The Only Real Solution Is Default, by Charles Hugh Smith

Default, like winter, is coming, big time. From Charles Hugh Smith at oftwominds.com:

The destruction of ‘phantom wealth’ via default has always been the only way to clear the financial system of unpayable debt burdens and extremes of rentier / wealth dominance.

The notion that the world could always borrow more money as long as interest rates were near-zero was never sustainable. It was always an unsustainable artifice that we could keep borrowing ever larger sums from the future as long as the interest payments kept dropping.

The only real solution to over-indebtedness since the beginning of finance is default. There are pretty names for variations on default that sound much less gut-wrenching–debt jubilees, refinancing, etc.– but the bottom line is the debts that can’t be paid won’t be paid and whomever owns the debt as an asset absorbs the loss.

Every default is a debt jubilee for the borrower. Whether the default is informal or formalized in bankruptcy, the debt payments are no longer being paid to the lender / owner of the debt.

Every debt jubilee is a default that forces the owner of the debt to write the value down to zero and absorb the loss. The jubilation of the owner of the debt is rather muted unless the state swoops in and passes the losses onto the taxpayers via bailouts / transferring the losses to the public’s balance sheet.

Every default is a refinancing–to zero. We’ve refinanced the debt so the borrower pays zero and the value of the loan / debt is now zero.

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