Guest Post: Unleashing The Future: Advancing Prosperity Through Debt Forgiveness (Part 1)

Tyler Durden's picture

Submitted by Zeus Yiamouyiannis, contributor to Of Two Minds

Unleashing The Future: Advancing Prosperity Through Debt Forgiveness (Part 1)


My last article on debt forgiveness, Endgame: When Debt is Fraud, Debt Forgiveness is the Last and Only Remedy must have struck quite a chord in discussions of the future of the economy. It was re-posted on scores of websites and received over 20,000 reads on Zero Hedge. It also resulted in a reference on the Max Keiser Report and a subsequent interview with Max Keiser. This led in turn to a popularization of a term I used, “fake assets,” to denote the true nature of “toxic assets”.

The good news is that people are talking, attempting to assess the situation in real terms, and looking for an alternative to the broken system. The bad news is that this discussion has not been turned very much toward practical directions. The main contention in my original article on debt forgiveness and subsequent interview was simply that ignoring the mathematics of debt (where debt grows exponentially and real growth is limited), especially when magnified by tens, if not hundreds, of trillions of dollars of additional fraudulent debt, is a dangerous fantasy that worsens insolvency and accelerates collapse. “Extend and pretend” cannot provide an answer but can only amplify current destructive trends and delay serious preparation of an alternative.

This series outlines some of the alternatives to the current impasse.

Principles and issues in debt forgiveness administration:

Before embarking on a mission to address the standoff between people who cannot pay their debts and international economies that have been running on massive debts for the last three decades, one must do a reality check and establish sane observations and principles.

1) Debt that cannot (vs. “will not”) be practically paid is not a debt in its classical sense. It’s a default. Whether or not people want to recognize this reality is another issue. We recognize that a law that cannot be enforced is not really a law in any practical sense, so why are we dragging our feet with debt? Greece cannot pay its debt by any rational formula. It is already in default. Extending and pretending does not materially change this fact, it only delays recognition of the stark, enduring reality.

2) Debt based in fraudulent lending is also not true debt in any meaningful sense, since the loan along with its obligations originated from something (private fiat) that had no valid authority or exchange value to begin with. Much of the current worldwide debt simply stems from lending based in fraud numbering in the hundreds of trillions of dollars by institutions who did not have adequate collateral (i.e. held insufficient capital reserves, engaged in mark-to-fantasy accounting of their assets, assigned real value to fake assets like credit default swaps, etc.). A lending body cannot give effectively nothing to someone (claiming it is something) and legitimately expect to get something real back.

3) When debt systems are flooded with fraudulent currencies and claims, it is not true that someone, either the borrower or lender, will have to pay the “false value”-backed debt. You are not legally allowed to profit from crime nor legally obligated to support crime. This precludes the payment of many of the debts currently in circulation. In committing wide-scale control fraud, major financial institutions have broken laws. The laws they have broken are enforceable; they just have yet to be enforced.

However, even with successful prosecution, bankruptcy proceedings, and nationalization/receivership of offending institutions, we are left with a practical problem: Real currency has been mixed with fake currency, real debt with fake debt. Chains of title and claims to property have been so forged, electronically registered, diced up, and distorted as to make it difficult to sort valid ownership from invalid. When real money has been high-jacked and “disappeared” as with Bernie Madoff, what can be done to address this? These will be points of discussion later in this article series.

4) The mathematics of debt, even without fraud, would require periodic forgiveness or at least abatement. There must be ways for debts to be adjusted to contingencies. Economies, like families, go through good and bad times. Debt obligations are constructed as if there are only good times. Basically, the only way to pay off a debt is to outrun it in a time of relative stability. Even in eras of surplus, debt takes a big bite out productive effort, but it quickly becomes consuming as one gets behind in payments and as more and more of the fruits of effort must go to servicing debt.

At that point, loans become chains that tie people to mediocre jobs and underwater houses and no longer engines of mobile growth. Debt forgiveness recognizes this contingency and facilitates liberty, productivity, and global quality of life as the more salient indicators of vital economies. Policies and contracts ultimately must be in the interests of people’s well-being for them to be legitimate. Conversely, when debt is ring-fenced from contingency as with student loans, it will be become inherently corrupt and unjust.

