Uncomfortable Truths About Banking and Money

 

Most people like their truth palatable, easy to digest, and believable.  Unfortunately for our emotional needs, some truths are uncomfortable, unsettling, and difficult.

Regarding the United States, the U.K., Europe, and Japan IT IS COMFORTING TO BELIEVE:

  • Debt has increased exponentially for decades, and in the case of the US, for over 100 years. It has worked so far, so we want to believe it will continue for the foreseeable future.
  • Our governments act as if they believe we can borrow ourselves out of debt, spend our way into prosperity, and pretend and extend indefinitely.
  • Every major country has a central bank, so it is comforting to believe they are needed.
  • It is comforting to believe that gold is unnecessary. As per Warren Buffett, we dig it from the ground, and then store it in a vault, where it sits.

These may be common and comfortable beliefs but they are all incorrect, and will be proven false in coming years.

In the US, national debt has increased from about $3 billion in 1913 to over $19,000 billion ($19 trillion) in 2016.  That is an average annual increase of about 9% per year, every year for over 100 years.  Can debt increase similarly for another 100 years to over $100,000 Trillion?

  1. The crisis of 2008 hinted that “peak debt” had arrived. The Fed and other central banks responded to the crisis by creating more debt and supposedly “saved” global economies.  They made a bad problem much worse and merely bought time, which means the coming implosion will be more destructive.
  2. Debt cannot increase exponentially forever. Place 1 penny in a savings account at 6% annual interest and allow it to increase exponentially for 1,000 years.  Your $0.01 has grown to a few hundred bucks – right?  No!  It has grown to $202,000,000,000,000,000,000,000.
  3. Compound interest increases debt similarly, but in the US we begin with $19 trillion in debt, not one penny. Debt will not increase forever and there will be a reckoning in which assets will be marked down closer to intrinsic value.  What is the value of a 30 year bond yielding essentially nothing, issued by an insolvent government that cannot pay its bills without borrowing more?

Central Banks:  Every major country has a central bank.  Name one thing that a central bank produces, except massive quantities of paper and digital currency units that further devalue all existing currency units.  Central banks are valuable for their owners and for the financial and political elite – but not for most people and small businesses.

Gold:  If you listen to the financial and political elite they will probably inform you that gold is mostly useless.  But it has been money for thousands of years, is valued globally, and is convertible into paper and digital cash everywhere.  An ounce of gold sold for about $42 in 1971 and currently sells for about $1,250 in May 2016 – an annually compounded increase of about 7.8%.

Debt:  When the debt pyramid crashes, when bonds and currencies are marked down to near intrinsic value, when central banks create massively more currency units to “paper over” the coming crisis, will gold substantially increase in value?  Trick question!  Gold will always be valuable, but the dollars, pounds, yen, and euros will continue to devalue and, from a dollar-centric world it will appear that gold is becoming more expensive.  No – the apparent increase in gold price is largely caused by the devaluation of currencies.

Spend into prosperity, and borrow ourselves out of debt.  A moment’s reflection should demonstrate these are not true, even as political candidates promise more and more “free stuff.”

CONCLUSIONS:

 

  • It is comforting to believe that our politicians and central bankers will manage our countries and currencies for the benefit of all. Don’t plan on it.
  • It is comforting to believe that debt can increase forever with minimal consequences. Don’t expect another hundred years of this nonsense and don’t expect an easy resolution to the excessive debt problem.
  • It is comforting to believe that central banks are necessary. The truth will eventually become clear.
  • It is comforting to believe in paper assets, debt based assets, and fairy tales, instead of gold, silver, platinum, land, and other real assets. Gold thrives, paper dies.
  • It is comforting to believe that we can spend ourselves into prosperity. History suggests otherwise.

Which do you believe will have more purchasing power in ten years:  An ounce of gold or 13 one-hundred dollar bills?  An ounce of silver or a politician’s promise?  A ten year note purchased in 2016 that yields essentially zero, cost = $10,000, or 8 ounces of gold in 2026?

 

Confronting an uncomfortable truth today may improve your life tomorrow!

 

Gary Christenson

The Deviant Investor

7 thoughts on “Uncomfortable Truths About Banking and Money

  1. People like Buffet , Gates, and Zuckerberg, render the illusion of becoming benevolent when they (donate) their billions to tax exempt orgs… what a joke ! Buffet , Soros , and others like them are all “Rothschild lapdogs”… that money does not find it’s way back to “society”, unless the writer meant “secret society”.


