Tuesday, February 23, 2010

Sovereign Credit and the Mess we're in

The advent of Sovereign Credit and Currency is the first and most powerful means of political coercion. Legal tender laws essentially force people to use the money issued by the federal government in everyday transactions. Instead of the market having the choice to determine what they would prefer to use as money, the government's laws disincentivize the use of the market's choice, which historically has been gold and silver.

So people are stuck in the game of ponzi finance sponsored by big money center banks, the central banks, and the federal government. No matter what these banks say, real inflation of the money supply is actually 6-7% annualized over the past 20+ years. This has offset all of the productivity and technological gains that would have lowered the prices of goods and services to everyday people.

With the quality of sovereign credit collapsing globally, including recent disclosures by AIG that it has issued CDS against Greece's impending sovereign default, taxpayers are starting to realize that sovereign credit is not such a good thing. Hence the rise in hard assets over the past decade. As sovereign debt has risen, the ability to service debt out of tax revenues decreases. Keynesian economists will tell you that sovereign debt does nothing to the national ability to service debt, however they are misled by their academic wonderland. Every dollar of credit that is issued must be paid back at some point with interest. The country cannot issue debt forever without raising interest rates to compensate the current holders. If this were the case, then we could simply hand out currency to everyone at any time and solve any debt problems. We would not have any problems with money at all, and money would not be a problem to anyone.

Alas, we do have money and the problems caused by creating too much of it. See the end of most communist/socialist regimes, Weimar, Argentina, Greece, etc. When the debt service exceeds the income of a person, corporation, or country, you have a problem.

Everyday people are relatively powerless to stop this escalating ponzi scheme because most don't know it exists and they feel like they benefit from it. The problem is that the end of ponzi schemes are very abrupt. See Madoff investors. One day you're rich, the next day you're broke. Sovereign Credit is THE source of the problem we face today. Economists and talking heads on CNBC will try to sell you their view on a certain metric, but they are simply wrong because they focus on minutiae. The big picture says "Too Much Debt and too little income to service it." Sovereign credit allows Self-Important sociopathic politicians to carry on pet projects (Wars & Welfare) on the back of taxpayers.

I find very little to blog about any longer, because the truth is very simple to see if you think logically about the problem. All of the "fixes" that are proposed are bandaids on top of bandaids of a bone shattered into a thousand pieces. The bandaids don't get to the source of the problem because no one wants to see how bad it really is.

I think I've addressed the source of these problems over the past 4 years that I've shared my thoughts. In the mean time, I try to protect myself from what is likely to happen, but live life as it is because you can't worry about something that may or may not happen in your lifetime. That would be a waste of time.

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