Dear Reader,
Imagine a man sunk impossibly in debt.
Here you have a wastrel upon your hands. He cannot keep body and soul united. He is a sinful and contemptible fellow.
Thus he opens credit card upon credit card — to stay ahead of debt.
Yet the mathematics of debt is a cruel mathematics.
And his spiraling interest payments eventually swamp him.
The Hamster Wheel of Debt
This man must soon take on another credit card… to service the interest on the card he previously took on… which he itself took on to service the interest on the first.
That is, you have a man upon the hamster wheel. He must pedal faster and faster to merely stay in place.
He cannot. He falls inevitably behind. He is a man undone.
Reduce the thing to its essentials and you will find:
The money this unfortunate borrows is deceased money. It lacks all productive purpose.
This man is shoveling money into a roaring furnace. Yet his situation deteriorates further yet…
Interest Rates
To his fantastic alarm, interest rates assume a northerly direction. He must pay more and more money to service his debt.
Before he knows what has struck him… he is in a serious way. If conditions do not reverse he is in an even worse way.
He eventually runs bankrupt.
Well friend, I have just described the government of the United States.
That United States government is the reckless and improvident fellow just described.
It is the wastrel who opens new credit cards to service interest on existing cards — the slave of nonproductive debt.
The Road to Ruin
Projected interest payments on the nation’s debt presently exceed $1 trillion annually.
This year interest payments exceeded the nation’s “defense” budget. So what, you ask?
Here New York Times columnist David Brooks cites historian Niall Ferguson’s worrying law:
- Pretty soon, you’re staring at Ferguson’s Law. This is the principle enunciated by the historian Niall Ferguson that any nation that spends more on interest payments on the debt than on military spending will slip into decline.
Again: So what? Here is Brooks’ answer:
- It happened to Hapsburg Spain, the Ottoman Empire, the British Empire and prerevolutionary France. Will it happen to us?
Here is my answer: Yes — Mr. Brooks — I believe it will happen to us.
That is because I believe the nation is too far down the ruinous path.
How far down the ruinous path?
The Day of Reckoning
Mr. Alasdair Macleod, economist:
- The day of reckoning for unproductive credit is in sight… Malinvestments of the last 50 years are being exposed by the rise in interest rates, increases which are driven by a combination of declining faith in the value of major currencies and contracting bank credit. The rise in interest rates is becoming unstoppable…
- The interest bill is already growing exponentially.
More:
- Irrespective of central bank policy, the shortage of credit is driving borrowing rates higher, and the cost of novating maturing debt is rising, if the credit is actually available — which increasingly is rarely the case.
- It is an old-fashioned credit crunch, not really seen since the 1970s. And it has only just started… The big picture is of an asset bubble which has come to an end. And by any standards, this one was the largest in recorded history.
Cannot the Federal Reserve and its brother central banks reach into the deep trick bag into which they reached last decade — and deliver us a sequel performance?
No, says Mr. Macleod…
This Time Isn’t Different
Thus we are informed:
- The era of interest rate suppression is over. G7 central banks are all deeply in negative equity, in other words technically bankrupt, a situation which can only be addressed by issuing yet more unproductive credit. These are the institutions tasked with ensuring the integrity of the entire system of bank credit.
- This is not a good background for a dollar-based global credit system that is staring into the black hole of its own extinction.
Just so. Yet with the highest respect, sir, we have heard this “doom and gloom” babble before.
In fact: For decades it has issued from the oral orifice upon our very face — the one directly beneath the nasal base.
And for decades it has been a cry of wolf.
Why should next time prove different?
Here Mr. Macleod inform us why “this time is different”:
- This time, the Global South, the nations standing to one side of all this but finding their currencies badly damaged by unfavorable comparisons with a failing dollar, a dollar forced into higher interest rates in a world that knows of nowhere else to go — this non-financial world is on the edge of abandoning American hegemony for a new model emerging from Asia.
The Wages of Sin
Thus the United States confronts the wages of its monetary and fiscal sins — if the case here argued prevails.
It has cast all monetary, fiscal and geopolitical restraint to the scattering winds.
In the process it has made its dollar headache the world’s migraine.
A private concern would confront bankruptcy under Chapter 11 of United States Bankruptcy Code.
The United States government will not confront bankruptcy proceedings of course.
It does — after all — maintain access to a press that prints money.
It can make all its shortages good… in nominal terms at least.
In reality its debtors will get sawdust…
The Wicked
“I borrowed $100 from you, good sir? Well, here is your $100 back, as promised. I hereby discharge my fiduciary responsibility to you. I have fulfilled my contractual obligations.”
“But the $100 I loaned you is now only worth $22.08, because of the vicious inflation you caused” comes the bitter reply. “You’ve robbed me blind! You’re a goddarned crook, that’s what you are.”
“Your problem, not my problem,” answers the deadbeat.
That is Uncle Samuel for you.
“The wicked borroweth, and payeth not again,” Psalms informs us.
This uncle of ours is a cad. He is a bounder. He is a scoundrel.
He is wicked…
Regards,
Brian Maher
for Freedom Financial News
