Sooner or later, all debt must die

Nov 25, 2011

Baltimore, Maryland

We were too busy yesterday to pay much attention to the markets. Besides, markets in the US were closed. Overseas, investors held their breath and their money. Merkel, Sarkozy and Monti were meeting to try to decide out what dumb thing to do next.

They've already hemmed and hawed. They've delayed and procrastinated. They've kicked the can down the road several times.

And now it looks like they've come upon the can again...with no more road left.

Now, it's time to kick the bucket. Yes, dear reader. All debt must die. Sooner or later, all debt expires. Either it is paid off as planned. Or not.

Since 'not' is the order of the day, everyone waits to find out who will not get what is coming to him...

...the millions of lumpen voters who believed that they could get something for nothing?

...or the few bankers, speculators, and risk-takers - the upper 1% -- who saw an opportunity to make some money?

The whole idea of modern government has been to promise the voters things you can't afford to give them...and then borrow money to fill the gap.

Eventually, as any fool could see, you'd run out of willing lenders and the jig would be up. But lenders are either surprisingly generous or amazingly stupid.

Colleague Joel Bowman tells us that lenders to Argentina are more on the ball. He quotes a resident of Buenos Aires, explaining the difference between government in the developed world...and government on the pampas: "In your country, it probably takes months, or maybe even years for politicians to break their promises. Here, they do so within weeks."
Everything seemed to be going along fine in America and Europe...until the private sector got into trouble. Then, the banks were in trouble too...because they had lent money to private lenders who couldn't pay them back. In America, the feds stepped in. After Lehman Bros. collapsed, they made it clear that the money would be there to bail out any major lender. As for the government itself, there was never any question that its credits were good; after all, it has a printing press!

In Europe, things are not so simple. Because neither Spain, nor Ireland, nor Italy, nor Greece has a printing press. Collectively, Europe has a printing press, of course. But it's under the control of German bankers. And so far, the Germans have as much as said that if there are any printing press bailouts it will be over their dead bodies...

...which is the way the Greeks, Italians, Spanish, Irish, and all the rest of Europe would prefer it...

...But as of today, the Germans are still among the quick and the printing presses are still not running red hot.

As for tomorrow...anything could happen!

But a couple things are clear.

First, the debt won't go can't be paid off...and - barring some growth breakthrough - neither Europe, America, nor Japan can "grow its way out."

Second, people in all three major developed economies are going to have to accept lower standards of living. In America, real, disposable household incomes - after energy and food costs, taxes, and debt-service - are going down. And people must now stop spending so much and save for their retirements - leading to less consumer spending, high unemployment and a more sluggish economy. In Europe, government-provided benefits must be curtailed.

In Europe and America people have been living beyond their means for many years, financed by going deeper and deeper into debt. The end of that cycle seems to have arrived in Europe...and, for the private sector, in America. The US public sector, on the other hand, still finds it easier to borrow than to cut spending. This will allow it to buy some more rope with which to hang itself later. ---------------------------------------- Have an enriching Saturday! ----------------------------------------

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*** What did you give thanks for, Dear Reader?

Our thoughts turned to house, hearth, family, friends...

...and to rich people.

Yes, dear reader, we gave thanks for the wretched 1% of the population that has made such spectacular financial progress over the last 10 to 20 years. They are reviled. They are hated. They are criticized and blamed. Poor things! What have the done to deserve it?

The typical working stiff earns less real money today than he did 40 years ago.

And as for the poor...their lot in life is even worse. When we drove down to Woodbine, Virginia...on our way to a family gathering...we were surprised to find a corner where there were dozens of Latin Americans, all hoping for work. They sat under a tree. They stood on the sidewalk. There were groups of them. Even though it was raining, lightly, they kept their vigil...a few raised their hands as we drove by in a pick-up truck.

What a life! These poor fellows must turn out every day...hoping that someone will pick them up...put them to work...and pay them in cash. No health care insurance. No pension. No paid holidays. No nothing.

And then...what about the middle classes? Even high-earning two-income professional couples find it hard to make ends meet. Taxes take a big chunk of their income. And then transportation takes out another bite. Send a child or two to college...have an accident...get divorced...fall ill - it doesn't take much of a set-back to tilt a middle-class family back below the poverty line.

And even when things go well, the middle classes have a rough time of it. They earn enough to live well...but they struggle to keep up with it. Two cars...two jobs...two children...sometimes two mortgages - and only 24 hours in a day.

The poor...the middle class...the proletariat in all its barely staying even. Can it invest money to build more wealth in the future? Can it power the economy to greater output with more demand for services and stuff? Can it take the time to discover new explore new follow up on its artistic, philosophic, religious or scientific hunches?

Nope. The lower and middle classes are spent out. Used up. Exhausted. Their houses have lost value. Their real incomes are falling. They're out of luck.

But what about the 1%?

Thank God for the rich! They may be greedy...or not. They may be conniving, underhanded and manipulative...or not. They may be zombie insiders who have worked the system for their own benefit...or not.

But they've surely made it big. And now the nation turns its tired eyes to them. It is up to them now. They must invest in new factories and new businesses; who else has the money? They must spend...spend...spend to keep the wheels of commerce turning; who else can afford to? And they must also pay the taxes necessary to keep the zombies going. They already pay more than the bottom 95% of taxpayers combined. They already pay 40% of all the taxes collected by the feds. Each one of the 1% already carries 10 to 20 zombies on his back.

Yes, dear reader, yesterday, we did not curse the 1%. We gave thanks for them. Long may they live!

And we hope they will remember this if we need to borrow money from them.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

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2 Responses to "Sooner or later, all debt must die"

Hasit Hemani

Nov 27, 2011

If you can not sustain a system it will collapse, simple.In older days this type of situation in Europe would have started war. Two wars are their testimonials.In the present scenario The mantle of finding an economic solution is again on Big Brother Germany. What ever they will prescribe they will face the ire of irresponsible member states. History repeats itself, only the form and pattern may be different.


Om Prakash Sharma

Nov 25, 2011

In India Politicians or no politicians take few srconds to break their promise. I fact thet [romise to break it and normally carry the script with them always.

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