Omission of a scenario

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Ragnar_Danneskjold's picture
Ragnar_Danneskjold
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Omission of a scenario

Chris speaks of debt elimination through default or inflation.  While either of those scenarios is very possible, there is a third and very important possibility....immediate payment of the debt.  Suppose I have assets of $10000, and I borrow $1000.  And then suddenly, TSHTF much as it is now.  I might opt to sell whatever assets I can to pay off the debt, espcially if the interest rate is variable and I suspect that the rate may increase significantly.  Or perhaps my labor is valuable enough and/or my discretionary income is adequate that my payment of the debt can occur over a shorter period of time than originally envisioned/negotiated.  Or perhaps I defer consumption and make do with some items longer than normal.  Inconvenient?  Yes!  But the scenarios Chris describes are avoided.

I think this is a glaring omisssion.  I also think that it is an explanation for what is currently happening in the economy at the moment....specifically that current consumption is being deferred,  assets are being sold, and discretionary income is going toward payment of debts.  This activity then causes price DEFLATION (temporarily at least) until such time that those activities are no longer possible, i.e., assets have been sold, consumption can no longer be deferred, and discretionary income no longer exists.

 I'd appreciate other's thoughts about this. 

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strabes
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Re: Omission of a scenario

The problem is our total debt exceeds our assets.  We can't pay it back.  Your scenario of having $10k in assets and $1k in debt is quite the opposite of the situation a ton of people are in.  Those people have debt > assets.  Stuck. 

The 3rd scenario Chris omits is declaring the end of debt-based money and wiping out all current debt.  That would fix it immediately, and banks would thankfully no longer exist in current form.  It would end the worldwide slavery to banks...the hopeless system we're all caught in that must go through inflation/deflation cycles due to its very nature.  It would be like the 7th year jubilee or sabbath year in the bible where all debt is wiped out. 

I don't know why Chris doesn't propose this.  Perhaps because he doesn't want to get into politics.  Perhaps because he doesn't understand the malignant cancer that the banking infrastructure is.  That's too bad.  Unless we get rid of that, this problem will never go away.

 

Ragnar_Danneskjold's picture
Ragnar_Danneskjold
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Re: Omission of a scenario
strabes wrote:

The problem is our total debt exceeds our assets.  We can't pay it back.

  

Collectively?  Maybe.  I don't think a sale of national assets toward reduction of debt is out of the realm of possibilities though.  The Louisana Purchase, and Alaska might be examples.  Those transactions occurred because France and Russia needed to pay off debts.  Or maybe our creditors "repossess" industrial assets here. 

 

strabes wrote:

Your scenario of having $10k in assets and $1k in debt is quite the opposite of the situation a ton of people are in.  Those people have debt > assets.  Stuck. 

Thankfully, I'm not presently in that position.  And I am taking some of the actions I described, i.e., tightening the belt and paying down debts faster than originally planned.  It has been inconvenient, but doable so far.  

strabes wrote:

The 3rd scenario Chris omits is declaring the end of debt-based money and wiping out all current debt.   That would fix it immediately, and banks would thankfully no longer exist in current form.  It would end the worldwide slavery to banks...the hopeless system we're all caught in that must go through inflation/deflation cycles due to its very nature.  It would be like the 7th year jubilee or sabbath year in the bible where all debt is wiped out. 

   Who are you expecting to make such a declaration?  Bankers?  Why would they, especially since they have the politicians in their pocket?   Otherwise, I think what you are describing is default.   However, bankers suddenly feeling philanthropic and deciding to forgive all debts, that is definitely a fourth scenario, if you accept what I described as the third.  It is very unlikely, but I suppose one could have that hope.  

 

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Thomas Hedin
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Re: Omission of a scenario

I just filmed Byron Dale over the weekend that gets into explaining all of this stuff.

I believe the root problem we face is the fact that all money enters circulation through an interest bearing loan.  Which means as soon at time and interest kick in, the debt grows, but the money supply does not, leaving the total debt larger than the money supply.

I hope this helps you out.

 part 1 (watch in full screen HD)

 part 2 (watch in full screen HD)

 

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strabes
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Re: Omission of a scenario

Hi Ragnar, you're correct the bankers would never forgive the debt.  Nor would our current political parties.  It would take a revolution of ideas and a revolutionary leader from a completely different party who believed in sound money and ending our slavery to banks.  

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Re: Omission of a scenario

What it is going to take is a change to the law so that there is money being created free of debt or taxes, spent into circulation for the benefit of the people.  I believe that should be done by monetizing the production of our infrastructure.

If anyone else can come up with a better idea, I'm all ears.

 

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Re: Omission of a scenario

Ragnar, Chris does identify the 3 options: pay the debt back, default, or print money (inflation).  Only the government can do the 3rd option. 

My perceptions:

Payment of debt is occuring by some individuals or organizations; I sold assets and paid down some of my own debt last year.  But collectively, as a whole, we cannot pay all our debt back because asset values have declined and because there isn't enough money for interest on the debt unless the system keeps expanding.

Bankers are always accepting default to a cetain extent when they sell non-performing loans at a fraction of original value and get them off their books.  The problem seems to be lately is there is so much toxic debt if the big banks write it all off like they should they are clearly insolvent.

Wiping out all debts and declaring a jubilee I see as a form of default.

In the future I see a likely combination of all 3 options occuring, with individuals and corporations mostly defaulting and the government mostly inflating.   

