The Death of Debt

March 19th, 2014
in Op Ed

by Reverse Engineer, Doomstead Diner

Off the keyboard of RE

Follow up:

Published on the Doomstead Diner on March 16, 2014

Drawing ever closer to the Singularity
Discuss this article at the Economics Table inside the Diner.

Anyone who has been following Economic and Political Newz over the last 5 years knows there are two words you will find in practically every article written  during this period,  DEBT & GROWTH.

The Debt issue comes up whenever you talk about any country, from the PIIGS to Japan to the FSoA, and the massive overhang of debt these countries have accumulated through the Age of Industrialization.  It’s measured in the $Trillions$, it’s measured as Percentage of GDP, and it keeps getting BIGGER every year by any measure you want to make, and that is just the stuff listed as Debt, like Treasury Bonds, Gilts, Bunds etc.  It doesn’t even include “Unfunded Liabilities” which are things like Social Security and Medicaire, and even private Pension Funds as well.

The ANSWER to all the Debt always presented as coming down the Pipe at some point is further GROWTH, that other totally ubiquitous word that is featured in every speech from every Politician in every country, along with appearing in the papers of every Economista out there.  Growth will Save Us!  We need to Export more!  We need to be productive and competitive in the Global Marketplace!  EVERYBODY wants to Grow and to Export more, and certainly no politician ever talks about Shrinking and Importing more stuff as a means to become successful.

The issue of course is that EVERYBODY can’t be an Exporter, for every Exporter you need an Importer to buy your stuff.  What if the people you want to SELL your stuff to have no MONEY?  How can you sell anything to them if they got no money?  It doesn’t matter what it is that you want to sell, whether it is just Raw Commodities like Iron Ore or Manufactured products like Carz, Iphonez and Big Screen TVz, they gotta have the MONEY to buy it with.

How do they GET this money to begin with?  It is LOANED to them, basically from the Top Down through the Elite class of a given society, which takes out these loans in the Name of the People.  The People of the State are the Bag Holders on these loans the Elite sign for in their name, and the Elite sieve off a decent portion of it for themselves and sequester it in foreign bank accounts, but that is another story for another day and not really the fundamental problem, though it certainly exacerbates it a good deal depending just how Corrupt & Greedy the Elite in any given country are.

For Chinese to build all the Industrial Infrastructure they did over the last 20-30 years, they had to borrow GOBS of money.  For American Konsumers to buy the products that came out of said factories, they ALSO had to borrow tons of money.  Everybody has to borrow Money to get this rolling, because that is how ALL the money gets created in the first place, it is Lent into existence, and this creates an Asset and a Liability.  Whoever makes the Loan holds the debt of whoever took out the Loan as an Asset,  whoever took out the loan has it on their books as a Liability.  Once created this way, this money can then circulate around the economy in the form of Paper Notes in the Olden Days, or nowadays as Digibits but it is the same general principle.  Interest is created on top of this, and this of course is the final failing of the system, but more on that later.

You can think of the beginning of a monetary system as a Singularity,  a Zero Point.  At Zero, nobody has Credits and nobody has Debits on their personal or corporate balance sheets.  Once you take control of something, say a patch of land that grows food, you now can issue Debt to everyone else to buy that food from you.  Same idea if you control Oil Fields.  You now can issue Debt to others to buy that Oil from you.  If you control Manufacturing Plants, you can issue debt for people to buy the products of that Factory.  Your Zero Point now gets split up into +1 and -1.  It still nets to Zero, except of course for the Interest Charges on the newly loaned money, which each year compound up, so there is never enough money at the end of each year to fill this gap without constantly Inflating the money supply.  Which means of course, ADDING MORE DEBT!

To do this and to still have Stuff to sell in return for this ever increasing Debt load, whoever is issuing the Debt has to constantly increase the control they have over various Resources of the Earth, primarily Energy of course since the Age of Industrialization began.  Gaining such control generally takes Military Force, although once you get a given society to buy into the Legal System and the Monetary System you are running, you can use that to gain control as well.  See Confessions of an IMF Hit Man for this.

