Finance 0

Uncomfortable Truths About Banking And Money

By Kurt Osterberg · On May 16, 2016

Most people like their truth palatable, easy to digest, and believable.Unfortunately for our emotional needs, some truths are uncomfortable, unsettling, and difficult.

Regarding the United States, the U.K., Europe, and Japan IT IS COMFORTING TO BELIEVE:

Debt has increased exponentially for decades, and in the case of the US, for over 100 years. It has worked so far, so we want to believe it will continue for the foreseeable future.

Our governments act as if they believe we can borrow ourselves out of debt, spend our way into prosperity, and pretend and extend indefinitely.

Every major country has a central bank, so it is comforting to believe they are needed.

It is comforting to believe that gold is unnecessary. As per Warren Buffett, we dig it from the ground, and then store it in a vault, where it sits.

These may be common and comfortable beliefs but they are all incorrect, and will be proven false in coming years.

In the US, national debt has increased from about $3 billion in 1913 to over $19,000 billion ($19 trillion) in 2016.That is an average annual increase of about 9% per year, every year for over 100 years.Can debt increase similarly for another 100 years to over $100,000 Trillion?

The crisis of 2008 hinted that “peak debt” had arrived. The Fed and other central banks responded to the crisis by creating more debt and supposedly “saved” global economies.They made a bad problem much worse and merely bought time, which means the coming implosion will be more destructive.

Debt cannot increase exponentially forever. Place 1 penny in a savings account at 6% annual interest and allow it to increase exponentially for 1,000 years. Your $0.01 has grown to a few hundred bucks – right? No, It has grown to $202,000,000,000,000,000,000,000.

Compound interest increases debt similarly, but in the US we begin with $19 trillion in debt, not one penny. Debt will not increase forever and there will be a reckoning in which assets will be marked down closer to intrinsic value.What is the value of a 30 year bond yielding essentially nothing, issued by an insolvent government that cannot pay its bills without borrowing more?