We've Arrived At The End Of The Road

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Our debt-exhausted economic system has reached a point of terminal instability. This article provides a brief overview of the causal factors leading up to this condition. The article is followed by an in-depth video presentation featuring predictions and advice from a team of economic, financial and legal experts.
When Richard Nixon closed the gold window in August 1971, fully severing the US dollar from its gold standard, the Federal Reserve and other world central banks found themselves liberated. No longer was their ability to provide liquidity constrained by the physical limitations of the gold supply.

The Fed started intervening more and more during times of slowing growth to goose the economy back to vigor. Cheered and further egged on by politicians happy for easy solutions and desperate to avoid having to make tough calls, central banks have been increasingly willing to provide liquidity in good times and bad.

Akin to removing the limit on a teenager’s credit card, with access to so much cheap money, the US went on a debt bender. One that has lasted for nearly half a century:

<img class=“aligncenter” src=“https://peakprosperity.com/wp-content/uploads/2021/09/fredgraph-4.png” alt="“Federal Reserve Economic Data chart of total outstanding US debt” width=“1168” height=“470” />

Here we stand today with the national debt at over $22 trillion, total US debt outstanding of $70 trillion (shown in the above chart), and unfunded national liabilities of over $200 trillion. And we add to this every year with an annual deficit now exceeding $1 trillion.

This gigantic accretion of debt will never be repaid. And as the pile grows higher, the burden of servicing it – even at today’s historically low interest rates – is placing an increasingly heavy drag on economic growth.

An Economic Dead End

To date, the central banks have gotten away with their easy money policies because they could. The day of reckoning could always be pushed further out via a fresh round of liquidity. But, as Brien Lundin says in the video below, the reckoning is "no longer simply inevitable, it is imminent. We are reaching the End of the Road."

The Fed and its central banking brethren are now hostage to rock-bottom interest rates. They can’t raise them, lest they asphyxiate the remaining shreds of GDP growth around the world. Especially now, when so much of the global economy is fast sliding into recession. Rate hikes at this point would simply crash the system.

So we can expect more unnatural and desperate measures from here. Fed rate cuts while the stock market is at all-time highs and employment at all-time lows? Sure. Negative interest rates on high yield (i.e. junk) bonds? It’s already happening in Europe.

But we shouldn’t expect these to work. The system has reached a point of debt exhaustion where each new $trillion stimulates much more weakly than the previous one, and causes the system to become exponentially more unstable.

Yet politically, there’s no appetite for anything other than “More liquidity!” to keep the status quo alive for as long as possible.

We’re already seeing the cracks appear. Gold, which serves as a mirror (or at least is supposed to when not intentionally suppressed) to reflect fiat currency devaluation, has decisively broken above its six-year ceiling price of $1,350/oz (trading as high as $1,450/oz last night).

Investment Advice For An Uncertain Future

Just this week, Ray Dalio issued a warning to the world about this impending crisis, advising investors that:
"I think (investments) that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant."
So what does all this mean? What repercussions can we expect as we arrive at the End of the Road? What prudent investments fit Dalio's criteria?

To address these important questions, Peak Prosperity partnered with Jefferson Financial and Benchmark Financial Services to assemble a team of economic, financial and legal experts to explain the unfolding situation and predict what to expect from here. The result is the 90-minute video presentation below.

Featured faculty for this video include Ted Siedle, national pension expert and recipient of the two largest-ever whistleblower settlements from the SEC and CFTC, Chris Martenson PhD, economic analyst and co-founder of PeakProsperity.com, and Brien Lundin, publisher of GoldNewsletter.com and producer of the world’s longest-running investment conference.

(Links to the resources mentioned in the video can be found here for New Harbor, Peak Prosperity, BenchmarkAlert.com, Gold Newsletter, and the New Orleans Investment Conference.)

This is a companion discussion topic for the original entry at https://peakprosperity.com/weve-arrived-at-the-end-of-the-road/

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Big difference between “inevitable” and “imminent” don’t you think?
AKGrannyWGrit

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Lately I’ve been mulling a question: why do we look at debt to GDP rather than debt to wealth ratios?
If our economy isn’t becoming more productive, then you’d almost expect to see total debt accrue faster than annual GDP - if I borrow $1 every year, maybe my wealth (and income) increases by a dollar a year, but I have to borrow that 1$ every year to maintain the GDP increase.
Fundamentally GDP is annual but debt is cumulative. Does this matter?

