—but just—for a people who gave up their asset-based money to enjoy a debt-based currency, monetary system and economy.

All of which brings us to the “debt ceiling” that was supposed to take effect in A.D. 2015, but was postponed until March 16th, A.D. 2017 and has now been postponed yet again until later this year.  According to some reports, the feds may have only enough cash on hand to keep the government running until the end of June or early July. If so, we may have only another month or two until government must either raise and collect more taxes or raise the debt ceiling and borrow more currency (go deeper into debt) in order to hold our economy together. If it’s true that under a DBMS, the system will collapse unless we go deeper into debt, then the current debt ceiling must be raised and soon. There may be no other option.

However, Michael Snyder doubts that the debt ceiling will be easily raised:

Trump is going to find it quite challenging to find the votes to raise the debt ceiling. Very few Democrats are willing to help Trump with anything. Many Republicans are absolutely against raising the debt ceiling without major spending cut concessions.

If the debt ceiling is not raised, it will almost certainly mean that a major political crisis and a severe economic downturn are imminent.”

Yeah, buddy. If it’s true that the only way a DBMS can survive is by generating more debt, any refusal to raise the debt ceiling and go deeper into debt could trigger a recession, depression or even an economic collapse. If so, the balance of this year should be extremely interesting.

The best that our leaders can do for now is to keep the bubble alive for as long as possible, because what comes after the bubble bursts will be absolutely unthinkable.”

Unthinkable”? Is that word sufficient to convey the horror that could follow a collapse of our DBMS?

In a worst-case scenario, the closest comparison to the calamity that could follow the collapse of our DBMS is the Civil War. That’s not merely “unthinkable”. It’s horrific.

Folks, you really do need to buckle up.

You really do need to get ready as if your life depended on it—because it just might.

The debt can’t be paid.  The debt won’t be paid.  That tautology will cause calamity for all of us.  

Ask not for whom the debt tolls. The debt tolls for thee.

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6 responses to “For Whom the Debt Tolls

  1. Richard Donaldson

    May 31, 2017 at 7:47 AM

    Excellent !!!

    Sent from my iPhone

    >

     
  2. wholy1

    May 31, 2017 at 11:37 AM

    I really get off on all these “financial ANALyst/investors/traders/portfolio mgrs/credit raters/hedgers/eCONomist etal, contributing WHAT to REAL P-R-O-D-U-C-T-I-V-E enterprise? How about . . . NOTHING / NADA / ZILCH! P-A-R-A-S-I-T-E-S margined to the max and fixated on the [paper] “birds in the [phantom] bush”. Exciting times watching for the ” ‘Quickening’s’ Witching Hour ” when even ESF, [NOT]Federal[NO]Reserve and other CB interventions can no longer mitigate such things as illiquidities due to run-a-muk U-N-F-U-N-D-E-D bankster lending fees/coupon amts on both current and new borrowing/fiat debt issues, US Treasuries redemptions and derivative defaults. When the MOAFR – Mother-Of-All Financial Resets – happens and the [D]elites “exit, stage left”/bug-out to their remote digs under cover of another big-ass world war, who will have heeded the messengers such as Al and Snyder, REPENTED and be already hunkered-down, GROUPED, GUNNED, GARDENED, PROVISIONED and . . . S-I-M-P-L-I-F-I-E-D on an inland, RURAL, UNaddressed/UNencumbered portion of ARABLE county dirt? Bring it on, bring it on – hoo-wah !!!

     
  3. dog-move

    June 5, 2017 at 10:33 AM

    For the DBMS to continue to reach higher highs in order to survive, debt MUST grow.
    There must also be evidence to support the publics’ confidence/ignorance in the DBMS’s ability to provide the blessings it has provided since the A.D. 1971 start.
    The report that account openings at Schwab hit a 17 year high according to Investor’s Business Daily may be evidence of that confidence.
    Believers in the DBMS or blind followers of the TRUMP market bump? Maybe.
    Funny, 17 years ago was A.D. 2000. That year was a year in which the markets topped from the Dot-Com bubble implosion. Here we are 17 years later and it seems the public has a renewed fascination with the Dot-Com/Tech sector again. This time it’s APPLE, GOOGLE, FACEBOOK, and AMAZON, mature Dot-Com companies. These stocks were culprits back then; maybe they are back, except this time they make up every index, mutual fund and ETF this time. Oh, but the investing public (DBMS believers) probably think it’s different this time…. Study market history, it comes back around eventually, every 17 years or so.

     
  4. dog-move

    June 7, 2017 at 1:25 PM

    A lot of interest in bitcoin (GBTC), currently at around 500 and change, 200 looks like a real probable price target. This feels like a parabolic spike here. A lot of gamblers have chased this market and this may be setting up a washout. Anyone look at this crazy stuff?

     
  5. RonMamita

    June 8, 2017 at 8:44 PM

    Did you read about class action lawsuit against the IRS and the plaintiffs WON?!

    https://ronmamita.wordpress.com/2017/06/08/2017-good-news-irs-loses-175-million-class-action-lawsuit/

     
  6. dog-move

    July 8, 2017 at 3:00 PM

    looks like 300 was the low in GBTC-it appears to have bottomed,200 was a good target, a little low. silver and gold have a nice bottom here.Nice climax wash out bottoms in silver and gold friday. The mass energy created on friday was the energy that causes panic selling, selling “exhaustion”. The kind of action you want to see before their is a move higher. I,m sure the LBMA was behind the selling early in the morning, they were probably picking up bargains after the ” spoof”, you taught me spoof, friday was surely spoofing action in gold and silver.

     

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