Should you pay down debt?

A few weeks ago we mentioned the possibility in a future Campfire of discussing paying down debt. I know some readers often talk about paying down debt as being a priority. I personally have been more iffy on the subject--maybe for some people, in some situations, but maybe not for others in other situations. What do you think?

We know debt is not is not very sustainable under peak oil, so some changes are likely ahead--but we really don't know what they are, or how they will work out. Also, we don't know whether there will be inflation, deflation, or just difficulty buying things that are even partially imported, or made using imported goods.

I can think of a number of categories of debt:

1. Mortgage loans, which are close to being paid off, and with a little effort can be owned free and clear.

2. Mortgage loans, loans for much smaller value than house is worth, but nowhere near being paid off.

3. Mortgage loans, loans for more than the value of the house.

4. Auto loans.

5. Student loans.

6. Credit card debt.

7. Business debt.

The one category I can see a strong argument for paying off the loan ahead of time is the first category above--paying off a mortgage, when you can own the house free and clear. It is not quite as clear in the other categories.

One issue in paying off debt is whether this will this leave you short of cash if an emergency comes up. Also, what will happen if you need to move suddenly, and can't sell the house?

Regarding student loans, I understand that there has been some recent legislation that cuts back payments (perhaps only on some loans, I don't know) if you don't have adequate income. This may have a bearing on loan repayment as well.

What is your view on paying off loans, given the many unknowns of the situation?

Oops! I fixed the comment setting.

I think it depends on what you see happening to the economy in the future. If you believe the entire economic system as we know it will collapse, then the debts you owe will be just as valueless as you cash you hold on to. So in that case, spend your money on tangible things you'll need.

But if you think the economy will remain intact, but with runaway inflation, don't pay anything off. Pay it of in future inflated dollars instead.

If you think deflation is likely in an intact economy (Is that even plausible in a peak oil situation? I'm no economist), then it would make sense to pay off debt. Though as you point out making sure you own your own property would be more important that paying off a car loan or student loan.

I accept that I'm not smart enough to reliably predict what will happen in the future. Legitimate concerns about hyperinflation, or conversely deflation, may not be reflective of how the economy will change. It's extremely risky to make big bets with your debt if you're depending on the economy to do one specific thing.

So, my focus vis-a-vis debt is to pay it down quickly but not so quickly that it interferes with other priorities in my life. I feel strongly that I made a commitment to repay my debts at the time when I borrowed the money. That being said, there is certainly room to prioritize: high-interest credit-card debt ought to be the first thing you pay off. After that, I imagine it makes the most sense to repay debts for which you value the collateral, e.g., (above-water) home mortgages and auto loans.

Gail, you use the word 'should': "Should" we pay down debt. Is there a moral dimension to your question? Or are you framing it purely in terms of self-interest?

"Should" we pay down debt. Is there a moral dimension to your question?

Mish had a good write up on mortgages and the moral issue. Any loan you take is a straight up amoral business contract -unless you are borrowing from friends or family -, therefore, defaulting when you can no longer afford to pay is completely reasonable and acceptable.

I agree.

My German friends tell me: "Schadenfreude ist die beste Freude". I think I agree.

What is it about borrowing from friends and family that makes it not amoral?

"What is it about borrowing from friends and family that makes it not amoral?"

The assumption is that friends and family will not hold you to onerous terms when they loan you money, and since they are acting in a moral way you would or should act in a moral way in repayment.

The same can not be said for banks and other financial institutions, which hold themselves to a strictly amoral set of terms, the terms of business, not beholden to any moral code, but only to the maximization of returns.

I draw a moral distinction in my repayment of banks. I have a local bank (Cecelian Bank in Hardin County KY if you want to know) that I will always attempt to pay first,even at discomfort to myself, because they have always to this date played fair in their treatment of me.

To the big banks (Citi, Bank of America, Wells Fargo, Chase, etc.) no such moral obligation comes into force. It is strictly business, and it will almost always be very bad business for the borrower, and the bank will feel no obligation to be fair with the borrower, and have demonstrated this in the past several years. The big banks will bring to force all the power that money and law gives them and then some against their own customers. This is why they should not be considered reliable co-parties in any transaction, and to be dealt with as one would deal with the your own risk. The terms that matter when dealing with the big banks and the financial community (brokers, hedge funds, "investment planners", "investment advisers", etc. are the terms of self defense and survival. The moral code would be the same one you would use if you were being attacked by a pack of wolves...would you feel guilty about injuring or even killing a wolf at that point?

The attacking wolf is only doing what comes natural to it after all. And so it is true of the banks...they are predators by nature, and will continue to be so. But in dealing with either, it would be morally acceptable and natural to fight for your life.


Many moons ago I sat down on a lunchbreak with my then boss Raj, that was his nickname anyway. It was an Indian firm I was working for and Raj was Hindu. He was telling me how he was in the process of buying a second house. I asked if he had paid off his first mortgage and he said he never had a mortgage. I asked how he got the finances for the house and he said he went first to family and then to friends in the temple who all chipped in various amounts for him. He then spent the next 5 years paying them off as fast as he could. These loans were interest free and this was common practice among the Hindus. They just didnt bother with banks and mortgages and he found it strange that the English suffered this.

This all bring up the question of why we are doing any kind of business with fundamentally amoral institutions.

I am getting out of debt for all the reasons others express, but mostly so I don't have to deal with and support amoral institutions.

There is a large and growing movement to divest from the amoral (and many would say immoral) large financial institutions that are running the country and the world into the ground.

yes, the movement to get money out of the big banks and moved over to credit unions and local and regional banks, it is growing, not as political cause (though some folks see it as that, and some are doing it for political as well as the other reasons), but most folks who REALLY care about their won personal wealth and the wealth and well being of their families are doing it because it is the correct thing to do for good financial planning. If you believe in diversity in your investments, why would you not believe in diversity in your banking?