5) In any rearrangement of the debt system, productivity and stakeholdership should be rewarded and parasitism should be punished. It’s easy to forget that people used to go to a banking agent to get a loan to grow their net financial worth through productive enterprise. In such a relationship the bank gained a stake in your success, not your misfortune. If we are serious about rewarding well-applied effort, then it would make sense to peg debt and debt obligations to the productivity growth curve of an enterprise or domestic product. Lending institutions, then, would essentially buy a longer term stake in the success of enterprises it funds, exert a due diligence proportional to its interest, and both benefit from and share the burden of inevitable rises and falls in growth.

In the housing-bubble debacle the incentives were exactly opposite. Irresponsibility was rewarded precisely because banks could sell off fraudulently documented loans as quickly as they could be signed. In late capitalism, bank support for productivity has been converted into support for exploitation and victimization, using repayment shortfalls to repossess assets from borrowers even though the bank loans were drawn from “money” backed by counterfeit assets. That has to be reversed—real money for real enterprise backed by real assets.

6) Things go down and not always up. “New era” rhetoric where financial gravity is suspended is a dangerous delusion. When we realize this simple fact and combine it with rewarding productivity and stakeholdership, we realize that our revenues and values will fluctuate dependent upon demand, environmental limits, and a host of other factors, some within our control and some not. Fighting this empirical fact, on the other hand, creates damaging and unsustainable living. Why not tie notions of prosperity and economic organization to optimizing our productivity, by identifying and working within the changing conditions, not distorting those conditions by taking on debt-credit to be paid by later generations?

7) The living shall not be beholden to the dead. When an individual person dies with debts, what can be collected from their remaining assets is collected and the rest is written off. Yet the opposite occurs with generational debt. Irresponsible borrowing by past generations is foisted on succeeding generations. The sins of the forefathers are preserved with interest to gouge the quality of life of younger people who neither decided upon nor benefited from irresponsible borrowing.

Certainly, we now see scorched-earth class warfare of the 1% against everyone else, but we are ignoring an even more profound unintended warfare by an entire generation of post-WWII world citizens against the wellness and interests of its own children. How could such a destructive myopia so thoroughly pervade society and bring us this critical historical inflection point? This will be examined in the next part.

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Nostradumbass's picture

1 ?

"The living shall not be beholden to the dead"

We wish!

Azannoth's picture

There is absolutely no Practical way of Transitioning from the current system to anything else without massive social chaos and disruption, irrelevant of 'political good will' or anything else, there are no solutions that allow the majority(99%) and the minority(1%) to keep their skins on their backs at the same time.

Even if Ron Paul would become President(even for 2 terms lol) there is no way to reverse the damage that has already been done period, we're in for a Shit Storm of Epic proportions whichever way this plays out

trav7777's picture

Bingo.  NO WAY OUT.

What we think of as money is an really unpayable loan.  Our counterparty is the future.

Max Fischer's picture



Unpayable?  Wrong.

Our money is a "loan" with a variable rate attached to a 40 year trend rapidly approaching Zero%. As the Fed quickly becomes the primary creditor, the small yield that is being paid by the Treasury to keep our fiat money afloat is rebated back to the Treasury at year end.  Net cost: near zero.  

By structuring it this way, the fear that the compound interest function will eventually gobble up an ever increasing share of tax revenues is rendered insignificant.  

You can find ethical problems with this all you want, but this circular loan is VERY payable.  With treasury auctions oversubscribed by record bids (last Monday's auction was 4X oversubscribed), apparently I'm not the only one who feels this way. 

Oh, and one last thing...  unlike Greece, unlike Weimar, unlike Zimbabwe, our debts our denominated in our own exclusive currency and we own the exclusive rights to the printer press needed.  

Very payable, indeed. 

Max Fischer, Civis Mundi


Clint Liquor's picture

If everyone wants Treasuries, why did the FED have to buy $1.2 Trillion of them?

Max Fischer's picture



First of all, I didn't say everyone wants our treasuries. 