Who gets to be the Lender in such a schema?  Whoever holds control of the Resource Base upon which you are making these Loans.  So as the system Evolved in its modern incarnation since around the time of the Medici Banksters, various Feudal Lords and eventually Nation States got control over territorial Resources, and each state could issue Money based on those resources.  The more you controlled, the more money you could Issue.  The Brits got particularly good at this early on with a Powerful Navy that controlled the Sea lanes for trade, and the Bank of England has been issuing out money on this stuff since 1692 when said bank was Chartered.  Similarly, in the aftermath of WWII when most of the rest of the Industrialized world in Europe was a Pile of Rubble, the FSoA was able to start issuing out Dollars on its great Resource base of the era, all those Oil fields in Texas and Oklahoma of course.

For the first 25 years of this act in the play from 1945 to 1970 or so, the FSoA was totally in the Cat Bird Seat as far as issuing debt was concerned.  We had the most producing Oil Wells, we had undamaged Industrial Infrastructure ramped up to supply WWII armies with Planes, Tanks and Bombs, and we had the Bread Basket of the Great Plains able to produce Copious Food at Low, Low Prices every day, courtesy of the Cheap Oil coming up out of the ground under Jed Clampett’s Farm.  The Baby Boom arrived, and the Amerikan Economy expanded Exponentially, though of course the proceeds of this expansion were not too evenly distributed.  in fact you had large pockets of Poverty developing even back then, and this blew up in the late 1950s and 1960s with the Race Riots from Alabama to Watts.  The economy was expanding so rapidly at this time though that the Elite came up with the Great Society program, basically a buy off of the disenfranchised with various forms of Public Assistance.

On the aggregate Debt level though, things started to Go South in the early 70s, once the EZ Oil started to run thin in the FSoA and we became an Oil Importer rather than Exporter.  At this point we had to start exponentially increasing Debt Issuance to be able to buy Oil from Saudi Arabia, basically holding a Gun to their heads to accept our Debt as the MONEY to buy their Oil.  The Saudis played along, and with their resource base we were able to keep expanding, while at the same time putting Outta Biz the old Soviet Union, which just did not ever have the same Credit Creation apparatus the West had developed over the Centuries for this.

The exponential increase in total Debt and the total money Supply measured in US Dollars has been ongoing since the 1970s, it was the only way to keep the Industrial Game rolling here over the period.

We could keep issuing the debt and everybody else would take it as money because we have the Big Ass Military.  You don’t take our Debt, we will Bomb You Back to the Stone Age, basically.  Various countries from Vietnam to Iraq have been subject to this sort of coersion over the years.  South American countries were taken over by different means, utilizing the Hit Men from the the IMF mostly, sprinkled in with Regime Destabilization from our friends in the CIA.  In pretty much all cases though, the system has been propped up through this period through the threat of violence as the Stick on one side, and the offer of Loan Money to buy into the American Dream of Fast Cars and Hollywood Entertainment on the other.  Everybody can be RICH like Americans!  We’ll LOAN you the money to do it!

In Actuality of course, it wasn’t America making the loans, it was the TBTF Banks, controlled as they always have been by a very small Oligarchy.  They control the creation of credit, the only thing “Amerika” does as a “Democratic” nation is to staff a Military Operation that backs up their right to create the credit and control the resources.  In fact Amerika itself has to Borrow Money from these TBTF Banks, through the artifice of the Central Bank of Da Fed, which is in fact a Privately Owned subsidiary of the TBTF Banks!

You don’t Own the money you hold, it is just a claim on resources that many other people hold also.  Over the time period that this system has expanded, those claims have become ever more diffuse and widespread, with the abstract “worth” of many assets dependent simply on what someone in  a position to issue EXTREME levels of debt money can pitch out.  Examples of this are the Railroads, the Interstate Highway System, and the Internet.  All of them have value only insofar as they still can work, and working depends on constant input of energy and maintenance.  They all are costly things to maintain.  The builders sieve out profit in the building of them, the public is left with the liability of maintaining them in the aftermath, when they have become dependent on them.

