In fact, it used to be that my blog was the only hit for the the term "global debt ponzi" on google. In recent years other more visible players have figured it out as well. So today we see that the search for this term shows the famous blog ZeroHedge as the top hit with my obscure blog as #2. There are still only 512 hits on the entire web for this term so it is clear that the vast majority of people still have not figured it out but that will no doubt change rapidly in the coming years as the herd continues to wake up.
In any case, Mauldin's latest Thoughts From The Frontline continues wondering when the train crash will finally occur. His best guess, which I admit is just pure speculation, is that the Global Debt Ponzi ("GDP") will collapse within 12 to 18 months and that it will take about 10-12 more years before the entire global economic system is in default. My views have been consistent since I began this blog and so I will simply respond to Mauldin as follows:
The global economic system is based on fake money. All the actual value is missing from it and the only thing that keeps people trading using that fake money is confidence in the issuing authorities. When confidence is lost, the collapse will be exponential, not some slow event like John seems to think. Confidence is difficult to gain but can be lost in an eye blink.
As explained in this post, the real scary thing about exponents in economics is not the amount of collapse possible but rather the speed at which the collapse can occur. The speed disallows those who thought they had time to bail out and get safe from doing so. It also creates mass confusion and anger on such a scale that huge supply chain interruptions are not only possible but likely. What happens in this case when a bunch of people whose standard of living if not life itself depends on the timely delivery of goods from someone else? Do you think they will just sit there and starve to death? People can go a week without eating before they begin to die at an exponential rate. Most people have zero (0) food reserves on hand. If store shelves go empty it can get ugly fast. Government is not magic and they cannot fix this by snapping their fingers. When the collapse occurs, few will be listening to their orders. The supply chain interruptions will not be solved by presidential decree. Many people will die waiting for their Godverment to save them.
Mauldin is calling for a "Great Reset, when the global debt will be “rationalized” via some form of nonpayment". I want you to understand what that really means. ALL debts are eventually paid and cancelled in some way. The only question is by whom. If the debtor repays the debt, the debt was paid off by the debtor. If the debtor defaults or negotiates a reduction in debt, the creditor is the one who pays. But ALL debts will be paid by someone.
If there is ever any doubt about who will end up having to pay, let me be clear on one thing: it will be those with the ability to pay. Fault in the matter will not be important! Fairness will not be a consideration! The ability to pay will be the final arbiter in who ends up paying. This is an important point because if debtors simply do not have the means to repay, they will not repay. Sounds obvious but many do not get this. What cannot be repaid will not be repaid.
Now, here's where the twist comes. The debtor not being able to repay does not immediately mean that the creditor will have to end up paying. What if the creditor is leveraged to the teeth and the collapse of its debtors results in the collapse of the creditor? Or what if the creditor is an insider - he might strike a deal to have the government repay. In either of these cases the government will be viewed as the payer of last resort. Of course, government has no money of its own. So it will either then go around asking for a tax assessment to repay (impossible since nobody has enough cash on hand to repay) or they will generate the equivalent of a tax assessment by inflating the currency supply. At the end of the day the most likely one to have to pay is the population as a whole. When the debt Ponzi is in growth mode, the gains are privatized and squirreled away out of sight by the elite and when the bottom drops out the losses will be saddled onto the backs of the public. What happens then is based on how bad the hit is and since the debt is historically high it will be rational conclusion to think that the hit will will be devastating. In other words, the pitchfork revolution that "zillionaires" warned us about.
If all your wealth is denominated in their fake money then you will lose it all in the repayment of the global debt Ponzi. By effectively wiping the slate clean regarding the wealth you believe that you have on account, you will have helped to pay for the collapse of the corrupt system. The ONLY way to sidestep the bill is to get your wealth out of fake paper "assets" and into REAL money which is gold and silver bullion coins.
So how much time is there left? In truth, nobody really knows. The fake money mania can go on longer than many believe is possible. IF the US owes the world $21 trillion today, why not $100 trillion tomorrow? I believe that the only indicator we have of this is given by my Elliott wave model for debt accumulation. I've been following this chart for years in posts like this one whose model is shown below.
The updated model is below. It suggests that we are very late in the game here. This is how much time you likely have left to get a significant portion of your stored wealth out of fake paper assets and into the only real money that ever existed on planet Earth which is gold and silver bullion. It just so happens to be about the same amount of time left that Mauldin gives us...
Coins are the best because they are much easier to verify the validity of them. Avoid gold bars! If you buy a gold bar and then want to sell it to me after the collapse begins, I will demand to drill into it in several locations to ensure it is not gold plated tungsten. It is the only way to easily know. But if you want to sell me (trade with me) in gold bullion coins like US eagles, Canadian maple leafs, Austrian Phils or Chinese pandas then it will be very easy for me to test the validity of the coins without the use of drilling or chemicals. Those coins have exact dimensions and weights which cannot be faked due to the laws of physics.
- IF you make a 1.000 ozT fake gold coin using gold plated tungsten, it will have to be 7% physically larger than the real thing because W has a smaller atomic mass than Au (183.84 v. 196.97). This difference can easily be measured with a digital caliper. The thickness and diameter of every genuine government issue gold coin is available on the Internet.
- IF you make a fake gold coin that has the exact dimensions of the real thing, it will not weight the full required 1.000 ozT. It will be 7% lighter.
Brazil's federal debt with domestic creditors could not be paid either, so the currency was inflated mercilessly and the debt was then fully paid. Perhaps that's what Mauldin meant by over a decade for total economic destruction: because it takes time to inflate a currency by several orders of magnitude. Of course, ledgers will be nominally settled, but economic calculation will be impossible and the social economic fabric will be destroyed.
ReplyDeleteNobody knows the future with certainty and yes it could be exactly as you said. But then there are two big differences between USA and Brazil:
ReplyDelete- The dollar is the global reserve currency. If people lose confidence in it they are not just losing confidence in the US government but rather in the very notion of fiat currency itself. There's a huge difference between the people believing that the suffering of people like in Brazil is related to corrupt 3rd world government and people believing (and correctly so) that the very notion of fake paper fiat currency is a massive scam.
- Americans have been deluded on a massive scale to believe we as a population are "exceptional". Will people with such liberal delusions of grandeur live in quiet suffering as the government stays in power by paying their living with currency printing or will the people cut it short? Remember, Americans are heavily armed. Armed people do not think they need to burn a huge part of their lives living under the oppression of hyperinflation. They are more likely to take matters into their own hands and force change. As mentioned many times before, I think the pitchfork revolution might well occur in the US and if it does the AR15 will be the new pitchfork. No government has ever successfully repressed a population which is so heavily armed at the personal level as the American citizen.
I agree with your points, but don't think that they contradict mine. For, like in the 70s, the American people passively allowed their government to rob them their wealth by money printing for many years and never picked up their "pitch forks". I have no reason to believe that Americans would be less compliant this time, at least not to a great extent. Not that the tide to conservatism is not changing, but its pace seems to be slower than the economic meltdown. And, as I said, if the ensuing societal meltdown happens before a conservative foundation is laid down, what will take its place will be truly deplorable.
ReplyDelete