Secondly, the fact that the Fed can be the surrogate bidder works to our advantage because the interest earned is rebated back to ourselves.  It doesn't matter if the money goes from the left pocket to the right pocket, it still stays in the same pair of pants.  With all that money staying within a two entity loop, inflation will remain muted.  

Max Fischer, Civis Mundi 

JLee2027's picture

Give it up Max. The debts are never going to be paid, no matter what BS you spin.

No replies to you, shill.

Max Fischer's picture



No replies to you, shill....

Strange post, JLee, especially considering you just replied to me. 

Sorry to disrupt the doomer chamber with an alternate viewpoint.  

Carry on with your gloom, doom and buried hams....

Max Fischer, Civis Mundi

Seer's picture

Ahem, "doom and gloom" would be in locking us into a system that leads us over the cliff.

Nowhere do you address the physical realities of the world.  To you, as it is to TPTB, it's just a matter of sliding around virtual bits.

And when you've got "the books" sorted out, then what?  There's still that pesky issue of resources for carrying on the growth meme (which WILL collapse: or, did you not hear that this is a finite planet?).

I'll side with Mother Nature on this one.  I think that she presents the ONLY way forward: rely and respect the physical, base our lives/systems on sustainability (not virtual bit twiddling).

Thanks for playing!

No Mas's picture


You understand the fiat currency system, understand reality and worst of all, you are literate.

There is simply no place for such a combination on ZH.  You are supposed to parrot the ZH party line; The "debt" will crush us and collapse is soon to be here.  Your knowledge and the information you provided makes heads here explode as they attempt to comprehend that which you articulate.

But thanks for trying.  You do a better job than most at trying to educate the resident sheeple.  The Tyler Durdens have cast quite the spell on them it would appear.

Upswaller's picture

Dear Puppet Pigman,

Is this all you do?  The only fathomable reason you write on ZH is in the position of a paid shill.

Go get a life, Pigman.

Ghordius's picture

Dear Upswaller, I regret the fact that whenever someone dissects an easy explanation tailored to be used in a shallow conversation as faulty you immediately see this person as a Pigman.

If you would ask some questions Max would probably expand on his (right) conclusion that fiat money is not per se evil or unpayable, it's the way very often is used - same argument as per weapons.

In fact, fiat money is historically mostly a war instrument - another reason why Ron Paul is against it.

This "Money is Debt" theme is an oversimplification - a way to get the deeper point across a continent that is too indebted. Useful Propaganda, at best. Propaganda must be simple.

Upswaller's picture

Confused.  My reply was to No Mas, not Max.  Either way, history shows the corruption of fiat, and ignoring this is simple-minded.

No More Max.  I like it!

JOYFUL's picture

who is this ourselves you speak of?  And the pants? Whose would those be?

I was walking in the night
And I saw nothing scary.
For I have never been afraid
Of anything. Not very.

Then I was deep within the woods
When, suddenly, I spied them.
I saw a pair of pale green pants
With nobody inside them!


Surrogate bidding and the invisible hand of the market huh Max? Proof that the markets are working?

Now that's scary.




Smiddywesson's picture

Lol, good one Clint.  Also, ask the egghead why gold continues to rise?  Why do all fiat currencies eventually fail? 

Clever theories don't interest me.  There are two or more differing opinions on each side of every trade and the good professor has chosen the side that is bankrupt.  LOL

Hey kid, did they teach you any history in those economics classes?  Maybe you should do a little research on your own. 

Smiddywesson's picture

Yes the US can buy its own treasuries ad infinitum, but a currency lives or dies on confidence, and being bankrupt is not a very confidence inspiring thing.  Your argument views the USA as an island unto itself, when in fact it is a participant in a global economy, where most of the participants are bankrupt too.  The USG isn't going to defy reality when the system cracks.  When Europe goes, we go too because of global counterparty risk.  How long do you think we will maintain control of the printing press when the EU goes tits up?  Say nighty night to your reserve currency status, and your argument that the US dollar is a perpetual motion machine.


Max Fischer's picture



Clever theories don't interest me....

