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Debt-Based Monetary System Demands Ever More Debt—Part IV—“Why”?


Thinker2

BUT WHYYYYY?!

In the first three “Parts” of this article (#1 More Debt, #2 Ponzi Schemes, & #3 Fractional Reserve Banking), I explored and advanced an hypothesis concerning America’s National Debt. I argued that our National Debt isn’t growing due to accident or governmental incompetence. Instead, I argued that that our seemingly uncontrollable National Debt (it nearly doubled under the Obama administration) grows out of a mathematical necessity that’s somehow caused by our Debt-Based Monetary System (DBMS).

In essence, I believe that our DBMS forces our National Debt to grow as a necessity and requirement. The the DBMS will die if it’s not constantly fed an growing stream of debt. If the DBMS dies, it will kill our debt-based economy.

More, I suspect that the debt must not only grow, but must grow “geometrically” or, at least, it must grow faster than the economy. If that’s true, it’s the the kiss of death for the DBMS and our debt-based economy.

Our DBMS (Debt-Based Monetary System) doesn’t simply make more debt possible, it makes more debt necessary. If we fail or refuse to go deeper into debt, our DBMS and economy will collapse into chaos.

If my hypothesis is roughly correct, it means that any promise by the Republican Party or President Trump to eliminate deficit spending and/or reduce the National Debt from $20 trillion to, say, $19 trillion—is not only false, but potentially dangerous. If they succeed in significantly reducing the National Debt, I believe that reduction could cause our debt-based economy to collapse.

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Debt-Based Monetary System Demands Ever More Debt—Part III—Fractional Reserve Banking


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The FOUNDATION for our Debt-Based Monetary System:  PROMISES to Pay that Can’t Possibly be Kept.

For the past several months, I’ve been exploring an hypothesis that strikes me as fantastic, unlikely and yet (probably) true. In broad strokes, it’s the idea that our fiat, debt-based monetary system requires ever more total debt to function.  Going deeper into debt is not optional; we are forced by our debt-based monetary system to do so.  I.e., if the American people ever stop going deeper into debt, the whole debt-based monetary and economic system will collapse like a junkie forced to quit heroin cold turkey.

If my hypothesis is roughly correct, the persistent growth in the National Debt (it nearly doubled under Obama) is not the result of governmental negligence or self-serving politicians who get elected by promising more “free lunches” (services purchased with debt). Instead, our National Debt must increase (perhaps geometrically) in order to feed, protect and sustain our debt-based currency and economy.

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Debt-Based Monetary System Demands Ever More Debt—Part II—Ponzi Schemes?


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Is our Debt-Based Monetary System a Ponzi Scheme?  [Courtesy Google Images]

Recently, in Part I of this series, I promised that in Part II, I’d explain “why” the survival of our debt-based monetary system (DBMS) depends on the creation of ever more debt. I argued that our massive National Debt is not an accident or evidence of political malfeasance, but rather an intentional and necessary consequence of accepting our debt-based monetary system (DBMS). I argued that our DBMS can’t survive without going ever deeper into debt.

I compared “payments” (which are tangible, real assets like gold or silver coins) to “promises to pay” (which are intangible, paper debt-instruments like paper dollars). I warned that, given the choice between receiving a tangible “payment” and an intangible “promise to pay,” only a fool would take the paper “promises to pay”.

I illustrated my argument about “promises to pay” by reminding readers of how many times they had made or received promises that had failed. My point was that promises are easily made and routinely broken.

So, I suppose it should come as no surprise that my promise to use this week’s article to explain the “why” behind the debt-based monetary scheme will also be broken. I began to write this second article with some background on “Ponzi Schemes” (which is how I and others frequently describe our DBMS).  But, when I looked into “Ponzi Schemes,” I discovered that maybe that’s not the most accurate way to describe our DBMS. I also realized that maybe I should try to discern and describe the nature of our DBMS before I got into the “why”.

Result? Here, in Part II of this series of articles we’re going to explore whether our DBMS is really a “Ponzi Scheme” or if it’s something else. Then, in Part III (coming soon) I’ll present my notions concerning the fundamental “why”.

I promise.