The best combination is to bank with a credit union and then have an account at one or two local or regional banks. This gives you access to about all the banking services you will ever need, and you have leverage, i.e., you can shop one bank against the other and both against the credit union.

Generally, credit unions are most stable and they have far cheaper fees for services, and often pay more on invested/deposits (CD's) etc. The down side is they can be pretty rigid on the lending side, (that's part of what makes them more stable), but all of the money in chartered credit union stays in the credit union, the depositors are the owners. This greatly reduces the incentive for stupid risky behavior. Regional banks generally know the area they are working in, and it is in their interest that the region survives and prospers economically, providing an incentive for them to protect the local economy they service.

The most important thing is to divest from the big banks, but don't hurt yourself doing it...back out one step at a time...

FIRST, get rid of the credit cards from the likes of Chase, Citi, Bank of America, Bank One, Wells Fargo, etc., all the top ten big players (you can google and find the top 10, 25, etc.), and then look at any stock you may own in them. If you believe the stock will keep paying off, KEEP IT. This is not a political cause, it is for YOU to protect YOUR OWN WEALTH. I frankly see no longer term future for the big banks, at least not in the U.S. They are not considered reliable co-parties by anyone...not by the depositor customer, not by the business community and certainly not by the government which has been fleeced out our tax dollar by them again and again.

Lastly, after careful shopping, move your loans and deposits. Do this in stages so as not to leave yourself paying any extra expenses, phase out of the big banks and over to the credit union, the regionals and locals.

This is a plan for YOU. Not a political cause to save the world. If after all we have seen you still believe the big banks to be reliable co-parties to do business with, then by all means, do what you think is best for you. I think, and much evidence demonstrates that are probably wrong, but do what is best for yourself, or at least what you believe to be best for yourself. Everyone else will. But as a person who is fond of the average guy or gal outsmarting the big players (and it does happen more often than you may think) I would again recommend divorcing and divesting from the big banks as soon as possible, and as broadly as possible.


Before someone gets a romantic view of all this ... let me assure you the scenario you describe is an extreme niche. May be it worked a little that way decades ago (even my parents built their house with loans from banks 40 years back) - definitely not now.

Some of the Indian banks are 200 years old ... even Citibank had branches in India 100 years ago.

"Some of the Indian banks are 200 years old ... even Citibank had branches in India 100 years ago"

Yes, and wealthy Indians bought Packards and Dusenbergs 80 years ago, and my father devotedly bought Oldsmobiles his whole life...but the logic holds...The developed nations offer more options, and we should be willing to take them...if the Indian and Chinese citizens wish to tolerate the terms of the big multi national banks let them...let Citi and Chase and Bank of America bleed them to death for awhile instead of us.

I have known several very wealthy people over the course of my life (not at the Warren Buffet or Bill Gates level, but families who never had to worry about money at all), and one thing I noticed early on is that they had banking relationships far away from where you would expect...and virtually NEVER with the big multi national banks (some of them owned or founded their own banks in fact). Having something valuable (money) is good, but knowing where to store and how to take care of your valuables in just as important.


Lending money to the family and friends (and church, or friendship or watever) isn't ninche. It is how most people do it now, and how most people always got loans through history. But it normaly doesn't get on the books.

Getting enough money this way to buy a house may be ninche, but that only displays how much savings are missing in the general population (almost everywhere out of Asia) and that now we have a shortage of land.

"When plunder becomes a way of life for a group of
men living together in society, they create for
themselves in the course of time a legal system that
authorizes it and a moral code that glorifies it"

Frederic Bastiat - The Law

I have nothing against competition but it is not a level playing field.
Over the course of time our legal construct has drifted back to fleecing mechanism by the haves rendered onto the have nots.

This is nothing new it is just our turn to stand up and say no more!

I am convinced that these psychopaths don't even see the gross unfairness and actually have turned to crimes.............they don't even abide by the terribly unfair laws!!

Another good reason that scientists and engineers should be running the world.
Lawyers and business men try to always gain unfair other words they cheat and deceive.
Technical types think in terms that abide with nature and try to model and design systems that conform with known natural laws. The only real law by the way.

We are screwed and these worthless bastards that caused all this need to be taken down and held accountable and I mean severely so.

Doesn't anyone else see this???

This is way, way, way, out of control.

porge -- William Catton calls our economy "The Pick Pocket Economy" because people are encouraged to find ways to extract wealth from each other and move on.

Morality has gone out the window long ago. The word is used to oppress the poor.


I a few months/weeks ago ran a post where I said, If I were king.... as the method to solve all our problems. One of my own set rules of being King was the premise that I am in charge but also no different than any other person I am trying to help.

Of course I see your points, I have for a long time, even before I went off to school "to learn things". Most of my fictional work has heros that are patterned after my ideals, altruism, and living in harmony for everyone.

But I also know that we have to live in a world that, though you can have great great ideals, you have to deal with people that do not share them.

What I would like some history buff to name for me is some period of history where mankind lived in harmony with his nieghobor?

I don't see a place where human greed has not touched just about everything we humans have ever done. Be it greed to have more in our bellies, to having more than the guy next door, or a better looking spouse, or better shoes! I am sure you can name peoples that spent a few years not killing each other, but in all the world is there a good example of a lasting peace amoung men?

If I were king, everyone would want my job!

BioWebScape designs for a better future.

porge - I agree and you've absolutely nailed it.

As a fairly wealthly person, I made the decision several years ago to buy the largest farm I could afford without borrowing anything.

All my surplus income goes into physical bullion (I buy on dips) and supporting local transition initiatives.

My hope is that a sufficient number of the still (?) prosperous (?) middle (?) class will make similar decisions and thereby starve the banksters of

Somewhere along the line our sort-of-free-market capitalism degenerated into the current kleptocracy. I still can't work out whethewr it was planned or whether this descent into pan-criminality is the inevitable corollary of the end of real industrial growth.

