Will We Be Able To Handle The Truth?
In 1980, the Dow was about 1000 and total public and private debt in America equaled about $5 Trillion dollars. In 2010, total public and private debt increased ten fold to approximately $50 Trillion dollars and the Dow increased by a relatively similar amount to 10,000.
We essentially printed 10X more money and now have 10X the dollars over a 30 year period of time. The problem when money is created by debt it attaches an interest obligation....and that obligation is both an asset to the owner and a liability to the borrower.
As long as the interest can be serviced, all is fine and money flows around the economy. Where the problem comes is when the interest is unable to be serviced through productivity and money must be borrowed to continue to service the debt. Once that happens, the debt essentially takes on the nature of a Ponzi Scheme.
Following the dotcom crash, we were at a point where it was impossible to service our outstanding debt unless we started borrowing more money to keep the economy flowing....so we kicked in the home ATM and money poured into the economy as we levered up everything....not just houses.
We levered up schools, universities, cities, counties, states, businesses, families, Federal Government and more. Everything boomed and we were all happy with our massive growth based on an unprecedented debt bubble....until we cut off the flow of credit and debt started to default.
We soon began to realize that our economy was essentially Ponzi Scheme of lend and spend plus when it was over extend and pretend....and now the pretending is coming to an end as America continues to contract as funds to service debt evaporates.
Much of our economy is NOW shutting down around us as evidenced by crashing real estate values, lower auto sales, and evaporating tax receipts. The consequences have been convulsive for millions.
Many Fools think that we can inflate our way out of this problem.........but inflation will have littlle impact on the current situation. Inflation is a tool often used by debtors to ease payments to creditors with cheaper money.
A common misconception is America's debt is owed to foreigners.
In reality, Americans own most of America's debt through insurance policies, retirement accounts, pensions and investment accounts. And if we make our currency worthless, much of our financial assets will be worthless as well and most of America will have very little buying power. If interest rates were to rise because of inflationary policies, the problem would only be accelerated and amplified.
We are now reaching the point of what I call Zombualtion......when incomes go away, savings are depleted, and access to credit is denied. At that point, there are few choices but shut down. More and more of America is facing zombulation as each day goes by and we are told there is a recovery.....
The only recovery we had was a temporary extension due to our pension plans and investment companies loaning trillions of additional dollars to restructure and keep the debt current...but much of that money has been consumed.
Now the only question before us is what direction we will head as more and more face default....inflate the currency and watch the entire nation go broke as interest rates hit unsustainable levels.......or restructure the debt?
Couple the above with massive job losses from the ADOPTION of efficient technology, and without a doubt, we potentially face the most convulsive economic and political period in American history.
It will be a ride for all.