Guest Post: The Great Global Debt Prison
Submitted by Giordano Bruno of Neithercorp Press
The Great Global Debt Prison
By Giordano Bruno
Neithercorp Press – 2/4/2011
Tense and terrible times inevitably summon an odd coupling of two
very different and difficult human conditions; honesty, and brutality.
Certain painful truths are revealed, and often, a palpable fury erupts.
Being that times today are particularly tense, and on the verge of
being spectacularly terrible, perhaps we should embrace both conditions
in a constructive manner, and become brutally honest with ourselves.
This begins by admitting to that which most ails us. It begins by
admitting how far we have fallen…
Our economy, our culture, our entire world, is built upon debt. No
one ever asked us if that’s how we wanted it, it is simply how the
system was designed when we came into it. Many of us have lived our
entire lives under the assumption that debt is a necessary function of
daily commerce and a valuable driver of successful society. Most
households in America operate at a steep loss, trapped in constantly
building cycles of liability and interest. There are even widely held
schools of economic thought that are centered completely on the
production and utilization of nothing but debt. Only recently have many
people begun to ask themselves what the tangible benefits are (if any)
in being dependent on debt based finance.
After careful examination, it becomes evident that debt does not fuel
economy, it suffocates it. It does not nurture growth, it stunts and
poisons it. Extreme debt is not a fundamental organ in a body of
commerce; it is an aberration, a spreading cancer which disrupts the
circulation of healthy trade. Debt is, in large part, unnecessary.
Of course, debt can be very useful if you are the controller or
determining overseer of a system, especially if you wish to centralize
and maintain power over that system. The tactical wielding of debt has
been used by elites for centuries as a means to imprison the masses, or
to create an atmosphere of endless dependency. Let’s take a look at
what debt really is, and how it is being used against the average
The Charles Dickens classic ‘Little Dorrit’ is commonly
misinterpreted as a “love story”, however, the primary character in the
book is not Little Dorrit, or the kindly Arthur Clennam, but the debt
system of Britain itself, and its effects on every social class from the
street beggar to the elitist socialite. Dickens despised the idea of
debt and debtors prisons, being that his father was thrown into one for a
good portion of his life, forcing young Charles to work just to support
his parents. Dickens understood well the evil intent behind the debt
system, and railed against it often in his writings.
One figure in ‘Little Dorrit’ which fascinated me was the character
of Mr. Merdle, a national banking superstar who dominates the investment
world with the help of British treasury officials and various political
deviants. Merdle is referred to by merchant circles as “the man of the
age”, a financial marvel who seems to make fortunes in every endeavor
he touches. Little does anyone realize that Merdle is a fraud, a Ponzi
scheme artist who takes money from unwary speculators and sinks it into
increasingly more tenuous investments. In order to continue hiding the
fact that all his financial ventures are ending in ruin, he lures more
and more depositors to pay off previous debts. The problem is that
Merdle is creating debt to chase debt. Eventually, his insolvency, and
that of all those who trusted him, will catch up and overtake the lie he
has carefully projected. All economic instability is invariably
revealed, no matter how expertly it is hidden.
Mr. Merdle, in my mind, is an almost perfect literary representation
of today’s private Federal Reserve and the global banking syndicates of
JP Morgan, Goldman Sachs, Citigroup, etc. The Federal Reserve, with the
help of politicians on both sides of the aisle, created a series of
illusory incentives (through interest rate cuts) which allowed banks to
begin lending almost unlimited fiat at rock bottom prices. America was
awash in credit, to the point that it was nearly impossible for the
average person to avoid the temptation of borrowing. What we didn’t
understand then, but are beginning to grasp now, is that credit derived
from fiat is not “capital”, it is NOT wealth. Credit is the creation of
an obligation, to be paid at a later date, if it is paid at all, and
because there are no rules to tie the debt to any legitimate collateral
(at least for banks), there is nothing to back the obligation if it
falters. Therefore, fiat induced credit is not the creation of wealth
(as Keynesians seem to believe), but the destruction of wealth!
Because of its lack of tangibility, debt can be packaged and
repackaged into whatever form banks like. Derivatives are a perfect
example of the phantom nature of debt; securities which have no real
value whatsoever yet are rated and traded as if they are a solid
commodity. This brand of commerce is, at its very root, a kind of
fiscal time bomb. Just as in the literary world of ‘Little Dorrit’, the
Ponzi scheme in our very literal world had to reach a tipping point, and
in 2008, it did.
