Monday, September 22, 2014

Kings of Debt

As I ruminate over articles like this one at King World News, the love/hate relationship we humans have with debt never fails to amaze. The writer is astute in his understanding of topics pertaining to the issuance of debt, and the accounting of US debt on corporate and public sector books (in all its many and varied derivative forms), yet he seems confounded by the exponential growth of debt.

In some sense of basic book-keeping we humans seem to want to balance debt with equity, or to somehow balance liabilities with assets, so as to engineer some sort of balance sheet equilibrium.

And yet, we have over the years evolved into a curiously oxymoronic international financial and monetary system whereby debt represents both assets and liabilities.

We could call performing debt an asset, and non-performing debt a liability (from a "balancing" standpoint) and yet when systemically important debt fails, we simply print up more debt to cover it. Our valuation system, our bookkeeping rules and all the fiat money units on planet earth which we use to account for it are based upon debt. And yet we rail at the growth of debt. Here is wisdom:
Imagine the repayment of all the debt in the world. This would mean that not one piece of “paper money” would continue to circulate in the economic system. - Claudio Grass
Now THAT my friends, would be a deflationary nightmare that no central banker could endure.

As long as we continue to live in this Keynesian mass hallucination by which debt is used to satisfy debt, how can we ever expect debt to do anything but grow?

And when we repay consumption debt with debt based money both at home and abroad, and then reflect upon this uncontrollable growth of debt as something that can be managed or controlled. it is as if logic has either escaped the confines of reality, or our reality has taken on a cultural memory dimension that we cling to, while our reality escapes to the delusions of madmen.

Yes, we do remember a time when money had intrinsic, measurable, tangible value ... as gold and silver coin in hand. We can even remember a time when paper notes were redeemable for same, at parity. And yet, as we escaped into this realm of money backed only by future promises, we still held that it's value was tangible, and could balance debt.

Even when the AAA rated future promises failed, spectacularly so in 2008, we still clung to some distant memory that money could balance debt, because we just printed more of it, to enforce its performance by decree.

And still we fail to see the double standard of debt based money. Ruling class debts are always simply declared paid (through whatever issuance is required) while the debts of the little people are paid in full with their possessions (until they have none, and are put to work producing other people's possessions without wage).

This cycle of predation and opportunism continues unabated, generation after generation, until we come to today's era of unprecedented wealth inequality.

And the lure of easy money erases the cultural memory of a system designed to keep the royals in power, and the serfs in shackles just long enough for us to be surprised by how it GROWS.

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