Debt is Financial Life – Nonsense!

Examine the picture below. The global economy thrives on debt and credit. We purchase essential products using debt/credit. The U.S. dollar bill is a debt of the Federal Reserve. All debt based assets have counter-party risk.

The St. Louis Federal Reserve publishes data on “Total Debt Securities” in $ millions. Note the rapid rise since 1971 after President Nixon encouraged rapid devaluation of the dollar.

Yes, the total U.S. increases debt rapidly – about 9% per year on average since 1971. A graph of U.S. national debt looks similar and shows about the same rate of increase.

Gold bullion and coins are NOT debt and have no counter-party risk, in contrast to debt based assets. But who cares about gold?

  • Central banks profess little interest in gold, although they own a substantial quantity.
  • Wall Street makes little profit from gold – no interest there.
  • The middle class struggles to pay debts and shows little awareness of gold. (A change in attitude is coming!)

How does increasing debt affect us?

 

  1. Rapidly increasing total debt means more dollars in circulation and higher consumer prices.
  2. Increasing debt service for the masses. How much do you owe for mortgage debt, auto loan debt, student loan debt, credit card debt? How much interest do you pay each year?
  3. More profits for Wall Street.
  4. Debt increases every day – globally.
  5. Zimbabwe, Venezuela, Greece, and many more in the near future.

From 1934 Montgomery Ward Catalog:

Debt and Gold:

On the log scale you can see:

  • Total debt increased rapidly until about 2008, but the rate of increase has slowed since then. Regardless, debt is growing more rapidly than the economy which forces prices higher.
  • How much debt can the economy carry? Is “peak debt” or “debt saturation” the reason why central banks in the EU, Japan and the US have pushed interest rates to near and below zero? Can this end well?
  • Gold rose more rapidly than debt until 1980, fell for 20 years, and has increased since 2001.
  • On average gold increases along with debt.
  • Expect much higher prices for gold as the dollar and all fiat currencies are devalued.

Thought Experiment:

 

  • Which government expects to spend less and reduce debt each year?
  • Will military and Medicare expenditures decrease in the next 10 years?
  • Name the congressmen who want to spend less and balance the budget each year?
  • Does Wall Street support a reduction in spending, debt, and their profits?
  • Does the Federal Reserve want to reduce the profits of big banks?
  • Do Social Security recipients want their benefits reduced?
  • Do “Big Pharma” and the “Health Care Cartel” want their revenue and profits reduced?
  • Will the multi-decade trend of increasing debt and increasing prices reverse except as a consequence of a disastrous collapse?

Do you expect total debt to decrease in the next decade?

 

CONCLUSIONS:

 

Option A: More debt, more expenses, higher prices. Expect the same failed fiscal and monetary policies, more wars, increasingly fragile economies, accelerating consumer price inflation and an excess of “happy talk” from leaders. Gold and silver prices will rise.

Option B: Catastrophic collapse possible, global depression, nuclear war or expanded conventional war and much trauma for most people of the western world. In this hopefully unlikely collapse scenario, should you own gold and silver with no counter-party risk, or debt based paper that might be worth much less in purchasing power, or could become utterly worthless?

Given the debt policies of the western financial world, the following makes far more sense!

 

 

Gary Christenson

The Deviant Investor

My books:  gechristenson.com

9 thoughts on “Debt is Financial Life – Nonsense!

  1. Would someone please explain how gold or silver behave as money when a collapse occurs. I’m curious as to what percent of merchants are mentally flexible enough to say, “Oh, the FRN is toast, I am ready today to trade my goods/services for x amount of gold/silver.” To my thinking, there is no predicting what “money” will be post any collapse.


  2. Instead of buying eagles I buy “junk silver” , pre 1964. My reasoning is several. Upon a collapse of Fiat paper , which would no doubt be chaotic, what would a merchant accept easily, a mercury dime or a silver eagle? What would be more tradable a standing liberty quarter or an ounce gold coin? The coins are fractional and several would accomplish the purchase without being swindled changing or figuring out going rate on eagles. Your thoughts?


  3. Which should you own, gold and silver with no counter-party risk, or debt based paper in a nuclear war? What difference will it make. Neither will be worth any thing if the U.S. gets nuked since over 99 % of the people will be dead. Only those that are in nuke bunkers with years of food and water and breathable air will survive or someone living close to the border who might be able to escape.


  4. I take issue with the statement “Gold bullion and coins are not debt” . That is literally not true. Mining gold creates a huge debt to mother nature as the gold mining process creates lots of damage to the local environment including contamination of the soil and groundwater with cyanide compounds, which in turn lead to a loss of biodeversity. Other problems are sinkholes and erosion of the top soil. In Ghana where gold mining companies partly operate, they leave behind a waste land. Similar things happen in South America. Local populations have been protesting against gold mining companies for decades. It is not an exaggeration to say that the true cost of mining gold is not really paid by those who acquire gold. Every owner of gold is indebted morally to mother nature and financially to the populations living near the gold mining operations for the damage done to the local environment.

    The discussion about gold and fiat money should be more honest and more balanced. The truth is always more complicated that we like to think.


    • Nice job, Robert. Things are highly complicated. The one thing I tend to believe is when someone insinuates they know something, often they don’t.


    • Yeah, I’d much rather feed the military-industrial (and banker) complex. How much damage to the environment did the Mother Of All Bombs do a couple of weeks ago… in just a few seconds?


      • Oh, just noticed. I’m a different David than the other David who replied May 6th. I replied on May 11th.
        Cheers.


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