Not even microscopic or negative interest rates can keep a debt bubble inflated forever. From Max Rangely at mises.org:
Much has been written about the economic consequences of covid-19, yet, just as in many of the analyses of the Great Depression and the 2008 crisis, the years of accumulating debt preceding the event do not attract the attention they deserve. Covid-19—or to be more precise, the lockdown—has initiated a cascading liquidation of the debt bubble that has been building for a generation. From the early 1980s, each recession has been responded to with iteratively lower interest rates. Following the bursting of the late 1980s credit bubble, Greenspan inaugurated the loosest monetary policy for a generation, creating the dotcom bubble. When this burst in 2000, it was responded to with even lower interest rates, reaching 1 percent from 2003–04, generating the housing bubble. When this burst in 2007/8, the response was 0 percent interest rates, turning a $150 trillion global debt bubble as it was then—already the largest In history—into a $250 trillion global debt bubble.
When central banks set interest rates it fundamentally distorts the pricing mechanisms of credit markets, just like price setting in other parts of the economy. Friedrich von Hayek won the Nobel Prize in 1974 for articulating that interest rates, like other prices, should be set by the market rather than central planning committees. We are not surprised when the government setting the price of food in Venezuela leads to food shortages, so we should not be surprised that 0 percent interest rates leads to a shortage in yield for investors, leading to a $250 trillion global debt bubble.
Virtually all of what is now considered wealth is a debt-induced delusion, and the world will look radically different by the end of the Greater Depression. If you’re only going to read one SLL post tonight, this is the one. From Egon von Greyerz at goldswitzerland.com:
It drives you absolutely mad to see a whole world living a lie. How can anyone believe that the fake world the Fed and their fellow central bankers have created has anything to do with reality. We have fake money, fake markets, fake companies, fake banks, fake interest rates, fake income, fake pensions, fake social security, fake wealth, fake bail outs, fake buildings, fake holidays, fake cars etc which create false lives for most of us especially in the West. All these fake material values have also created false moral and ethical values.
IT IS ALL AN ILLUSION
So you might ask how can it all be fake when we can touch it, use it, or experience it. For people who don’t understand that it is all fake, let me say that we will all soon realise how fake it was. Because many of these things that we perceived as real were all an illusion.
An illusion is defined as “an act of deception” or “something that produces a false or misleading idea of reality. And that is exactly what we have been exposed to. The world had been deceived but we have all believed that it was real.
DEEP STATE WILL LOSE CONTROL
There is a perception in the world that things will continue as they are and that the Deep State is going to control us all in a totalitarian world. What few realise is that the Deep State or Powers That Be are going to lose control totally. They are totally dependent on the world in which they can control everything through debt and the fake monetary system they have created. But let me make it clear that this fake system is about to implode.
It takes increasing amounts of debt just to stay in the same place. This can’t last. From James Rickards at dailyreckoning.com:
Herbert Stein, a prominent economist and adviser to presidents Richard Nixon and Gerald Ford, once remarked, “If something cannot go on forever, it will stop.”
The fact that his remark is obvious makes it no less profound. Simple denial or wishful thinking tends to dominate economic debate.
Stein’s remark is like a bucket of ice water in the face of those denying the reality of nonsustainability. Stein was testifying about international trade deficits when he made his statement, but it applies broadly.
Current global debt levels are simply not sustainable. Debt actually is sustainable if the debt is used for projects with positive returns and if the economy supporting the debt is growing faster than the debt itself.
But neither of those conditions applies today.
Debt is being incurred just to keep pace with existing requirements in the form of benefits, interest and discretionary spending.
We like to keep track of the mind-boggling debt numbers. From Michael Snyder at themostimportantnews.com:
The world is now 188 trillion dollars in debt, and that number continues to grow rapidly each year. It is a form of enslavement that is deeply insidious, because most of those living on the planet do not even understand how the system works, and even if they did most of them would have absolutely no hope of ever getting free from it. The borrower is the servant of the lender, and the global financial system is designed to funnel as much wealth to the top 0.1% as possible. Of course throughout human history there has always been slavery, and the primary motivation for having slaves is to extract an economic benefit from those that are enslaved. And even though most of us don’t like to think of ourselves as “slaves” today, the truth is that the global elite are extracting more wealth from all of us than ever before. So much of our labor is going to make them wealthy, and yet most people don’t even realize what is happening.
Let’s start with a very simple example to help illustrate this.