Armed Debt Collectors = Government Desperation

Student Loan Debt Collectors
[courtesy Google Images]

Placebo Economicsbelieved

I wrote in part:

“ZIRP [Zero Interest Rate Policy] and QE [Quantitative Easing] have failed in Japan, the EU and US because the [people] no longer believe in the efficacy of those economic “placebos” or the wisdom of our “witch doctors” in the Federal Reserve and/or federal government.

“Once we stop believing in the ‘witch doctors’ at the Federal Reserve, how will the Fed ever restore our belief and confidence in their economic placebos?  Once we know that our witch doctors have nothing real (like gold- or silver-based money) to offer us and can only provide intrinsically-worthless placebos (fiat dollars; promises to pay rather than actual payments), the economy will not be healed by mumbo-jumbo and our economic witch doctors may be run out of town on rails.

“If the previous conjecture is roughly correct, the way back to prosperity will not be achieved by means of more placebos.  It will be achieved only by means of hard work and the “real medicine” of physical gold and silver.”

I was mistaken.  There is another possible “way” back to prosperity besides by means of hard work, gold and silver.  I don’t think this alternative “way” will work.  But the temptation to try it will be almost irresistible.  I have little doubt that that “way” will be tried by the Federal Reserve and/or the federal government.

Q:  if the debt-based monetary system, economy and Federal Reserve are in danger of collapse due to a lack of new debt, how could government maintain its previous, debt-based powers?

A:  By creating a police state to force people to engage in conduct they used to do “voluntarily” due to the enticements of QE and ZIRP.  This “force” will be more than the imposition of an ever-larger National Debt.  It will involve more currency controls, wage controls, and mandates for how you spend your currency, how you borrow more currency (go deeper into debt) and even how you repay your debts—especially those due to government.

Here’s an example to illustrate the rising presence of a police state in our financial affairs.   In “Armed Marshals Arrest Student Loan Debtors; Is the Bubble About to Burst?,” author Samuel Bryan wrote:

“Last week, seven US Marshals armed with automatic weapons came to Paul Aker’s home in Houston to arrest him for a $1,500 student loan debt dating back to 1987.”

Seriously? 

“Seven US Marshals” sent to collect a $1,500 debt that’s nearly 30 years old?!

Isn’t that a tad excessive?

I’ll bet that the government’s cost for sending seven US Marshals to Aker’s home exceeds the $1,500 debt they hope to collect.  Government is spending more to collect the debt than the debt is worth.

“Armed with automatic weapons”?!

Can government really justify using automatic weapons to collect a $1,500 debt?  Doesn’t the use of seven, armed US Marshals acting as debt collectors sound a lot like Nazi thugs imposing government edicts during the Third Reich?

Plus, Mr. Aker is being “arrested” for his $1,500 debt?  If I recall correctly, they taught me back in grade school that the American Revolution ended the institution of “debtors’ prison”.   How is it that the government can arrest and jail people for debt owed to the government without restoring the same debtors’ prisons that Jefferson, Washington and Madison fought to eliminate?

“According to the Guardian, Acker isn’t alone facing the barrel of a gun over outstanding student loans:  ‘Aker is unlikely to be the only person to be surprised by marshals collecting on student loans.  A source at the marshal’s office told Fox 26 that it is planning to serve warrants on 1,200 to 1,500 people over student loan debts.’”

We’re not talking about arresting drug dealers or serial killers.   We’re talking about arresting real criminals—people who, as teenage kids, borrowed some intrinsically-worthless, fiat currency to go to college—and have not yet repaid the resulting debt to the government.  (Watch for photos of these felons on the walls of your neighborhood Post Office!)

More, the government apparently intends to subject another 1,200 to 1,500 people who’ve also failed to fully repay their student loans to the same treatment Mr. Aker received:  several US Marshals, armed with full-automatic weapons, coming to the debtors’ doors to arrest them and haul them off to the slammer.

Has government lost its mind?

Has excessive debt driven government mad?

