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September 19, 2011 / 74

If the Government Lost the Ability To Borrow…

I was reading about the US Dollar hand-out by the FED to the EU Central banks, and a thought dropped into my brain. (yes… I DO have one.)

What if the government couldn’t borrow anymore?

This could happen a couple of ways. The US Congress could pass a Constitutional Amendment that prohibited government borrowing except in cases of Congressionally Declared War or some such. That would be the long slow way to do it – and as we have seen recently in the last 20 years, Presidents don’t seem to think the Constitution applies to them anymore.

Or the faster, easier way – if people around the world put their thinking caps on and LOOKED at government debt, they’d conclude that governments are not good credit risks, and they’d simply STOP LENDING to them.


If you question the possibility of this, you need to know that it’s already happening. In my little micro-world, I was going through a box of papers a couple of weeks ago and found a $50 US I bond. “Bad investment” I thought, and cashed it in fast. The teller said, “But it’s getting over 6% interest!” I told her that at 6% I was losing money.

And this:

Even as the dollar is crashing and inflation in the United States is rampant, Federal Reserve officials have announced plans to flow dollars into banks in the European Union. The European Central Bank, which is to receive the largest amount, will in turn will [sic] extend the money to other major banks in EU member states, which are finding it increasingly difficult to raise funds from investors deeply concerned by the massive regional government’s unstable economic climate. …

Investors in Europe have been hesitant to lend money to struggling banks, particularly at low interest rates, because the banks currently hold hundreds of billions of dollars in risky bonds issued by governments on the brink of default such as Greece and Portugal.

So… when the governments can’t borrow even worthless fiat currency, what do they do? They just print up more worthless currency – so it becomes even more worthless. They are currently playing a shell game with the fiat money. That’s what this “swap” is all about. They’re trading US worthless currency for European worthless currency and pretending that it has value… somehow…

And when they’ve printed up enough worthless currency that even the shell game doesn’t work anymore?

Option 1 – default. Then create a NEW fiat currency and distribute it and the game is on again. Whether the people buy this or not is the question – and I’m doubting that they will, but that doesn’t mean the governments won’t try it. I mean, it works in Brazil – but then government coups work in Brazil too…

Option 2 – default. Then by Government Decree, confiscate the world’s gold and go on the gold standard with either a new currency, or a re-valued currency. This is likely.

(The problem I see with this is that Progressive governments like in Europe, Asia, and the US, like to SPEND, and being on the gold standard won’t LET them. So they’ll BORROW against their nation’s store of gold, and the nation will go broke, and we’ll go off the gold standard again, and the fiat currency game is back in play.)

History repeats itself. Or as Mark Twain put it “History does not repeat itself, but it does rhyme.

Option 3 – this one is option 2, only the people of each country tie their governments down with chains of denial – NO BORROWING to run the government. If the government can’t afford to operate from tax revenues – then it has to be because the government is doing things that governments shouldn’t do.

And Option 4 – default, then restart the fiat currency game as a convenience/boon to the people, and combine it with a totalitarian State, possibly global in scope, where the people don’t matter and the powers-that-be can do whatever they want – and money is a quaint concept – because who really cares about the people anyway. I mean, who are THEY to think they know how things should be run? And investor confidence would be an outmoded idea – because only the State would have enough “money” to “invest” in anything. In such a world, war would not go away – it would become the “football of the power elites”, which it appears that we’re not too far from that now, and historically, it was more the rule than the exception.  And I see a separation under this option – a gulf opening between the Power Elites and the People – where the only thing the people have to do with the elites is when the elite’s soldiers come out to play…  (This is a black ugly world of which I speak – but humans are capable of black and ugly things…)

If I had enough money to “invest” (ie if I were a big time gambler), I’d bet on option 2 and hope I’m right because it is only with option 2 that the “little people” have a chance at any kind of life at all, and because I believe that options 1,3, and 4 have high probabilities of rebellions all over the world and large scale civil disruptions.

The Chinese have an ancient curse – “May you live in interesting times.” It is our misfortune that we do.


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