A Bonfire of Paper-Debt Savings
[courtesy Google images]
1) because we live in an economy that relies on paper-debt instruments as a form of wealth, there’s no way to cancel the existing National Debt without also canceling all of the wealth that’s currently stored in the form of U.S Bonds;
2) the National Debt is too great to be repaid, won’t be repaid and must sooner or later cause both the paper debt and the correlative paper assets to be destroyed;
3) the economy can’t function without some form of assets; and, therefore,
4) we be screwed.
I.e., we certainly can’t repay the existing debt in full, but we also can’t allow the debt to be cancelled without also cancelling billions of dollars’ worth of paper assets (savings) on which we are all dependent. Therefore, we are ensnared in a “dilemma” in which we’re darned if we do and darned if we don’t.
Apparently, I didn’t express my argument with sufficient clarity in my first “Economic Dilemma” article. A number or readers disputed my argument.
• For example, on February 6,A.D. 2014, one of my readers (“Collin”) added a comment on this blog which declared in part that,
“The one and ONLY answer to the debt problem is to declare it null and void because of FRAUD! It is fraud because it is mathematically impossible to repay! It cannot be repaid because the interest is never created on the loan and that is fraud! And fraud voids all! If we don’t void all out of thin air debt the bankers will own almost EVERYTHING! And we will be homeless slaves! They have a license to counterfeit! Can I counterfeit the money to repay the loan? Why not? If we even attempt to repay a impossible debt (the national debt) all we do is show our ignorance! The way to fix this mess is so simple a 3rd grader can figure it out! We void the fraudulent debt! and everyone keeps ALL the items they have so called debt on! And then we start to use a debt free currency and / or gold and silver! And then we will have a robust economy like never before — OR WE LET THE BANKERS STEAL EVERYTHING!”
Collin seemed to have missed my fundamental point: We can’t cancel the debt without also canceling the correlative assets. Canceling the existing National Debt is somewhat like cutting off our noses to spite our faces.
He wasn’t alone.
• On February 7th, “cynthia” commented,
“Why not simply forgive [the debt]? What of Public Law 73-10?”
I replied,
You can bomb the debt, burn the debt or even “forgive” the debt, but it won’t do any immediate good.
My point is that we’re trapped by our fiat currency, debt-based monetary system and even fractional reserve banking. We can’t repudiate the debt without destroying the value of correlative paper debt instruments that we treat as “assets”. Insofar as we “forgive” the debt, we destroy the correlative paper assets. Insofar as we destroy paper assets, we destroy the “capital” that’s necessary to keep this system afloat.
No matter what sort of “happy face” we put on our predicament, we be screwed. We can’t fully repay the debt because it has grown too large, and we can’t repudiate/restructure/forgive/default on any of that debt without also destroying the correlative paper “assets”.
We are figuratively caught in a situation similar to that of a man whose house is infested with termites and the only way he can get rid of them is to set fire to his house. If we don’t set fire to the house, the termites will destroy it. If we set fire to the house to destroy the termites, we must also destroy the house. We are darned if we do, and darned if we don’t.
If we had a legitimate and constitutional monetary system based on gold and silver, we could forgive/repudiate/restructure/default on some or all of the debt and the tangible gold and silver would still remain in our economy. Some creditors would be temporarily ruined, but the monetary assets would remain and the economy would therefore survive and even prosper.
However, because we were fool enough to allow the institution of a fiat, paper, debt-based monetary system, we can’t eliminate any of the debt without also vaporizing a correlative amount of paper “assets”. We can’t “forgive” the debts without also destroying the correlative paper “assets”.
And yet, we must default on some, most or all the debt because it’s too big to be repaid in full. When that default takes place (no matter what name we use to describe it), this nation will be suddenly impoverished. We will remain impoverished until: 1) we establish a new monetary system; and 2) we work hard enough under this monetary system to generate some significant amount of savings. Then, we will see a national “recovery”. Until then, we will be forced to endure some very difficult times.
It seems virtually impossible that the American people would be dumb enough to try to replace a failed debt-based monetary system with another debt-based monetary system. We can’t be dumb enough to replace our green currency with a new-and-improved pink currency–can we?
