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.