30-Dec (BusinessInsider) — We try to spend this quiet time between Christmas and New Year’s Day thinking more deeply, so let’s begin with an uncomfortable thought: Maybe we’re wrong.
Yes, but about what?
The money created post-1971 has a serious flaw: Unlike the gold-backed money that existed before then, this new money lacks natural limits.
The banks that control it can create almost as much as they want. The only constraints are imposed by banking regulators and the central bank – the Fed.
Bankers, being human, are prone to error… especially when it puts money in their own pockets.
They make profits by lending money out of thin air. The new system, as it evolved, allowed them to lend more than ever… including trillions of dollars that no one earned. And no one saved.
That’s why they no longer give out toaster ovens to people who open new accounts. They don’t care so much about depositors.
What they want are borrowers… and the entire industry has put its shoulder to the task of inventing ways to lend fictitious money to people who can’t pay it back.
About 45 times more debt today than when the new money system began.
And this huge buildup of debt has funded much of the world that we know today…
…the “financialization” of the U.S. economy.
…the rise of the “Deep State.”
…the fast development of China and $10 trillion of U.S. trade deficits. The run-up of the Dow from under 1,000 in 1982 to over 17,000 today. The loss of U.S. manufacturing… the decline of the middle class… and the enrichment of Wall Street.
All these things are consequences of a credit boom, made possible by the post-1971 “paper”-dollar monetary system.
Forever Blowing Bubbles
We don’t know.
But our hypothesis is that, to continue living in the style to which we’ve become accustomed, this credit bubble has to expand further.
PG View: And that’s a pretty scary hypothesis, because at some point the whole thing comes crashing down on itself under the weight of that debt load. The experience of Japan suggests the economy can limp along for an extended period, but where Japan differs is that they’re a net exporter. We are a net importer and one has to wonder at what point the countries we import from will realize that the risks are just too great and refuse to extend us any more credit.