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Debt-Based Monetary System Demands Ever More Debt—Part I


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The National Debt was basically flat from A.D. 1900 through A.D. 1971. In A.D. 1971, President Nixon closed the “gold window” and the dollar became a pure fiat/debt-based currency.  Since A.D. 1971, the National Debt has persistently increased, without regard to which political party controls the government.  I strongly suspect that a debt-based monetary system cannot survive without government creating more debt.  Once the dollar was debt-based, the National Debt had to increase.

The Congressional Budget Office (CBO) recently released a 55-page report on the “long-term US budget outlook”. The report implied that the US government is on the road to fiscal chaos and possible collapse that could not be sustained beyond A.D. 2047.

I think the CBO is lying about the “long-term” budget outlook. Instead, I think we’ve only got a “short-term” to go before the debt hits the fan.

According to the report, the “official” National Debt ($20 trillion) currently stands at the highest level since shortly after World War II. (The report did not comment on estimates by others that, including unfunded liabilities, the real National Debt may be closer to $100 trillion or even $200 trillion.)  According to the report, if government maintains current policies and economic trends continue, the debt will likely double over the next 30 years, rising to about 150% of GDP.

I see the CBO’s predictions and “warnings” as bunk, bunk, and, uh, bunk.

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Promises, Promises


What Can't Be Paid, Won't be Paid [courtesy Google Images]

What Can’t Be Paid,
Won’t be Paid
[courtesy Google Images]

Last month (July), AFP published an article entitled “Japan PM unveils $266 bn stimulus plan to boost economy”. According to that article,

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Japan’s government and central bank have come under increasing pressure to do more for the economy.

“Therefore, [in July] Japan’s government announced a stimulus package worth more than 28 trillion yen ($266 billion) in its latest attempt to fire up the lukewarm economy . . . .”

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By itself, $266 billion in government stimulus doesn’t strike me as significant. Back around 2008-2009, the U.S. government injected $800 billion into the U.S. economy under QE1. Later, under QE3, the government injected $80 billion per month (almost $1 trillion per year) into the economy. These injections may have postponed a U.S. economic depression, but they didn’t generate much of an economic recovery.

Given that Japan is the world’s third largest economy, I don’t expect $266 billion (just one-third of the $800 billion injected during the U.S. QE1) to have much more effect on Japan’s economy than QE1 had on the U.S. economy.

This implies that Prime Minister Abe’s proposed “stimulus package” is more of a gesture to “do something” rather than a real economic remedy for the stagnating Japanese economy.

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Monetary Madness Part I—Negative Interest Rates


Negative Interest Rates-- Heading for Hell? [courtesy Google Images]

Negative Interest Rates–
Taking us towards Hell?
[courtesy Google Images]

The fundamental premise underlying negative-interest rate bonds is that lenders pay government borrowers for the “privilege” of lending to government. Based on this premise, governments receive loans at less than the face value of the bond. For example, if you loaned $100,000 to the government on a negative-interest loan, you might only receive, say, $98,000 when you redeemed that bond. You’d lose $2,000 for the privilege of lending to the government.

In all of world history, I doubt that there’s ever before been a time when lenders paid borrowers for the privilege of lending money.

The world is embracing negative-interest rate bonds for the first time. That fact is not evidence of economic creativity and financial innovation so much as evidence of desperation and the financial madness that lies at the heart of debt-based monetary and economic systems.

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A few facts about negative-yield bonds:

According to Bank of America Merrill Lynch, the global amount of government bonds having negative yields is now $13 trillion,.

Just two years ago, there were virtually zero negative-interest rate bonds. The subsequent, two-year rise to $13 trillion is unprecedented.

In February A.D. 2015, the total amount of negative-interest debt was $3.6 trillion.

By February A.D. 2016 that negative-interest debt had nearly doubled to $7 trillion.

In the five months since February, A.D. 2016, the amount of negative-yielding bonds nearly doubled again to $13 trillion.

The spread of negative-yielding bonds is unprecedented, fantastic and accelerating.

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Our Debt-Based Monetary System


The Rules of a Debt-Based Monetary System [courtesy Google Images]

The Rules for a Debt-Based Monetary System
[courtesy Google Images]

What follows is mostly speculation.

I’m going to explore several premises and, using my version of “logic,” build on those premises.

I’m not claiming that my premises are necessarily true. I’m not claiming that my “logic” is necessarily logical.

I am claiming that these premises and my “logic” lead to some hypothetical conclusions about our debt-based monetary system that are at least interesting and perhaps surprising.

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