Recently in one of his articles, William Blum bemoaned the fact we are not using taxation revenues to maintain the Infrastructure we developed here.  Thing is, Tax revenues never built it, and they can’t maintain it either.  The stuff does not pay for itself, there is no Free Lunch here.

This is the basic History of the modern incarnation of Money that we are working with, so now is time to look at what is actually occurring with this artifice.

To keep the Daisy Chain going, new money in the form of new loans constantly has to be created.  If it is not, you run into Liquidity Problems.  All the Old Money invested is essentially Locked Up in various ways, you can’t really sell out a large position in any asset class you have money invested in without driving down the value of that asset class.  This would be the problem faced by the Chinese with respect to USTs for example.  Nominally, they hold $3T or more of this Toilet Paper, but if they tried to sell even a minor portion of this of say 10% or so, it would crash the market for USTs.  If you have 10 tons of Gold in your basement safe and try to sell all of it to cover other bad bets you made, this crashes the Gold Market.  Etc. So nobody holding large positions of anything wants to rock the boat and sell a lot of it at once.  They want to “Stealth Sell”, trying to get rid of it in dribs and drabs without rocking the boat too much.

Problem with this is that if some asset class starts to go Belly Up in a big hurry (like say the Chinese Credit Market), in order to stay Solvent you may have NO CHOICE but to try to sell a large position in something else to cover your leverage in the bottoming asset class.  That is where the Chinese market presents the most danger right now, and NOBODY KNOWS how much funny money the TBTF banks have invested in the Chinese Shadow Banking industry at all.  What’s the counter party risk if a Coal Trust in China goes Belly Up?  Nobody Knows.

Here’s a little bit from my favorite Illuminati Shill, Ambrose Evans-Pritchard:

The proof is in the monetary pudding, and this shows that EMU is already in worse shape than Japan in early 1998 by a large margin. Private lending is contracting at 2.3pc, the M3 money supply has ground to a halt and EMU-wide unemployment is stuck at a near-record 12pc.

The ECB and the TBTF EuroBanks aren’t creating enough new loans, so money supply is drying up.  Similarly in China, the Shadow Banking Industry which in January issued out something like $150B in new Loans issue out close to Zero in February, and various trusts all leveraged up to beat the band are cracking under the pressure.

No new loans, the system grinds to a halt.  Thing is, to issue out the new loans you have to have the resource base upon which to issue them, and you have to issue out the loans not just to the extractors of the resources but also to the consumers of the resource.  If you look at Fracking of NG for example, if you offer up loans to Drillers to access more gas but don’t simultaneously offer up new loans to consumers, they can’t buy the new gas at any price you offer it up at.

The  issue is, just about all consumers of such energy are in such deep debt up to their eyeballs already TBTF Banks are choking on issuing them more Credit, and the only way it happens is with Skanky deals through the IMF and World Bank.  A few large corporations are still able to access debt, particularly Energy companies since the same people who control those companies control the Banks that issue the credit, but if they can’t sell the product to tapped out consumers, even their credit lines will end up being cut eventually.

We can’t rebuild the industrial infrastructure on Taxation revenues, nor can we pay off the Bad Debts of the TBTF Banks on such revenues.  The TBTF banks weren’t bailed out from your Taxes, they were bailed out by Da Goobermint expanding its Debt load on Da Fed Balance sheet.  The choice was made to do this because if you did not do it, said banks would collapse, and with their collapse goes the entire artifice of the Money you are using.  Working money would essentially disappear close to overnight, ATMs would all shut down and rebooting a NEW system everybody could agree on with overall resources now so depleted would be a lot harder than it was when they made the original Bretton Woods agreements after WWII, when resources were still in copious supply.

Debt is Dying here, because there are not enough resources around per capita to issue more debt to all the Consumers to consume those resources.  Selectively, some areas of the world are being Cut Off from new Debt issuance, places like Greece, Spain, Portugal et al. Places with their own ability to create internal debt like China have expanded it, but that is a very unstable House of Cards.  The most well off places are those with the closest connection to the main Credit Creators on Wall Street and the City of London.  They have the biggest and most well developed Credit Creation apparatus, and the Debt they create still is “trusted”, though less trusted all the time here of course. When these behemoths finally do die, it is the END of the monetary system we have been using since the time of the Medici.