But who can say? When it comes to American politics, I put no treason beyond the power of our politicians, and no stupidity past the greedy, gimme-something-for-nothing general public.
Still, I believe that in the midst of the coming economic trauma, the people (and maybe even the politicians) will be forced to recognize the error of their fiat, paper currency system’s ways and therefore reestablish a new monetary system based on tangible assets (like gold or silver) rather than intangible promises to pay (debt). I think the reestablishment of a gold/silver based currency is virtually inevitable.
Of course, the U.S. and/or global government might try to pass off a new digital currency similar to Bitcoins to replace our current paper currency. But in the end, even an officially-approved “Bitcoin” would be just another fiat, debt-based currency. It might buy us a little time, but it would be just as certain to fail as our current debt-based currency is certain to fail.
In the end, the coming economic debacle will force Americans (no matter what we might prefer) to reestablish an asset-based (presumably gold/silver) monetary system as well as individual independence and self-reliance, and a relatively small, limited government that can’t spend on every idiotic program, welfare and subsidy that can currently be conceived by any politician. People who are addicted to government welfare or subsidies, or are otherwise too old, too young, too stupid, too ignorant, or too lazy to work are going to have one helluva hard time. They will cry, they will scream and they will riot as they demand that “somebody” restore their free lunches. But it won’t do any good–the free lunches will be gone. In a gold/silver based monetary system, if you don’t work or have family to support you, you won’t eat. If you do work, you could prosper like we did in the 1950s and 1960s.
I don’t know, can’t know, how bad the economy may become if/when the current debt-based monetary system fails. My “dire warnings” may exaggerate the extent of the coming trauma. But if it turns that my warnings are exaggerated, there’s nothing to say that my warnings are impossible. Again, the worst-case scenario is, by definition, the least likely scenario–but it’s still a possible scenario.
The National Debt of the US government, and even the total debt of the American people is too great to be repaid in full. I guesstimate that at least 80%, probably 90% of the current debt can’t/won’t be paid. If my guesstimate is roughly correct, most of our debts can’t be paid and therefore won’t be paid. When the moment arrives when government and the American people must admit they are insolvent and even bankrupt, much of the paper debt will disappear but so will much of our illusory paper “assets“. If we repudiate 80% of the American debt, we will also repudiate 80% of America’s paper “assets”.
I’m not smart enough to even imagine how this economy might continue without most of the current, illusory paper “assets”. Once the debt disappears and the paper “assets” disappear, we’ll suffer at least 5 years, maybe 10 years, of the “Greater Depression”. That suffering will last until we: 1) reestablish a gold/silver based monetary system; 2) reestablish the sort of mentality that accepts the fact that we have no right to “entitlements” paid for by someone else; and 3) reestablish a genuine “work ethic” wherein everyone knows he/she must work or go hungry; and 4) rebuild our gold treasury so as to have enough gold to support an asset-based monetary system.
I can’t imagine that this period of “reestablishment” will be easy, painless or brief. We’re headed into an earthly purgatory and should arrive there, not so long from now.
• On February 9, 2014 “tom” wrote,
“Alfred raised a good inquisitive question with this article but his ponderings as how to solve the problem are wrong whereas Collin has the correct answer.”
First, the allegation that my “ponderings” concerning the current economic problems have offered a “solution” that is “wrong” is false insofar as my proposed “solution” is intended to be applied by all Americans.
Instead, my “ponderings” are intended to convey the opinion that (if we define “solution” as “some sort of painless remedy”) there is no “solution” possible for at least 90% of Americans. That’s why I referred to our “economic dilemma”. We’re darned if we do and darned if we don’t.
The only “solution” that I’ve offered is for the 1% to 3% of Americans who have: 1) eyes to see and ears to hear; and 2) some savings (wealth) accumulated in the form of paper debt instruments like cash, bank accounts, pension funds, 401(k)s, stocks and bonds. I believe that such people could minimize their exposure to the approaching economic debacle by moving their wealth (savings) out of paper debt instruments and putting it into something tangible like land, tools, guns, bullets, food, gold and silver.
Almost anything tangible will be better than flimsy paper debt-instruments. However, I believe that gold and silver will be the best refuge from the coming moment when the some, most or all of the value of the paper debt-instruments is publicly repudiated. I could be mistaken, but I regard that moment to be inevitable and easily possible at almost any time.
