In the late 1990s, I met a Chinese businessman here at Dallas who knew his business would soon go bankrupt. He concealed that knowledge from his bank and other financial institutions.
In anticipation of that bankruptcy, he applied to 10 different banks for credit cards. Believing his business to be financially viable, the banks issued all 10 credit cards–each with a $25,000 limit. He acquired a collective credit limit of $250,000.
He exhausted his $250,000 credit card limit in the first month after he received the credit cards. He bought TVs, lawnmowers, new clothes and signed up for vacations. Then, he paid nothing on the cards. When each of the 10 banks contacted him asking for payments, he replied that he’d be happy to pay if the banks would simply verify the debts.
Under the federal Fair Debt Collection Act, each debtor was entitled to demand that his creditors verify any alleged debt. Verification meant that someone had to swear under oath that the debt was actually incurred by the particular debtor. As a practical matter, this meant that in order to verify each of the debts incurred on the ten credit cards, the banks would have to find the store clerk who processed each, particular purchase. Then, each clerk would have to remember the dates and time of the transaction, remember the purchaser, and swear to that recollection under penalties of perjury.
The odds that the banks would be able to find all of the individual clerks who not only rang up each purchase, clearly remembered doing so, and would testify to that recollection under oath, were virtually zero. After all, every clerk typically rings up hundreds of purchases in a single day and thousands in a week. No clerk could be expected to remember specific purchases that were made several months earlier—and video records of each day’s check-out counters were largely unknown back then. The cost of finding each clerk and providing a notary to memorialize each oath would also be substantial.
Result? The banks stopped all collection proceedings.
The Chinese gentleman’s business went bankrupt but, before it did, he defrauded ten banks out of with $250,000—and he got away with it.
• I bring the previous story to your attention because it reminds me of what I seem to see among major governments today.
The United States government is so deep in national debt that that debt will never be repaid and must eventually be repudiated.
Japan’s government is currently printing trillions of more fiat yen in order to inflate their currency and “stimulate” the Japanese economy. The result will be a Japanese national debt that’s too great to ever be repaid. As with the US, much of Japan’s debt will eventually have to be repudiated.
The European Union is planning to print trillions more euros in order to inflate their currency and “stimulate” the European economy. As with the US and Japan, the result will almost certainly be an EU “national debt” that’s too great to ever be repaid in full and must therefore be substantially repudiated.
Thus, although the world’s major governments’ debt are already too great to ever be repaid in full, those governments continue to dive deeper into debt.
Does that make sense? Not at first glance.
Either 1) the economies these governments represent are so fragile that the governments are desperate to keep them functioning by any means possible; or, 2) there may be some other “secret” rationale to justify a bunch of bankrupts plunging deeper into debt.
• In search of that “secret” rationale, I’m reminded of that Chinese businessman who, knowing his business was about to go bankrupt, went deeper into debt for another $250,000. That also didn’t make sense, except that Chinese debtor knew how to repudiate that $250,000 in debt. In essence, the Chinese businessman knew he was about to go bankrupt and therefore rang up an extra $250,000 in debt which would be uncollectible—and he could escape being held liable for fraud by simply demanding that the banks verify his credit card debts. He thereby defrauded the 10 banks that issued him $250,000 in credit.
Good for that debtor; bad for his creditors.
Is it possible that some of today’s largest governments also know that they are about to go bankrupt? Have they (like the Chinese businessman back in the 1990s) concealed the knowledge of their bankruptcy from their creditors (the people of their nations)? Are the governments (like the Chinese businessman) therefore running up as much debt as possible in order to defraud their creditors before they have to admit they’re bankrupt?
Are the US, Japanese, and European governments running up so much debt because they truly believe they can thereby “stimulate” their respective economies? Or are those governments really just running up their national debts in order to enrich and empower themselves by defrauding whichever creditors are sufficiently foolish to lend currency to governments that are already (technically) bankrupt?
• Suppose a global depression occurred. The major government debtors would have a perfect excuse to repudiate their already massive, unpayable debts.
More, in the context and chaos of a global depression, it would be virtually impossible to prove who was responsible for that depression.
American politicians could blame Japan and EU (or maybe China, Russia and the BRICS) for the depression. Japanese politicians would blame the US and EU. The EU could blame the Japan and US. Some politicians might even blame God for causing global depression with failed harvests, exceptionally cold winters, exceptionally hot summers, floods or drought.
It would be virtually impossible to prove who was truly responsible for the global depression and therefore virtually impossible to prove who was responsible when each government’s bonds turned out to be worthless. A “political prosecution” of the responsible government or nation would be as complex and futile as the ten banks trying to prosecute the Chinese businessman. The creditors would have little or no real recourse. The world would pretty much have to simply accept the resulting financial loses.
Knowing that a global depression was coming would be just about like the Chinese guy knowing his business was going bankrupt. Both a global depression and a business bankruptcy could help to excuse a scheme by governmental debtors to defraud creditors.
• If a “natural” global depression that couldn’t be stopped could help governments repudiate most of their debt, what about an “artificial” global depression that was intentionally caused by several of the world’s government?
What if some of the major governments of the world agreed to “pull the plug” on a particular date? What if those government intentionally precipitated a global depression at particular date and time, for the purpose of defrauding creditors around the globe out of additional trillions of dollars? The creditors could include private investors, pension funds, banks and even other governments. The resulting fraud might be a disaster for the people (creditors), but it might be great for overly-indebted governments (debtors).
Written by: ALFRED ADASK – continue at ADASK’S LAW