What you really mean to say is "anything outside my echo chamber doesn't interest me."

Perhaps you guys should ask yourselves why the US dollar and US bond market hasn't collapsed, despite all the positive reinforcement you get inside your doomer shell.

Max Fischer, Civis Mundi

Smiddywesson's picture

Clever theories don't interest me, but classy responses without name calling do impress, so thanks.  (and appologies for the egghead crack)

Keynesian economics was clever, but unfortunately the clever theories that are convenient for TPTB don't ever have to answer the real hard questions.  History's full of clever theories by clever people of how the real world ought to work.  Traders laugh at them when they go bust, like LTCM.  You are no doubt right, the US dollar and the bond market will continue to do just fine, right up until they don't.  That's the problem with theory, it works great right up until the complexity of the real world batters it down or changes the rules.  If there's a theory out there which says there's no cliff ahead, I think past history undermines that assertion.  This Time is Different is a good book on the subject.  When countries reach this stage in their progression towards bankruptcy, the end is inevitable.  Yes, the US has a unique position with respect to the reserve currency, but that positon is teetering atop a bankrupt world.


Seer's picture

Give it up, Max, nothing that you're attempting to say hasn't already been said in a million ways and by a million pundits for TPTB.

Again, learn the distinction between PHYSICAL and VIRTUAL.  If you bleed then you're in the physical world, and it would behoove you to operate as such, or, if it's your preference, fully commit to that "other" virtual world.

Mother Nature doesn't play silly games, and humans shouldn't do so either...

Smiddywesson's picture

Doomer shell?  Moi?

I stopped being a doomer when I finally got it.  Like Agent Smith in The Matrix, I realized we are not really primates.  Only I believe we are lemmings.  We prosper and grow until we reach the tipping point in population and in the complexity of our society and everybody leaps off the cliff into the gaping maw of war.  Then their descendants build everything back up again to repeat the cycle.  That's what the surviving Romans did when they fled into the swamps to found Venice and the Renissance, and that's what our kids will do when this reaches its logical conclusion.  We can either go about our lives angry, or we can embrace our inner lemming and understand that you can't build a new society without first destroying the old one.  Sure, this time it will cost a few billion lives, but that's the price "human progress."

So you see, I'm not one little bit gloomy.

chubbar's picture

You are leaving out a few points Max. First, the U.S. is adding over a trillion per year to that total debt. 1 out of 6 people receive their paycheck from either the gov't or a gov't contract. Should the U.S cut the 1 trillion deficit to zero by some miracle, revenues will continue to drop through the floor because of mass gov't layoffs, the withdrawal of money they pay into the economy plus additional gov't benefits they would collect. This serves to further exacerbate the deficit and renders the current interest payments on debt more and more onerous. It also makes the repayment of debt less and less likely.

As the economy further collapses from this withdrawal of 1 trillion in deficit spending, a lot folks who were able to make payments on debt instruments now cannot and go into default. This requires even further gov't support for banks, fannie/freddie. The debt spiral continues to tighten until everything, including that debt held by the FED goes into default.

The gov't played it's hand and because it gave banks trillions of dollars, it no longer has a good argument for cutting entitlements or any other gov't service because it falls on deaf ears after the banking bailout, IMO.

You make a good argument why interest payments are becoming a non-issue, but the debt itself is a whole nuther can of worms.


trav7777's picture

you guys are focusing on the trees without seeing the forest.

The future is our counterparty and it holds CONTRACTION, not growth.  Every forward expectation in the aggregate is imperiled.

Reality is backwardated

Seer's picture

Mother Nature IS the forest...

Are people starting to understand what I've been saying about economies of scale in reverse?

Slinky down the staircase.  Respect gravity!

Random_Robert's picture

"Reality is backwardated"

-I like it. Short, succinct, and absolutley to the point.

Hell, the future does not even have to be backwardated- but clearly the degree of POSSIBLE contango in future productivity does not align with the exponentially climbing fiat money supplies, and parabolically negative trending interest rate curves.

Exponential economic growth- only if we simultaneously (and coincidentally) hit Ray Kurzweil's Singularity I guess.