BTW, I am really enjoying this thread - everyone seems to get it now - keep it up folks !

We are encouraged to fight amongst each other so no one will look up on the hill and ask "Hey who lives in that big house anyway?"
The best way to control a potential threat is to keep them disorganized and dissenting among themselves.
Never let them see behind the curtain.

No one is going to make it without a community of like minded people to support them and for them to support.
Simple local Credit Unions is the first step to the solution of taking the currency back. After that a debt free currency needs to be instituted and it needs to be treated as sacred as water.
Anyone attempting to control the "water supply" for their own gain should be arrested for treason and tried and if found guilty hung by the neck until dead. I know that sounds extreme but that is where we are right now.
I envy you. I effed up and got caught up in the upper-middle class party on lifestyle and realized late the my hunches since the late 1990s were right on but of course I wanted to stay at the party until the keg started floating.
I am trying to sell my Mcmansion now and follow your plan.
I do have a very good friend who I respect to the utmost that is well along but his surrouding community is still clueless.
Locating out by him is my strongest option but I have loose ends here where I am as well(previous marriage with a kid that I am very involved with whose mom thinks I am crazy.) that is my hardest problem to work right now.

I think that the reason that things drift is that if it gets easy enough for people they let their guard down and then the rot begins.
Their will always be ambitious, cold hearted, genetically mutant psychopaths that will attempt to control and exploit.
They, in my opinion, are the greatest threat to the groups well being and should be seen that way and not glorified.
Slowly the charade is getting peeled back and once exposed we will get a chance to see what the American public is made of.
I am rambling now.........too much coffee.
I could go on and on but the bottom line is that it will take B@lls to take back the future for our children.

I believe it depends on where the money to pay down your debt is coming from, Savings or Income.

Also, I believe that the near future (2-5 years) in the US, the government will have to allow Inflation to cover the existing Federal debt, along with increased taxes at both the Federal, State, and local levels to pay for increased health care costs. The monetary system will still be in full force as oil winds down.

If Savings, then you need to look at the interest amount of the particular debt against the percent return on the savings. Paying off Credit Card debt now looks like a winner.

If Income then for most fixed rate interest loans, I would not pay them off and work with inflation. Since most credit card interest stays ahead of inflation I would still pay off any credit card debt.

So, pay off any credit card debt and keep any future credit card debt to handle just short term (3-9 months) cash balancing needs.

Global debt has reached the point where it can never be repaid. With so many claims on debt of all kinds, when nations get to the point that soveriegn debt is either forgiven or defaulted on, there will be a cascade effect that will wipe out all accounts payable. This won't be debt forgiveness. It will be a debt implosion made necessary by a fully leveraged global economy, complex credit default swaps, derivatives, and fiat currencies that are poorly supported, reaching the end of their usefulness. Credit is slave to growth, as is repayment of debt. If we have reached limits to growth, credit as we know it stops, as does debt service. We're living on borrowed economic time (literally). How you respond to that is purely situational.

The big bills are comming due folks. Pay your most important ones while you still can.

"Global debt has reached the point where it can never be repaid."

Ghung, please let me assure you I am not persecuting you on this, because that sort of statement is used often her on TOD, but to me it is the most singularly non-sensical statement in the economic world.

Who does the "Globe" owe? One assumes it must be someone on the globe! "Global debt" is a meaningless concept...the globe owes no one anything. Particular institutions on the globe may other particular institutions (banks, nations, bond holders, etc.) but the money does not somehow leave the globe. There will be winners and losers. We may not like the possibility (and by we, I mean those of us in the west) that we may lose, but we will not lose to the "globe" but to some set of institutions on it.

This brings up another, once created, is astoundingly hard to destroy. It goes somewhere. If you try to burn the damn stuff, you simply make the remaining currency rarer and thus more valuble. If you have inflation, it makes the items money can buy (houses, cars, art, diamands, gold, etc.) all the more valuable, so the money still remains, but is in the physical property it has purchased. If you have deflation, the value of the currency increases and it can buy more of the physical property. Thus it is a matter of repricing. The wealth of a nation, a bank, a business, an investor, etc, can be wiped out if they are on the wrong side of the repricing, but someone else will benefit by being on the right side.

Of all the things I have to worry about (and there are several) "global debt" is one that I never concern myself about...shave off a few zeros if there must be a repricing, but the "globe" owes no one. That is a lesson humans seem to refuse to accept and go to great efforts to refute. Every damn dime has to be extracted from the globe (or the sun) the hard way...through hard mental and physical effort. The globe owes no one, it must be taken. Those able or willing to make the effort to extract wealth from the globe or the sun are the ones who will have it. The rest, at the fundamental level, are mere parasites, trading on the effort of those minds. The artists, the lawyers, the "investors", the speculators, all derive their wealth from the minds who extract the wealth from the earth or the sun. So it has always been.

The globe owes us NOTHING.


I trust you are not serious?

Given the timing of your post, I must assume you are replying to me. If so, please present your rebuttal. "You are not serious" is not a rebuttal.


The timing of my reply has nothing to do with its relevance, cobber - the fact that I hit "Reply" to your post has everything to do with it - do you not know how this website works?

Whatever - my comment was in response to your breath-taking claim that everything of any worth or value on the planet is always gouged out of the earth by "minds" who know how to do this, and that it is really hard. I think this is childish nonsense. The creation of "wealth" out of the planet is reasonably straightforward - and has been for at least 7000 years. Our ancestors in the Fertile Crescent worked it out, and realised that if you domesticated wild wheat and barley, then domesticated wild cattle and sheep/goats, then you could have yourself a pretty good time.