As of right now, this Monetary System and the TBTF Banks that administer it are in the ICU on Life Support, propped up by Goobermints like the FSoA still deemed worthy of more Credit, but anyone in their right mind needs only look at the exponentially increasing Debt chart above here to realize that there is no way to ever pay off the debt, you just have to keep increasing it until something BREAKS.  CODE BLUE in the ICU!  Bring on the Crash Cart and the Paddles!

We are going to get another Code in the ICU here pretty soon, it remains to be seen if there is enough Juice left to kick start the Gomer TBTF Banks one more time when it does.  Based on what is going down here Geopolitically in Ukraine, it seems unlikely such a kickstart will work again.  The Ruskie Banking system is in at least as precarious a position as the Chinese one, and they are likely to suffer financial Lock Up slightly before the West does, but that won’t make Putin any less willing to roll his tanks.  He has Energy, and he can run a Command Economy.  If the Ruskies lose access to Western Credit and/or see their financial assets seized, Putin’s only alternative is to PHYSICALLY seize assets, like the rest of Ukraine, Poland…GERMANY.

The Death of Debt is the Road to War, they are one in the same thing really.  It all stems from an exhausted resource base that too many people Globally are competing to use and exploit.  Individuals don’t have much choice when they get cut off, so Suicide becomes a fairly Common Option.  Suicide rates in the hardest hit countries are already Skyrocketing, and even here in the FSoA Suicide is on the rise.

Nation-States that are organized with Large Military Apparatus DO have an Option besides Suicide, which is to Go Belligerent as a  group and try to kill somebody else instead of dieing themselves.  Russia has a large Military force, they have Energy, and they have Vlad the Impaler, ex-head of the KGB, Capo di Tutti Capis.  Vlad will not roll over and die here.  If the Western Illuminati shut down Ruskie credit and freeze their overseas assets, Vlad will retaliate with the only weapon he has left, his Energy and his Military Machine.  It would seem likely that in such a situation, for at least the beginning of it the Chinese would line up with the Ruskies.  I doubt short of Global Thermonuclear War there is anything the FSoA could do about that, the Chinese and Ruskies would just roll over Western Europe.  Shall we Play a Game?

However, I doubt such an alliance can last too long in the face of the resource problems.  I see a lot of Stranded Military units as logistics and supply lines fail here, at which point the issues become all Local.

It is hard to say how fast this scenario will play out, but it seems the likeliest scenario at the moment.  One thing it does mean is that if/when it does escalate, we will see Conscription and the Draft into the Military again, at first for 18-25 year olds, but likely to go up to the 30s.  Avoiding the Electronic Press Gang into the Military will be quite difficult, you definitely would need to dispose of your Iphone to even have a chance at that.

The next year will see  how it goes.  Everybody Knows though, it’s not going to be pretty.

Make a Comment

Econintersect wants your comments, data and opinion on the articles posted.  As the internet is a "war zone" of trolls, hackers and spammers - Econintersect must balance its defences against ease of commenting.  We have joined with Livefyre to manage our comment streams.

To comment, just click the "Sign In" button at the top-left corner of the comment box below. You can create a commenting account using your favorite social network such as Twitter, Facebook, Google+, LinkedIn or Open ID - or open a Livefyre account using your email address.



Analysis Blog
News Blog
Investing Blog
Opinion Blog
Precious Metals Blog
Markets Blog
Video of the Day


Asia / Pacific
Middle East / Africa
USA Government

RSS Feeds / Social Media

Combined Econintersect Feed

Free Newsletter

Marketplace - Books & More

Economic Forecast

Content Contribution



  Top Economics Site Contributor TalkMarkets Contributor Finance Blogs Free PageRank Checker Active Search Results Google+

This Web Page by Steven Hansen ---- Copyright 2010 - 2016 Econintersect LLC - all rights reserved