Economics is all about math. It’s a zero sum game of profit and loss, buy and sell or give and take. There is no way to escape the structure imposed by the numbers involved. So when we look at the numbers and do the math on the global economy, the clear answer is that we have a debt problem in the world. Not only are we at the end of a cycle, with an imminent collapse on the horizon, but mathematically on a global scale we are screwed.
Math does not lie
The planet has a totally unsustainable economy. It’s like a massive Ponzi scheme and the end is in sight. It really started spiraling downward when we went off the gold standard in the 1960s. From that time onward inflation rose hugely as countries printed money without restraint. Currently the global growth of debt is 2.5x more than the growth of wealth, or the world’s GDP. One could even say that the total debt equals the wealth being created, but due to the interest, the debt is growing faster, and the tipping point was reached a while back. So the real problem today is that as a planet, economically speaking…
We are bust
There is no solution to the mathematics of it if we carry on at this rate. Basically the amount of debt and the interest on that debt is now greater than the world’s ability to repay it. We have crossed the point of no return. We can never pay back the debt and so we are in a debt spiral which will launch us straight into a crash. In other words the financial system is broken, it does not work and it is collapsing as we watch. The Titanic has already hit the iceberg; it’s just that the captain has not informed the passengers yet of the fact that we are sinking. They have propped up the financial system with Quantitative Easing (QE) trying to stop the leak, but you can only print so much paper money for so long before you deflate the value of that money completely.
1 Bitcoin as the primary solution
According to leading financial advisor Tyler Jenks, with over four decades of experience behind him, there are 5 solutions and the first one is that bitcoin can solve this problem. However, bitcoin will need to grow to $100 million in price. Here’s the logic: there are only ever going to be 21 million bitcoin in existence. If they each cost $100 million, they will, in total, be able to create enough finance to offset the debt. No other asset or commodity can achieve this at present in the world. With the global debt at $220 trillion (excluding off budget) which is comprised of governments, banks, corporations and individuals, there simply isn’t enough fiat paper money in the whole world to actually pay this off. Gold can’t do it. There is only $7 trillion worth of gold on the planet, and of course, the price is suppressed by insiders in the industry. There is roughly $1 trillion a year being generated just in interest on the debt. We could get rid of all fiat paper currency and move all finance onto bitcoin, accelerate its price to the required $100 million and that will solve the debt problem. The chances of that though are minimal to none, of course.
2 Return to the gold standard
This might theoretically be a solution to the world debt problem. If we all agreed to return to the gold standard and if gold was pegged to a higher value, its true value, we might be able to solve about 40% of the debt, say about $8-9 trillion. However, as laudable or commendable as this solution sounds, it will also not happen any time soon, barring a real shift in consciousness. And it won’t be enough.
3 Default and debt Jubilee
Another possible solution to the world’s collective debt is for all the countries to agree to default on their debts. This would need a global debt jubilee, which is a collective forgiveness of all debts owed. Such actions used to occur hundreds of years ago in kingdoms, where every few decades debtors were forgiven and their slate wiped clean. It sounds idyllic to simply have all debts cancelled, but it will unfortunately leave some counterparty who will lose out. The person or nation who loaned out the debt will lose out, whether it’s from government bonds or whatever. As a result much more money will need to be printed, which will exacerbate the problem still further.
Black swan rising
Actually a default can occur at any moment, either if all the countries running the show collectively agree, or if a catalyst event caused a major default. Such “black swan” events are surrounding us, waiting in the wings to spread their wings. For example it could be caused by Brexit, or the EU collapse, or China, who has bigger debt load than it is able to repay. This is something nobody can predict, and it could occur tomorrow. One thing is for sure and that is that we cannot prolong this charade for much longer. If we do, then the potential for a black swan event only gets bigger.
4 The Trump Card
A fourth solution, which is something President Trump is actually trying to implement, is to work hard and grow out of the problem. If we get the world GDP to improve, we can theoretically grow our way out of the debt. This is the most realistic and best solution available at present. But it is the least probable, unfortunately. The GDP simply needs to grow faster than the rate of inflation and the interest rate paid on the debt. For example a global GDP of around 3.5% will help. Or with an interest rate of 3% in America and productivity at 3% we can grow out of the problem. But even China with a GDP of 5% is slowing down to a stagnant pause compared to its previous growth and is being overwhelmed by its own debt. And the rest of the world is being dragged down with it, since they’re the biggest on the planet… in more ways than one.
2007 global financial crisis that never went away
Ten or more years ago we had the same problem that we have now. Back then central banks like the Fed printed more money and created new asset bubbles. They also kept interest rates artificially low, lower than ever in history actually. But now the same problem is multitudes of times worse than it was then, and this time we have less ammunition to fight it off. That’s because interest rates are already exceptionally low and also the growth rate has not sprung back, except for the USA, and even there it is down from a once great 15% height. Interest rates are already at 2% so the Fed has nowhere to really lower them to, except back to zero perhaps, which is unsustainable in itself. Besides that the rest of the world is only growing at around 1-2%. The EU even has negative interest rates. Overall we are overdue for another financial crash about now.
Bring it back home
In the coming years we can only hope that Trump may succeed, since he is attempting to do the right thing, even though he is pulling out of so many deals with partners. But what he is promoting is for countries to go back and take care of their own domestic business at home. Each country needs to take care of its own currency, deficit, budget, etc and not rely on others any more. The old way of teaming up is like the blind leading the blind. Trump got out of the NAFTA deal, he reworked the deal with South Korea, and he is doing it with China now too. Each nation has to do what is needed singly, that is the point of his agenda it seems. The slogan “Make America great again” says just that.
5 The last hope is a basket case
The fifth and final potential remedy is a combination of some of the above, where we have for example the reintroduction of the gold standard as well as the bitcoin standard. It would involve a basket of solutions brought together. The book “The Bitcoin Standard” by the author Saifedean Ammous, is a great read because it also talks about the history of the gold standard, and bitcoin does not have the limitations that gold has as a standard. The Chinese have been working on a multi-pronged approach such as this for the past five years. It involves bringing several currencies together, and also reducing the dollar hegemony as the global currency. The problem is that all countries have to agree to it. At least all five who have veto rights in the UN. All the rest of us have no say in comparison really, since they can veto anything at any time.
Bitcoin all the way
To conclude, it looks like ultimately solution number three is the most likely outcome, unfortunately, namely a great default on the debt. If all the currency in the world only adds up to $80 trillion and the global debt is $120 trillion (more by the day), then we will always have a problem, and bitcoin will only ever be the solution, given a price hike of its own to match the world debt. Bitcoin is the solution, but the timing is not with us on this. For now it’s just about the timing – when is the next bull run and how high will the price of bitcoin climb? If it goes up enough it could then solve the biggest economic problem in the world – the debt. It may mean leaving the altcoins behind, who are seen to be like barnacles weighing down on the hull of the great ship. If they were out of the picture bitcoin could actually climb much higher. Nevertheless, give it another three years or so and we may well be in speedier waters.
Thanks to Ivan on tech on Youtube and his interview with Tyler Jenks for the insights in this post.
http://usdebtclock.org/world-debt-clock.html
Pic: https://seekingalpha.com/article/4224994-global-debt-increase-2018-vs-gold-investment-must-see-charts