Armed Debt Collectors = Government Desperation

 

by Alfred Adask 

 

In last week's article, Placebo Economics, I wrote:

 

 

However, I neglected to observe that there is still another "way" back to prosperity.  I don't think that "way" will work.  But I have little doubt that that "way" will be attempted by the Federal Reserve and/or the federal government. 

I.e., if the debt-based monetary system, economy and Federal Reserve are about to collapse due to a lack of new debt, how could government maintain its previous, debt-based powers? 

A:  By creating a police state to force people to do what they used to do "voluntarily" due to the enticements of QE and ZIRP.  This "force" will be more than the imposition of an ever-larger National Debt.  It involves more currency controls, wage controls, and mandates for how you spend your currency, how you borrow more currency (go deeper into debt) and even how you repay your debts-especially those due to government.

Here's an example to illustrate the rising police state:

 In "Armed Marshals Arrest Student Loan Debtors; Is the Bubble About to Burst?," author Samuel Bryan wrote:

 27% works out to about $350 billion that's not being repaid.  That's about 4% of the $8.5 trillion that the military has "lost" and isn't even looking for.  It's also about 1.8% of the official National Debt ($19 trillion) that no one seriously believes that government can or will ever repay in full.

Are there any plans to send US Marshals to roust and arrest the members of Congress, the Senate, and White House who are responsible for that unpayable National Debt?

Again, I doubt it.

The "adults" in government won't be held liable for running up the National Debt.  The "kids" who ran up a student loan debt will be forced to pay at the point of an automatic weapon.

"My country 'tis of thee, sweet land or liberty," hmm?

There's no way the US Marshal can arrest 7.5 million people.  There's no way that government can jail 7.5 million people. 

The magnitude of the student loan debt problem implies that the real object behind sending seven US Marshals with automatic weapons to collect a $1,500 debt is not to actually collect the $1,500 from one debtor.  The real object to scare the other 7.5 million student-loan debtors into "voluntarily" paying up-and paying fast.  (I.e., the seven US Marshals armed with automatic weapons may be more about political theater than Nazi thuggery.)

"But while armed cops try to collect three-decade-old student loans, the feds are forgiving billions of dollars in student debt . . . .The federal government is simultaneously trying to relieve the debt burdenand collect on it . . . ."  

Whether the author's description of a "system" that's on the "verge of collapse" referred to the student loan debt-collection "system," or the US government's debt-collection "system," or to the entire debt-based monetary "system," is unclear.

Nevertheless, all three of these "systems" relate to debt.  So, regardless of whichever "system" is being referenced, it's clear that "What can't be paid, won't be paid."  The debts owed by students, private citizens, taxpayers, corporations and government, itself, are all too great to ever be repaid in full.  Sooner or later, the entire "debt-based" monetary system and debt-based economy will collapse because too many people, institutions and governments can't pay their debts. 

Sending armed thugs to collect $1,500 may merely be evidence of how desperate government must be to collect whatever currency it can find.  Sending seven armed men to collect $1,500 is evidence that the government is already broke.

*  Our government's relationship to student loan debtors is analogous to the relationship between EU creditors and Greece.  The US government and EU creditors can yell all they want, but the US student debt and Greek national debt are, for the most part, too great to even be repaid in full or even substantially. 

More, the US government is not the innocent victim of the student-loan debtors.  By entering into loan agreements with teenagers who were often unable to understand the consequences of the loan agreements they signed, the government enabled kids to borrow currency that they'd often never be able to repay.  By providing "easy money" loans to students, the government allowed colleges to raise their tuitions and fees and thereby force students to go deeper into debt.  By mismanaging the economy to a point where recession is certainly present, many of the student loan debtors are unemployed, and national economic collapse is at least possible, the government created economic conditions that impaired the student debtors' ability to repay their debts.

Worst of all, student loan debts may be the only form of debt other than income taxes that , by law, can't be discharged by bankruptcy.  When it comes to debts owed to the almighty government, the rule is "pay, die, or go to debtors' prison".

If the government debt collectors want to pull their guns on somebody who's really responsible for the debt crisis, maybe they should look at our congressmen, senators and presidents.

"Ultimately, the US taxpayer is on the hook."

Maybe so.

Maybe not. 

Will taxpayers pay the student's debt to government?  Or will the debt burden on taxpayers grow so large that the number of income tax resistors also grows until the US Marshals are also called to enforce income tax debts?

Whatever the answer to that future question might be, it's apparent that government can't actually collect $1,500 for 30-year old loans with armed, US Marshals.  They're losing money on this debt collection procedure.  That implies that government is willing to lose money on 1,200 to 1,500 collection-by-force efforts to scare the remaining 7.5 million delinquent student borrowers into repaying their debts. 

Which, again, implies that government's current strong-arm strategies for collecting student debts is more theater than policy.

And all of that implies the government is so broke that it's desperate to collect more currency any way it can.

And that implies that government will almost certainly raid any other sources of funds it can find.  These sources include government pensions, private pensions, and Social Security and even savings accounts.

All of which suggests that the national government-as well as some state governments and most foreign governments-are so deeply indebted that they're approaching a moment when they'll all have to confess that they're insolvent and unable to repay at least some, probably most, and maybe all of their debts.

What'll happen to our debt-based monetary system and debt-based economy when the U.S. government (the world's biggest debtor) is forced to admit that it can't pay its debts? 

Will government send US Marshals to intimidate every debtor in the world into paying what they can't possibly pay?  Or will there be a moment of common sense when we all admit that the debts can't be paid and must therefore be repudiated?

As I've said for five years, "What can't be paid, won't be paid."  That statement sounds silly, I know.  But the day is coming when the significance and powerful implications will be felt by all and send virtually everyone into a state of shock. 

Why?  Because one man's debt is another man's asset.  When the debt is repudiated, the correlative debt-instrument that's being treated as an asset will also be destroyed.  The government can't repudiate the $19 trillion National Debt without also destroying $19 trillion of the paper bonds that most people currently regard as assets.

Can the American economy hold together if $19 trillion in paper assets suddenly become worthless?  

I don't think so.

 

*  One way or another, with the force of a police state or without, we're coming to a moment when the world will have to admit that the total debt is too great to ever be repaid.  When we reach that moment, the debts will be cancelled by government's overt declaration or more silent hyperinflation. 

When that moment arrives, borrowers will be freed from their debt burden.  They'll cheer-until they find out that there's no more food on grocery store shelves.

Similarly, those holding their wealth in the form of paper debt-instruments (stocks, bonds, bank accounts, pension funds, etc.) will be ruined by the loss of value in their paper debt-instruments.  The world economy will be gutted because it will be without paper capital to be used as collateral to lend currency to build businesses, shopping centers, homes and roads.

The only remaining capital after the debt-based monetary system implodes will be gold and silver.  If/when that reality becomes obvious to all, the prices of gold and silver will silver will soar to levels that are currently unimaginable.  That should happen within five years.  It could happen within three.  Even two.  Maybe less.

Buckle up.