A frequent topic for discussion these days is the direction of interest rates. It’s not surprising, given that the rate of interest is pretty much central to determining where the economy is headed. In a recent Substack post, I offer my own thoughts on where things are headed. In a nutshell, it’s not looking good, given the inescapable nature of our fiat currency system.
…irredeemable fiat currencies have no means of extinguishing debt. Past bonds can only be “rolled” by issuing new bonds which must at least be sufficient to at least cover the interest and principal of the previous bond. However, the new bond carries an interest charge on its own. The burden of past debt is simply shifted to newer IOUs. Because no final payment, in aggregate, is ever possible, interest and principal can only compound and grow exponentially. The process can be slowed down, but it cannot be stopped or reversed.
This creates what can be termed a “doom loop” of rising debt. The typical retort is that borrowers can always “inflate” their way out of that debt by progressively gutting the value of the fiat currency in question. In reality, this reduction of value offers no escape. While each unit of currency might command less value, the fact that they originate as part of a perpetual bond ensures that you owe exponentially more of them.
Good article/explanation even for a dummy like me.
Martin Armstrong has been talking about this often. His bet, or rather his computer’s bet, is that inflation shall reign, since governments cannot pay off their debts (bankrupt per se), they will continue lowering interest rates allowing inflation.
Own assets and PMs, inflation penalizes savers.
Martin Armstrong is the virgin who wasn’t invited to the party.
You can print money sufficient to pay those debts. It will destroy your economy and your citizens savings, and likely plunge them and their children into poverty. Then they’ll probably go nuts, and you’ll end up hanging from an overpass or light pole, but the debt will be paid.
A fiat currency is a necessary evil of an exponentially increasing economy. Once you know that, you realize that it’s the other things that are fake – like saving “money”, compound interest and so on. Paper money is a time stamp.
No it’s not. There have been ‘exponentially increasing’ economies in past with a gold standard such as Britain of old and America of less old.
Contrary to somewhat popular belief, a gold standard does not necessitate a fixed money supply. Gold-standard Britain had lots of growth in its moneys supply.
You argue against yourself. Both Britain and America abandoned the gold standard because they couldn’t tie their exponentially increasing economy to a fixed commodity – ever civilization knows this. The problem emerges when those who control the currency over-produce (print too much money) relative to the growth in their economy (as Canada did during the pandemic). Inflation is the result. You can’t base currency on gold or other commodities unless the production of the commodity can keep pace with the economic growth – which history has proven (with 100% accuracy) you can’t.
Islamic financing doesn’t suffer from this.