Quote of the Day
A debt jubilee is certainly appealing to debtors and those who see the cliff ahead, but recall that all debt is an asset that is holding up an asset class far larger than the debt itself: mortgage debt is what props up the entire global real estate market, and what happens to valuations when debt ceases to exist?
Those who see jubilee as a solution also tend to ignore that all this debt is an asset of which 90% is owned by the wealthy class who run the status quo. Every bond, every mortgage-backed security and every bundled student loan / auto loan is an asset owned by someone or some entity who depends on that asset and its income stream for their wealth and thus their political power.
To hazard a guess based on human history, the wealthy / powerful will probably not be too keen to surrender the vast majority of their wealth and thus their power in the laudable pursuit of eliminating all debt and starting over.
CHARLES HUGH SMITH
April 19, 2024
Living on Uneasy Street
Emphasis in the original.
I see the only way out of things is for hyperinflation to “cancel” both private and government debt. Hold on, it is going to be a bumpy ride.
Prepare appropriately.
There is no path out of the current debt/inflation/monetization bubble that isn’t extremely bumpy. The biggest question is who gets screwed hardest/fastest, as they will object the most. Personally, I’d think that screwing the top 0.1% to help 90% of the people would be better in the long run than vice-versa.
When the Fed defaults on their bonds, it is a mixture of people who get screwed. Pension/mutual funds could evaporate, banks go under, and the savings accounts of lots of people in the 90% lose their savings. It isn’t anything close to a clean division.
As opposed to the super-rich inflating those same “little people” assets to the point of worthlessness?
But it doesn’t matter. The system has to reset.
Seems to me the larger problem is the way that takes place inside our culture of well armed decadence.
A debt jubilee because of the Federal being unable to repay its debt does not mean the “little guy” does not have to repay their credit cards or mortgage. And it does little (it does eliminate the interest payments) toward eliminating the deficit.
IF the Fed defaults, all the super-big player will get the heads up, and have a chance to liquidate their bonds and place best on various things to profit from the chaos. The current super-rich have looted the nation via financialization, and they absolutely MUST lose nearly everything for any solution to have any chance of legitimacy and long-term success. If the vampires who caused the bulk of the problem get to walk away, then the rest of us are going to just get screw again, and harder, in some other way by them.
If someone killed your kid, and walked away saying “hey, the way I did it was legal at the time…” would you let that stand, and just shrug your shoulders? They killed our economy, and are trying to kill us. Prepare accordingly.
” Mortgage debt is what props up the entire global real estate market.”
Why do I need an entire “global real estate market” to buy a house from a builder?
No, we need a global real estate market so that papered morons of Harvard can leverage assets to make more fake money and steal more sweat of our collective brows. But they certainly aren’t necessary to the safety, comfort, and sheltering of yourself and family.
Nobody needs super-rich people.
“To hazard a guess based on human history, the wealthy / powerful will probably not be too keen to surrender the vast majority of their wealth and thus their power in the laudable pursuit of eliminating all debt and starting over.”
But thanks for making the case for jubilee. The rich should have thought this one thru. What one could get away with the last 5 time the fed kicked the can down the road? Isn’t going to happen in this day and age. We ain’t as nice as we use to be. The idea of private property and doing onto others isn’t the law of the land anymore.
A major hyper-inflation/depression of today will get you murdered for the “conspicuous consumption” of great depression era fame.
On top of that they’ve imported people that will actually eat you after your murder.
The destruction of American society is already baked in. Debt jubilee might postpone it somewhat. But debt is just one faction of a larger cultural decline. And like Covid, giving people extra money in many instances is just buying a party like it’s 1999.
Saying we have a “debt problem”, is like say we have a “gun problem”.
When it’s always what people do with them that’s the problem.
All this debt isn’t going to go away peacefully or quietly. History tells us that collapses of this magnitude are generally ugly, very ugly. They usually involve war.
The fed will never formally default, but they will effectively default on most of it when they pay the debt in dollars worth much less than when they borrowed the money. It’s been done before, for instance in France. In WWI, they took the franc off the gold standard, and the value dropped 70% – that is, it took 70% less of something of inherent value to pay off the government debt. In the 1920’s, the franc dropped another 40%. By 1960, they needed to issue the New Franc, which was valued at 100 old francs – and you can bet there was a limit on how many old francs you could change for new ones.
Finally, in 1999, the (new) franc was replaced by the Euro. It was then valued at only 1/8 the 1960 value. That’s only “ordinary” inflation, and the same thing happened to the dollar; prices now seem to average 20 times what I remember from 1973.