I’ve warned people for at least five years that the national debt is too great to ever be repaid in full. That fact is my principle reason for advocating ownership of gold. I don’t advocate gold because it’s metal, yellow or shiny. I advocate gold because the fiat dollar must die, and the national debt will contribute to, and probably cause, that death. In the midst of that trauma, gold should become incredibly valuable.
Over the past five years, I’ve warned that “what can’t be paid, won’t be paid” and therefore, either by secretive inflation or by open repudiation most of the national debt (80 to 90%, in my opinion) will never be repaid in full. And I’ve warned of the incredible danger inherent in repudiation of such an enormous national debt.
That danger is seen in the fact that one man’s debt is another man’s asset. I.e., in return for borrowing $100,000, the borrower signs a note (paper debt-instrument) to the lender wherein he promises to repay $100,000 (plus interest). The lender and the banking system treat that note as an asset—even though it’s really just a promise to pay. If you ask the lender for his net worth, he’ll include the $100,000 note as part of his assets.
And therein lies the danger in repudiating a debt. If the borrower can’t pay the debt, it’s not just the debt that disappears—the correlative note, the “paper asset,” also disappears.
Thus, if the national debt is $17 trillion, that means some unknown number of creditors are holding $17 trillion in paper bonds/notes and treating them as paper assets. Some of those paper notes are used as assets in pension funds, other to secure loans to build more homes, shopping centers, start new businesses, etc. So, if, say, $10 trillion of the national debt was repudiated by inflation or by open repudiation, it wouldn’t just destroy $10 trillion in debt—it would also necessarily destroy $10 trillion in paper assets.
The economy can function just fine without $10 trillion in debt, but it can’t survive the loss of $10 trillion in paper assets.
To repudiate the debt is to destroy the correlative paper asset.
That’s the enormous danger in a national debt that’s too big to ever be repaid in full. When the day inevitably arrives that some substantial portion of that debt is repudiated, that will also cause the loss of an equivalent amount of paper assets. If enough of the national debt is repudiated, the resulting loss of paper assets could collapse the economy.
If the economy collapses, I presume that the fiat dollar will at least lose much of its value and will probably also collapse.
Some people would deny that presumption based on the fact that during the Great Depression “cash was king”. I.e., as prices fell, the value of the US dollar increased (deflation). The US dollar became more valuable during the deflation of the Great Depression.
I, however, note that the “cash” that was “king” during the Great Depression was backed by gold until A.D. 1933 when President Roosevelt removed gold from domestic circulation, and backed by silver throughout the entire Great Depression. Thus, the “cash” that was “king” during the Great Depression was not a fiat currency (as we have today) but was always, ultimately, gold or silver.
This suggests that if we go into a “Greater Depression,” “cash will (again) be king”–but that “cash” won’t be paper, fiat dollars. Instead, the “cash that will be king” will be gold and silver coin. The paper, fiat dollar will be subject to hyper-inflation and will lose value (purchasing power). The gold and silver will be subject to deflation and will gain in purchasing power.
Nevertheless, for the moment and much to my surprise, the fiat dollar is deflating and rising in value. I doubt that deflation can be sustained–but, as measured on the US Dollar Index (US$X), evidence of deflation appears to be rising.
• The UK Telegraph recently discussed the consequences of massive global debt in, “Mass default looms as world sinks beneath a sea of debt.” Excerpts from that article include:
“Global debt is still rising strongly, crimping growth and threatening defaults around the world.
“The UK and US economies may be on the mend at last, but that’s not the pattern elsewhere. On a global level, growth is being steadily drowned under a rising tide of debt, threatening renewed financial crisis, a continued squeeze to living standards, and eventual mass default.
“This is the conclusion of the latest “Geneva Report”, . . . [which] points out that . . . . Contrary to widely held assumptions, the world has not yet begun to de-lever. [repay and reduce existing debt]. In fact global debt-to-GDP—public and private non-financial debt—is still growing, breaking new highs by the month.
“[E]ven developed market economies have struggled to make progress, with rising public debt [economic stimulus] cancelling out any headway being made in reducing household and corporate indebtedness.
“The only way the world can keep growing . . . is by piling on debt. . . . When rising asset prices are merely the flip side of rising levels of debt, it becomes highly problematic.”
“Problematic,” my butt. The more accurate descriptive term is “catastrophic”.
The author of the Telegraph article seems unnerved by the growing recognition that “asset prices” are merely the “flip side” and equivalent of rising debt.
If so, he may be beginning to sense what I’ve warned of for five years:
1) The national debt, the world debt, debt in general, can’t be paid in full; and,
2) when our excessive debt is inevitably repudiated, an equivalent sum of paper assets will also instantly turn out to be worthless. The economy will be collapsed by the loss of paper assets.
(And the world, incidentally, will then stampede in search of any kind of “asset” that’s not made of paper or electronic digits. The price of gold should skyrocket.)
“Eventually, it dawns on the creditors that the debtors cannot keep up with the payments. That’s when you get a financial crisis.”
When the world finally realizes that:
1) the debt can’t be paid;
2) the debt won’t be paid;
3) the paper-debt instruments are largely worthless; 4) the whole debt-based monetary system will collapse; then, 5) the world will panic as it searches for tangible assets like gold.
“Historically, big debt overhangs have tended to be dealt with via inflation and currency adjustment, the natural, market based way of haircutting creditors.”
“Haircutting creditors” is just a fun way to describe the kind of robbery that’s been committed for decades by our government and Federal Reserve.
Who’s being robbed? Creditors.
Who are the creditors? Anyone who’s saved any portion of their wealth.
That savings might be in a bank account, pension fund, So-So Security, stocks, bonds, etc.. But if that savings is denominated in fiat dollars, government intentionally robs those creditors (and thereby reduces the national debt) by means of inflation.
But here’s the problem:
“There is no sign of the inflation you might expect after such an unprecedented phase of central bank money printing.”
Dahyam! Even after trying to “stimulate” the US and global economies by injecting trillions of dollars’ worth of fiat currency, inflation has not caught on to a degree sufficient to repudiate a significant amount of the national debt.
Without a sufficient inflation, the national debt won’t be sufficiently (but secretly) repudiated.
Written by: ALFRED ADASK – continue reading at ADASK’S LAW