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Wednesday, March 30, 2011

What's so horrible about debt anyway?

So what if we run up a huge debt if the debt is is in dollars and we can just print dollars and force our creditors to take them because we're the biggest economy with the strongest army?

It's just the way the world has always worked.

We're just like that huge kid and it's our ball, and so we make up the rules and if the other smaller kids don't like it they can go play somewhere else. And the rules favor us and we always win. So what's the problem? Maybe some cranks hate us because we're exceptional and better than they are, but that's their problem.

Okay, but here's our problem: this big kid playing with crooked rules that favor him over littler kids finds that he can smoke and drink and sleep til noon and still win. So he does. Because he knows he's exceptional and can get away with it. And eventually he gets fat and lazy and stupid.

And suddenly a few other big kids move in to the neighborhood. Maybe not quite as big, but these kids get up at six and do a thousand sit ups and a thousand push ups and run drills and play by a stringent set of rules. And they let the big fat lazy kid play because he's still big, and he has a ball, and he takes up room on the court, but they know he sucks. And eventually they take his ball away, and tell him it's tough - go home.

Suddenly he realizes he's lost control of his game, and his ball, and he can't even imagine how it happened.

Same thing when you fuel a boom with debt.

Everyone begins to think they're a genius, because they all seem to get rich as all asset prices skyrocket, and people start paying themselves tremendous salaries for doing stupid banal activities, like town supervisors who get pensions of 200,000 dollars a year for a lifetime of 3 hour work days making third grade level decisions, or bank executives who make 200 million dollars a year for overseeing moronic trading strategies that lose billions of dollars - that they don't even understand. And everyone in between who feel deprived if they can't drive around in a military issue humvee that costs 500 dollars to fill up a tank of gas and takes up three parking spaces on the street while they talk on phones that can stream 1000 hours of pornographic movies they can watch while they drive.

Yeah, sure there are some very smart people who work real hard. Like George Soros. Who end up sucking the rest of the productive capital out of the system - because it's their right, because they can.

But then you get to a point where debt stops fueling a boom. Nobody knows exactly when that point happens. But it always happens.

More and more people are unemployed. And unemployable. Because all those countries where folks have to work 12 hours a day for very little have taken their jobs. But still, everything's more and more expensive as all that speculative debt money has pumped up all commodity prices. And the banks keep pumping out debt/money so prices keep rising while people go hungry. And the people at the banks keep paying themselves more and more because they're still making money off the pumped up commodity prices. And when they lose money the Federal Uber Bank just takes the bad bet off their balance sheet anyway and charges it to the starving people. Because they can.

And finally other countries where folks work longer and harder and have much less and will be happy with much less and they think only of working hard so their children with have a little more, come along and tell us they don't want our debt anymore.

And we wonder how it all happened.

Are we there yet? I don't know. We're getting closer though.

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