The World’s Greatest Ponzi Scheme

This Scheme Is Set to Self-Destruct… and Take Us With It…

The most important fact about a Ponzi scheme is that law enforcement never solves it, because a Ponzi scheme always solves itself first—through self-destruction.

By which I mean: Welcome to the rest of the 2020s.

Strap in, because we’re now entering the endgame of the world’s greatest Ponzi scheme.

We’re about to see the unmasking of the government’s most nonsensical belief: Debt doesn’t matter. This is the belief that the government can print all the money it wants because, well, it’s the government, and it has no need to bend the knee to financial prudence because it has a monopoly on currency.

As the debt-deniers assert: The only risk that debt poses is inflation, and the simple solution for that is to just raise interest rates to quell consumer spending, thereby cooling inflation.

Easy peasy.

If not for the fact that this is a family publication (or so my managing editor tells me), I’d refute that with enough R-rated expletives to make Norm Macdonald blush.

Alas, I will simply rebut with the statement that such a belief is, in the best possible scenario, blindingly stupid and historically naïve.

Let’s start with blindingly stupid. Stupid always seems a good starting point when discussing government, its mandarins, and the ivory tower economists who push these newfangled beliefs that 2 + 2 = 19 because numbers are just a false construct… or something like that.

The truth is that inflation is the great debunker of this belief that “debt doesn’t matter.”

We’re seeing the direct manifestation of that truism right now.

Interest payments on the national debt hit $475 billion in Uncle Sam’s fiscal year 2022 (the federal fiscal year runs Oct. 1 to Sept. 30). That was a record.

In the first nine months of this fiscal year, interest payments on the debt have already shot up to $652 billion—a painful 37% higher.

Moreover, we still have three months left in this fiscal year. America’s debt-servicing costs will ultimately push up against $900 billion. That’s about 15% of the $5.8 trillion federal budget, as laid out by the White House last summer. Truth is, that percentage rate will be slightly smaller because the budget will exceed $5.8 trillion… a brilliant strategy of winning by losing.

That sharp increase in borrowing costs is entirely the result of the Fed hiking interest rates too quickly over the last year or so, to more than 5.5% from basically nothing.

Debt-proponents would like us to believe that everything will be fine because inflation will force a self-correction. Jobs will be lost, people will stop spending, and all will be right again.

Yet that has not happened. Inflation has come down, but only because energy prices came off their highs…

Now they’ve started moving back up over the summer, and—golly gee, what’ya know?—inflation started nosing up again.

The job market hasn’t fallen apart.

Consumers continue to spend, and they’re doing so by taking on even more debt.

Ultimately, interest rates will be coming down very soon. But not because the Fed whipped inflation. It will be precisely because—say it with me—Debt. Does. Matter.

We’re going to end up in an environment defined by elevated inflation, low interest rates and average job growth—a very strange mashup of Goldilocks Meets Hyperinflation (Goldi-flation?). The Fed must reduce the government’s debt-repayment costs before those costs spiral out of control. It has to make a choice: Save the baby or save the bath water.

It will choose the baby… and the bath water is going to overflow and create a new crisis soon enough.

Now, as for historical naivete…

Government might have a monopoly on currency, but it has no monopoly over money.

What I mean is that the U.S. government can control all dollars in the world—but those dollars are just currency, a fiat representation of money.

But the government does not control the street value of cigarettes. The value of cryptocurrencies. The value of gold and silver. The value of online gaming tokens (which Venezuelans are using in their hyperinflationary economy).

Those are currencies too… money in a different form.

So for debt-lovers to argue that the government has a monopoly on money is flat out boneheaded.

If Uncle Sam’s minions in D.C. were to assert that they can issue trillions upon trillions upon tens of trillions of dollars in additional debt, or simply print tens of trillions of additional dollars because, well, “We’re from the government and we’re here to help,” we would hear a collective guffaw from across America.

Americans could revert to other forms of spending and saving. Regardless of government mandates. Period.

That has been the world’s reality since at least the collapse of the Roman Empire 1,500 years ago. No reason to think that society’s collective lizard brain is so much more advanced that it would gladly take it in the shorts if the government said, “Bend over.”

So, what’s to come?

The self-destruction of the world’s greatest Ponzi scheme yet: American debt.

Grab the popcorn (and some gold and bitcoin and Swiss francs)—this promises to be a helluva show.