I've asked many times what good legal tender (or anti-counterfeiting) laws will serve when money is freely lent at 0% for 30 year horizons.

At that point, just give EVERYONE a printing press and let's all party like it's 1929...


Ghordius's picture

I like it too! There is one spoiler, though: technology.

Reality used to be 90 peasants supporting 8 burghers/manufacturers and two warriors/aristocrats.

Reality is currently 10 agriculturalists supporting 30 industry workers, 5 policemen, 5 soldiers, several other support/supported categories and the two very, very rich citizens.

Reality shifts with every technology change - the spoiler in the party of doom - up to now.

Smiddywesson's picture

The gov't played it's hand and because it gave banks trillions of dollars, it no longer has a good argument for cutting entitlements or any other gov't service because it falls on deaf ears after the banking bailout, IMO.

Chubbar hit the nail on the head.  The USG lost the moral high ground for cutting government and entitlements when they gave away trillions of dollars to banks, insiders, and even foreign banks.  The conclusion of Adam Fergusson's book, When Money Dies, reads that at the latter stages of the Weimar Republic, all political will to deal with budgetary matters and deficits was lost by the participants, after which the printers took over.  Sounds a lot like us.  They have stolen the will of the citizens to sacrafice for an entity that robbed them.

trav7777's picture

this is the most idiotic thing ever written.

as if a loan repaid by currency worth half as much is really a repayment

Max Fischer's picture



You're just angry because I proved you wrong.  

You said the loan was not "payable."  It very much is.  

If your claim that repayment in a currency worth "half as much" - or simply, less than the original value of the currency - is not a credible repayment, then every 30 year mortgage paid off in 30 years would be in default.  The value of the US dollar 30 years ago is certainly worth less than today's dollar, so according to you, all debts denominated in 1970's dollars which were paid off this decade are in default?  

Stick to the white supremacy, KKK stuff.  You seem to have that nailed. 

Max Fischer, Civis Mundi

trav7777's picture

You haven't proven anything.  Absolutely nothing you have typed constitutes proof nor even a demonstration beyond a preponderance.  Your "point" wasn't even responsive to my post at any rate.

It isn't a credible repayment, idiot.  You don't get the point, I understand that.  You're unaccustomed to thinking and want to remain obtuse.  Have at it.  As for mortgages, the interest rate exceeds the rate of inflation or else the shit is a LOSS, yes.  That is how banks will account for it, ROI above inflation.  Nobody who does this for a living is a simpleton like you are.

And go fuck yourself, mudshark punk.

Max Fischer's picture



Very classy, as all low-brow, trailer park, grand wizards are.

You're twisting the conversation into something different, in an effort to back-peddle from a losing position.  To be honest though, I really don't have any interest in pursuing this any further with someone who is incapable of civilized debate.

Where I come from, racism and bigotry is nothing to be proud of.  In fact, it's despicable.  I know the world operates differently in the trailer parks, but I kindly decline the offer to walk through your door.  

Thanks anyway. 

Max Fischer, Civis Mundi




trav7777's picture

WTFever you say you belly crawling white punk.

The problem here is not just your low intelligence, it's that your original reply to me was a non sequitur.

Where I come from, pieces of shit like you are beaten into the pulp that they are.  People who cry racism to try to invoke cloture on a debate they are losing are not just guilty of argumentum ad hominem, but are really just tragically pathetic.  The future holds slaughter for you, and I welcome it just like I hope your daughter shares your "openmindedness" and gives you a niglet grandkid with a deadbeat father.  I will be busy practicing eugenics like the jews do.

Max Fischer's picture




Max Fischer, Civis Mundi

trav7777's picture

you're a piece of trash; I owe you no obligation to be classy

Random_Robert's picture

"As for mortgages, the interest rate exceeds the rate of inflation or else the shit is a LOSS, yes.  That is how banks will account for it, ROI above inflation."

Ummmm, so Trav- does that mean that current mortgage rates are indeed pricing in future deflation?

Or,  are they signalling that the banks are gearing up for massive future losses (That they can once again heap onto the ever building public debt haystack)?