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I think that Dave Ramsey can’t help the federal government get out this mess! We can always start congress at baby step one, save thousand dollars?

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See Extreme Frugality - SNL! I think it has many applications.

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Correct Granny. PP has been saying imminent for some time now. One day they will be right. But the very fact that you can put up a 50 year chart of ever increasing debt shows how long this can go on. What is the proximate trigger for imminent?

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Spanishpaco -

Fundamentally GDP is annual but debt is cumulative. Does this matter?
Of course it matters. As I've been pointing out for nigh on a decade now, the US has been compounding it's debts since the early 1970's at 8.9% per year while GDP has been compounding at roughly half that rate. That's a train wreck in the making. A long time in the making, and a heck of a lot longer than if we had a competent AI program running the show that could actually calculate forwards a tiny bit and come to a c proper conclusion. Humans are blessed/cursed with an optimism bias (subject of a future podcast with a neurobehaviorist) and so we like to imagine that somehow things will sort themselves out at a later time. But here's one important chart for this discussion; Total Credit Market Debt vs GDP: If the debts are claims, and they are, it's not terribly difficult to work out that they are only useful as claims on the output of GDP. Future money buys us future things. Goods and services. If there's one unit of future claims and one unit of future "stuff" then all is well. But what happens when there are 10 future claims and only 1 (one) unit of stuff? There's an imbalance to be sorted out simply via destruction of the claims. Whether that's by an inflationary outcome or a deflationary burn is the only open question. But AI would be able to dispassionately conclude that one way or the other the claims were worthless today. They can be discounted today and one does not have to wait for some bonfire of the vanities to rage along and take your portfolio up in smoke at the same time as everyone else's. I have another chart, I can't seem to locate right now (and I've got to head out in five minutes for a range session), which shows that if you subtract US federal deficit spending that US GDP would have been negative ever since 2010. If or when the US government ever decides it cannot keep running larger and larger deficits, then GDP will contract. (It's simple math that Steve Keen showed us a while back. A 3% deficit this year needs to be 3%+ something next year or else GDP will take a hit). I think too that AI, or a mathematically competent grade-schooler, could easily work out that one cannot run larger and larger deficits forever. So there's a reckoning at some point, the difficulty being that moment comes with the largest ever pile of federal debt on the books, and a falling economy, which is a bad mix.  
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Chris,
There’s a former special forces guy that blogs with the nom de plume “John Mosby” that I think you should consider interviewing. He runs the Mountain Guerrilla website. He lives off grid, embraces the concept of social capital (tribe, in his words), and also raises his own food. He is a tactical instructor that is articulate and has well thought out opinions on collapse. I just started reading his books over the last 6 months, but I think he would be worth your time. His experiences with tribal communities and war zones along with a history degree make for some interesting insights.

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The chart Chris referred to above?

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Recently, I been wondering about the Imminent nature of our expected correction/collapse as well.
'08 was a wake up call to the issues for me. Ten years later I would never have imagined that we could be chugging along with most of society still unaware of the freight train coming. And now I wonder if it might not be another 10-20 years of grinding it out.
Maybe Japans levels of debt and government purchases of debt are entirely doable by the US and rest of the world as well.
As long as the fed is willing to just scoop up that debt, then we can keep fracking and keep the stock market going higher. 90% of society will buy into the market=high, so we must be doing better, even as most see no benefit, or are losing ground.
As long as the US looks strong, the rest of the world seems willing to buy out property and bonds and stocks. This averts the collapse in the US as well.
 

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The chart Chris referred to above?
Yep, that's the one! Thanks.
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“As long as the fed is willing to just scoop up that debt, then we can keep fracking and keep the stock market going higher. 90% of society will buy into the market=high, so we must be doing better, even as most see no benefit, or are losing ground.”
Our global monetary, banking and financial system is based on faith. When people lose faith that a $20 bill (insert Pound/Euro/Yen/Yuan etc) isn’t worth the paper it’s printed on is when chaos ensues. So central banks are willing to do whatever it takes to keep the illusion that everything is stable because when it gets out of control is when people tend to pull and look behind the curtain like that famous scene from the “Wizard of Oz”.
Central Banks all over the world have an idea what the end game is (Hank Paulson) wrote about the end game in his book and it wasn’t pretty such as the entire global system and the just in time delivery systems coming to a halt and Martial Law in the US.
That’s what they are wanting to avoid. Meanwhile those that have created the problem and have made it worse are buying bunkers and fallout shelter for when that day arrives.