One glaring difference between our troubles and those of Dickens’
fiction is that Merdle actually feels guilt over what he has done (or he
at least fears the justice that will be dealt him), causing him to
commit suicide towards the end of the novel. In the real world, the
Merdles of our era appear fully content to watch this country crumble
due to their intrigues, and rarely suffer any consequences for what they
pursue. In fact, the modern banking elite are more liable to revel in
the searing shockwave of a credit detonation, rather than feel any
“remorse”. The point is, Dickens saw clearly over 150 years ago what
many Americans today still do not; debt is an abstract idea, an absurd
game which confuses and ensnares innocent people. Debt based systems
con the citizenry into trading away their tangible wealth and labor for
the promise of future settlements that will never come. Debt serves
only to weaken the masses, and empower creditors.
The Consequences Of Debt
How has debt based economics served us so far?
The credit card debt of the average American household ranges from
$8000 to $15,000. Total household debt including mortgage and home
equity loans has hit an average of 136% of annual household income:
Approximately 80% of mortgage loans issued to subprime borrowers over
the past decade were Adjustable Rate Mortgages (ARM), meaning 80% of
mortgages in the U.S. have reset or are ready to reset at much higher
interest rates. There were approximately 1.4 million bankruptcy filings
in 2009, and 1.5 million in 2010. One in every 45 homes in America
received a foreclosure filing in 2010:
Keep in mind that in 2005, new government regulations were
implemented making filing for bankruptcy much more difficult. In 2006,
filings collapsed. Now, despite stringent obstacles, filings are up
again over 100%.
The “official” national debt now stands at over $14 trillion, which
is around 100% of U.S. GDP (with entitlement programs like social
security included, this number is probably closer to 400% of GDP) . The
100% mark is often cited as the breaking point for most countries
struggling to sustain liabilities. Greece’s national debt stood at 108%
– 113% of GDP when it collapsed into austerity. From 2004, to 2010 (a
span of only six years) our national debt has doubled. To put this in
perspective, it took the U.S. over 200 years to reach its first trillion
dollars of debt. Now, we are looking at the accumulation of at least a
trillion every year. This is unsustainable.
The much talked about debt ceiling has been raised six times in the
past three years. This frequency is unprecedented. International
ratings agencies are now openly suggesting an end to America’s AAA
A credit rating downgrade would be devastating to what little foreign interest is left in the U.S. Treasury bond investment.
On the local front, cities and states are on the verge of folding due
to the evaporation of municipal bond markets. Cities depend greatly on
two sources of revenue in order to continue operations; property taxes,
and municipal investment. Property taxes, obviously, are disappearing
as property values continue to spiral downwards. This leaves only
municipals, which have also unfortunately fallen off the map:
Wall Street analyst, Meredith Witney, recently stated in an interview
with 60 Minutes that she believed 50 to 100 American cities would
default in the midst of a municipal crisis in 2011. She was promptly
lambasted by the rest of the MSM for her prediction. In my opinion, she
was rather minimalist in her estimates, especially if the Federal
Reserve does not commit to another round of quantitative easing (QE3)
for the states (Bernanke denies this policy would be enacted by the Fed,
though, which means there is a good chance it will be).
To summarize, the U.S. is swimming in debt. Absolutely nothing has
been changed for the better in terms of wealth destruction and
liabilities since the credit crisis began, and the situation only looks
more precarious with each passing quarter.
Where Is The Debt Roller Coaster Taking Us?
What is the most likely outcome of the conditions described above?
The vital factor will be the continued Federal Reserve policy of fiat
bailouts as a “counterbalance” to the evolving debt crisis.
As is clearly explored in the Dickens novel we discussed earlier,
staving off the effects of debt by creating more debt is a temporary
solution that only leads to greater calamity down the road. Anyone who
believes that fiat inflation actually “cancels out” debt instability is
going to find themselves sorely disappointed. At bottom, government
created stimulus is not a solution to corporate engineered debt burdens,
but a reallocation of debt away from banks and into the laps of the
American taxpayer. The Federal Reserve and our own Treasury have not
paid off anything. They merely shifted the responsibility of payment
away from the banks that created the problem, and handed that
responsibility to us. On top of this, they have also set the dollar up
for a crushing blow of devaluation. Here is where the prison bars
If our historic debt is not being diminished, but only moved around
while it expands, then this means that eventually our credit worthiness
will come into question. In fact, it already has. Foreign investment
in long term Treasuries has dwindled. Our own central bank is now the
largest holder of U.S. debt, surpassing even China (Note: this news has
so far been ignored by almost all mainstream outlets):
So, the question of debt default turns from theoretical to quite
imperative. If the Federal Reserve continues buying our debt with fiat,
it means that the effects of the debt will only be delayed, the dollar
will be dropped as the world reserve currency, and hyperinflation is a
certainty. If they do not continue buying, then our government
defaults, the country’s financial infrastructure ceases to exist, the
dollar loses its world reserve status, and hyperinflation is a
certainty. The banking elites haven’t just erected a prison, they’ve
tossed us in Alcatraz!
