How This Monetary Experiment Will End

In its optimal state, credit creates sufficient growth to pay society’s constantly compounding debts. When unable to do so, debt is paid by borrowing against future growth and in capitalism’s end game, aggregate debt exponentially expands until it can no longer be repaid except by exponentially depreciating paper money.

In 2010, in Will the US Devalue the Dollar, I wrote:  “… Today, the US, the world’s largest debtor, can no longer pay what it owes except by rolling its debt forward and borrowing more in what the late economist Hyman Minsky called ponzi-financing, financing common in the final stages of mature capital systems.”

“… the United States government and its agencies have, by far, the largest pile-up of interest-bearing debts ($15.6 trillion), the largest accumulation of unsecured obligations (over $60 trillion), the largest yearly deficit ($1.6 trillion), and the greatest indebtedness to the rest of the world ($4.8 trillion).”

Martin D. Weiss, www.moneyandmarkets.com, 2010

Four years later in 2014, the aggregate amount of US debt is now $17.2 trillion of which the Federal Reserve has become the largest buyer; as China, for years the largest buyer of US debt, is losing its appetite for America’s increasingly suspect IOUs.

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