Is Compounding Debt Mankind’s Kryptonite?
Economics / Global Debt Crisis Apr 10, 2011 - 10:28 AM GMTBy: Submissions
SilverDoctors writes: Throughout history, mankind has struggled to end the boom/bust economic cycle, and usher in a new age of economic prosperity. The middle ages saw monarchy/ feudal/ serf systems. Marx and Lenin believed economic prosperity could be achieved through socialism or communism- complete sharing of economic wealth and resources. The modern Western world-influenced by the likes of Adam Smith, Keynes, and Friedman, has tried to achieve this through capitalism- the private ownership of goods with the incentive for personal profit. The Chinese have developed a modern hybrid of capitalism and communism. Hard money advocates believe fiat currency is the issue, and a return to sound money such as gold and silver will finally usher in the era of economic prosperity.
Each of these economic systems has been used numerous times, and all have miserably failed at creating uninterrupted growth and prosperity. The end result is always a concentration of wealth and capital among a small percentage of elite at the expense of the rest of the population. This wealth and capital inequality fueled by debt continues to build until a tipping point is reached, and the economy collapses. This endgame always develops in one of two scenarios.
- Deflationary collapse- the debtors reach a point where they can no longer service their debt payments, and they default on their obligations.
- Hyper-inflationary collapse- the debtors lose confidence in the value of their currency, and rush to dump their currency holdings. A positive-feedback loop is initiated, and the panic continuously intensifies until a complete collapse is reached.
The system then resets and the process begins again.
The reason no economic system ever developed by mankind has been able to eliminate these cycles can be summed up in two words: Debt, and Interest.
Let’s look at a simple example of why debt and compounding interest result in an unsustainable increase in debt, which must eventually default or be inflated away.
Suppose you lived 4600 years ago when the pyramids at Giza were being built, and you loaned Pharaoh $1 at 1% interest to complete his tomb (for simplicity’s sake we’ll think in terms of dollars instead of the ancient Egyptian currency unit). By 2011, the compounded debt would have reached 128,092,932,174,404,630,000.00. So after 4600 years, $1 at 1% interest compounds to a debt of 128 quintillion, 92 quadrillion, 932 trillion, 174 billion, 404 million, 6 hundred 30 thousand dollars. The total value of every asset in the world is roughly $140 Trillion.
In other words, in only 4600 years, $1 at 1% interest compounds to 91,500x the value of the entire earth.
Clearly, even at only 1%, compounding interest is unsustainable. It does not matter if the currency is fiat, gold/silver, floating, or any other devisable currency. It does not matter if the economic model is capitalism, socialism, communism, fascism, or any other. Compounding interest makes every currency and system unsustainable over the long term.
Is debt and interest mankind’s kryptonite? Are we cursed to forever continue the wealth disparity, boom/bust credit cycles due to compounding interest? Is there no solution to prevent the inevitable collapse that compounding interest ensures?
There is only one solution to the boom/ bust credit cycle: the economic system developed by our Creator.
The Creator’s system? Gold and silver based money to be lent without interest, with a debt jubilee every 50 years.
In Leviticus (Old Testament), our Creator describes the only stable and prosperous economic system ever known to mankind.
Silver (money) was not to be lent at interest
Every 50th year was commanded to be a Jubilee year, in which:
-All debts were to be forgiven
-All slaves were to be freed
-All farmland was to revert back to its original owner (or family)
-The land was to rest, no crops were to be planted or harvested
This marvelous economic model is the only system known to man in which debt and overconsumption will not build to the point of an unsustainable collapse. The expectation of the coming Jubilee year forces constraint by lenders. The Jubilee freedom and debt forgiveness prevents an unsustainable rise of debt. It prevents an elite class of citizens from continually increasing their wealth, power, and influence over the rest of the population through the tool of debt and interest. It automatically eliminates the “Vampire Squid” bankster class’ ability to control the economy through debt. The Creator’s economic model achieves the goal of communism with the freedom of a laissez-faire system.
While a return to a gold and silver standard would be a vast improvement from our current fiat monetary system, a pure hard money currency alone cannot end the boom/bust credit cycle and the associated debt collapse. A return to our Creator’s perfect monetary system of hard money, no interest, and Jubilee debt forgiveness every 50th year could usher in a true golden era, and provide sustainable prosperity for the entire nation.
Compounding debt does not have to be mankind’s kryptonite.
SilverDoctors specializes in precious metals commentary and trading, found at
www.Silverdoctors.com
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