Is this the end of paper money?

In November 2007, I published a paper entitled “This Is It.” (Having just re-read it, I would say that what I wrote then is perhaps even more relevant today.) I introduced this commentary in this way, “This is it, the Kondratieff winter is now underway in earnest and nothing can stop it. The huge credit expansion initiated by the Maestro, the past Federal Reserve Chairman, Alan Greenspan, has now reversed. The ensuing credit contraction will be devastating. It will take down creditor and debtor alike and will result in a destructive and frightening deflationary depression.” While many banks did fail and those that didn’t were bailed out by the Federal Reserve which conjured up $16 trillion in support of US and foreign banks. This effectively righted the sinking ship one more time and thus “This Is It” was prevented from happening.
But this time, there is no way the world central banks will be able to stave off the developing financial and economic catastrophe. The massive infusion of debt that these hubristic central bankers have created since 2007 is a certain recipe for disaster. According to the McKinsey and Global Institute study, since the fourth quarter of 2007 global debt has increased by $57 trillion or 40.1% into the second quarter of 2014. Over the same period China’s debt has nearly quadrupled from $7 trillion to $28 trillion. Much of this increase has been propelled by real estate and shadow banking; half of these loans are linked to real estate, while nearly half of this lending is attributed to unregulated shadow banking.

Blog image Aug 26, 2015

All this debt has been made possible by every country tying their respective currencies to paper. After President Nixon abandoned gold in 1973, the world led by the United States has been on an ever-increasing debt spiral. This grew exponentially after 2007, as we have detailed above, when central banks desperately created even more debt in an attempt to stop the debt bubble collapsing at that time.
The world economies are rapidly slowing as evidenced by the commodity price collapse and in particular the price of oil. This is exacerbating the debt problem and “We are at the end of a grand credit bubble super cycle. The desire to avoid those consequences is exceptionally powerful, especially in the halls of power. Nobody wants to see that sucker end; the consequences will be felt and discussed for generations.” Chris Martenson, Peak Prosperity, Monday August 24, 2015.
The real consequence of this debt collapse will be the end of fiat paper currencies. The repercussions of such are frightening. Paper money is credit money. The economy operates on credit. When credit dies, as, by the way, it almost did in 2008 the economy ceases to function – no delivery to grocery stores and gas stations; not just that, but everything else within the economy ceases to operate. When the credit system collapses paper money becomes worthless.
It will be the countries that own gold that will fashion the precious metal as a backing for their currencies. Those countries without gold, probably including the United States, will be in dire straits. Their currencies will not be accepted as a means of payment.
I will continue this in my next blog.

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