•  Total student loan debt currently stands at $1.3 trillion.  Sounds serious.

But there are reports that the Pentagon has “lost” $8.5 trillion.   Does government plan to send US Marshals armed with full-automatic weapons to arrest each of the American generals who are responsible for “losing” $8.5 trillion?

I doubt it.

So why subject former college kids to the Nazi thuggery?

“According to figures released by the White House, about 27% of student loans are currently not being repaid.”

27% works out to about $350 billion that’s not being repaid.  That’s about 4% of the $8.5 trillion that the military has “lost” and isn’t even looking for.  It’s also about 1.8% of the official National Debt ($19 trillion) that government can’t or won’t ever repay in full.

Are there any plans to send US Marshals to roust and arrest the members of Congress, the Senate, and White House who are responsible for running up the unpayable National Debt?

Again, I doubt it.

The “adults” in government won’t be held liable for running up the National Debt.  The “kids” who ran up a student loan debt may be forced to pay at the point of an automatic weapon.

My country ‘tis of thee, sweet land or liberty, hmm?

“Some 7.5 million people with student loans are now severely behind in paying back their debt.”

There’s no way the US Marshal can arrest 7.5 million people.  There’s no way that government can jail 7.5 million people.

The sheer magnitude of the student loan debt problem implies that the real objective behind sending seven US Marshals with automatic weapons to collect a $1,500 debt is not to actually collect $1,500 from one debtor.  The real object to create a story of government’s irrational use of force to scare the other 7.5 million student-loan debtors into “voluntarily” paying up—and paying up fast.  (I.e., the seven US Marshals armed with automatic weapons may be more about political theater than Nazi thuggery.)

“But while armed cops try to collect three-decade-old student loans, the feds are forgiving billions of dollars in student debt . . . . The federal government is simultaneously trying to relieve the debt burden and collect on it . . . .”

Some American debtors receive the benefit of debt forgiveness.  Others get a dose of debt collectors armed with automatic weapons.  Are the US Marshals more reminiscent of the Nazis or the Keystone Cops?

“All of this points to a system that is completely broken and on the verge of collapse.“

Whether the author’s description of a “system” that’s on the “verge of collapse” refers to the student loan debt-collection “system,” the US government’s debt-collection “system,” or even to the entire debt-based monetary “system,” isn’t quite clear.

Nevertheless, all three of these “systems” relate to debt and its repayment.  So, regardless of whichever “system” is being referenced, it’s apparent that the total debt owed by students, private citizens, taxpayers, corporations and government, itself, are all too great to ever be repaid in full.  Sooner or later, the entire “debt-based” monetary system and debt-based economy will collapse because too many people, institutions and governments can’t pay their debts.

I doubt that the Mafia would waste its time sending seven armed thugs to collect $1,500.  The fact that our government will do so may be evidence of how desperate government is to increase its revenue by collecting whatever currency it can find.  Sending seven armed men to collect $1,500 could be evidence that the government is already broke.  Police states spring from poverty.

•  Our government’s relationship to student loan debtors is analogous to the relationship between EU creditors and Greece. The US government and EU creditors can yell all they want, but the US student debt and Greek national debt are, for the most part, too great to ever be repaid in full or even substantially.  What can’t be paid, won’t be paid–even at the point of a gun.

More, the US government is not the innocent victim of the student-loan debtors.  By entering into loan agreements with teenagers who were often unable to understand the consequences of the loan agreements they signed, the government enabled kids to borrow currency that they might never be able to repay.  By providing “easy money” loans to kids, the government allowed colleges to raise their tuitions and fees and thereby force students to go deeper into debt.  By mismanaging the economy to a point where recession is present, many student loan debtors are unemployed.  More, thanks to government mismanagement (or treason), a national economic collapse is at least possible.  Thus, the government created economic conditions that have impaired the student debtors’ ability to repay their debts.

Worst of all, student loan debts may be the only form of debt other than income taxes that, by law, can’t be discharged by bankruptcy.  When it comes to debts owed to the almighty government, the apparent rule is “pay, die, or go to debtors’ prison”.