So it has proved to be the case - everything from the first pottery and early writing, through to the latest trinket offering from Steve Jobs, has been a reasonably easy path, in the scale of things. For thousands of years there has been a large percentage of any population who did not have to gouge things out of the earth (food, minerals, whatever) - we have had food and resource surplus for all that time, leading to priests, artisans, potters, scribes, lawyers, artists, bureaucrats, pianists, football players, and much more.

For you to claim that gouging things out of the earth is the only source of wealth "because the earth owes you nothing" is a silly statement, and the worst form of non sequitur - and I suspect you can do better. It sounds like the most red-neck, check-shirt ideological ranting you hear from farmers in Idaho and Montana, who believe that everything done in cities is useless, or worse, parasitical.

I think your comment is therefore gratuitous in the extreme ... hence my question about whether you were serious.


Now we're getting somewhere...thanks for giving direction as to exactly where you differed with what I said...if for no other reason than to satisfy my curiosity and/or my vanity.

To your point, "The timing of my reply has nothing to do with its relevance, cobber - the fact that I hit "Reply" to your post has everything to do with it - do you not know how this website works?" True, that was laziness on my part, I didn't want to spend time backing around to my account to find out whom you were replying to when it was just as easy to ask for a clarification, and it worked either way.

Now to the point you make, and it is a fascinating one. I have to say we absolutely disagree on what is perhaps the core thesis of what I said, and in fact the core thesis of my whole philosophical position in relation to the difficulty of wealth production.

You were direct and candid in your statement: "Whatever - my comment was in response to your breath-taking claim that everything of any worth or value on the planet is always gouged out of the earth by "minds" who know how to do this, and that it is really hard. I think this is childish nonsense."

Thank you for being very perceptive in finding the core point I was making, even if we differ, because you are exactly correct: I DO absolutely accept/endorse the premise that is only by gouging material wealth out of the planet (or the energy of the sun) that real or core wealth is created, and that it is very difficult, dauntingly so, and it can only be accomplished by the work of minds able and willing to rise above the average and build on the work of centuries of thinkers before themselves. That IS exactly my contention. Allow me to elaborate somewhat in free form on this:

I am so astounded that people today believe that so much of what was created by hard human effort is now assumed to have just been handed down from God to us...I refute this was earned the hard way. There are cultures on the face of the earth who never even developed the wheel, much less the potters wheel. Animal husbandry and agriculture are relatively recent developments. It may be argued that they should have never been applied, but it is a bit late to put that one back in Pandora's box. The waterwheel, the windmill, the large sailing ships were phenomenal leaps forward, allowing the powers that developed them and applied them (this is so important) to basically control the destiny of culture on the face of the earth. Again, you may argue that this is a bad thing, but that is an aesthetic/philosophical/moral discussion. In my view, all history teaches us that the combined minds of generations were needed to get us to what would now be regarded as a relatively simple culture. The mind power and human effort used to propel us into our modern technical age is almost beyond easy description or even easy imagining. I don't think most people realize or respect the efforts that have been made to provide us the age in which we live. We now so easily curse the gift built by thousands, hundreds of thousands of lives spent in hard mental effort.

Once we enter the industrial age, the best minds working in combination became absolutely fundamental to survival. This is where I think I was a bit misquoted when you say in grouping me with those "who believe that everything done in cities is useless, or worse, parasitical." I do not believe that for one second.

The technicians who devise ways to better extract wealth from the material world around us, or from the sun above us may live in the city or the country, they may be professional technicians and engineers or they may be self taught tinkers, it doesn't matter. It is their work, their thought, that contributes to the next step forward, and then hopefully the next step. I do not want to be unkind to the laborers or the farmers, but most of them simply do not have the time or the resources for heavy thought. There are exceptions (Henry Ford was a farm boy, John Deere was a blacksmith for example) but most advances have been made by technicians, or what would pass for technicians in their era, or what may seem surprising, by clergymen or sons of clergymen who had literacy and leisure time, a potent combination.

In hunter gatherer societies, think of the Australian aboriginals as a perfect example, there was no cultural advance because there was no surplus, and thus no way to fund specialists such as priests, artists, architects and bureaucrats. Each person learned the rituals, and passed them verbally to the next generation, or in very modest pictorial representation on local rocks or hand carried implements or weapons. That was the extent of culture for hundreds of thousands of years. This is not to dismiss the poetic beauty of the worldview of these ancients (it may in fact be more direct and representative of spiritual reality than more developed cultures, being less polluted by propaganda)but what I am stressing is that development stops when there is no surplus. It is only surplus, through the mental efforts of a thinking class (organized or working independently)that allows ANY forward development.

I could go on and on, but allow me two quick examples of the time it can take between the birth of an idea and the application of the idea: First, think of the steam engine or steam turbine. Witness the Greek technician Hero's wonderful development, circa 60 A.D.

It would be some 1800 years later that steam was actually applied for power, and it would revolutionize the world when it happened, and it occurred due to the combined work of generations of mathematicians, metal smiths, cannon makers, and finally all the developments brought together by a Baptist preacher and ironmonger named Thomas Newcomen. The countless little developments to get to a steam engine that could be applied are traced by the marvelous historian of science James Burke in his twin BBC television documentaries "The Day The Universe Changed" and "Connections". I would recommend them to anyone who doubts that whole lifetimes were given to making these developments. The human sacrifice to get us to this place in cultural and technical history should be honored, and certainly should not be dismissed. I would recommend a study of the history of science to every child as part of a decent modern education.

Now let us turn to the Pyramids of Ancient Egypt. Although built in the bronze age, they are made of stone. In theory, they could have been built 100,000 or more years ago being essentially stone age structures, but instead are relatively recent. Why did it take humans so long to arrive at this structure? Do we now consider them essentially useless wastes?

