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The Builders

Summary:
Where liberty is, there is my country. Benjamin Franklin The builders will be in the driver’s seat. Debt is any enemy of government’s perfect ally. The more a government borrows the more it’s weakened. The consequences of debt, required repayment of principal, and compounding interest are inexorable, forestalled by central bank and government machinations but never prevented. The longer they forestall the more severe the consequences. Central banks and governments have fostered the world’s greatest debt bubble and promoted negative interest rates to facilitate it. An unprecedented tsunami of debt has creditors paying borrowers to lend them money. This weird and anomalous combination, impossible in a world without central banking,

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Where liberty is, there is my country.

Benjamin Franklin

The builders will be in the driver’s seat.

Debt is any enemy of government’s perfect ally. The more a government borrows the more it’s weakened. The consequences of debt, required repayment of principal, and compounding interest are inexorable, forestalled by central bank and government machinations but never prevented. The longer they forestall the more severe the consequences. Central banks and governments have fostered the world’s greatest debt bubble and promoted negative interest rates to facilitate it. An unprecedented tsunami of debt has creditors paying borrowers to lend them money. This weird and anomalous combination, impossible in a world without central banking, portends global disaster.

The enemies of government have only to wait. When the reckoning arrives, governments will find they no longer have the means to wage war or control their populations (see “The Illusion of Control,” Part 1 and Part 2, Robert Gore, SLL ). Their demands on their nations’ productive taxpayers and their depreciation of currencies have stripped their countries of their wealth and ability to produce. Be it by creditors, revolutionaries, or invaders, or some combination of the three, these governments will be toppled and replaced by something new. It’s a story as old as human history.

A graph of global economic growth versus the much steeper graph (in both percentage and absolute terms) of global debt growth above it conveys an obvious message: something has to give. When that something gives it will lead to the greatest deflationary depression in history. The trillions in fiat debt that governments and central banks will conjure in response will be no match for the quadrillions (one quadrillion equals one thousand trillions) in debt, unfunded liabilities, contingent liabilities, securitized collateralized-debt, derivatives, and other promises—all counted as a liability or quasi-liability on one set of books and an asset or quasi-asset on another—that will unravel and implode.

Governments are meeting the ongoing economic and financial crisis—whose “official” start will probably be placed at the 2008-2009 implosion, but whose roots stretch back to at least 1971, when Nixon closed the gold window—the same way they always have: stealing incomes and wealth, keeping for themselves or giving to favored recipients, issuing debt, “encouraging” or outright forcing their central banks to buy that debt, and debasing their currencies. This bag of larcenous and fraudulent tricks produces nothing, leads to no voluntary, mutually beneficial trade, and retards savings and investment, the foundations of economic growth and progress. It is how Herbert Hoover and Franklin Roosevelt turned what should have been a garden variety recession and financial reset into the Great Depression.

It is why a Greater Depression is at least ten years on and the worst is yet to come. Anyone who doubts that we’re in this Greater Depression should reflect on one fact: across the developed world national governments’ debts are growing faster in both percentage and absolute terms than government-calculated gross domestic products. In other words, the “growth” we now have is more than completely offset by the greater growth of those national governments’ debt. The disparity yawns even wider when growing individual, corporate, and political subdivisions’ debts—which mostly fund consumption and so generate no offsetting return—are added to national governments’ debt.

One positive thing about the Greater Depression going forward is that it will hit an inflection point and its pace will dramatically quicken. That inflection point will be crashing equity and debt markets, heralding the depression’s severe economic contraction. Default, bankruptcy, and deflation will be the order of the day and much of what the world now considers wealth—debt and equity claims, title to land and tangible assets pledged as collateral for multiple loans—will simply evaporate.

Broken promises, vanishing wealth, and contracting economies will inevitably lead to social disorder and chaos, which severely resource-constrained governments will be unable to control or contain. Current political arrangements and geographic boundaries will not survive the stress, with larger entities shattering into smaller ones. The parasitic monstrosities that are today’s governments will be unsupportable. Future generations will look back in wonder that they were able to expropriate so much of the world’s production and wealth while being responsible for so much of its misery.

Necessity is the mother of invention and inventive thinking. Collapse will lead not just to a wrenching political, economic, and financial reordering, but an epochal reset in human thought. Most of what most people now believe will be seen as tragically wrong. Today’s impervious-to-facts-or-reason worship of governments, rulers, and their minions will certainly stand revealed as the folly it’s always been.

Sand is sand until somebody figures out how to make glass, semiconductors, and solar panels. For centuries petroleum was considered a nuisance. It didn’t become valuable until somebody discovered its constituent elements could be used for, among other things, light, heat, and powering internal combustion engines. Gold was just another rock until humanity discovered its many virtues, which make it ideal for, among other things, jewelry, microcircuitry, and money (see “Real Money,” Robert Gore, SLL).

A resource, natural or otherwise, is a resource because it has at least one use. Resources are not the ultimate source of wealth, the minds that discover uses for them are. Very few wealth-creating ideas are tabula rasa, without antecedent. They build on prior discoveries and ideas. Innovation, when allowed to proceed, is a compounding, exponential process, creating new possibilities that lead to more innovation. It epitomizes organic adaptation, the bottom-up, decentralized progress that humanity makes when it’s not smothered by its diametric opposite—top-down, centralized command-and-control.

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