First, let’s review three key facts:
1. When you borrow, you are committing future income to pay for resources consumed today. In order to completely repay your borrowed funds, you must either have growth in your income, count on inflation to allow you to repay using money that is worth less, or cut back on other future expenses to open up the cash flow for the repayment. Growing the economy forever on a finite planet is impossible. The inflation needed to accommodate repayment at our current rates of interest is often termed “hyperinflation”, and that level of money degradation is problematic. Cutting back on expenses, again at our current levels of debt, is also problematic and will end in mobs with pitchforks and torches storming the bastions of power.
2. Because money itself is created by issuing debt, there is not enough money in the system to repay all of our debts.
3. Because when money is created the funds needed to pay for interest are not also created, all funds that go to pay interest take us further from our goal of having enough liquidity to repay principal. As interest rates climb, this gap grows faster.

When these facts are taken together, you can begin to see that the road ahead is rough. We can’t keep expanding the size of global wealth as we have these last several decades, due to peak resources, a shortage of new markets, and changing rainfall patterns. We can’t keep borrowing, because debt that must be serviced through interest prevents us from having the funds to repay that debt. And we can’t increase the money supply indefinitely, because at some point there is no one left to borrow in order to infuse new money into the system. Part of the reason that credit froze in 2008, requiring trillions of dollars of bailout funds from the U.S. government and the U.S. Federal Reserve , was that banks realized they must be more selective in granting credit, and the pool of potential borrowers was suddenly quite small. Hence no new money was being created to cover the interest on loans already issued, and just as in musical chairs, every institution scrambled to avoid being the one with no reserves left at the end of the day, and workers found themselves fighting for scraps of wages from a shrinking pool of capital.

So how will this end? At some point, and for any number of reasons, we will finally be forced to acknowledge that we cannot return to the “good old days” of full employment . Or we will see the end of growth, and the resulting contraction in the economy will lead to a dreaded deflationary spiral that will be difficult to end, where people hoard their money waiting for tomorrow’s lower prices, and we endure another huge increase in unemployment. Or we will force those who hold loans to restructure the debt and take a “haircut”: settle debts for pennies on the dollar, in other words. Or to refer to the biblical notion of a “haircut”: we will declare a debt jubilee.

Now I understand we cannot return to the economy of the last forty years. We doubled our total debt; personal, corporate and governmental, five times in that span. We are already four years deep into the next ten year “cycle”, and have actually lowered our total debt by a fraction, which means we are behind schedule. But to see the economy grow in the same way as we have during our lifetime, and using the old paradigm of debt=money creation, Americans will have to take on an additional $50 trillion in debt, on top of the $52 trillion we already have in the next six years. Any way you slice it, doubling our debt that quickly can’t happen without hyperinflation. Face it, growth is coming to an end, and will not be the answer this time around. Jobs, at least as defined currently (since we don’t define much of the caregiving of our young and elderly as “work” when it is done by family members or neighbors out of love and “for free”) have just as often been scrapped by automation as by outsourcing, and they are not coming back . Many people today campaign under the banner of “Jobs Not Cuts”. Sadly, they are destined to be disappointed. Cuts are inevitable in a contracting economy, in both the public and private sectors, and we cannot return to the infinite growth model.

There is heated debate about whether we will see inflation (and even hyperinflation) or deflation in the coming years. I doubt it will be so clear-cut. Our “big three” expenses: housing, food and energy, will undergo wild swings. We have enough housing in this country; we just need the will to ensure that people can stay in their homes by adjusting mortgage payments and rents, and preventing banks from bulldozing homes they have taken back in foreclosures. As more people lose their homes, though, I expect that more people will find creative ways to share their homes with friends, neighbors, and even strangers. The average home size in America has doubled in the past forty years: not only will these gargantuan buildings become more expensive to heat as peak oil takes a bite out of supplies, but as we all begin to see that relationships, and not things, are what bring us happiness, we will leave the individual, cocooning, go-it-alone lifestyle so prevalent in the early years of this century behind in favor of greater communal-style living situations. Food prices will soar, as both the fertilizers and pesticides derived from oil and necessary for the modern industrial method of production become scarce and therefore expensive, peak oil drives up the cost of fuel for farming and for transporting goods to market, and as shortages appear when the climate changes and moves the patterns of rainfall that we have grown accustomed to over the last forty years. This shift will either flood the crops or prevent crops from growing due to drought, and force many crops to be planted in areas of the globe without a current infrastructure to support its transportation to market. We will lack the resources to build any new infrastructure to address this problem. Energy prices will yo-yo, because as scarcity raises prices, economic contraction will ameliorate those increases. Soon, oil exporting countries will begin to eliminate their exports, choosing instead to hoard this precious resource for their own companies and citizens.