I would argue, as would most historians, that the importance of the pyramids is not the buildings themselves (and to call them buildings almost disrespects the extreme theoretical and cultural leap they embody) but that the structures are built not only of stone, but of thousands of years of cultural development, philosophical and religious development, creations of a wealth and power creation system so advanced for their day that they stand today as a testament to what is possible with co-operative human effort. These structures were built upon the minds of thousands of people, and the labor of more thousands, embodied with an information gathering and distribution system that could transcend centuries (the paintings, the sculpture, the mathematics of the very shape itself), these builders mark the combined thought of humanity up to that day as surely as the moon landing marked the efforts of all the science, culture and organizational power of the world up to 1969. The visionary men of 500 years ago would have died contented for just a glimpse of what we have already seen. And it was all created by the minds who first developed the bow, the wheel, the lever, the use of animals and crops, the minerals. The arts (and I am a liberal arts major, I love them to the core of my being) are a parasitic class. The pyramids, the giant heads of Easter Island and our moon landing can only be made possible by extracting from nature (hopefully in the least wasteful way) the materials to create the surplus to fund them. There simply is no other path forward. If we can extract much of what we need from the sun (look UP instead of DOWN) so much the better. But it is only material surplus that allows artistic and cultural development, and this can only be gained at hard effort by a thinking class. "The medium IS the message" said Marshall Mcluhan. It is the thought that matters. An Australian aboriginal gains as much looking at the Pyramids or a multi stage rocket as a cat looking at a pocket watch. The distance in thinking between their culture and the cultures who created these masterpieces is so great it is a difference not of degree but of kind. That is what THOUGHT can do.

There is no shame in being a member of the parasitic class...Michelangelo was, Beethoven was, Picasso was, and so was the sculptures of the Sphinx and the heads of Easter Island. The artistic class, the "management" and banking class are. They simply cannot exist without the thinking of those who made the surplus' possible (often at great effort and cost). This does not mean they are not needed to have a full and fulfilling human culture. I would argue that life without the artistic class, the organizational class would not be human at all, but would put us back at the level of the beasts, leaving us only eating, breeding, defecating and death as activities. Parasite is not a perjorative term in nature, there are thousands of parasite species, they are natural to existance. But no parasite can survive if their host species is allowed to die. It is this that must be remembered by the human species. To me, this is the core of what we discuss everyday here on The Oil Drum.

(By the way, rhetoric and debate are also art forms, parasitical by nature. I would still recommend they be taught in our schools and colleges, they can be useful tools in dealing with the one power in the universe that cannot be measured...the power of combined human thought and effort.)

Roger Conner

Your mentioning PBS stories like "connections" made me think of Marchetti's telling of a lecture by medieval historian Lynn White about the spinning wheel leading to increased production of thread, which meant more rags, which meant cheap paper, which led to printing and mass produced books. Inexpensive paper allowed the diffusion of knowledge that was necessary for inductrial society to begin.

The Marchetti piece is wonderful, a perfect example of what I was talking about! The same kind of story can be told about many industries we now take for granted, the slow development of one small improvement, then another, then another. There is a beauty in the way the multiple years of improvements and thinking come together in a "confluence" point, and then a huge leap forward happens seemingly overnight...but in reality it is usually a case of an "overnight" success that was 500 years in the making!

Thank you for the essay, it is like reading a historical drama, the kind of stuff that gives a mind with a bend toward technical engineering and the history of science goosebumps. :-)


Something else you may enjoy reading is "An Encyclopedia of the History of Technology"

This is much better than something like "Connections". Of course, it's quite long and detailed, but absolutely a must read for anyone interested in understanding history in relation to technology.


The global debt is not the dollars or euros anyone owes anyone else. It is what we have borrowed from the future, the resources and the pollution sinks. It cannot be repaid, but it will sit on the shoulders of how ever many humans follow us if any.

Money is just a promise and promises can be broken, but only with the loss of trust. There is a price to be paid for that too no doubt by those who entrusted their work to the parasites.


You Nailed yet another one.

We need to take the country back and mandate 1/2 consumption asap and reallocate to sustainability practices to even have a chance at all.

I have an 11 year old son.

1/2 of my consumption gives me about 8 more hours of sleep a day, cool.

Thanks, I never thought I'd get that.

BioWebScape designs for a better future.

I live on less than 9,000 dollars, paying all the taxes that the locals need paying for me to keep my 1/6th an acre and the house on it (less than 900 SqFt). So my consumption is rather low as it is.

Yes I figured you are talking about people with more funds than me, but yours was a blanket statement. I am sure the 16 million jobless folks are taking you action.

I mean it as Nation from the top down and scaled like the tax code.
The outrageous waste is centered squarely on creating the lavish lifestyle for the upper 20% or so.
Everyone else caters to the money and distorts the sh#t out of the economy toward the haves.
That's Capitalism for you..........Money is worth more than the commodity called people.....what a disaster.
Re-allocation to provide more at the bottom of Maslow's pyramid and work from there upward for everyone's well being.
This can only really catch hold with a new cultural ethos though.
And don't give me "it is just human nature" bullsh#t that is a propaganda item from the simulacra.

oxidatedgem, you said,
"The global debt is not the dollars or euros anyone owes anyone else. It is what we have borrowed from the future, the resources and the pollution sinks. It cannot be repaid, but it will sit on the shoulders of how ever many humans follow us if any."

That is a very cogent point, but one that seems to have nothing to do with the monetary situation being discussed here. No amount of financial reform, currency reform, debt "forgiveness", debt "jubilee" or any other financial restructuring will change the fact that the oil that has already been burned, the natural gas that has already been burned, the precious metals that have been wasted (some can be recycled, but many are dispersed out into the environment) can never be gotten back.

Likewise the pollution "sinks". Only time without further additions would allow such sinks to cleanse themselves.

When I was a high school student I recall reading an article discussing how humanity would recover in the event of a nuclear war. One "expert" said we climb back up the development ladder the same way we did the first time, from the Gothic period up to Industrialism.