The battle over yet another increase of the debt ceiling has obscured
the fact that the debt has already done all the damage it needs to do.
Freezing the ceiling in place becomes a battle of principle, and an
important one, but it would in no way stop the dysfunction and chaos to
come. At best, it might shorten the duration of the disaster by a few
years. The important thing to remember is that government intervention
will only incur greater loss. There is no easy way out, no magic
shortcut, no last minute brilliant idea that will wrap up this mess.
Years of hard work, determination, honesty, and sacrifice are ahead of
Inflation will be the buzzword of 2011. Endless debt facilitates
endless Keynesian liquidity. Expect to see commodities double once
again this year.
Household debt will probably level off through 2011, as more
Americans abandon their credit habits and make more concerted efforts to
save. In 2009, Visa lost 11% of its credit use, while MasterCard lost
22%. Over 8 million consumers have stopped using credit cards
altogether since the end of 2009:
Bank lending is still tight as creditors raise the requirements
necessary to receive FHA (Federal Housing Administration) mortgages:
Will credit use and debt based consumption ever return to levels similar
to 2006? Not a chance. One might predict then that savings will rise
dramatically as credit use falls, but this too is unlikely. Why?
Because over the next year Americans will be spending far more on
essential goods due to inflation than they ever have before. Whatever
savings they would have accrued will be eaten up by the relentless spike
in commodity prices. The term used for the combination of chronic
debt, low job growth, and burgeoning inflation, is “stagflation”. I
honestly can’t think of a worse situation than being subject to
exploding costs in light of a dilapidated standard of living. As
Dickens points out plainly in ‘Little Dorrit’, how can a man be expected
to settle his obligations when he is imprisoned for them?
Breaking The Cycle In The Midst Of Global Strife
Why after thirty years under the despotic rule of the Hosni Mubarak
regime did the Egyptian people suddenly decide to revolt? Why now? The
MSM will field a number of political tales, but the key to most popular
uprisings, especially in the Middle East, has been the lack of
necessities. The last time Egypt saw an uprising of this magnitude was
during the Bread Riots of 1977, when the IMF terminated state subsidies
of basic foodstuffs. Is it any wonder that turmoil has developed so
quickly in the region as grain prices double? This is the devastating
power of debt, and the so called “solutions” which merely perpetuate
Tunisia, Egypt, and Yemen, are only the beginning. The sting of
inflation will be unbearable as austerity measures take hold in Europe,
and the potential for riots in Greece, Spain, Portugal, and Italy looms
large. The most volatile environment on the planet to date, however, is
the United States, which, as we have shown in previous articles, is
being dismantled deliberately and viciously in preparation for IMF
regulation and centralization. Today, the IMF is stalking Egypt, ready
to pounce as the nation goes mad. Tomorrow, it will be us. I will be
very surprised if we are not hearing about IMF intervention in the U.S.
economy and the dollar by the end of this year, offering more debt, and
more unaccountable governance.
The secret to breaking the circle of debt is to adopt a policy of
decentralization, and self sufficiency. To take back control of our
local commerce and to establish micro-economies with self contained
methods of trade. Debt must be removed from the equation altogether,
and systems protected by flexibility and redundancy must be applied.
Savings and meaningful production would have to take the place of
endless spending and outsourcing. The claustrophobic nurse-maid
philosophies of globalism would have to be cast aside and replaced with
goals of independence and self reliance. By cutting our dependency on
the corrupt establishment, we sever its ability to feed off of us. By
building a better system, we make the faulty one obsolete. Whether or
not we throw off the trappings of the debt machine is entirely up to us.
Two very important steps are required; the realization that debt is
not the only way, and, the realization that debt is the worst way.
Prosperity is not achieved at the expense of the future. The society
that finally takes this fact to heart will accomplish incredible things