Contrary to “tom’s” comment, my solution to the current debt problem is not wrong, because I’ve offered no solution for at least 90% of the American people.
Second, according to Collin, “The one and ONLY answer to the debt problem is to declare it null and void because of FRAUD!”
Collin essentially argues that the only solution to the debt problem is repudiate all the National Debt debt with something like a biblical Jubilee or some such. Collin justifies that repudiation on the fact that the National Debt is substantially based on fraud. Collin is right. The National Debt is largely based on the fraud that’s inherent in all fiat monetary systems.
But it doesn’t matter if he’s “right”.
The fact that the monetary system is based on fiat fraud does not change, mitigate or deny the fact that millions of Americans have stored their real wealth/savings in the form of government’s fraudulent debt-instruments. Yes, those millions of Americans may have been fools to trust the government’s debt-instruments, but is that enough reason to wipe out all of their savings when we repudiate the National Debt?
Answer: Yes. Insofar as any of us play the fool, we can be fairly punished by making us pay the fool’s price: poverty.
But we’re not talking about the one foolish grasshopper who fiddled away his summer and life while the multitude of ants worked hard to store up enough food to get them through the winter. The one grasshopper played the fool and it cost him his life. I get the moral message of that fable.
We’re talking about a nation of grasshoppers who’ve played the fool while only a handful of ants worked hard enough to gather enough food to get them through the winter. If we cancel the national debt, we’ll also wipe out the remaining savings for the “grasshopper nation”. That foolish nation will at least suffer and possibly perish.
I see the justice in calling the grasshoppers to pay for their foolishness. But, insofar as I am a member of the grasshopper nation, I don’t want to watch my neighbors suffer and possibly perish for their (our) foolishness. I have a hard time accepting the moral message of that reality.
Therefore, I’m looking for a “solution” to the National Debt problem that will allow all of the grasshoppers to somehow avoid the pain that I suspect is coming. But I can’t find that solution. I can’t imagine that solution.
Collin supports his argument that we simply void all of the debt by proposing that, “The way to fix this mess is so simple a 3rd grader can figure it out! We void the fraudulent debt! and everyone keeps ALL the items they have so called debt on!”
That’s a great and beguiling idea. Just think: you could lose your car payment and keep your car. You could lose your mortgage and keep your house. Got any debt on your credit cards? It would be gone but you’d get to keep all the stuff you bought on credit.
Collin’s fundamental argument is that because there are elements of fraud in our fiat currency, we the debtors should be entitled to keep things we haven’t earned or paid for. But, that’s theft, isn’t it? Insofar as I can justify being to be entitled to something I haven’t earned and paid for, am I a moral genius or a smooth-talking thief?
More, is America well-served by allowing anyone to rob—even if that robbery is based on someone else’s fraud?
And who are we robbing when we wipe out the debt? The Federal Reserve? The federal government?
If that were true, I might be willing to go along. The Fed and the feds are mostly just a bunch of crooks. They’ve been robbing us for decades. Why shouldn’t we rob them?
But, if we cancelled the National Debt, we wouldn’t be robbing the Fed and the feds, we’d be robbing individuals and corporations that had entrusted their savings into U.S. Bonds. We’d be robbing our neighbors. We might even be unwittingly agreeing to rob ourselves.
When Collin proposes that after the debt is simply cancelled, “everyone keeps ALL the items they have so called debt on!”, he means that we get to keep our houses (if we have a mortgage), our cars (if we have a car payment), and all the stuff we’ve purchased with our MasterCard by not yet paid off. But the one “item” that Collin may have overlooked is our savings.
OK—under Collin’s proposal, all the debt is cancelled and I get to keep the house, car and credit card stuff I owe money on.
But what happens to my savings account? What happens to my pension fund? What happens to the value of the U.S. Bonds and even stocks that I have tucked away in my safety deposit box? What about my pension plan and hopes of collecting So-So Security when I retire. Those are also debts, but they’re not debts I owe, they are debts that are owed to me.
I am not the debtor in relation to my savings. I am the creditor.