Another commentator pointed out that it would not be nearly so easy the second time around, because the easy to reach minerals and energy that was relied upon to create the first industrial revolution had already been used, and extraction now required technology that would not be easy to duplicate without the easy access to raw materials. In other words, we have already changed the world in such a way that we really cannot afford to slide back down the ladder because the ladder would be very difficult to climb a second time around.

But...all this was pretty much a done deal before most of us now discussing it were born. It has little to do with the current financial situation, or "global debt" in the monetary sense. Global debt is the obligations humans and the institutions they have created have made to each other. If I cannot repay my obligations, you (whether you be a bank or a nation) would at some point have to bring what force you could to bear to try to collect. Or you could deprive me of more debt, but you then run the risk of bankrupting all your customers making it imposssible to pay for whatever it is you were providing. An institution with bankrupt partners and customers is a bankrupt institution. There can be no economy without reliable co-parties to do business with.

I cannot understand what is so difficult to understand about this...we seem to be going down the path of the decadent Arabs who conquered Spain, and then settled into a life of luxury with their harems around them, telling each other amazing and romantic tales, ala "1001 Arabian Nights". We pay Hollywood hundreds of millions of dollars to tell us tall tales, and pretty soon we are paying consultants and banks and "scientists" to tell us their tall tales (only they are called "reports" and "studies" and "proposals"), forgetting that only extraction from the earth (minerals, oil, natural gas) or the sun (timber, farming,fishing, animal husbandry and the harvesting of ancient sunlight through the above mentioned fossil fuels) and how these resources are applied actually create real wealth. I mention the sun because we already harvest the sunlight by way of agriculture and timber and we know we can harvest the energy and heat from the sun by way of solar energy. In fact, it is the only viable path forward, all the other proposals are simply intermediate steps).

All of the arts and sciences, all of the advertising, consulting, banking, speculating, "culture" writ large must be paid for by extraction and harvesting of material and the technical work of efficiently applying the material, the dirty "shop" work that nobody wants their children to have to do. Thus we have farmed it out to other nations (China and India are big examples) but the question is, how do we pay them for it? We tell tales...and like Scheherazade we must keep telling the stories to survive.

This is workable if we can keep coming up with the stories to tell and the producers and extractors are willing to pay for them (all of them, the art, the music, the literature, the movies,the sports, the TV shows, the "proposals", the "reports" the "studies", because they are all "stories" in their own particular enamoring vernacular, intended to pacify the customer with the stories. There are six billion plus humans on the Earth. The U.S. is only some 300 million, so we can act as the story tellers, the Scheherazade to the world...but other harlots are out there with endearing stories who would gladly steal our spot, so our stories had better be enamoring and exotic indeed (and indeed they have been).

Of course if the Earth really is hollow (or we are too stupid to figure out how to convert two of the most common elements in the universe, carbon and hydrogen into useful hydrocarbon (what an insult to the story tellers of "chemistry" that would be!), and the resources, metals and raw materials are not there, the whole thing collapses, and the king and his harlots all starve together. But unless we are able to build the space ferries fast and start hollowing out another planet somewhere, there isn't much we can do about that, except try to be frugal with what is left and recycle what we can. But we have come full circle again...the king and his harlots, including the star story teller (us), are not going to worry too much about who screwed whom when they are all starving together.
On that note, cheers! :-)


Decadent arabs conquered Spain.

Wow. What an historian. Your insights are like...I can't find words.

That explains the floundering of the American Empire. Insufficiently decadent.

True, the wording was a bit bad on that one...the Arabs who conquered Spain were not decadent at the time they conquered Spain, but became more and more so in the years following the conquest...which brings up another point, that victory can be bad for the victor (I am thinking of Rome after they defeated Carthage as another example, or America after WWII?)


RC I came to the conclusion some time back that all of economics rests on how many people can one farmer feed. That is because if the number is one, everyone is a farmer. The wealth of the world now rests on farmers who feed 80 people or more vs 1.2 or something like that in the past (one source I can no longer find said that in the 1700's in the US it took 10 farmers to feed 11 people thus freeing up only 1 in 10 for non farming work). Since we don't currently need all the oil and coal to farm and the farms feed so many, lots of people have the freedom to do other things such as tackle another football player for 10 times or more the money that a farmer makes.

Of course the money thing is screwed. Money is nothing except a promise. Its a little promise to pay that gets circulated around. I give you corn you give me a promise written on paper. I take that and buy some clothes and give the shopkeeper that promise on paper that you gave me. The shopkeeper gets her hair done and passes on the promise on paper to the hairdresser etc. These promises called money have no value if trust is lost. Trust is what matters not the pieces of paper. As long as trust holds the global monetary debt doesn't matter. When it is discovered that there is precious little to back that debt because the assets of the earth have been used recklessly and are now declining (soil, water, oil, coal etc) the trust will vanish and the paper money will be good for wiping your whatever. Well that is my theory at this moment in time ..... But the global debt of resources and sinks IMO relates to the global monetary debt and therefore is appropriate to discuss on this thread.

Warren Buffet had the best line I have heard about trust in financial markets...he said "It's like oxygen, when it's there no one thinks about it, but when it's gone you have a problem very fast." He also pointed out that once trust is lost (as in this recent mess) it can take years to regain it fully.


Oxi got it right.

Only way we could pay off the debt would be to take out say 5 billion people and compost them.

It's actually too late even for that. The balloon payment has come due and we are penniless.

The global ecological default was covered in this week's Science--the bubbles o methane now shimmering up from the depths of the Arctic are the bills that are now coming due on our global ARM. There is now way to pay them off.

Put another way, we have pulled the trigger on the clathrate gun, and now all we have left to do is to watch as the bullet enters our cranium.

Bring on the Clathrates - it's cold outside.

The theory is that methane clathrate release was a major factor in the Permian extinction event with a 5C increase in temperature. James Lovelock is predicting a sharp 5C increase around the middle of the century although I dont remember him mentioning methane as a possible cause.

