The “Do or Die” Moment

“If everyone is jumping off of a bridge, you gonna do that, too?”

Every parent knows that sentence. Every child of the 1980s and ‘90s has heard it too many times to count. It’s an oldie but a goodie because it’s the perfect reply to, “But everyone is doing it!”

Which leads me into the idea that everyone—and by that I mean all the biggest economies in the world—is taking on debt to grow, stay afloat, and keep the rabble from rousing.

I frequently write to you about America’s untenable situation with debt—some $34 trillion. That is a gargantuan number. Larger than the GPD of the next five largest economies in the world. So large that if you lived to be 100 years old, and you spent $10 million a day, every day from the day you were born until you died at 100… you’d need to live 9,315 lifetimes to spend $34 trillion.

Like I said, it’s a lot of money.

The thing is, while I regularly rag on Uncle Sam’s financially illiterate political class… the sad truth is that Sammy has lots of company in his dinghy of dumbness.

Japan has epic debts—more than 250% the size of the country’s entire economy. Mindboggling.

Japan keeps the debt in check only because it keeps interest rates so low you can barely see them. If serious inflation comes to Japan, the Japanese yen is going to blow out like your backside after a night of bad sushi.

And then there’s Europe, particularly southern Europe.

The Mediterranean countries never really got around to repairing the underlying problems in their economies after the 2009 debt crisis. Instead, an economic pickup in the European Union and in the global economy allowed them to paper over their problems and pretend that all is copasetic once more.

Alas, not so.

Collective EU debt is 92% of the union’s GDP. That’s not horrible by global standards—it’s a helluva lot better than the US at nearly 125% of GDP.

However, if one of the so-called “PIIGs” countries goes pear-shaped again—as did Portugal, Ireland, Italy, Greece, and Spain a dozen or so years ago—the impact will cascade though the entire EU, since so many European countries (and wealth funds and social security funds and investment funds) own the debt of other European countries.

What I’m getting at here is the dark and sad reality that our world is careening toward a debt crisis that will morph into a currency crisis—and a lack of faith in Western currencies.

Right now, not many people believe that. No one wants to believe that.

We all like to believe that someone is in charge of this stuff and has their finger on the right kill switch to stop bad things from happening. It’s the only way our brains can cope. But the truth is that there is no kill switch. The people we think are in charge are really just floating along just as we are and hoping that someone above them has some idea of how to stop the meltdown.

But nobody does.

The crises happen and the powers-that-be step in to apply their Band-Aids, but if those same powers-that-be had true power in the first place, they would have repaired the dam before the collapse. (And if they do have that power but didn’t use it… well, that speaks to an even darker issue.)

The way I see it, you and I are on our own when it comes to our financial future.

Western governments are too deep in debt to dig their way out. Most people just don’t realize that, because the media don’t realize that—they aren’t really focusing on anything beyond the latest release of economic data.

Headlines about what will happen in 2027 don’t resonate with readers. And if headlines don’t resonate, people don’t click to read. And if people don’t click to read, then a story might as well not have been written in the first place.

But those who are prepared are those who look ahead… those who take today’s plot points and try to figure out where they most likely lead us.

And when it comes to extreme debt, only extreme solutions exist.

Just ask any company or any consumer that has filed for bankruptcy.

At some point, they will tell you, servicing the debt became impossible.

For over-indebted Western nations, the solutions are limited. Let’s analyze each in turn…

• Pay down your debts sharply to reduce annual interest payments. This is not going to happen because those currently in office won’t survive the purge when voters who are hurt by austerity vote the scum out of office.
• Revalue the currency. This most likely will happen, either through a direct devaluation of the currency or through allowing 1970s-style inflation to run wild for several years—so that today’s debt is repaid with much less valuable money later.
• Print money like a druggie given access to the US Treasury for a night. This absolutely will happen. The more money you print, the easier it is to repay all your debt. To hell with American families that have saved and invested—their wealth will be destroyed to protect the government.
• Tie currencies to hard assets. This is much more likely to happen than most people think. The US government has a history of turning to gold to solve is financial crises (see 1933 and 1971 for proof). It’s not hard to imagine that the US pools gold and bitcoin into a basket to back US dollars. Money would flood into dollar assets and the government would have a much easier time managing the debt.

We are rapidly approaching a crisis.

The event horizon is behind us at this point. Next stop: The “do or die” moment.

Prepare your finances accordingly.