Chris Martenson has written an article entitled Death by Debt in which he alleges (correctly, I believe) that the problems we face cannot be fixed unless and until the excess debt is liquidated.
The basis for this view stems from understanding that debt-based money systems operate best when they can grow exponentially forever. Of course, nothing can, which means that even without natural limits, such systems are prone to increasingly chaotic behavior, until the money that undergirds them collapses into utter worthlessness, allowing the cycle to begin anew.
Read the full article. Mr. Martenson is amongst the most perceptive analysts and he was very early to recognize what was happening. His site is filled with good analysis as well as ways one can attempt to protect oneself from the ruin that lies ahead.
Martenson’s current assessment:
So here we are, just a few weeks away from the end of the second round of quantitative easing (QE II) , with massive public debts and liabilities having only grown larger instead of shrinking during the Great Recession, everybody in nearly the same boat, and no clear plan for how all the sovereign debts will be funded from current productive cash flows (i.e., existing GDP).
This is why so many commentators, myself included, are convinced that more thin-air money printing is on the way. My thesis, laid out back in early March is that the Fed will stop QE II on schedule and that the financial markets will react exceptionally poorly to this loss of support. Commodities will tank first, then stocks, then bonds; from riskiest and most-leveraged to least.
It is time to face the music; the levels of indebtedness now require permanent support from thin-air money in order to avoid a deflationary collapse.
Isn’t deflationary collapse what is exactly needed right now? Won’t that bring us back to normal?
Phil,
Obviously no one deserves or wants a deflationary collapse. Yet that is the only way to liquidate the excess debt. It is unsustainable. Trying to prevent a deflationary collapse will not avoid one. The attempt will add more debt and eventually produce massive inflation which will cause markets to bind up when dollars are no longer acceptable. Barter cannot support the volume of transactions we currently enjoy.
To solve the imbalances in the economy, relative prices and malinvestment must adjust. Stimulus is a futile attempt to prevent these necessary adjustments from occurring.