So, when Collin generously suggests that we simply void all debts, he is voiding all of your and my savings.
Great! When the debts are all cancelled, I get to keep my house, car and credit card stuff without further payments—but I also lose my bank account, pension fund, So-So Security, bonds and probably stocks and cash.
Even if the value of my house and car far exceed the value of my personal savings, I’m not sure that’s “such a deal”.
I believe that the consequence of losing everyone’s savings (that are stored in debt-based monetary instruments) will, on balance, be far more devastating than any benefit gained by cancelling all of our mortgages and car payments. I don’t believe the economy can hold together if we wipe out all of our savings kept in the form of debt-based instruments.
Collin might respond by saying, “No, no, no! You don’t get it! We’ll only cancel the debts owed by the people to the banks—but we’ll still force the banks to pay whatever debts they owe us!”
OK! Sounds great.
Except for one little detail: If I and the rest of America are no longer making mortgage, car and credit card payments to the bank, where will the bank get the currency needed to repay the debt it owes me for my savings account?
Remember, we have a fractional reserve banking system which allows the bank to keep just 10% of its deposit obligations in the vault. If the bank owes $1 billion in debt on its customers’ bank deposits, but it’s only got $100 million in the vault, and there’s no more money coming into the bank in the form of mortgage, car and credit card payments, it looks to me as if depositors will lose about 90% of their savings and the bank (all banks, and all credit card operations) may be forced to close.
The financial system will collapse, the economy will collapse, and there we’ll all be: sitting in our free homes and free cars without any cash, jobs, electrical power or food.
It may well be that, as Collin claims, “The way to fix this mess is so simple a 3rd grader can figure it out!” But I would very much like to meet that “3rd grader” because he must be a whole lot smarter than I am, ever was or probably could be.
I can’t see or even imagine a viable solution to our National Debt problem that isn’t painful and perhaps devastating to our economy and even our national integrity.
• If there is a solution, it must include a way to wipe out the debt without also wiping out the assets (savings). Therefore, all I’m asking is for someone (even 3rd graders) to explain to me How they propose to cancel all the paper debt without also canceling all the real wealth (savings) that’s been foolishly stored in the form of paper debt-instruments? If anyone can answer that question in terms I’m able to understand, I will be enormously grateful.
You have to remember that our FRNs, although intrinsically worthless, are nevertheless a store of value (wealth) for most people. The FRNs may be worthless, but the value, the savings, that they’ve been entrusted to preserve is not.
Unfortunately, storing your real wealth (savings) in the form of FRNs (debt-instruments) is like storing wealth in the form of cobwebs. The cobwebs are so damned fragile that if the wind blows or the wife sweeps, they can disappear. When they do, the wealth (savings) that they represent will also disappear.
If we cancel the debt represented by our US Bonds/cobwebs, we also cancel the underlying and real wealth (savings) being “held” in those debt instruments.
• Suppose I’ve worked hard, lived frugally, and saved $250,000 over the years. That $250,000 represents the real saving that were generated by my hard work—by my blood, sweat and tears. That $250,000 is a measure of my former labor and intelligence. The wealth stored in those flimsy paper Federal Reserve Notes (FRNs) is real wealth. But the medium (FRNs and other paper-debt instruments) I’m using to store my wealth is flimsy, unreliable and subject to manipulation by debtors (the government) who want to destroy debt so they don’t have to admit that they are bankrupt and without legal power.
No matter how stupid and naive I may be, I am still a legitimate creditor. I have lived responsibly and within my means. I have therefore generated savings from the income earned with my labor. I want to be paid for the real wealth that I’ve squirreled away in FRNs and other paper debt-instruments.
But, government, on the other hand, is the world’s #1 debtor. They have acted irresponsibly for decades, saved nothing, spent every dime they had, and every dollar they could borrow. The government has no savings (wealth) and therefore has virtually no interest in protecting the value of FRNs and other paper-debt instruments (like US Bonds)
Instead, the government has an interest in reducing the value of those FRNs and US Bonds in order to allow it to repay its debts with ever-cheaper dollars. The government—in order to avoid admitting its own bankruptcy and also to avoid paying its debts—wants to continue to degrade the value of the FRNs or otherwise get away with defaulting on its paper debt-instruments (US Bonds).
