![People & Governments Only Lie For Good Reasons [courtesy Google Images]](http://m5.paperblog.com/i/145/1451215/liars-loans-L-RVICLc.jpeg "Liars’ Loans")
People & Governments Only Lie For Good Reasons
[courtesy Google Images]
The deeper government goes into debt, the more determined government should be to cause inflation.
If you want to stop or slow inflation, stop government borrowing. Enforce a pay-as-you-go fiscal system wherein government can only spend the revenue it has actually collected in taxes and can’t borrow more against future generations.
A pay-as-you-go fiscal system won’t, by itself, stop inflation. But it will remove government’s incentive to inflate and thereby help slow or stop inflation.
• If government stops or slows borrowing, we should expect to see a tendency towards less inflation and perhaps towards deflation and depression. Insofar as today’s private producers/creditors have become wary of lending to our overly-indebted government, government’s capacity to borrow has been restricted. Result? We’ve been sliding towards deflation and/or economic depression.
Even if government were allowed to borrow mo’, mo’, mo’ “money,” could the National Debt be increased without limit, forever?
Certainly not. There’ll inevitably come a time when it’s finally admitted in public that the national and private debts can’t be repaid in full or by even 25%. Many believe that time is close at hand.
If that belief is correct, then, when the world faces the fact that most debts can’t be paid, we could see a couple of consequences:
1) Most consumers/debtors who depend on borrowing to fund their lifestyle, will be plunged into poverty when they can’t borrow another nickel; and
2) Most creditors will be also be impoverished when they lose whatever wealth they’d loaned out in return for paper-promises-to-pay (paper debt-instruments) that can’t be kept (paid)..
How will the economy sustain itself if, when the debts are repudiated, consumers can’t borrow any more currency and the creditors have lost most of their purported “paper” wealth since the debts can’t be repaid? Where will our “paper capital” come from if borrowers can’t borrow and creditors can’t collect existing debts?
The only “capital” that will remain will be tangible wealth like land, resources, tools and equipment. The only remaining “liquid capital” will be gold and, perhaps to a lesser extent, silver.
Those who have real capital may be able to survive and even prosper. Those who don’t have real capital may starve.
• Once it’s publicly admitted that the debt can’t be paid, the people most likely to survive will be:
1) Savers who are neither debtors nor creditors, but who have saved their wealth in tangible forms like land, tools, gold and/or silver that can’t be destroyed by the admission that debts are unpayable; and,
2) Producers who have sufficient intelligence, knowledge, tools and work ethic to produce goods and services the world needs (like food, water, clothing and shelter) and spend less than they earn doing so. By spending less than they earn, producers become the only real source of savings. Those savings become the foundation for new credit that can be loaned and used to restart the economic engine.
Until the remaining producers produce enough new products and generate enough new profits to be saved and then used as capital for new credit, the economy will lie mired in an economic collapse of the sort that plagued Russia for a decade after the fall of the Soviet Union.
This suggests that a “chain” of sorts exists between productivity, savings and credit.
First, you must have productivity to generate savings.
Second, you must have savings to generate credit.
Third, credit may be used to advance the economy.
Credit is important; savings are more important; productivity is most important. Without productivity, there can be no savings and therefore no real credit.
• Modern economics has sought to break that “chain” by allowing increased credit to be created without increased savings or even increased productivity. Today, in order to create the fiat currency used for credit, all we need is someone to promise to repay a debt. No proof of savings or productivity is required—only a promise to repay.
Government is presumed to be credit-worthy because it can seemingly extort unlimited taxes from its subjects to repay its debts. Therefore, whenever government needs to spend more currency, it can borrow more based on nothing but its promise to repay. But, government is not productive. Government doesn’t save anything. Government can’t unilaterally issue classical credit—based on: 1) productivity; and 2) savings. Therefore government argues that the need for productivity and savings is passé. Instead, government argues that all we need for credit in our brave, new debt-based monetary system is government’s (or someone’s) promise to repay a debt.
A better example of credit being issued without regard for the borrower’s savings or productive capacity is seen in the “liar loans” that funded many mortgages in the early 2000’s and are now funding many auto loans.
In the early 2000s, government policies allowed and encouraged banks to lend mortgage currency to people who claimed falsely (lied) to have sufficient resources to repay their mortgage debts. In fact, these “liars’ loans” were knowingly issued to people who lacked sufficient savings (No money down!) or productive capacity (high-paying jobs) to repay their mortgage debts.
Everyone involved knew that “liars’ loans” were based on fraud. Still, nobody cared since government backed the liars and the liars produced “promises to pay” (mortgage notes) that were bungled together into “bonds” that were sold to greedy domestic and foreign “investors” (a/k/a, “suckers”).
The whole scheme worked brilliantly. By golly!—we didn’t need productivity and savings as prerequisites to issue credit! Thanks to our debt-based monetary system and “liars’ loans,” we’d found the proverbial money tree. All we had to do was water that “tree” from time to time with mere promises to pay. The economists and politicians who devised this scheme were hailed as geniuses.
But then, much to everyone’s shock and dismay, too many of the liars who’d taken out the “liars’ loans” couldn’t repay their debts. Gasp!
Result? A line of dominos began to fall that nearly collapsed the U.S. and global economies.
Gee, who’d’ve thunk it?
Who, among all of the brilliant PhDs and politicians running our government and economy could’ve dreamed that they couldn’t issue credit based on mere promises to pay (rather than on productivity and savings) without precipitating an economic debacle?
Who’d’ve dreamed that reality couldn’t be bent to conform to our economists’ imagination and will?
My semi-satirical point is that the liars’ loans that helped precipitate the Great Recession of A.D. 2008 are evidence that you can’t have real credit without first having real productivity and then real savings. Credit is not an “entitlement”. Credit must be honestly earned.
Government’s attempts to free credit from the “tyranny” of productivity and savings have not only failed, but may yet topple the U.S. and/or global economies into a horrific depression.
• Even if the government hyper-inflates the money supply, can the National Debt (which is at least $19 trillion) ever be repaid?
Maybe.
But what if the real National Debt is closer to $100 trillion (as per Shadowstats.com) or $200 trillion (as per the Congressional Budget Office and economist Laurence Kotlikoff)? Can a National Debt of those dimensions ever be repaid in full?
Nope. I doubt that more than 10% to 20% of that debt could ever be repaid.
So, can government still extort enough income taxes from American workers to repay the National Debt—especially, after government sent many of our industries and jobs to third-world nations and our real unemployment rate is closer to 23% than 5%?
Can government raise taxes on businesses that are already subject to ruinous regulation and unfettered competition from cheap foreign labor without causing recession or depression?
Can government seize enough of our savings to repay the National Debt?
If not, government is nothing but another “liar” and the National Debt is nothing but evidence of more “liars’ loans”. If so, sooner or later, the government liars will have to admit that the National Debt can’t be paid. When that admission of truth becomes public, it will trigger the same sort of havoc that followed from the failure “liars’ loans” of the early 2000’s—except, this time the havoc will be on a much grander scale. Plus, the world will know that the government is a congenital liar.
People, institutions and governments that choose to lend to liars are fools destined for poverty. Liars may be such smooth-talkers that they can get loans, but they’re not sufficiently good producers or savers to repay them.
Who’s the biggest debtor in the world? Who’s the biggest liar?
Answer those two questions, and you’ll know who you should never lend your wealth to. (That means you don’t purchase the liar’s bonds or trust in its savings accounts or pension plans.)