These wild swings will hardly fall into easy categories such as inflation or deflation. But the uncertainty of what prices will be tomorrow, and the increasing toll that rising prices take on an already stagnant or falling wage, will lead to households hoarding their resources and refusing to take on debt for spending deemed to be discretionary. Hence a good portion of the current economy will be fighting over very few consumers, and will either go out of business or set rock-bottom prices. This too, will add to increasing numbers of people who are unemployed within the economic system. Again, because of transportation costs, we will begin to see shortages of goods, and in many instances, an inability to find particular items for sale because they are not made locally. In other words, we will experience both inflation and deflation, depending upon the current situation and what aspect of the economy is being examined.

And so we are left with restructuring debt as the only viable way out of the mess. The takeaway from this whole section is this: if we are going to restructure debt at some point in the future, if we are going to settle outstanding loans for pennies on the dollar and forgive debts, why wait? It is clear that at the systemic level, there is not enough money in the system to repay America’s debts. We will either:
• restructure and try to carry on, hoping for a miracle resurgence in employment
• push the system to the very limits of debt and then have to decide, once the system lies in ruins at our feet, if we will start the same system all over again or try to build a different, more equitable and sustainable system in its place
• or, we will see the light and proactively forgive the debts and install a system not based on fiat currency, compound interest, and debt as the way we create our money?

Keep in mind: there are alternatives. This system of “financial capitalism” has only existed for forty years, and has only been visible and problematic for less than half that. We have used other monetary systems here in America before: this is actually our eighth one. We can meet our needs for trade in other ways! The very idea of a debt jubilee comes to us from the Old Testament, so it too, has been used before. And before you trot out the “moral hazard” argument: saying that we can’t let those who promised to repay loans off the hook without reducing our society to a bunch of lazy good-for-nothings and harming those who acted in good faith, keep one thought in mind. Where was the moral hazard argument, when the financial institutions were converting from investment banks to bank holding companies overnight in order to qualify for government bailout funds? Where was it when mortgage brokers were filling out loan applications that borrowers never even signed? Where was it when the property deeds were neglected by the banks, not registered as required by property law, and never transferred into the names of the rightful owners? Where was it when brokers were selling financial products and derivatives that they then immediately bought insurance for, believing them to be faulty? And most of all, where was the moral hazard argument when banks were allowed to speculate with customer deposits, pay huge bonuses and dividends when times were good, and then push the losses off onto taxpayers when their bets went sour?

And on the personal level, again the question becomes: why wait? You probably have a credit card account that has seen the interest rate rise, just because the bank decided it was a little ‘short” in the bonus pool one month. You probably received increases to your credit limit that you did not request. You may have seen interest rates rise on many accounts, just because you were a few days late paying on one account. And most scandalous of all, you may be one of the unfortunate souls who is paying 20%, 24%, or even 36% interest rates; all rates that are designed to prevent you from ever repaying the loan despite the fact that the bank loaned you money it created out of thin air. The bank is not on the hook for your default: the bank is already whole once you have made just a few months’ worth of payments. You don’t owe the bank interest because you “are using the bank’s money” that it might be able to invest in something else; the bank didn’t give you its own money in the first place. Some of these financial institutions are leveraged so steeply that they have barely 1% of their own money at risk, and none have more than 9%. Do you have a plan, one that has you debt-free within five years? Twenty years? Or are you, like many people, beginning to see that you will work at a job you would rather leave, for the rest of your life and well past retirement age, and despite that you will still die in debt?

Put down the debt and step away, my friend. It is already clear that we must all stop using debt to finance our day-to-day lives. We must return to the old days, when debt was for houses and houses alone, if you even used debt. We will downscale our consumption, whether we like it or not, just due to tight credit and peak resources if for no other reasons. This paradigm works well if your goal is to shift resources away from working people to those with capital. That is why it is called “capitalism”. But don’t get caught up in the terminology: there is a lot of baggage associated with these terms. Instead, accept that there are ways to share real wealth: healthy families, healthy food, and healthy neighborhoods, without being a slave to debt. Why should we care if our credit rating is low? We won’t be using it soon anyway. Can we ask, “When do I feel passionate about what I am doing?” and once we identify what makes us feel most alive, can we find ways to let our passion bring us enough of what we need that we don’t need to use debt or even Federal Reserve Notes? Can we build community, not bank accounts? Can we care for others as they grow sick, and realize that we are “banking” energy and building relationships that will one day come back to serve us in our own time of need? Wouldn’t this way of doing business, following a debt jubilee, make your heart sing?ity, not bank accounts? Can we care for others as they grow sick, and realize that we are “banking” energy and building relationships that will one day come back to serve us in our own time of need? Wouldn’t this way of doing business, following a debt jubilee, make your heart sing?