He points out - as do others, including proponents of Islamic sharia banking - that however much money is created through credit, more must be created to cover the interest charged. Usury endlessly blows up the balloon, which must eventually pop, before the cycle begins again.
Lenders do want their money back, and so generally take security for the loans they grant. At some point - and Denninger believes it's now very close - lenders will become unwilling to lend further, and/or borrowers will retrench or become unable to service their debts. In short, borrowers will have to pay up or be ruined, together with the more reckless lenders.
Can the government print extra money to solve this? Not according to Denninger, who says that the effect of bad money will be to drive out private lenders (who would demand very high interest rates for lending in an inflationary environment). Since the government itself runs partly on borrowed money, it's not an option.
Like me, Denninger thought the bust came in 2000, but the refusal to face reality means that we now face a much bigger bust.
Conclusion: cash will be king; get out of debt now.
I have no money me self and I have some debts... which I cannot clear. Or I would. Am I doomed?
ReplyDeleteNo, you're British, i.e. (a) tenacious and resilient, and (b) never allowed by your government to keep much of your own money.
ReplyDeleteP.S. And you live in Devon, you lucky ---.
ReplyDeleteMost persuasive argument, Sackerson. Mind if I use it later?
ReplyDeleteI'm summarising and simplifying Karl Denninger's exposition - perhaps you'd care to link to his piece. He's obviously highly technical, his style very emphatic (and sometimes v. vulgar), and I have questioned whether there may not be counterbalancing inflationary forces also. In a nutshell, I should think most of us are agreed that we're currently in an inflationary phase, but it cannot continue for very much longer.
ReplyDeleteDenninger sees an enormous deflationary bust coming - as, I think, does Michael Panzner. The latter thinks the next thing will be desperate attempts by the US government to reflate, leading to hyperinflation. I try to give a fair summary of Panzner in my Book Reviews section.
Watching this one closely.
ReplyDelete