Debt Futility: You Can't Pull Yourself Up By Your Own Bootstraps

April 27, 2014

The myth that we owe it to ourselves is overdone.

Debt is out of control, and we have no intention of paying it down. It is somewhat of a joke that we make that claim.

For those that should know better, the elite, it is "perfectly rational" to accept that we will simply pay it down with cheaper dollars. Or that inflation will melt it away - so no need to worry, CPI is low. This is sinister.

Serving debt by devaluing this time around simply cannot be done anymore than we can pull ourselves up off the floor by our own bootstraps. It is futile.

This is not post-World War II earth. We are not tied to gold in any formal sense. The U.S. is not now the only sovereign standing. We are in decline and a massive wave of civilization is rising up to receive the last remaining fruits our financial system vomits.

You can try - and there is nothing essentially wrong with trying - but it will never work.

Just as there is no such thing as a ‘free lunch’. There is no other way around it; someone must pay.

Why should it be different this time around?

Because we have more sophisticated technology, or that we have social media or digital everything or computing power?

Or is it that too many people who hold such massive paper wealth could not possibly wrong?

Recall the tech bubble of the 1990's and the slogan: “The Paper Millionaire".

I had just arrived at Silicon Valley and I knew many of these people. It was somewhat disconcerting and if it had not been for my youth and relative status, it may have bothered me. But overnight they were gone.

I remember the day I learned what it truly meant to be a paper millionaire. I was ignorant of financial matters. I honestly I assumed that if you got "stock options" you were set for life.

I don't know how long I heard the term before it dawned on me that it was a fleeting concept by definition.

This same issue goes for dollar denominated assets. If you hold a lot of them, then you are simply another version of the paper millionaire.

Eventually, everyone will realize all at once the futility- the impossibility - of paying down public debt. They will realize all at once that the money is no good and they will stop. The dollar then becomes worthless in one mad and final dash to the last remaining stores of wealth.

It has happened this way over and over - yet we never learn. Collectively, we want to believe with all our hearts that this time it will be different. That you can finally pick yourself up by your own bootstraps. That we can change. But in matters like this, history tells us over and over that you cannot - and this is inevitable.

This type of monetary policy creates hyperinflation because eventually the forces of debt, no growth, and deficit monetization combine to chase away foreign investment. This puts pressure on the Treasury, via a politically captured Fed to monetize more of the basic operations of government. Whether this occurs simultaneously by means of war and social unrest is secondary to the fact that the velocity of money eventually rises to add fuel to the fire.

The basis of the credit is fiat - it is by decree.

Debt needs a backing, a basis.  When it has none, all hell breaks loose.  Chaos finds a home.

In essence, the system in its current form is doomed to fall under its own weight. There is nothing we can do to "save" it other than to let it destroy itself. In the same regard, there is nothing we can do to prevent the impending storm, earthquake or other natural disaster. We only open our eyes to the inevitable, take stock, and prepare.


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