It's a rhetorical question- the point being that thanks to the idiocracy, there is no "correct" option at this particular fork in the road. One way leads to Hellish inferno, and the other to Absolute zero.




trav7777's picture

mortgage rates can't "price in" what is incomprehensible to paper pushers.

The reality is that yeah, they're all losses.  The economy can't generate a positive ROI, so wtf does the coupon really matter?

Deflation is reality...its manifestations will not be reflected in increasing worthfulness of promises, however.  This is what I mean by reality is backwardated.

A claim on the future is worth less than then the same thing now.  A claim of interest or growth in a contractive future is worth zero.  This is what negative interest rates are telling you.   The economy is actually negatively profitable.

Read some other writing downthread where some other authors expand on this.

Normalcy Bias's picture

So, in other words, it's the economic equivalent of a perpetual motion machine! Amerikuh, fuk yeah!

Ponzi Unit's picture

Max, what about the 100s of trillions in interest rate swaps that are artificially holding down long rates? Ponzi demand is phony demand. Risky is not the word.

RockyRacoon's picture
Odious debt

In international law, odious debt is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

When a despotic regime contracts a debt, not for the needs or in the interests of the state, but rather to strengthen itself, to suppress a popular insurrection, etc, this debt is odious for the people of the entire state. This debt does not bind the nation; it is a debt of the regime, a personal debt contracted by the ruler, and consequently it falls with the demise of the regime. The reason why these odious debts cannot attach to the territory of the state is that they do not fulfill one of the conditions determining the lawfulness of State debts, namely that State debts must be incurred, and the proceeds used, for the needs and in the interests of the State.   Odious debts, contracted and utilized for purposes which, to the lenders' knowledge, are contrary to the needs and the interests of the nation, are not binding on the nation – when it succeeds in overthrowing the government that contracted them – unless the debt is within the limits of real advantages that these debts might have afforded. The lenders have committed a hostile act against the people, they cannot expect a nation which has freed itself of a despotic regime to assume these odious debts, which are the personal debts of the ruler.

Leraconteur's picture


What you neglect is the loss of confidence, decoupled from any objective analysis that says?

"Beyond this point on the spreadsheet, bond yields go parabolic."

Italy has better finances than many but confidence has been lost that they will get their act together, this results in bond interest rates rising.

If you think that the USA can avoid this loss of confidence, which is not math-based, you are delusional.

At some point investors will doubt the USA, zero-% interest rates and rebates netting out to the Treasury at year's end or not 

CitizenZeus's picture

From a technical and short term standpoint what you say is true, but it is patently and provably false from a long-term, systemic perspective. We live in a world of physical limits that simply do not "agree" with our games.  Physical laws of use and limit do not care about our fiat position.

From a relative viewpoint,  your argument may also look strong.  We probably will outlast Europe and may even be able to outlast China by being the banker of last resort, but banking does not run physical reality.  We won't be able to outlast Mother Earth, she who does not bluff and does not blink.

You never did answer the point about Mother Nature having limits, because it is not answerable within your framework.  Economies serve people, and people are not well served when their governments move debts from one pocket to the other.  How does this help citizens obtain food for themselves?  How does this provide them a living wage? How can this solve pollution or population growth?

It can't and it won't.  The only way to win your argument is to imply those issues won't matter and can take care of themselves.  That is simply suicidal magical thinking.  These are realities with serious implications for our survival.  Unless you can answer these real conditions and questions with your framework, what you seem to be suggesting is more fiddling while Rome burns.  "Don't worry, be happy.  We can zero out interest rates and make a diminishing minimum payment to ourselves on a debt that will never be paid off!"  

So is your credit counseling to people who need food and are without a job to simply get another introductory rate 0% credit card to pay off the old one?  Does this solve the long-term problem?  Of course not. And this assumes, of course, the conditions that allow this revolving roll-over can just tromp merrily along.  No new 0% credit offers, and the whole thing unwinds.  The same with the U.S.  Do you think the rest of the world will merrily keep shipping us goods, even while they are suffering, based on our fiat position which we abuse by buying up and hiding fake assets and extending money to ourselves to pay our own debts?  I don't think so.  

