The Crash Course - Chris Martenson [37]
These days we have the means to create money electronically without involving paper or coins at all. A few keystrokes on a computer are all that’s required. Debasing and/or clipping coins was difficult (as you had to recall them first); paper printing was easier, but you still had to physically print and then distribute the money. Electronic printing is virtually instant and practically free, representing the easiest, fastest, and surest method of them all.
Such printing efforts have never worked for very long because the inevitable result has nearly always been ruinous inflation. In this sense, printing up money to pay off sovereign debts is nothing more than a poorly disguised form of taxation, since it forcefully removes value from all existing money and transfers that value to the debt holders, who otherwise might never have been paid at all. Some might even consider this a form of partial default, because the bondholders, too, are being paid with money that is worth less.
Of all the things that I track in my research, the variable that I follow most closely is the use of the official printing press to pay for government expenditures, past and present, that cannot otherwise be funded through legitimate means (such as current taxes).
Levels of Debt
The U.S. experience with debt is significant, but most other developed countries are in almost precisely similar straits. Feel free to mentally replace “United States” with the name of some other country, perhaps the United Kingdom or Japan, in the discussion below; the differences are few and have little impact on the final analysis.
The chart of total credit market debt seen in Chapter 7 (Our Money System, Figure 7.1) was a beautiful example of exponential growth, and there’s quite an interesting story embedded in its data. Roughly speaking, the total amount of debt in the United States doubled over the course of the 1970s. By the early 1980s it doubled again, and by 1990 it doubled once more, and then it doubled again by 2000. Between 2000 and 2010, debt doubled yet again, from $26 trillion dollars to $52 trillion dollars. We can see this all plotted out in the table in Figure 10.1.
Figure 10.1 Debt Doublings
Time between complete doublings of debt in quarters.
Source: Federal Reserve.
Do you see the pattern here? In the United States, total credit market debt has doubled five times in four decades. Everything that most people know about “how the economy works” was learned during a period of time when credit was doubling every 30 quarters on average.
In order for the decade of the twenty-teens to economically resemble any of the past four decades, we might reasonably conclude that credit market debt would have to double once more, from $52 trillion to $104 trillion, or an average of slightly more than $5 trillion per year. While the economy could certainly operate on a slower rate of debt accumulation, it will not operate in precisely the same way that it did while it was doubling so rapidly. On this basis alone we can predict that some change is in store if we conclude that another rapid doubling seems unlikely.
To put the next doubling in perspective, we might note that $5 trillion represents more than a third of 2010 GDP or that all of the mortgages on every residential house in America currently only total a bit over $10 trillion. And if somehow such a staggering amount of debt is achieved, what about the decade after that: the 2020s? Can we envision debt climbing from $104 trillion to $208 trillion for the United States? What kind of an economy is required to support $208 trillion of debt? Without getting too fancy and detailed here, such a level of borrowing