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These debt revolutions are characterized by the inability of the debt burden to be reduced in “normal” ways. In a normal cycle, deleveraging reduces debt burdens. And this happens through some combination of reduced spending (to pay off debt), defaults (where assets are redistributed among creditors), and increases to the money supply (to prevent a deflationary spiral and stoke economic growth). But in a debt revolution... those normal measures don’t work. Austerity causes a big reduction in economic growth. Spending slows and the economy declines faster than debt can be reduced. Likewise, the debt burdens can be so big that defaults don’t work because the collateral won’t come close to covering the debt. (Think about General Motors’ bankruptcy.
This is a lottery that no one wants to win... As you know if you’ve ever read the story, every adult has to draw a card from the black box. Whoever pulls out the card with the mark of death (a black spot) is stoned to death. It’s a ritual killing. Every member of the community must take part. They even hand a stone to the victim’s young son, so he can take part in the ritual. The jubilee we’re about to experience will have many of the same characteristics... Millions of Americans will soon be calling for it. Some violently. The young, the poor, and the ignorant will all rally for jubilee. They will, in effect, start piling up stones. And the person who is going to be ritually killed? That will be us. Economies collapse when debt-service costs grow faster than income for a long time – usually 50 years or more. These aren’t normal default cycles. These are far different... These are debt-fueled revolutions. What happens is that debt builds and builds. Once debt-service costs start growing faster than the economy, then the total debt is never reduced. Sooner or later, debt begins to grow geometrically, far faster than income. And
The young, the poor, and the ignorant will all rally for jubilee. They will, in effect, start piling up stones. And the person who is going to be ritually killed? That will be us.
The government put an additional $50 billion into the company, and it still couldn’t pay its creditors.) And sometimes even extreme amounts of money printing doesn’t work because interest costs increase more than inflation,
then... it simply can’t be managed. That’s when the crisis hits.
American Consequences | 25
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