It sounds like much of your post comes straight of out of Atlas Shrugged or The Fountainhead. It is difficult to refute the many nebulous statements your post is filled with.

There really is global debt. And while there has always been global debt, what is now very concerning is the legitimate ability of individuals, businesses, and governments to repay the debt. All of your rhetoric about parasites, artists, investors, and attorneys does not change this.

Once is becomes common knowledge that widespread default is occuring, there will be little impetus for anyone to repay debts. With widespread loan and creadit defaults, there will not be the winners and losers that your post speaks to.


Very astute catch on your part! While I was writing the post I was not thinking of "Atlas Shrugged" or "The Fountainhead" per se, but I have read both, and while I don't consider myself a fan of Ayn Rand (well, except that she was so fine looking in her youth), I do think her points about the origin of wealth are her philosophically most correct points.

As to there not being "winners and losers", as Rand herself would point out, there certainly will be, because the element of force comes into play...the "last man standing" with the wealth able to control the weapons and whatever development is available going forward will be willing to use it (this to me is where Rand got it wrong, she never attributed the correct thinking to the element of power that comes with money...she did not believe in "force" but in wealth production, but control of wealth is essentially a form of force if the bearer of the wealth wants to use it that way, and they almost always do. But main point, your right on the observation, there certainly was some Ayn Rand in there, I notice it more on the re-reading of the post...


The power that comes with money is an illusion that we all agree on, until we don't. The value of money only exists by common consent, until it doesn't anymore. I get the feeling you are going to have some trouble with that. If you wind up the last man who believes in the power of money, after everyone else has by necessity moved on to things of real value, I'll feel sorry for you. Actually I feel sorry for you already, though you probably don't even know why.

"The power that comes with money is an illusion that we all agree on, until we don't."

But your using the term money in an almost biblically fundamental is any thing that can be used for exchange...if I have a sword and the willingness to use it to effect, and you have cash, who has the most valuable money?

If I have something I can give someone to make swords or bows and arrows or rifles, and you do not, who has the most "money" (whatever that may represent in what I can exchange...perhaps food, perhaps booze, perhaps attractive daughters, it really doesn't matter does it. Trivia question, name a time in history when "money" i.e., wealth, did not matter and did not purchase power. Had I been born 4000 years ago and believed in the power of wealth to buy power, I would still be correct today. Sorry, that's just the way the world is. And your right on your last point, but I have no need to know why you would feel sorry for anyone...thanks for the compassion though, even it can be a valued commodity...


RC you are confused. Money is a promise to pay. The sword is a reinforcer, unless it is traded for good. Very different things. The first, money (beads, gold coins, paper money) is something that facilitates trade where barter is no longer feasible. The sword (gun, cannon, bows and arrows) is something that facilitates theft. However you can trade your sword for goods or your ability to use a sword for goods (ie become a policeman or soldier). But by and large the use of the sword is to steal, and the use of money is to facilitate trade. They get mixed up for sure with money used as a sword sometimes (IMF and World Bank). Trade depends on relatively peaceful conditions and the sword may enforce that (or not).

By and large 4,000 years ago most trade among people would probably have been barter, but humans have a lot longer history than that. In tribes of hunter-gatherers everybody hunts or gathers and everybody eats. Trade with other tribes would be real goods for real goods (fish for flint say). Money makes trade possible with 3rd, 4th, 5th, etc people. I have fish don't want flint, so I trade fish for beads and trade my beads with another tribe for deer skin. All this requires trust and peaceful relations and those would be destroyed if someone starts stealing by force. War between tribes would be reduce the amount of productive time obtaining skins, fish and flint.

I think that ThatsitIamdrunk needs to lay off the sauce.

I think while we still are using money, we have to have inflation because we have more money in the system than goods to buy. Inflation would take care of that problem but the results will be literally deadly.

deleted dup

Two things on that
1) How, other than direct spending by the government or rebate checks to citizens, will the money get into the economy?
2) The industrial capacity of the world is enormous and can more than meet demand. How many widgets do you need?

America may have inflation because of exchange rates if oil starts to get priced in other currencies.
And to go along with that basics which need to be had by all will increase in price but luxuries won't follow suit.
So everything you really need will eventually increase in price and everything you don't will not.
Also previously leveraged items (real estate) should decrease (It would have already if the banks and government stopped playing games and let the market implode.
Capitalism is finished.

Data on the five-fold growth of derivatives to $516 trillion in five years comes from the most recent survey by the Bank of International Settlements

Now I admit that it is unlikely that any of that money will be spent.

Actually money is apparently created by loans and any bank can loan money into existence, but of course people are not so apt to get loans these days and banks aren't loaning.

All said on part 1 perhaps you are right.

As for part two I would disagree, I think if in fact we are at peak oil and past peak net oil and close to peak coal then likely industrial capacity is shrinking or will shrink soon. My car has the capacity for driving more miles but only if I put gasoline in it. Food growth capacity is probably peaking too due to overuse of the soil, declining ground water for irrigation and possible peak phosphate in the near future.

Thanks for making me think through my comments more carefully.

No booze involved, just too much time off on the weekend, and since I am somewhat hyper, I need something to work the mind...:-)

Plus, I love this string of discussion! Who cannot be fascinated by discussions of wealth, power,'s better than a rereading of "War and Peace"! :-)
(oh, and by the way, calling someone drunk, whether it be true or not, is not a correct rebuttal...)


It was a reference to the "talkies" that you seemed to have but you could have said the same for me.
The banking system in a fair society should be the peoples property i.e. Credit Unions.
Depositor owned banks like the old days with CUs and S+Ls.
Now I understand that the more diverse(geographically and otherwise) the institution the better so I thought maybe a National Network of Credit Unions to strengthen the system and prevent local problems from taking down a local system.
But and big BUT when it comes to money the worst people that can hide from their conscience (or maybe don't even have the gene for conscience) will always attempt to position themselves in the parasite seat.

