Bob Prince tells the truth

Bob Prince was interviewed by Henry Blodget back in late January of this year.  You can watch the whole thing if you like but the important part is the 10-15 seconds that start at this point in the conversation.  Prince says that if your debt is in the hands of your enemy, they might try to use it as a weapon of leverage against you.  And so maybe its wise not to roll over that debt as it matures.   Sounds logical.   But then we hear the truth of the matter: we have to roll over the debt or there will be big trouble.

The fact that these assholes can sit there and say this with a straight face just annoys the shit out of me.  They clearly know we are running a debt Ponzi that there is no soft landing from.  But instead of telling the full truth and the implications and the correct defensive actions today for what must obviously happen in the not too distant future, they just sit there and talk around the elephant in the living room.

The fact that we racked up all of this debt in the past means that the lifestyle to which we have grown accustomed is a mirage.  We did not earn it, we borrowed it.  And when the debt can no longer be rolled over, which is inevitable at some point and likely driven by higher interest rates, our consumption must necessarily collapse.  The issue with this is that too many people are already on hard times and the coming austerity is going to slap them yet again, and hard.  They will finally get to the point of having nothing to lose and that's when things get dangerous.

The video is entitled, "The Economy Is Headed For '20 Years Of Ugliness' ".  I say that is true unless we the people do the right thing.  But what is the right thing?  We have AOC promising $100 trillion of spending on projects and programs.  We have many on the other side of the aisle laughing at her while promising more deficit spending, but just not quite so fast as the know nothing bartender congresswoman.  We have those in the federal reserve saying we can get by with careful management of the situation, etc.

It is almost too obvious for words at this point what the actual correct thing to do is but I might be the only person on the Internet saying it in so clear of terms.  So here it is once again.  First, acknowledge the root cause of all the problems.  Flush the noise.  It's not that difficult to get away from all the silly emotions if you just think about things the right way.  For example, with 9/11 there is so much silly debate about how the twin towers came down that I don't even talk to people about those buildings.  After all, they were hit by airplanes and so in the minds of many who know nothing about engineering, the government story might be right.  So I just focus on the building that collapsed into its own foot print at freefall speed without being hit by any airplane.  By focusing on WTC 7 we can just cut off 99% of the noise associated with the 9/11 debate.

In the case of economics and our society in general, there are 30 topics flying back and forth right now, but they all have one root cause which is that the herd cycles from conservatism to liberalism and back in predictable fashion and that the recent cycle into liberalism has now peaked. A major tenet of liberalism is consumption before production.   In other words, a debt based existence.  And so liberals put into place a fake money supply that not only applauded the acquisition of debt, but rewarded those who played along with it and put those who did not play along out of business.  The result is a global debt Ponzi which has been fueled by a fake and corrupt money supply.

The linked video's prediction of 20 years of ugliness sounds dire.  But it only has to happen if people continue to not understand the root cause as I have outlined it above.  To be clear, there is no avoiding a systemic collapse.  And that collapse will be no fun.  No hangover is any fun.  But if done properly, the hangover will be 2-3 years in length and then we could begin to move forward again.  The only way this lasts 20 years if we the people are stupid enough to let the complicit government control the wind down in order to protect their oligarch buddies from losing everything.  Japan was a good example of a Zombie economy which suffered for 3 decades of decline because the government was allowed to inflate away so much bad debt, all of which was eventually stolen from the purchasing power of the people through inflation.

The correct way to do it is to transition in an accelerated fashion from fake paper currency to real money.  By doing this, over the course of a few years you simultaneously default on the debts and you default on the savings of people who were dumb enough to store their life savings in fake paper assets.  You do this by introducing a parallel currency which is backed by gold in some way that is difficult or impossible to game.  I really like the idea of golden threads being woven into the currency.  In that way, the currency is simply the convenient container by which physical gold is traded within the economy.  The government issuance of the currency is thus no longer meaningful except as a promise that the weight and purity of the embedded threads of pure gold are as stated.  This cannot be gamed because it is just too easy to randomly sample the output of treasury bills.

But this is just part of the solution. In order to collapse the debt Ponzi quickly we have to get rid of fractional reserve banking.  You can still get credit, but not by expanding the currency supply.  Today if a bank wants to extend credit it is only limited on the amount that can be extended by a 10:1 fractional reserve rating.  This is easy to game as we found when Bear Stearns collapsed.  The forensic accounting found that organization was leveraged 36:1. 

Yes, it is possible to get a bank loan without fractional reserve banking.  If someone deposits money at the bank in a certificate of deposit which has a contractually agreed time frame of it, the bank can create a portfolio of lend-able assets.  When loans are created, the total amount of loans at any time must not exceed the amount of money that has been deposited by customers of the bank.  This is how honest lending works and it never changes the money supply.  That's how it avoids the boom-bust cycle of fractional reserve lending.

If we don't do something like this then, yes, 20, 30, 40 years of shit economy (and probably war) are in our future just as soon as the global debt Ponzi collapses.