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Thomas Hedin
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Re: Omission of a scenario

I agree with you that this debt is a huge problem.  But our government creates no money under current law, only the banks do.  We are going to have to create a mechanism to pay off this debt, do you have any ideas?

Woodman, this is the best two part video series showing how it is impossible to pay off the total debt.  It is true that individually we can get out of debt, but collectively we cannot.

part 1 (watch in full screen HD)

part 2 (watch in full screen HD)

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pleaseremoveme
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Re: Omission of a scenario

It is not really a problem that there is more debt (30 to 40 times more actually) than money: the same money can be used to pay of debts serveral times, just as the same money has created debts several times. The problem of paying back the debts is that money that used to be available for other things, money that the current economy needs, disappears into bankvaults.

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Thomas Hedin
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Re: Omission of a scenario

It is not really a problem that there is more debt (30 to 40 times more
actually) than money: the same money can be used to pay of debts
serveral times, just as the same money has created debts several times.  Money is created when loans are issued and debts incurred; money is extinguished when loans are repaid.  The Fed, the treasury, and the library of congress agree.  Anytime principle is paid off, that money is taken out of circulation and destroyed.There is no money created to pay interest.  There is no money until someone borrows it, at interest.  We just simpley have to have everyone face this fact.  Did you watch that two part video series I linked?

 

The problem of paying back the debts is that money that used to be
available for other things, money that the current economy needs,
disappears into bankvaults. Then wouldn't the logical solution be to have some debt free, tax free money spent into circulation so the economy can continue to function without debt and interest?

 

If you could design a way to pay down this debt, how would you do it?

Ragnar_Danneskjold's picture
Ragnar_Danneskjold
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Re: Omission of a scenario
Woodman wrote:

Chris does identify the 3 options: pay the debt back, default, or print money (inflation).  Only the government can do the 3rd option.

I didn't really hear much about the "pay back the debt" scenario in Chapter 12 or its possible effects.  Granted, the desire to accelerate debt repayment is almost always a short term phenomona, but even so, it causes some major havoc.  I think most people want to "do the right thing" and repay their debts, and therefore in a crisis like this the attempt is made to get current or debt-free.  But doing so has consequences.  Given the severe impact that results from attempts to accelerate debt repayment (i.e., contraction of consumption, credit, jobs, etc.), it seems like that should have been discussed to some extent.   

 

Woodman's picture
Woodman
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Re: Omission of a scenario

Actually for the 3 options I must have been thinking of CM's blog post January 13, 2009.  Some discussion also on January 14.

http://www.peakprosperity.com/blog/crisis-explained-one-chart-debt-gdp/11570

Tom

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pleaseremoveme
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Re: Omission of a scenario
Thomas Hedin wrote:

It is not really a problem that there is more debt (30 to 40 times moreactually) than money: the same money can be used to pay of debtsserveral times, just as the same money has created debts several times.  Money is created when loans are issued and debts incurred; money is extinguished when loans are repaid.  The Fed, the treasury, and the library of congress agree.  Anytime principle is paid off, that money is taken out of circulation and destroyed.There is no money created to pay interest.  There is no money until someone borrows it, at interest.  We just simpley have to have everyone face this fact.  Did you watch that two part video series I linked?

 

The problem of paying back the debts is that money that used to beavailable for other things, money that the current economy needs,disappears into bankvaults. Then wouldn't the logical solution be to have some debt free, tax free money spent into circulation so the economy can continue to function without debt and interest?

 

If you could design a way to pay down this debt, how would you do it?

 

Firstly, money is created as a loan. But then someone earns that money... and lend it to someone else. The same money has now created it's value in debt twice! Worse: banks lend to each other, so even before money reaches business, it usually has already created it value in debts several times. However, only when debts to the central bank are repayed, money is 'extinguished'. Secondly, the FED pays all of it debts profits back to the treasury. So the base money supply is already almost debt free! Only the operating costs for the FED are spend. If the treasury issued it's own notes, wouldn't that cost them just as much!? Just an inherent protection against hyperflation, the independence of monetary policy, is taken off: call that an improvement!

Now complementary currencies like Dale suggests, created independently of the normal banking system may help to solve some problems. But remember that they will always create new problems of their own.

 

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strabes
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Re: Omission of a scenario
woupie wrote:

Secondly, the FED pays all of it debts profits back to the treasury. 

Au contraire!  The private owners of the Fed banks get 6%.  That's how they've become by far the richest people in the world.  The Rothschilds are worth 100 to 1000 times more than Bill Gates according to some research...they've owned the BOE for hundreds of years and they own a nice stake in the US Fed regional banks.  Rockefeller family is worth 50 times more.  People who sit at the top of the banking oligarchy by definition MUST be worth way more than a software entrepreneur.

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Re: Omission of a scenario
strabes wrote:
woupie wrote:

Secondly, the FED pays all of it debts profits back to the treasury. 

Au contraire!  The private owners of the Fed banks get 6%.  That's how they've become by far the richest people in the world.  The Rothschilds are worth 100 to 1000 times more than Bill Gates according to some research...they've owned the BOE for hundreds of years and they own a nice stake in the US Fed regional banks.  Rockefeller family is worth 50 times more.  People who sit at the top of the banking oligarchy by definition MUST be worth way more than a software entrepreneur.

hmmm this is true i agree with you buddy :) i like it

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james_knight_chaucer
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Re: Omission of a scenario

This thing about the Rothschilds owning the Bank of England is an old wives' tale. It was nationalised in 1946.

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