Daily Archives: April 22, 2011

The Great Unraveling—Entering Stage Two

There has been very little recognition of the Debt/Growth Imperative that is built into our global system of money, banking, and finance. As I have been preaching for many years, the creation of money as interest-bearing debt requires that indebtedness, in either the private sector or the public sector, must be continually increased at an accelerating rate in order for the system to continue to function. When the private sector is fully “loaned up,” government must step in as “the borrower of last resort.” That was clearly manifested in the latest bubble-bust cycle with the massive bank bailouts and the assumption by governments of enormous amounts of their “toxic debt.”

The aggregate debt burden is destined to ultimately become unbearable, and no amount of government or central bank intervention can save this flawed system (such is the nature of exponential growth). The fiscal crisis that is now confronting national governments around the world signals the imminent collapse. How that will play out is difficult to assess, but it behoove us to use our available resources to enhance the resilience of our communities and build new systems that can be relied on to provide the things we need in order to thrive and build a world that works for all.

One prominent commentator who “gets it” is Chris Martenson. His recent observations (below) are worth considering.—t.h.g.

The Breakdown Draws Near

Tuesday, April 19, 2011, 12:22 pm, by Chris Martenson

Things are certainly speeding up, and it is my conclusion that we are not more than a year away from the next major financial and economic disruption.

Alas, predictions are tricky, especially about the future (credit: Yogi Berra), but here’s why I am convinced that the next big break is drawing near.

In order for the financial system to operate, it needs continual debt expansion and servicing. Both are important. If either is missing, then catastrophe can strike at any time. And by ‘catastrophe’ I mean big institutions and countries transiting from a state of insolvency into outright bankruptcy. [emphasis added]

In a recent article, I noted that the IMF had added up the financing needs of the advanced economies and come to the startling conclusion that the combination of maturing and new debt issuances came to more than a quarter of their combined economies over the next year. A quarter!

I also noted that this was just the sovereign debt, and that state, personal, and corporate debt were additive to the overall amount of financing needed this next year. Adding another dab of color to the picture, the IMF has now added bank refinancing to the tableau, and it’s an unhealthy shade of red: Banks face $3.6 trillion “wall” of maturing debt: IMF

Read the rest of Martenson’s post here.

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