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There are a couple of misunderstandings in your thoughts. Not in any particular order; 1]the National debt, at $22 T is required by Congress to match the budget deficit. The debt does not provide spending money to repay the debt, It is a fake, a construct aimed at our ignorance for two reasons. First; the bond auction is filled by investors, including o s countries e.g., China and Japan. They are investing because if their money just sits in reserve accounts at the Fed they don’t earn anything. This way they do, 2.35%. Their money is safe, both because guaranteed by the US government and importantly because the government has no need of the money. The second point is the debt doesn’t exist. It was already paid off by the deficit spend. That operation paid off the bills from government appropriations by Congress. As you must know the money comes all from thin air. It gets its worth when used to pay the budget expenditure debts. which becomes the money supply. So to think the national debt needs to exist is not due to it paying debts, It really is just a form of corporate welfare. At maturity the investors get it all back plus any outstanding interest.
2]The deficit is the vehicle that funds the government. That is another misunderstanding. The USA is monetary sovereign so it has no need to save or borrow its own dollars. [think Monopoly].It’s PAYG. Taxes cannot pay for [federal !] spending. a] because the money must come first, obviously!, and b], because the federal budget cannot have spending on both sides of the ledger. The deficit creates money, the tax destroys it. (once you pay your tax bill .[like a bank loan when paid off], it disappears back to thin air so to speak)
The debts created by the Congress are paid off every day. The government is only in debt in the 30 day interval between the creditor presenting the invoice and the time the bank settles it.
The fact we live today in a credit funded economy is a result in the aftermath of our peaking as a productive economy coinciding with the Moon Shot, now 50 years ago. The Central banks are not a cause of the trouble we are in today. They are trying to manage it, but the Government’s workings actually function successfully. It’s the politicians who wallow in economic ignorance and stuff it up with barren arguments. We are not holding them to a high standard so we are at fault also.
John Doyle
 
 

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How will you survive the melt-down of 400 nuclear reactors? What do you anticipate will be the consequence and what can you do to be resilient in the face of atmospheric radioactivity?
Otherwise, relax and learn to love the world and use the resources here for living a beautiful lifestyle NOW! (and I’m most grateful to the team for that) PTSD is not a lifestyle (don’t ask how I know).

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The question might easily be asked, “How did the dinosaurs (birds) survive the Cape Charles asteroid? How did the squid and octopus survive the hyper-acidification of the oceans at the Permian Extinction?”
The answer is, not very well, but well enough. The adults died young – many of the dinosaurs got silicosis, and died from all the particulate silica in the air – the overbuilt bones attest to that. The young got old enough to mate before dying – but not old enough to develop their full adult features. Thus, adult features became open to change. Young-dino features like downy feathers remained. The squid and octopus no longer needed a shell, except for the beak.
Likely, if 400 reactors melt down, we will – on average – die young. But not necessarily young enough that we can’t have children, and even pass on knowledge.
The old ways will pass away. New ways that work will carry on. It’s the way of life at crisis points.