If government debt collectors want to point their automatic weapons at somebody who’s really responsible for the debt crisis, maybe they should look at our congressmen, senators and presidents.

“Ultimately, the US taxpayer is on the hook.”

Maybe so.

Maybe not.

Will taxpayers pay the student’s debt to government?  Or is the debt burden on taxpayers already so large that the number of income tax resistors also grows until the US Marshals are also called to enforce income tax debts?

Whatever the answer to that question might be, it’s apparent that government can’t actually collect $1,500 for 30-year old loans with armed, US Marshals.  They’re losing money on this debt collection procedure.  Again, that implies that government is willing to lose money on 1,200 to 1,500 collection-by-force efforts to scare the remaining 7.5 million delinquent student borrowers into repaying their debts.

Which, again, implies that government’s current strong-arm strategies for collecting 1,500 student debts is more theater than simple thuggery.

If so, it appears that the government is so broke that it’s desperate to collect more currency any way it can.

And that implies that government may be on the verge of seizing any other funds it can find.  These funds may include government pensions, private pensions, Social Security and even savings accounts.

All of which suggests that the national government—as well as some state governments and most foreign governments—are so deeply indebted that they’re approaching a moment when they’ll all have to confess that they’re insolvent and can’t repay some, probably most, and maybe all of their debts.

What’ll happen to our debt-based monetary system and debt-based economy when the world’s biggest debtor (the U.S. government) is forced to admit that it can’t pay its debts?

Will government send US Marshals to scare every debtor on earth into paying what they can’t possibly pay?  Or will there be a moment of common sense when we all admit that the debts can’t be paid and must therefore be repudiated?

As I’ve said for five years, “What can’t be paid, won’t be paid.”  That statement sounds silly, I know.  But the day is coming when the significance and implications of that statement will be felt by all and send the U.S. and world economies into a state of shock.

Why?  Because one man’s debt is another man’s asset.  If I borrow $1 million from you, I get the cash and you get a paper promise to pay for $1 million signed by me.  You will treat that signed piece of paper as an “asset”.  But, if I can’t repay the $1 million, I not only cancel my debt (Yay!) I also destroy your correlative paper “asset”.  My $1 million debt is your $1 million asset.

When any debt is repudiated, the correlative debt-instrument (that’s being treated as an asset) will also be destroyed.  This relationship between debts and paper assets may be the single most dangerous attribute of the debt-based monetary system and debt-based economy. To illustrate, note that the government can’t repudiate the $19 trillion National Debt without also destroying $19 trillion of the paper bonds that most people currently regard as assets.

Can the American economy hold together if $19 trillion in paper assets/collateral suddenly become worthless?

I don’t think so.

If we wiper out $19 trillion in debt, we also wipe out $19 trillion in paper assets that might otherwise have been used to build more businesses, factories, homes, cars and flat-screen TVs.  If we repudiate the date, where will we find enough capital to keep this country’s economy running?

Thus, the ultimate rock/hard-place scenario:  what’ll we do when reach a point where we can’t pay the National Debt but also can’t repudiate the National Debt?  It’ll be an “irresistible force meets immovable object” moment.  There will have to be a collapse.  There’ll have to be chaos.  There’ll almost certainly be widespread poverty, violence and death.

In the midst of that chaos, should we be surprised to find a growing police state?

I don’t think so.

•  One way or another, with the force of a police state or without, we’re coming to a moment when the world will have to admit that the total debt is too great to ever be repaid. When we reach that moment, the debts will be repudiated by government’s overt declaration or by the more “silent” and mysterious force of hyperinflation.

When that moment arrives, borrowers will be freed from their debt burden.  They’ll cheer—until they find out that there’s no more paper assets in the banks to help put food on grocery store shelves.