Government wants to rob me and every other creditor in the country.
Who are these other creditors? Well, they’re not only the big American and foreign banks. They’re not just the Federal Reserve. America’s creditors also include everyone who has any savings that they’ve invested in banks, pension funds, So-So Security accounts, stocks and bonds. Government (the world’s #1 debtor) wants to rob all of those creditors and can be depended upon to do so.
Look at government’s track record. Since A.D. 1971, the value of the dollar has fallen by over 95%. If your grandparents created a $100,000 trust for you back in A.D. 1971, and deposited $100,000 into that trust for your benefit, the original principal ($100,000) would now be worth about $5,000 in terms of A.D. 1971 purchasing power. You and your grandparents would’ve been robbed by inflation of 95% of the real wealth your grandparent’s earned and saved for you—all in less than 45 years.
How’d the government perpetrate that theft? By causing steady inflation. That inflation and resulting theft of American creditors’ principal could not have taken place for nearly 45 years if it wasn’t government policy to rob its creditors.
This robbery wasn’t hard because, despite all of his other good qualities, your grandfather was fool enough to trust the government and the fiat monetary system. Grandpa stored his real wealth (savings from his previous efforts) in the flimsy form of FRNs, US Bonds and other debt-instruments. This is equivalent to winning $1 million in the lottery and storing the cash in a pile in your front yard. If anyone walks by your house and sees all that cash, you’ll probably be robbed. If you want to protect the $1 million you won, you need a real safe—not pile in the front yard.
Likewise, if grandpa wanted to protect his wealth (his savings from his hard work) he needed a real money (gold or silver) not fiat dollars; he needed a real, tangible investment (like gold & silver) that was a reliable “store of value”—not an illusory “promise to pay” seen in all paper deb-instruments.
If stealing your wealth is easy because you keep your wealth in the form of paper debt-instruments, stealing your wealth is also necessary since gov-co is broke, insolvent and bankrupt and can’t pay its debts. As I’ve said for several years, what can’t be paid, won’t be paid.
One way or another, government is going to repudiate the National Debt. That debt problem has finally grown so enormous, that whether government intends to pay its debts is irrelevant. Government can’t pay its debts. It’s technically impossible. Therefore the debts won’t be paid and the only remaining mystery is when will government admit it’s insolvent.
• Government can’t, won’t and doesn’t want to pay its debts.
Sooner or later, under one pretext or another, government will admit that it can’t pay its debts and default on most of that debt.
When that happens, what do you think will happen to people like me who are 68 years old and penniless because I was dumb enough to store the real wealth (savings) that I’d accumulated over the years in the form of paper debt instruments like US bonds, private stocks, bank accounts, pension funds, 401(k)s or even social security? Do think I’m still young enough to go back to work digging ditches or repairing roofs? When the government defaults on its debts and my savings are wiped out, I may soon starve to death in the dark.
Some of you may be young enough that you don’t have any savings and so you don’t mind if the world’s savings (capital) disappear. Such youngsters might simply say, Well, who cares? If the old farts die, that’s their problem.
So it may seem.
But losing my saving is not just my problem.
If the financial system collapses and wipes out virtually all of my paper assets and wipes out virtually all of the paper assets of the other creditors who’ve had sufficient talent, brains and blessing to acquire some savings, where will the rest of you young fools find a job?
I’ll bet that 90% (probably more) of the businesses in this country are debtors who are run on credit and therefore depend on being able to borrow currency from old farts who have actually saved some of the real wealth they generated and earned during their lives.
If so, when we old fools lose our savings to a collapse of the paper debt-instrument monetary system, we may starve to death in the dark within another month or two. But what do you think will happen to all of the young fools who have no savings, but who expect to keep working at businesses that depend on borrowing currency to keep operating?
Guess what, children? There you’ll be without any old folks to support, but also without any of the old folks’ savings to borrow to keep your boss’s business running and your job viable. Without your own savings or someone else’s savings, and without a job—what do you think will happen to you? If I’m going to starve to death in the dark within 30 to 60 days, you’re not likely to last much longer than another 90 to 120.
• Those of you who are without savings can’t survive without those of us who have real savings to lend.
