The Only Real Solution Is Default
The comments below are an edited and abridged synopsis of an article by Charles Hugh Smith
Borrowing money is like every other form of consumption: When it’s cheap and abundant, we over-indulge. The costs are only apparent afterwards.
The illusion that the world economy could add trillions in debt was based on zero interest rates and low inflation. There’s a lag between the expansion of debt/consumption and the consequences but now they are here: The growth in consumption and income required to fund ever-greater burdens of debt has ebbed, and so the global burden of debt is no longer sustainable/payable.
The solutions—printing money or transferring losses to the public—are no longer viable. With inflation rising, printing trillions to bail out the wealthy isn’t an option. The public, conned into bailing them out in 2008, has wised up.
The state protects the wealthy, so defaults that affect them are anathema. They will demand the state absorb their losses (profits are private, losses are socialized). The only solution is forcing the losses on to those who bought the debt as an income stream.
Some states will be able to print their way out of default but most will not, as unrestrained money printing on such a vast scale would devalue the US dollar, triggering an even more destructive systemic default.
Debt is a double-edged sword. Being able to borrow/spend huge sums is a great way to expand corruption, bribes, etc., but the habits formed by expansion of debt to fund soaring wealth inequality don’t serve the indebted entities when default removes borrowing as a way to pay.
Living within one’s means is the only solution to over-indebtedness (default). Those with secure, diversified net incomes will do much better than those with unstable, limited income.
The destruction of phantom wealth via default has always been the only way to clear the financial system of unpayable debt and extremes of rentier/wealth dominance. A bare minimum of, say, $100 trillion of the $300 trillion in global debt will default far sooner than most expect. The question is, who will absorb the $100 trillion in losses. Choose wisely, as defaults of debt transferred to the public bring down the system via political overthrow or currency collapse.
