Posted on 11/08/2009 4:24:37 PM PST by blam
The Problems With “Printing Your Way Out Of Debt”
By Bill Bonner
11/07/09 Beunos Aires, Argentina – Governments are running breathtaking deficits…and accumulating alarming debts. Japan has a national debt of nearly 200% of its GDP. Where did that debt come from?
It came from 20 years of trying to buy its way out of a slump with borrowed money. Of course, it didn’t work. But now, Britain and America are following the Japanese lead…and the Japanese are still at it!
At the present rate, Japan’s government debt will grow to 300% of GDP in 10 years. America’s debt could grow to 100%…and then 200% of GDP…over the next decade (depending on whose projections you believe).
And Britain, if we read the report in The Financial Times correctly, will have debt equal to 200% of GDP within 3 years.
Just what kind of crisis do these numbers portend? It’s hard to say. Probably a combination of confidence, followed by debt default and inflation.
Would the US actually default? We agree with Paul Samuelson; the answer is ‘maybe.’ Samuelson, writing in The Washington Post:
“The idea that the government of a major advanced country would default on its debt – that is, tell lenders that it won’t repay them all they’re owed – was, until recently, a preposterous proposition. Argentina and Russia have stiffed their creditors, but surely the likes of the United States, Japan or Britain wouldn’t. Well, it’s still a very, very long shot, but it’s no longer entirely unimaginable. Governments of rich countries are borrowing so much that it’s conceivable that one day the twin assumptions underlying their burgeoning debt (that lenders will continue to lend....
[snip]
November 06, 2009
Josh Lipton
The American Enterprise Institute for Public Policy Research (AEI) published a paper indicating that “by all relevant debt indicators, the US fiscal scenario will soon approximate the economic scenario for countries on the verge of a sovereign debt default.”
Well, the U.S. is acting like a banana republic.
Lipton also quotes Einhorn and Rosenberg to argue that America's overheated printing presses and huge debts are helping to drive gold higher:
David Einhorn of Greenlight Capital, recently speaking of why he’s become a fan of gold, had this to say:
I have seen many people debate whether gold is a bet on inflation or deflation. As I see it, it is neither. Gold does well when monetary and fiscal policies are poor and does poorly when they appear sensible. Gold did very well during the Great Depression when FDR debased the currency.
It did well again in the money printing 1970s, but collapsed in response to Paul Volcker’s austerity. It ultimately made a bottom around 2001 when the excitement about our future budget surpluses peaked.
[snip]
Interesting and timely post. Thank you.
I too have been trying to wrap my head around the question, “What happens when not just the US, but nearly EVERY country in the entire world, has staggering, unserviceable debt”?
Still don’t know the answer but this is food for thought.
FRegards
In our debt-money system, all money is created from debt. Therefore, it is impossible to “print” our way out of debt, because for every dollar created, one dollar in debt is also accrued + interest. The government doesn’t, and can’t, create money. It can only sell bonds to private central banks like the Federal Reserve, who buy them with money they create from thin air. This new money is deposited in the banking system and fractionally multiplied up to 10 times by commercial banks making loans to individuals and businesses. In this way, 90% of our money is created by banks. All money is created from, or based on, government debt monetized by central banks. If it were paid back it would destroy the money supply.
Great guy. I’ve seen him on Glenn Beck. We need more like him.
Can you imagine our so called president sitting through something like that! Ha, I so wish.
He'd send out the Black Panthers, SEIU and ACORN to beat him up.
Eventually Ben’s ink and paper will become more valuable than the monopoly money he produces.
That’s approaching the Great Depression unemployment numbers.
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