Debt and Crash

Our economy narrowed down to two approaches to what has been our policy:

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.  Ludwig von Mises.

Keynes, however, says our way of life is based off of a debt based currency that must create more debt every year in excess of the debt AND interest accrued the year before.  This is because every dollar that comes into existence is a debt with a certain amount of interest attached on to it.  When debt is created, money is created.  When debt is paid off, money is destroyed.  The real trick is that the money that is owed for the interest does not exist, since only the principle of the loan is put into the economy.  The ONLY way this interest can be paid is by more debt being created to pay the previous debt AND interest.  This is why we have an ever expanding debt that cannot stop.

I know of no example of the keep-spending and borrowing theory that worked long term. It can't. We already owe more than all the money on earth.

NOTE:

Top economist Hussman issues his strongest market warning yet

Advertisement Monday, May 14, 2012 Text Size:    From The Burning Platform: You've been warned. This is a must-read piece by John Hussman. Here are the best snippets: ON THE MARKET "Valuations have never been as extended as they are today – on the basis of normalized earnings – except in the quarters leading up to the 1929 crash. Exhaustion syndromes prior to 1987, while still very hostile to stocks, didn't occur in valuation conditions as rich as we have today. It's worth noting that there is a very narrow band in 2006 that was followed by a decline of only a few percent, but even the seemingly benign instances in 1998 and early 2000 represented losses exceeding 10%. I suspect we're at risk of something far more significant... Read full article...