I don't know if you are trying to be clever or just ruffle some feathers, but it is hard for me to believe that even you take yourself altogether that seriously with this argument.  I'd like to see a real, tenable alternative offered to meet the growing real problems of resource scarcity and debt on a number of levels.

More jobs are bleeding.  More pollution is spewing.  Rearranging numbers, if anything, exacerbates the hubris that believes that these realities can be managed virtually.  We know they cannot.  We can manage perception and psychology and maybe prevent or delay a panic, but we have be coming up with a plan B that is not simply more of the same in different clothes.  

I challenge you on this.  Cleverness does not feed a starving child or heal a suffering planet.  

o2sd's picture

@Max Fischer

There are at least two problems with your thesis, but I will probably think of 3 more as I type.

1) Debt is secured by assets.

To repay the principal, even at zero interest, requires that you dispose of the asset at at least the outstanding principle of the loan. This implies that the asset price must as least hold steady, or increase.

If the asset price increases, the new owner will need to take out a larger loan to purchase the asset, hence increasing the total debt. If the asset price remains the same, the debt likeways remains unchanged. To pay down the debt, even at zero interest, requires that the principle be paid down, however the entities servicing the loan cannot continue to operate at a funding-lending spread of zero (0) basis points. 

Lending entities (i.e. banks) have employees and commercial premises that incur costs. They cannot continue to incur those costs if their revenue is zero. So even if the interest rates were zero, there would be no one available to lend the money out.

2) Zero Interest Rates can only attract capital while there is no other investment paying a return. That situation cannot continue for any length of time. Capital is formed from the balance of income and outgoings, quaintly referred to as a profit. Anyone generating a profit would be insane to invest their capital (profit) in debt instruments bearing zero interest. They would obviously be better to invest in their own income generating activities. Which means that the capital required to roll over the debt will need to be made from thin air, increasing the money supply, leading to inflation. Inflation in consumer goods leads to wage pressure, which leads to social unrest, which leads to more Government spending to buy off the unhappy, which leads to more debt.

3) The Fed does not generate capital. It holds capital as bank reserves, but it does not generate capital. Eventually the Fed will have swapped all of it's held reserves for treasury bills and other toxic assets (if it hasn't already). Once that is complete, the only way the Fed can continue as a creditor is to literally print capital off the press. Again, this leads to more inflation, social unrest, government spending, more debt.

The debt is easily payable in notional terms. Simply increase the money supply ten fold, wipe out everyone's savings, and the debt becomes tiny. On the plus side, everyone working becomes a millionaire, on the downside, a loaf of bread costs 100 dollars. 

The idea that the Fed and the Treasury can just keep swapping paper with each other is absurd. Only productive citizens produce capital, not banks or governments. The notion that either the government or Fed can solve what is essentially a capital misallocation problem is what will excacerbate the problem further.

Oh, one last thing, Zimbabwe's problem was a Current Account problem ( like the United States), not a Capital Account problem, and the Reserve Bank of Zimbabwe had exclusive rights to the printing press for ZWR.

snowlywhite's picture

"Our money is a "loan" with a variable rate attached to a 40 year trend rapidly approaching Zero%. As the Fed quickly becomes the primary creditor, the small yield that is being paid by the Treasury to keep our fiat money afloat is rebated back to the Treasury at year end.  Net cost: near zero. "

because malinvestment is such a joy(and that's what 0% always generated - 0% can be acquired by either 0% or by a combo of interest = inflation, so we had before plenty of cases of 0% real interest and each time it generated precisely malinvestment)


"Oh, and one last thing...  unlike Greece, unlike Weimar, unlike Zimbabwe, our debts our denominated in our own exclusive currency and we own the exclusive rights to the printer press needed.  

Very payable, indeed."


contrary to someone above, I think you're illiterate. Except Greece, all countries you quote(and a ton you don't quote) had exclusive rights to their printing presses and succesfully generated hyperinflation without any outside help. Sure, due to USD position, your imbecility will hyperinflate the whole world, not just US. But that's just a nuance; doesn't change the main direction.

