History has shown us that all the great empires of earth fell when they were at their peak; no exceptions. Empires are complex systems that sooner or later succumb to sudden and catastrophic breakdowns associated with fiscal crises. The fall is precipitated by a sharp imbalance between revenues and expenditures and the difficulties in financing the shortfall. History is not linear; it is cyclical. History has its grand empires, but it is also replete with Dark Ages, depressions and wars. History warns us that such cycles will reshape the basic socio-economic environment that we now take for granted. Many in the U.S. still deny that their empire and general economy are heading toward thorough collapse. Mainstream media instructs them to view this downturn as a short pause in the steady march of economic growth and progress.
However, to many observers, America seems to be at a juncture somewhat comparable to the days of Rome before the great fall. We are reenacting every folly that brought that great power to ruin—from arrogance and hubris, to assertions of global hegemony, to imperial overstretch, and resorting to “bread and circus” to massage the masses. Even Alan Greenspan has said the global economy has undergone “by far the greatest financial crisis globally ever.” Yet, politicians and the mainstream media are playing pretend games of recovery and false optimism, while we are about to drive off the same cliff that we did in the 1920’s when there was a massive transfer of wealth from the poor and middle class to the wealthiest 1%.
Empires, like America and Rome, grow so big and sprawling that they become impossible to manage, due to their complexities. The more things the over-stretched tentacles touch, the more susceptible the empire becomes to forces beyond its control. This creates fertile grown for demagogues to come along and do some very foolish things.
Early in our history, debt was largely unknown, except for home mortgages and some consumer loans, and both the people and the government lived within their means. Now we have come to the point where the ludicrous idea of piling on more debt will solve the problem created by too much debt.
America's debt is at 84% of GDP. Foreigners now own $2.5 trillion of America, with China holding over $1.3 trillion in Treasury debt. No foreign country is going to be willing to buy the $13 trillion of debt that we will need to issue in the next ten years, especially when the return is only 1%.
An ordinary Chinese person puts 40 percent of his or her salary into their bank account, while an ordinary American saves at most 3 percent. The problems of the American economy are too great to be reached by tried and true remedies of yore, like tax-cuts or lowered interest rates. Our debt is just too great.
In 1971, we abandoned the gold standard of checks and balances and we began borrowing against the future to keep the house of cards from collapsing. Wages and incomes became stagnant; jobs were going overseas. Without growth in consumer incomes, the economy could go nowhere, so we substituted debt growth for the growth of real commerce. Consumption was fueled by illusions of wealth created by asset price inflation borne of the “tech stock” and “housing” bubbles. Almost all of that economic growth and wealth was just a dream, ephemeral, a phantom.
Easy and cheap credit drove up housing prices, producing home equity that consumers could tap into for big ticket purchases or use to pay off credit cards. To keep the ball rolling, consumers re-maxed out the cards. As Epicurus said: “Nothing is enough to someone for whom enough is little.” When the bubble burst, the asset values and the illusionary wealth disappeared, and the economy died. But the debt remained.
The Secretary of Treasury, Geithner writes, "Without growth, we cannot begin the process of restoring fiscal responsibility." So, to have growth, we must be even more fiscally irresponsible?
What few fail to grasp is that in order to have a sustainable economy, we need to have an economy that doesn’t grow. A debt-based money system that must grow forever is just not possible in a finite world of resources. Even if we embrace a non-growing economy, how do we service the past debt? Remember, our government debt via Treasury bills is another person’s savings we borrowed. And the debt you owe the bank on your mortgage is money created out of thin air. That is how money is created in a fiat system; it is loaned into existence… at interest. Where does the money come from to pay the interest? From money someone else borrowed at interest.
Kind of a Ponzi scheme, no?
A Saudi saying, "My father rode a camel. I drive a car. My son flies a jet-plane. His son will ride a camel."
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