Skip to comments.So How Do These Sorts of Crises End?
Posted on 10/28/2011 4:58:39 PM PDT by blam
So How Do These Sorts of Crises End?
Interest-Rates / Global Debt Crisis
Oct 28, 2011 - 01:38 AM
By: Paul Tustain
However this crisis is resolved, guess who'll be footing the bill...
The World has endured these sorts of crises before. Somehow they come to an end. What happens?
Sometimes, someone turns up who can prop up the collapsing debt mountain, and they make it grow higher, for a little bit longer. For a short while they are even called brilliant, but they leave a bigger problem than they started with. Eventually the thing comes crashing down and the creditors pay - always.
Whether the creditor pays through default or rapid inflation, or the mandated acquisition of government bonds by their pension fund, or the sequestration of their deposits, the result is the same: it's always the creditor who pays.
And so they should. They lent the money, and they receive interest for taking the risk of lending. It doesn't work well if they can take the interest without the risk - for which we need only look at the nonsense of naked CDSs! No - as some bondholders are currently finding out, the creditor always pays.
By and large the creditors in the west are the holders of about $100 trillion worth of currency denominated assets (bonds and deposits) mostly owned by savings institutions which themselves have been pumped up through tax incentives to save. Their owners are the people who are going to pay. That is good news and bad. Good for our children, who will not be saddled with this debt, and bad for us, as we will get pensions - paid in full - that buy a sandwich a month.
But until the bill finally lands on the mat, lots of earnest arguments and skilful men and women will turn up, occasionally even offering a glimmer of hope that somehow the creditors will not end up paying. Some will usher in false hopes, but the hopes will fade, until eventually - when the debt has finally become near worthless, and when even the savers realise it is so - some lucky individual will announce that the money printing and the devaluation is over. Then suddenly, as if by magic, it will be. This person will be the 20th or the 50th Treasury Secretary to make the announcement, but the announcement will stick, because everyone has accepted that the value of the old debt is finally zero. Only then will growth start over.
All currency denominated assets will by then be effectively worthless. Until then volatility in a generally downwards direction will be the norm as false dawns get debated, and implemented, and fail. It will be very difficult to spot the end of the process, because it will only happen when finally almost everyone assumes every monetary initiative will fail. That is a necessary condition for a return to sensible money.
That - at any rate - was how these things got resolved in the past. It's not very encouraging is it? Sorry.
I find my interest is shifting from the collapse, which is well underway, and which will go on in its chaotic way for a few years and will eventually consume the hugely indebted UK and USA economies, as well as the Japanese and the Europeans. Now I am wondering how to detect the nearing end of the process, when some wonderful profitable and productive opportunities will arise. We will then have the wind at our backs, with sound money and naturally re-emerging demand (albeit from a low base). In the meantime I will sit on my gold through the rises and the falls, and remind myself whenever I'm tempted to sell - which is frequently - that it's the creditors who pay, always. Until they have I must not get involved.
By the way, just in case I didn't mention it: THE CREDITORS ALWAYS PAY.
OWS calling for General Strike Nov 2. (25-27)
I think I will have coffee and Oatmeal.
I think I have that day off already. I need to pick up a job that day so folks don’t think I am on strike.
I’ve given up trying to guess when it will all come crashing down. Just when I think I got it figured out the end is within 1 or 2 or 3 or whatever years, something good happens and it starts looking like it won’t happen for another 10 or 20 years. I think the big timers can postpone the end for decades if they really put their mind to it.
Just ask the folks getting the 50% "haircut" with Greek debt.
In all fairness, if you are game to buy a one year bond that pays 150% then you know you have a pretty good chance of getting screwed.
I mean, if a guy boinks a street walker and gets the clap, does anyone really feel sorry for him? Should they bother?
Boy, I'll tell you, me too.
Do all your preps for the long haul.
I'm thinking they'll 'kick the can down the road' as long as possible. (How long can you pay debt with more debt?)
Loan me $20.00 and I'll pay you the $10.00 I already owe you, eh?
And speaking of Europe, here’s one that sorts out some of the recent confusion.
Why ‘Voluntary’ Haircuts On Greek Bonds Will Haunt Europe
Two things catch my attention:
(1) The debt to GDP ratio for the whole world - the whole world - is 300 percent.
(2) By the end of this century the population of the world will more than double.
Of course civilization as we know it is going to come crashing down.
There is no doubt that restoration of real money (medium of exchange AND store of value) will absolutely be required to resolve the crisis.
It is very difficult to imagine the circumstances that will bring this about, but it WILL occur, as you point out, because it always does.
I’m not completely sure what your 2 points was about...
however it did get me thinking.
it is possible that as long as the world population is expanding...that the developed world can continue it’s economic geometric growth even though the *developed* world population is stagnant or declining.
maybe this is the idea of the origin of the OWS and green party people for the concept of the developed world being a parasite on the world economy...not saying I agree with them, just that maybe now I realize where they got their cockamami idea.
I don’t know the answer when it comes to a world dynamic in which one population is expanding and the other sector of the word is declining and how that effects the dominant economy. But it seems to me pretty obvious NOW that the folks like me who are trying to predict the day of the whole system crash are not figuring the whole picture.
being on top of the world economy “heap” has more advantages than I previously figured. We can kick the can for a longer number of years if no one else has a better more sound system of similar girth.
This could take awhile to topple the american government pyramid scheme.
Maybe the end comes when everyone is firmly convinced that it can be postponed indefinitely? Isn’t that the way with the stock market? When everyone has bought in and there is no new money then the crash.