It's not a matter of payable stricto senso. As in - you gave me 1M, I give you back 1M. If, inbetween, there are twice as many currency units, obviously I'm giving you back .5M, not 1.


It's not rocket science; the only rocket science and source of amazement is how much bullshit ppl. can sell themselves in order to avoid reality. And how much frustration they generate when reality slaps them back...

Belarusian Bull's picture

Fractional Reserve banking is the real trouble to deal with.

Money that are created by central banks, even if it's debt can be very-well written off, when you nationalise the bank.

Here in Belarus we have our fuhrer-communist(no joke) who managed to fuck up the economy even with national bank as a government agency.

The 3 major problems are :

  1)Fiat money

  2)Fractional reserve lending

  3)Central bank institution

When these are fixed, it is  impossible to fuck the economy, no matter what you do. Any attempt will be wiped out by the market. It's actually this simple.

Seer's picture

No, there will STILL be the fundamental disconnect that our systems, past, current and, until someone can provide me with some sort of model suggesting otherwise (been asking for it for a long time now), future cannot sustain on a finite planet as growth-only models.

As long as we delude ourselves that endless growth is possible we will be pushing future non-collectables on future generations.  Fiat and all that are simple signs of abuse are all but extensions of this fundamental failure.

Belarusian Bull's picture

There is no way the growth can be infinite. All i was trying to say is that the less the fuck with markets the better it is for everyone.

SilverIsKing's picture

What about 3 or 4 terms?  How about 2 terms for Ron and then another 2 for Rand?

Kidding aside, I agree that this is not going to end well.  The real unknown is the timing of when it all goes down but I find it interesting that recently, people who would previously shun me when I would talk of the issues we face are now listening more intently.  I think the masses are beginning to understand what is simple math.  ~$1.5T deficit + ~$15.1T debt = WE'RE FUCKED BIG TIME!

No amount of budget cutting is going to reverse the trend.  If interest rates increase, it's immediate game over.


kito's picture

relax, king silver, it will end well. all is fine. please stop what youre doing and shop. i promise you will feel better. go for it. max out the credit card. you will be doing your patriotic duty, i assure you.

SilverIsKing's picture

As long as Tulving and APMEX accept MasterCard and Visa, I guess you are right after all.  I was overreacting a bit.

Thanks for putting things into perspective.

trav7777's picture

none of this matters.

in a system requiring growth, when contraction is the forward reality, the SYSTEM cannot be repaid.  It really doesn't matter what the US debt is or anybody's debt.  The planet has entered an apparently permanent aggregate contraction phase.  Debt as an INSTITUTION is the problem.

Easy thought experiment...lend against the crops of a person when the river is rising and will flood more of his land each year.  His ability to repay is obviously would not lend, nobody would.  You can't lend against an expectation of MORE from him next year; his fundamental ability to produce is going down, not up.  Ok, so it's not water, maybe it's a lava floe, who cares?  The point is that his production base is contracting.

Aggregate net energy supply trends are forcing a future of LESS, not more, so nobody would, could or SHOULD lend.

The future is our counterparty.  Reality is backwardating

Ghordius's picture

growth? ok, but in a "mainly service" society, what is growth?

In monetary/GDP terms, if I cut your hair for 10 bucks, the GDP grows 10 bucks. If I paint a picture that is valued for 10 million, and I sell it, GDP grows 10 millions.

you are making a point using the world you see: less industry (some went to China), more lavish consumption on bigger and bigger houses, cars, etc. Yes, this is unsustainable and will not continue this way in the current path. nevertheless you are describing only a small part - specifically the core of the First World, i.e. the USA. The planet is finite, yes, but "growth" is there, otherwise billions of Indians, Chinese and others would not be living better today then ten years ago (in physical consumption of the "needs of life").

Real "Growth" is a new machine that does a better job then the old for a fraction of the costs (physical and monetary) then the old. It's technology based.

Debt as an institution is not the problem - to put it in a different way, go ahead and try to prevent humans from getting into debt with each other, it's an illusion! We are, as social animals, constantly getting into debt to each other! Even a mother/child relation is based on a certain "indebtedness" and "obligation" to each others.