Why The Debt Situation Is Worse Than You Even Imagined

0 Shares

There are few things about which history is unanimous. Land wars in Asia, for example… always a bad idea.

Paper money falls into this category. Paper money always fails and wipes out the people who depend on it.

Or as our friend Rick Rule likes to say, paper money’s track record is unblemished by success. The return of paper money to its intrinsic value (nothing) is guaranteed. All we need is time (though politics certainly help move things along).

We would not argue that organizing a system of sound money based on paper receipts is impossible. We would merely point out that keeping such systems sound and reliable has proven elusive to this point in human history.

Paper money is like many other types of idealized virtue humans cannot attain. It’s simply beyond human nature to avoid perdition. Sin, as they say, is part of man.

Every government that has used paper money has succumbed to a fatal level of borrowing. Rather than a restructuring of these debts, paper money systems allow for the rapid expansion of the monetary base to facilitate paying off debts in devalued money.

This is no different than stealing. And yet… that is what happens every time, resulting in a massive crisis and a breakdown of social norms.

It normally happens faster in democracies, where no strong interest group votes for living within the country’s means and repaying its creditors in sound money. No, people vote for more spending and more debt. And they always expect someone else to pay. Case in point… Greece.

Researching problems in the Greek economy is like reading a financial comic book. All the players are clowns.

For example, the national railroad has annual revenues of €100 million… against a wage bill of €400 million and another €300 million in expenses. The Ministry of Agriculture hired 270 people to digitize photographs of Greek public lands… with one digital camera.

In 2001, the Greek government borrowed $1 billion from Goldman Sachs to help balance the budget. The deal relinquished future receipts from the national lottery, national highway tolls, airport landing fees, and even funds promised to Greece in the future from the European Union.

The government was burning the family furniture to pay current expenses. And now, they’re out of furniture. It’s all been burned.

In total, the Greek government owes €1.2 trillion. That’s €250,000 for every adult.

Obviously, Greece cannot repay this money in sound currency. The only way out is for the Greeks to inflate the debt away — effectively stealing from their creditors with a printing press. That they haven’t done so yet is only because they no longer have their own currency, the drachma.

Instead, they are part of Europe’s common currency, the euro. And Europe is making every effort to maintain the mirage of a united economy. Unfortunately, no such thing exists. It’s merely a matter of time before the Greeks default.

The exact same thing is true about the United States — except the numbers are even worse.

Regards,

Porter Stansberry

–Porter Stansberry with Braden Copeland

 

PS: The United State’s debt situation continues to grow evident. To learn more about it and how to protect yourself from it, please click here.

Personal Liberty

Porter Stansberry

founded Stansberry & Associates Investment Research, a private publishing company based in Baltimore, Md., in 1999. His monthly newsletter, Stansberry's Investment Advisory, deals with safe value investments poised to give subscribers years of exceptional returns. Porter oversees a staff of investment analysts whose expertise ranges from value investing to insider trading to short selling. Together, Porter and his research team do exhaustive amounts of real-world, independent research. They've visited more than 200 companies in order to find the best low-risk investments in the world.

Join the Discussion

Comment Policy: We encourage an open discussion with a wide range of viewpoints, even extreme ones, but we will not tolerate racism, profanity or slanderous comments toward the author(s) or comment participants. Make your case passionately, but civilly. Please don't stoop to name calling. We use filters for spam protection. If your comment does not appear, it is likely because it violates the above policy or contains links or language typical of spam. We reserve the right to remove comments at our discretion.