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Chris Martenson:
“a mathematically competent grade-schooler could easily work out that one cannot run larger and larger deficits forever.”
That would be the inevitable conclusion, if we are limited to looking at just one side of the ledger – deficits, and debts. The other side is assets, productive capacity (physical economy), productivity, and so forth. There are things on the debit side of the ledger, and things on the credit side. If you look at just the one side, then you end up with a skewed view.
If you spend all your money on crack and hookers, for example, then you will get one outcome; if you invest that same money in productive capacity or well-managed companies, then you will get a different outcome. Those things are true regardless of whether you borrowed the money (“deficit spending”) or not. It matters what you spend your money on. You could run larger and larger deficits for a very long time, maybe forever, provided: 1) you have the real assets, including productive capacity and physical economic basis going forward (infrastructure and the like) to service your debts, and 2) you are a sovereign issuer of currency, and the currency has international credibility.
Deficits and debts are aggregate figures which obscure as well as illuminate, without this all-important qualitative consideration. In just the same way, GDP obscures as well as illuminates, being aggregate economic activity regardless of whether that economic activity actually did anyone any good.
Funny, but I’ve tried to explain this, repeatedly, to the people over at Automatic Earth, but to no avail. They just can’t seem to understand the idea that good can exist as well as bad, quality investment as well as wasted money, credit as well as debit.
Jturbo68:
“I been wondering about the Imminent nature of our expected correction/collapse as well. ’08 was a wake up call to the issues for me. Ten years later I would never have imagined that we could be chugging along… And now I wonder if it might not be another 10-20 years of grinding it out.”
Or 30-40 years, and maybe no fireworks even then; i.e. a slow-motion type of thing. The monetary masters of the universe have become very skilled at keeping everything chugging along. The problem with the idea that things might continue to chugg for 30-40 years with no fireworks even then is that it does not work well for selling newsletter subscriptions in the collapse space.
Expressing this view does not deny the possibility, however modest, that things could implode spectacularly starting next month. I’m just saying let’s maintain perspective. The doomers have been predicting catastrophic dollar and stock market and economic meltdowns for many decades, now. I have a little book, titled The Death of the Dollar, which convincingly describes the coming chaos. The book is dated 1966. Dozens of other such titles exist, published over the decades.
ejhr:
“As you must know the money comes all from thin air.”
Yes, thank you. We all need to study MMT and really wrap our heads around it. This is a difficult process, I’ve learned. It takes months of reading and thought. And it is important to do, not because the MMT people are correct about everything (they aren’t) or because MMT is a magic solution to problems (it isn’t), but because the theory actually does have critical explanatory value; it actually does describe how the money system works at this time. It is also a vital counterpoint to the reactionary forces of austerity and deficit-hawkery – the policies of which inevitably hurt the people least able to afford them.

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Please go over and spend the time to watch the crash course. Your entire response is predicated on “deficits can grow if the economy grows”. But this entire website is predicated on “the economy can’t grow if energy availability is crashing; and we are way past peak energy”.
So while you are absolutely right that IFF the economy is growing deficits can grow (though then there is no need for deficit spending)… nonetheless your premise is invalid; thus your page and a half is wasted.

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Michael Rudmin: Thanks for your reply.
90% of what I wanted to say was summarized in this line: “good can exist as well as bad, quality investment as well as wasted money, credit as well as debit.” What do you think, Michael? Am I on the beam, or off?
As for “deficits can grow if the economy grows”: yes and no. No, if by “economic growth” you are referring to GDP or other like measures; as I explained, GDP does not necessarily mean anything. Yes, if by “economic growth” you refer to physical economy and related. If the material means to pay bills increases, then it is highly likely that our ability to pay bills will be increased.
Also, energy availability is not crashing, and it does not look like it will. The bigger problem is too much fossil fuel, most of which needs to be left in the ground for our own good.
 

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alan1202,

energy availability is not crashing, and it does not look like it will.
I think this website has done a great job over the years of explaining how the net energy return of our energy sources is dropping rapidly. A century ago it was probably 100:1 but now it is closer to 5:1 or less if you look at the Alberta oil sands. And because of the fact that the Bakken shale plays etc. never actually make money, their energy return may be closer to 1:1 due to all the embedded energy in the infrastructure required to get that oil to market. The last I checked, the US still net imports a hefty portion of the oil it consumes, despite the shale oil "miracle". Natural gas must now be fracked to get it out of the ground in quantity. There may be quite a bit of coal left but if we are going to rely on coal when the other fossil fuels run out I think that is an admission that we are reverting to medieval times. Solar and wind energy have inherent scalability problems and will never practically support industrial society on today's scale. Nuclear energy is a fading fantasy that relies on a highly advanced economic supply chain to build and maintain, with significant embedded fossil fuel energy in those flows. All of the above facts directly point to crashing energy availability, and the only reason the US has been able to continue consuming as much oil as it has, and pumping as much as it has from uneconomical plays, is because the US dollar as reserve currency means that the US can get away with "miracles" within its borders. But they aren't really miracles; they are simply inefficiencies exported to the rest of the world via the dollar system. Economic growth overall has stopped and likely reversed over the last few years, only held up by faith in false price inflation statistics which magically turn recession into growth with a keystroke.