Welcome to this episode of Finance U! This week, Paul and I discussed the implications of getting to The Fork In The Road, where one fork takes us down a path of bond (debt) destruction, and the other path is currency destruction.
The main issue we’re all going to be facing together, like it or not, is that after the tether to gold was severed on August 15th, 1971, there was no limiter left on how much debt could be created at the national level.
Which meant there was no effective spending restraint as long as the Federal Reserve, in cahoots with other allied central banks, was willing to print up fresh money to sop up all the new debt.
But the private sector does not live in a vacuum, and there, too, the message was received; borrow, borrow, borrow! And borrow we all did – there’s now just over $104 trillion of debt outstanding across all sectors of the US:
Perhaps obscured in that chart is that little wiggle there at the GFC from 2008-2010 is the event that very nearly destroyed the entire Western financial system, and scared the beejeebus out of the financial elites.
So, let’s look at that same data but expressed as a percent change in total debt as compared to a year ago:
Ah! Now we can see, circled in blue the first issue, which is that if credit creation dips negative, our system of money and credit and derivatives thereof threatens to completely collapse. Perhaps that wasn’t the best system to create and entirely depend on?
The second issue is that if you squint at the chart carefully, you’ll see that credit growth is sometimes as high as 16% but rarely below 5%. Well, that’s a lot more than GDP growth, which contains the insight that perhaps it’s not wise to constantly grow one’s debts faster than one’s income.
Unwise decisions meet fork in the road.
We’ve arrived. Navigating this period of financial, monetary and economic realignment is going to be really tricky. Gold and silver (over $60!) are perhaps telegraphing that we’re not alone in our concerns about the financial system and its murky ecosystem of counterparties and incalculable risks.
Another warning sign is in the sudden collapse of the “DIP” bonds that were only just placed on top of the First Brands reorganization husk. When trouble starts, it begins on the outside and moves in.
Tune in to hear the rest…
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by herewego