Similarly, those holding their wealth in the form of paper or digital debt-instruments (stocks, bonds, bank accounts, pension funds, etc.) will be ruined by the loss of value in their paper and digital debt-instruments.  Because debt repudiation will render the world without paper/digital capital to be used as collateral to lend currency to build businesses, shopping centers, homes and roads—the world economy will be gutted

The only remaining capital/collateral after the debt-based monetary system implodes will be gold and silver.  If/when that reality becomes obvious to all, the prices of gold and silver will silver will soar to levels currently unimaginable.  That should happen within five years.  It could happen within three.  Even two.  Maybe less.

In the midst of the resulting chaos, overt police states will spring up around the world to try to compel the kind of “order” that’s only likely to appear when the people are free to build and create with an asset-based monetary system–i.e., a monetary system based on real “assets” like physical gold or silver.

But a rising police state won’t signal government’s growing power—it’ll signal government’s growing poverty and desperation.  When the government is running efficiently, it can shear the sheep and the sheep won’t even notice or complain.  In a time of poverty, however, the sheep know they’re being sheared and object mightily.  A government that relies on guns to enforce its will is a government on the way out.

A police state is government’s last line of defense against a loss of governmental powers. I don’t doubt that our government will try to impose a police state rather than admit its own faults, but I don’t expect any police state to last.  They seldom do.  In the midst of national poverty, police states are too expensive to be indefinitely sustained.  Police states may postpone an overt economic collapse for a while, but not for long.

So, if the world is forced to admit that it can’t pay it’s debts, will the debt-based monetary system collapse?  Yes.

Will our debt-based monetary system be replaced with an asset-based monetary system built on gold and/or silver?  Yes.

But, before the debt-based system gives way to an asset-based system, we’ll almost certainly encounter two or three years of a police state.. I’m not predicting the kind of police state where we see a cop armed with a rifle at every street corner.  I am predicting a heightened government “presence” at banks and in all thing financials.  That presence could be as tangible as seven U.S. Marshals with automatic weapons coming to your door to haul you away for a 30-year old $1,500 debt.  Or that “presence” may be as intangible as new software at your bank that’s designed to siphon off some or all of your savings.

The coming police state will be more about currency control than crowd control.  Truth is, government doesn’t have the resources to establish an overt police state across the entire country.  They can send in a handful of thugs to harass Mr. Aker into repaying his $1,500 debt.  They can serve warrants on another 1,200 to 1,500.  They might even be able to arrest a few hundred thousand–although that would be a stretch.

But there’s nothing government can do if 320 million Americans riot.  They can’t even deal with a few million in riot mode.

However, thanks to computers, the internet and digital currency, government could seize some or all of the currency held in any/every bank account in the U.S.  I suspect that the looming police state will flourish most profoundly in the digital world of fiat currency.

If you’re storing your wealth in a digital or paper medium, you might want to rethink that strategy.  I won’t say it’s impossible, but I don’t see government coming door-to-door to seize you wealth.  Yes, they may roust a handful of individuals like delinquent, student-loan debtor Aker and 1,500 others of similar status.  But the U.S. Marshal are going after 1,500 out of 7.5 million delinquent student-loan debtors.  That’s just 0.02% of the total delinquent student debtors subjected to a “personal” visit from the U.S. Marshals.

If the U.S. Marshals come to your house, you’ll be in big trouble.  But the odds of that happening are very small.

However, while I don’t see the government going door-to-door to seize whatever wealth you’ve stored under your mattress, I can imagine government going bank-to-bank to seize whatever wealth you’ve stored in your bank accounts.  If they send U.S. Marshals to go door-to-door, it’s likely to get messy.  Somebody could be shot.  However, if they go bank-to-bank by means of electronics, wealth can be quickly found and confiscated without anyone getting shot or generating news reports that are brutally critical of government.

There’s a heightened police state coming, alright–but I’ll bet it”ll be primarily associated with your digital or paper debt-instruments.  If I’m right, your safest wealth preservation strategy may be to get a handful of gold or silver and hide it in your home, your backyard, or some vacant lot.  That’s not a perfect solution, but we live in an imperfect world.

Even if that solution is imperfect, it’s almost certainly better than storing your wealth in digital form in a bank.