two possible paths with the same endpoint
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As we move forward into 2010, it is becoming increasingly apparent to many observers that the financial breakdown which started in 2008 is by no means over. We are seeing increasing investor concerns regarding the solvency of not just individual corporations, but entire countries. In 2009 Iceland went bankrupt and in 2010 concerns are emerging regarding Greece, Spain and spreading across all of Europe. The long term viability of the Euro is even being called into question as I write this essay today.
What we are seeing is the result of an ever increasing and now unpayable amount of debt which is spreading like a terminal cancer across the entire western world. There have been many fiat currency systems devised throughout history, and they all have one thing in common. They all eventually went bust, because it is human nature to want something for nothing and spend money you don’t have to spend when there is no restraint or restriction against doing so. The total amount of debt has now exceeded the capacity to finance the debt except by creating ever more debt.
The entire western world has been financially controlled and mismanaged by an international syndicate of central bankers for the past several decades. This, along with unrestrained government spending has brought us to a terminal stage of collective bankruptcy as the power and control has shifted from the many, to the few who are now desperately attempting to maintain the status quo with various financial band aids, shell games, and smoke and mirrors “solutions”.
The worlds financial markets are now gyrating day by day as market participants move like a flock of sheep or school of fish seeking safety by abandoning one currency after another depending on the day. The fact is however that in almost if not every Western G7 economy, the government is technically bankrupt, with orders of magnitude more debt than can ever be repaid in constant dollars. Even moreover, there is also massive insolvency among the corporations and the populations of these countries.
Where do we go from here? There are only two possible paths, and they both have the same endpoint which is systemic breakdown and failure.
The worlds central banks can continue printing money (monetizing the debt) in an attempt to keep the western banks solvent and inflate away the unpayable debt, or they can stop monetizing the debt and watch the entire western world collapse into a complete systemic breakdown of insolvency and deflationary collapse. If there was no printing press, if we were not all on a fiat money system, this would be the only choice. With a printing press, which is the only tool they have to attempt to “solve” this problem and save themselves from collapse and insolvency, they are going to keep using it.
The point of this essay however is to argue that whichever path is taken, the end result is going to feel the same for most of the worlds citizens. Whether by deflationary collapse or inflationary depression, the citizens of the western economies are going to experience a rapid decline in their standard of living either because the money they have won’t have the same purchasing power (an inflationary depression) or because they have no money to spend (a deflationary collapse). This will come amid sustained high levels of unemployment, and increasing government authoritarianism to combat increasing social unrest and decay. It’s not much of a prognostication, because it’s already happening right now in countries like Greece.
I feel strongly that the G7 central banks will continue to take the path they have already embarked on, which is to save themselves by printing money, exacerbating the existing issue which is too much debt. The larger point however is that regardless of the path they take, the Western World is bankrupt from a decades long party of borrowing to spend money they didn’t have to spend. I’m taking cover as the house of cards comes down.