Sure, if we creditors lose all of our savings, the government could simply start printing ever more paper currency to issue through banks, welfare, debit cards, etc. But what will the value (purchasing power) of that currency be? Without real savings to support the fiat currency, you’ll see hyper-inflation wherein many of you will not only be unemployed, you’ll see prices rise daily while you beg for pennies in the streets or succumb on violence to steal your food.
The point I’m trying to communicate is that paper debts and paper assets are two sides of the same coin. That coin is made out of paper mache’. If it catches fire, it burns to ashes. If it gets wet, it dissolves to mush. If you handle it roughly, it crumbles. If anything happens to destroy that coin, all of the real wealth that coin represents will also be destroyed.
Most importantly, you can’t lose the one side of your paper mache’ coin without also losing the other. If the head (debt) disappear (is repudiated), the tail (assets) will also disappear.
For me, that’s the critical point. We can’t cancel the National Debt without also destroying a correlative amount of paper wealth.
Therefore, I believe that the National Debt problem is insurmountable. We may be able to postpone it for a while longer, but if we cancel the paper debt, we also cancel the paper assets. If we cancel the paper assets, the economy must collapse.
Again, if Collin or anyone else can explain to me how they can cancel the paper debts without also cancelling the correlative paper assets, I would be appreciative and even honored to hear that explanation.
But, until someone can teach me how to cancel the paper debts without alsot cancelling the paper assets, I’m going to insist that we (90% or more of America) be screwed. We are trapped in a “dilemma” from which I can’t even imagine an easy or painless escape.
• Finally, one concluding point (or perhaps “points”).
The U.S. government is the world’s biggest debtor, bar none. The U.S. government is also incapable of paying the existing National Debt. Therefore, the U.S. government wants to repudiate the existing debt.
Those of us (like Collin and “tom”) who argue that repudiating the existing National Debt is “the one and ONLY answer to the debt problem” are singing the government’s song. They are supporting the government’s desire to repudiate all government debts. Whenever anyone advocates repudiating the National Debt, I’m sure the government is secretly cheering “Go! Go! Go!!!”
The government wants to repudiate the National Debt. They’re just looking for a sufficient pretext to do so. They’re looking for an excuse to repudiate the National Debt that can’t be pinned on the government.
I don’t doubt that much of the National Debt will be repudiated simply because it’s mathematically impossible for us to pay it. But I don’t advocate that repudiation because I believe that doing so will destroy most creditors’ wealth and render the economy without savings, without readily-accessible capital and perhaps inoperable for several years.
Because we were fool enough to accept a fiat, debt-based currency, we are now caught between the rock and the hard place. We can’t pay the debt and we dare not repudiate the debt. What will we do?
Again, we’re trapped in a “dilemma” from which I see no easy or painless escape.
I advocate no national solution to the National Debt because I don’t believe any such solution is possible. For now, the only “solution” is to “kick the can down the road” by issuing more and more debt—which is exactly what government is doing. But any fool can see that “solving” the National Debt problem by issuing more debt is like trying to extinguish a fire by drowning it in gasoline.
I only advocate an individual solution for those who believe this analysis is roughly correct and who have savings. That solution (for a few) is to get out of paper debt-instruments as quickly as possible and get into a tangible form of wealth that can’t be destroyed by government’s manipulation or debt repudiation. A handful of Americans may understand and implement that solution, but the vast majority of Americans will not.
I believe that those who cannot or do not implement that individual “solution” are headed for a difficult and painful economic period.
But, so are those who do implement that “solution”. This won’t be an easy time for anyone. However, for those who implement the “individual solution,” the coming problems will be mitigated. They’ll have trouble, but if they have even a few dozen ounces of gold, they’ll be much better off than their neighbors.
In the end, there is no real “solution” to the National Debt problem but there may be “mitigation” in the sense that some of us may have real savings in a tangible form and may be less exposed to the trauma than others.
Some argue that if we allow the debt to persist, we lose our future to interest rates that are impossible to pay. They’re correct.
But I argue, that if we repudiate our debt, we lose our past due to lost savings acquired by past work.
Either way, we lose. At least, either way, the vast majority of us lose.
And, therein lies our “economic dilemma”.