  2. excellent essay Gary, and to my mind perfect sense. But why is it only 1 in 1000 pay only the slightest bit of attention? And do we have an obligation to inform those not aware of this uncomfortable truth?


  3. Gary, everything you said is completely correct yet you did not address the fundamental issue. I will play the devil’s advocate and explain the opposite point of view: The whole is more valuable than its individual parts. Society as a whole is of greater value than the fate of an individual. The productivity of an individual should benefit mostly society at large and no much his own lust for wealth and consumption. The word “social” enjoys a higher moral reputation than the attribute “selfish”. “Loving others” is a basis of a religion, while “working for ourselves” earns us the attribute of being a “nerd”. Warren Buffett understands that very well and for that reason he never gets tired of emphasizing that all the wealth he amassed over the years will eventually go back to society where is came from.

    Fiat money and fractional reserve banking is the consequence of that type of a thinking. The money we earn, we should not possess. That money and the wealth it represents should be immediately transferred to those parts of society where it can be used in a most productive way. For that reason, money should not have any real value and the saving account where it is being accumulated should not really exist. Money should always circulate so it can benefit society at large the most, even those parts of society which do not contribute to the productive efforts of the economy.

    Once thinking that way, the notion of debt loses all its scary aspects. As a matter of fact, debt was never paid in history and will never be paid in the future either. Fiat money and debt are both fictions in order to force us gently to serve the greater good and forget about our selfishness. In the deep past, the institution of a jubilee was invented in order to deal with the fact that debts can not be repaid. The non-ability of repaying debts is a consequence of the second law of thermodynamics. In a completely honest economic system, there should be no debts. Only gifts. As a matter of fact, the sum of all debts can not be repaid. Parts of debt can be repaid. Issuing a debt is part of the fiction.

    Reducing interest rates to zero is one new way to deal with the exponential growth of debt. Introducing negative interest rates will lead in time to further reductions of debt. The fiat money system properly administered has an almost infinite flexibility to adapt to economic conditions. It can easily survive for another century. Those who call for a collapse do not really understand the logic of fiat money. Introducing a new fiat currency is the simplest way to deal wit the problem. People forget quickly.

    Debt is being introduced into the economy for a simple reason: We will work only if we are going to be paid. Fiat money and debt is the systematic tool to overcome this selfish character of ours. We will work for being paid with the illusion represented by paper money. The Chinese and the Saudis delivered real goods to us and we paid them with paper. To keep them quiet we increase our defense budget. In the case of minor countries like Iraq or Lybia, we hang their dictators if they refuse to accept our paper. Enough said!



    • Robert : Great example of wrong thinking as in ass backwards completely wrong! A business person or entrepreneur is not ‘selfish’ by amassing wealth from their business activities – they are ‘serving the public good’ better than any other possible example. Society is nothing but a group of individuals – society has no rights and produces nothing, individuals do. Much more importantly money must represent human labor and must also have intrinsic value. Fiat currencies are a wealth transfer scheme that benefit their owners at the expense of everyone else. Fiat currencies can survive for another century? Really? Here’s a hot tip : don’t bet on that. Working for ourselves equals being a nerd? Actually everything you see and use and we need in our world is produced by individuals and every business on the planet started with someone working for themselves. It’s a real shame that the birth through death brainwashing for generations have produced unthinking people who actually believe that governments produce things, capitalism is ‘bad’, and working for oneself is ‘selfish’. Pathetic.


  4. The criminals who set up the Federal Reserve in1913
    were the best and the brightest of evil genius.
    Nearly everything that’s happened has been planned
    and executed with freemason numerology… there have been few mistakes or surprises that were not in the
    strategy… in fact, the way the pieces have fit together,
    one must believe that this is a repeat of what has happened before ,at the hands of an ancient cult that
    was carried forward… if anything, the plan has gone
    better than expected . It’s astonishing how willing
    room temperature IQ Americans have been to hang them
    selves in compliance with what was obviously done to
    destroy us… their job was to be scum….our job was
    to not comply… what they’ve done is a direct reflection of what we let them get away with,
    America was the bar of freedom…the example to the world.. we the sheeple have turned into pleasure seeking monkeys, most of which will now be put down,
    one way ort another…
    I’m not at all happy right now… I’ve spent 36 years trying
    to awaken a group of comanoids… my successes can
    be counted on less that 10 fingers… people apparently
    want to die..
    so f@#king be it… let the games begin.


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