I just received an email from a reader who claims that the only way out of our current economic problems is to repudiate the existing debt. He argued that repudiating the debt was justified by the fact that the entire National Debt is based on fraud. More, he compared repudiating the national debt with the “Jubilee” in the Old Testament wherein every 50 years, all debts were cancelled. I replied as follows:
Simply repudiating the debt would work fine if our monetary system was still based on precious metals. We could eliminate the debt but our economy would still retain the assets (gold & silver coins)–although they might be in other people’s hands.
The reason the Old Testament people could have a Jubilee every 50 years and wipe out all the debt is that those Old Testament people used an asset-based (gold, silver, even cattle) monetary system. When the Jubilee occurred (every 50 years), it didn’t destroy the assets. However much assets (gold, silver, cattle) existed within the local economy, tribe or nation before the Jubilee began, would remain in the economy after the Jubilee had ended.
The Jubilee would only move ownership of those assets from the rich bankers back to the ordinary people. The Jubilee was essentially an attack on the oligarchy, on the rich bankers who understood the nature of money and would become fabulously wealthy and assume enormous power if their wealth was allowed to grow indefinitely. When the Jubilee wiped out all debts every 50 years, it essentially wiped out the debt-obligations held by the rich bankers and prevented the nation from becoming an oligarchy. So long as there was a Jubilee,the bankers were allowed to prosper, but they were not allowed to rule.
Under the Jubilee, while all of the debts were eliminated, all of the assets (gold, silver, cattle) remained in the economy. So long as the assets remained, the economy could easily survive and even prosper. The only change was ownership of the assets which shifted from the bankers to the ordinary people.
Of course, the ordinary people would behave like a bunch of fools, have a big holiday, get drunk, squander their newly-acquired wealth, and soon be back in debt to the bankers who understood the nature of money. But, at the end of another 50 years, there’d be another Jubilee, and once again the smart bankers would lose their assets to the people.
Today, however, we have a debt-based (rather than asset-based) monetary system. We treat our debts as assets rather than liabilities. The whole concept is insane and certain to fail badly–but that’s what we have.
With a debt-based monetary system, for every debt, there’s a correlative paper debt-instrument that’s signed by the debtor and which memorializes that debt. Those paper debt-instruments are treated as assets. If I borrow $100,000, the lender keeps a piece of paper with my signature on it that promises to repay $100,000 plus interest. The lender treats that signed, paper debt-instrument as an asset. If you ask him about his net worth, he’ll say “I’m worth $100,000 because I have a piece of paper signed by Alfred Adask that promises to repay $100,000 to me.”
It’s critical to understand that every debt is purported to have created a correlative paper “asset”. Thus, the more debt we create, the richer our nation becomes. Again, this entire concept is insane (or at least fraudulent), but when we allowed our government to violate the Constitution and subject us to a pure fiat currency, we implicitly authorized that national insanity.
Now, if we repudiate any of the debt, the correlative debt instruments (which we treat as assets) will become worthless.
It’s not like the Jubilee where, if we repudiate our debts, the assets will still remain in our economy. If we repudiate our debts, we also destroy the corresponding paper assets. Once those paper assets have disappeared, where do we find the capital to build a new factory, grow crops or buy a new flat-screen TV on credit? Without paper debt instruments, there are no paper assets. Without paper assets, there’s no basis for credit, no basis for buying products, producing products, growing food. The whole society can degenerate into a mindless, starving, unemployed, violent chaos.
In a debt-based monetary system, we can’t repudiate the debt without also repudiating the paper assets (US bonds, stocks, pension funds, savings accounts, paper dollars, etc.) that we treat as “assets”. That’s why we support “too big to fail banks”. They’re not really “too big”; they’re too indebted. If they go bankrupt, they destroy so much correlative paper assets that the entire US economy may collapse.
Thus, if we repudiated the “official” National Debt of $17.2 trillion, we would thereby also repudiate $17.2 trillion in paper assets currently held by US and foreign investors. That loss of paper assets might be survivable, but it would still be devastating for the US and world economies.
If we repudiate the “actual” National Debt (which John Williams of Shadowstats.com currently estimates to be nearly $90 trillion), I doubt that the US or global economy could survive.
Thus, the U.S. government, American people and even the world are caught in a terrible dilemma. We can’t possibly repay the existing debt in full. I’d guesstimate that we can’t repay more than 10% to 20% of the existing debt. But, we also can’t repudiate the existing debt without also destroying our illusion of paper assets.
The government has no choice other than to try to continue to issue ever more debt to try to keep the system afloat.
But, sooner or later, the government will be unable to borrow more currency to go deeper into debt. Once the government can’t borrow and create more debt (and thereby create more paper assets), the whole damned system will implode, people will starve, riots will ensue, martial law may be tried (I doubt that it will succeed) and our nation may devolve into chaos and violence.
We are screwed and we can’t escape that fate. We’ve been screwed ever since our government and Federal Reserve subjected us to a pure fiat currency and we were dumb enough to accept that paper “reality” without question. Our national bankruptcy is inevitable. We may be able to postpone that fate, but probably not much longer.
If we still had our gold in Ft. Knox, etc., we might be able to escape the coming economic collapse. We could issue a new currency backed by gold at the rate of, say, $25,000 or $50,000 per ounce of gold. We’d still have real, tangible, liquid assets that we could lend and use to rebuild our economy and nation.
But there’s good reason to believe that our government and the Federal Reserve have already dissipated our former 8,200 tons of gold.
If the gold is gone, and if the government can’t borrow any more currency so as to go deeper into debt (and thereby create more paper assets), there’s no earthly way to escape the coming debacle that I’m able to understand or imagine.
We’re heading for a national, perhaps global, catastrophe. We won’t avoid that catastrophe by repudiating our debts. Instead, by repudiating our debts, we will cause that catastrophe. But our debts are already so enormous, that they can’t be paid in full. That means that, one way or another, we must repudiate the debt (and the correlative paper assets) and watch our economy collapse.
There’ll be no easy way to survive the coming collapse.
However, given that heart of our economic problem is the loss of assets, it would seem incumbent on all who agree with this analysis to acquire as much gold and silver (real money; real assets) as you can find before the collapse occurs–and then hang on tight.
After the collapse (absence of most assets) begins, whatever few liquid assets remain will be in high, even desperate, demand. The price of such real assets should skyrocket. One ounce of gold might pay for the equivalent of a new Cadillac. Three or four ounces of gold could buy a new house. One ounce of gold might be enough to feed you and your family for a year. 10 ounces of gold might be enough to buy controlling interest in a local business. 50 ounces of gold might be enough to buy such a big chunk of the stock market, that you or your heirs will become fabulously wealthy after the economic collapse is ended and the nation begins to slowly rebuild.
And, rebuild, we will (unless, of course, we’re in end times and you should be praying rather than reading this article).
But first (before we see an legitimate recovery) we’re going to go through 5 to 10 years of national austerity and economic depression that will make your ears bleed.
More than likely, if the Greater Depression hasn’t already begun, it will soon start and become undeniable. Those of you who are hanging onto paper assets will probably be ruined. Those of you who are hanging onto tangible assets like gold and silver may survive with the least stress.
