Debt – a man-made disease of the modern age
Cheap money has infected the world like a virulent strain of the flu, spreading like wildfire, creating destruction in it's path. Unfortunately this virus has an incubation period. A period of time that passes while the infected host feels comfortable and healthy. Below the surface though the virus is multiplying, establishing itself and getting ready to wreak havoc on the immune system.
Debt infects not only the individual, but also nations and governments. As above, so below. The debt has become so endemic that all levels of society are now infected. From the hapless poverty stricken consumer addict, using credit cards to fuel her next designer shoe and bag buying frenzy, all the way up to multi-nation debts incurred by countries and unions. Global debts now stand at the level of trillions, a figure so monumental that it was almost unimaginable 20 years ago. Indeed, attempting to visualise even one trillion of anything as akin to attempting to visualise infinity. It is a figure so large that the human mind cannot easily comprehend it.
Beyond the debts that we know about, there are also derivative debts, purportedly to be in the hundreds of trillions or even quadrillions! What is a quadrillion? It is a number followed by 15 zeros.
Putting it into perspective
Think for a moment how wealthy you would be if you received a million dollars. Admittedly, with inflation, being a millionaire is not what it used to be, but you would probably be comfortable. You could afford a half decent house, nice car and probably get by for the rest of your life living a comfortable but not extravagant lifestyle. A million dollars is still a lot of money by any standards.
Now consider a billion. A billion is 1,000 times a million. A large amount of money on an exponential scale. There are individuals out there who control billions of dollars. Their worth is beyond the comprehension of most. Jeff Bezos is worth an estimated $90bn. That's a thousand million dollars 90 times over.
So what is a $trillion? It is 1000 billion dollars. The US debt is currently $20 trillion and counting. Another 1000 trillion and you have 1 quadrillion! If the size of the derivatives market is in the quadrillions it's no wonder the big banks are continually being bailed out. Should derivatives collapse there would be no money left in the system to service any debts.
Debt is wasteful
The availability of free and easy money is terribly wasteful and damaging to the entire organism that we call the earth. Individual debts encourage people to spend on what is essentially trash. Products that add little productive value to anyone’s lives other than some temporary minor ego inflation. Designer clothes, watches, cars, TV's, toys all junk in terms of their intrinsic value. Even worse experiences in terms of alcohol consumption, drug taking and extravagant holidays are paid for on credit. Experience over, with nothing to show for it other than a hangover and some distant memories posted on Instagram, the debt still has to be paid. The boom in real estate is fuelled by cheap and easy money, people looking only at monthly affordability to make a decision on purchasing overpriced houses. Often, these houses have been flipped multiple times to cash in on the consumers need to get on the 'increasing house price ladder'. Builders buy up housing, renovate, add an extension, modernise and sell for 50% plus premiums, far more than the intrinsic worth of the property, but the people don't care. They can afford the monthly payments, and they want to live somewhere nice, and show off to their friends.
Corporations and governments undertake terribly wasteful projects that will never deliver returns, but that's OK because the directors and politicians will be gone by the time the shareholder and taxpayer realises that they are footing the bill. The debt expands, partly through a need to maintain the status quo and avoid the pain of any downturn, but also because everyone else is doing it. Companies buy back their shares to inflate director bonuses for increased share price, but at the same time burdening the company with debt, or as they like to call it, leverage. They do it because all other companies are doing it. They need to remain competitive in the eyes of the shareholder. The shareholder doesn't see the restrictive effects of too much debt, they only see the price of their shares and dividends increasing. Politicians destroy nations by spending, spending, spending, other peoples money, just to get re-elected. Wasteful projects, social programs and corrupt crony deals all serve to line the pockets of administrators, while putting off the inevitable repayment until they are long out of office and working as consultants for the very same companies who financed them in government.
It's the debt that allows such a system to exist. Not only is the system corrupt, but it's wasteful, unhealthy and an environmental disaster. The world does not need growth in GDP, simply to service ever increasing debts. What it needs is a shrinking GDP, debt jubilee and responsible investment in renewable programs. The wastefulness will eventually stop, but only when the inflated debt reverses, unfortunately at terrible cost to the participants at the bottom of that system.
Money IS debt
The problem with the current system is that it is based on money which is debt. Every unit of currency created is created through debt and lent to people. Central banks create currency that they lend to governments, high street banks create debt that they lend to consumers. That's how currency is created and inflated.
The antidote
The global antidote for such a diseased system is to replace the fiat currency system with an asset backed system. Gold is, and always has been, the only asset that uniquely fulfils all of the requirements of money.
The system reset is already in motion, albeit slow motion. But it will accelerate. Momentum will build and shocks will occur to those not ready for it. The dollar, once the reserve currency, is already cracking and losing it's place as the foremost currency. Other nations are now looking to alternative means to trade and moving towards asset backed systems. Even the US administration is now less interested in a strong dollar and more interested in building a stronger industrial base. This is, in effect, a controlled demolition of the dollar. It's the only way out, reversing many years of outsourcing, off-shoring and exporting production to cheaper nations. This will of course be painful for everyone. Prices in western nations will soar along with interest rates, in a vain attempt to control inflation, or at least slow down the destruction. Eastern nations will lose jobs and production. The move towards a globally equalised system, where competition will be based on innovation and not price is well under way.
The debt has already infected it's hosts, the incubation period is almost over, the pain is about to begin. It's hard to say whether inflation or deflation will take hold, more likely hyper-stagflation, where essential commodities such as oil, food, materials and gold (as collateral) will inflate massively, while debt funded assets like stocks, property and bonds will collapse.
No individual or nation will be immune from the pain, but it will be possible to alleviate it somewhat. Some nations have immunised themselves by purchasing hard assets. Give yourself an economic flu shot by doing the same. You might not need it and it might not work, but you will be increasing your chances of survival by holding gold.
Sources:
http://www.usdebtclock.org/