So I think that to have a fair long lasting arrangement some behaviors need to be redefined and associated with the causes that they effect.
That is........that USARY IS BAD NOT GOOD!!!
The money belongs to the people.
The money is a medium of exchange only
The money is a public utility as critical as water or food.
The act of skimming off the productive base is treason and punishable as such.
All this was somewhat hidden in a situation in which the pie was growing.

Examine the current banking system............ it is rife with fraud, crime, and lies!!
Not only is the structure a crime with the money itself issued as a debt and bearing interest (how would you like to have to rent your own car from me?) but the compounding of interest (the most pernicious effect of all) is taken for granted!!!
This is not going to survive a steady state transition.

People are stupid and fall for the BIG LIE method of propaganda every time.
If a lie is big enough and audacious enough and repeated often enough it eventually becomes accepted as an unquestioned truth.

One of the rules of propaganda is to make sure that the story is so outrageous that no one will think that you could have made it up.

Well of course you have to pay me rent every time you jump in your Porsche Cayman and drive to the store and back.

Another thing that I have noticed in my life is that usually when I can't seem to understand something it is not because I don't get it it is because I do get it and the statement is BullSh#t!!!

As George Mobus says..........."Question Everything"

We have been had by the money mongers and it is time to settle the score.


Perhaps there was some utopian time when people traded with no power component involved, but if it existed at any time, it certainly didn't last long...reread "The Epic of Gilgamish" with the descriptions of spun gold and jewels...and the tales of warrior Valhalla of ongoing sees quickly that this was not wealth gained from an honest days work...or Rome's sack of Carthage or the gunboat diplomacy/trade/development of the colonial powers...we could go on and on. The fact is, violence/money/knowledge are the three forms of earthly power and easily interchangable...the Shinto three symbols of power....the jewel (wealth) the sword (violence) and the mirror (knowledge, first of self, thus the mirror, then knowledge turned outward) are as true today as they have ever been.


RC, I am well aware that power is always a factor in civilization. I have read plenty about it. However civilizations thrive when the power is moderated, when people can make and trade goods with a currency that holds its value pretty well and trust is the norm. When anything you make is stolen from you without some recompense what is the point of making anything. When you loose money because prices are too low, what is the point of making anything. Thus within a civilization a certain level of peace, and assurance that you can provide for yourself by the work you do is needed.

Think about it. If the whole population was armed and busy stealing from each other no one would have time and safety to sleep much less to grow food or make stuff.

Wealth and violence are related for sure in complex ways. But money is not food anymore than the sword is money. Money can buy food, but cannot be eaten, the violence can seize money or food but it does not make food or make wealth. Too much violence and wealth and food are gone. Just because there is a relationship between things doesn't mean they are the same thing. I understand your points about power, but I think you miss relationships if you treat related things as the same thing. Shintos no doubt had three symbols to represent three things that are separate but inter related. (however I doubt that most powerful people have much real knowledge of themselves or others)

Trying to think of an example - this might work - I have a car that is useful if I put gasoline in it. With gasoline it is a useful transportation device. But I can't drive gasoline. If I treat them as one thing that has some basis in reality - most cars are gassed up and running. But I have to look at the gasoline in one way (something to buy on a regular basis) and the car in another way (something to drive and keep in repair). To say that the gasoline and the car are the same thing is nonsense and doesn't tell me much about either.

To say the sword or power is money doesn't tell me about how the sword is both used to steal money but also to keep internal peace where trade, agriculture and manufacturing can proceed without outside interference or internal turmoil. I don't take exception with your points about power, I just take exception with your simplification of something very complex.

Don't forget natural resources.
You don't need money what you need is natural wealth (raw materials) and a way of building wealth using them.
Money is a mechanism to make people do something.
It is an illusion and nothing more.
Money once established is nothing more than a universal representation, that is fungible, of underlying real wealth.
I am surprised a guy as astute as yourself doesn't get this point.
We could have a long involved discussion about this alone but I contend that money is nothing more than a symbol and a liquid way to represent the built wealth and potential to build wealth of the society that issues it.

And I will say it again that money should be considered a utility and treated as such.

Money is first and foremost a promise or an IOU that a whole society accepts as having value. It is a symbol of course that represents value. Its value relies on trust among the people using it. That it has value on its own is an illusion. Its value lies only in the agreement among those trading in any particular form of money as to what approximately it equals. Someone gets paid for a 40 hr work week and they trust that they can pay their bills with that. Hyperinflation is a breaking of that societal trust.

Sure you need natural wealth but what if I grow onions and you want onions but you don't have anything that I want to trade with me for. Maybe I could trade for carrots that I don't want but I think maybe someone else I know would want them and they have something I want. Takes a lot of time to negotiate all that. Money facilitates trade with multiple people and over distances.

Money can be a mechanism to make people do something, often is. But suppose I agree to trade some land for work. No money involved. Am I not "making you do something". If you really want the land and I really need some help with building a house who is making who do what. Maybe I am making you work, or maybe you are making me give you land. Or maybe it is just a trade that we both agree is fair. But maybe I need the work and you don't have the skills but you have some money you got from other work you are skilled at. I take your money and use it to hire someone to do the work. Money is now involved. Maybe you are making me give up the land for money? Maybe I am making you give up the money for land and making someone else work for the money. Or maybe we all feel a fair trade has been arranged through the use of money to facilitate the trade.

But I think we disagree much less than you think. I would rather live in a small community that is self sufficient and barters. Money makes possible a globalized world and its part in that I abhor. The IMF and World Bank use money as a weapon for sure and I abhor that as well. But many innocuous transactions go on all the time using money as the promissory note. For instance when I paid my friend everything he asks without question for building an addition on my home, never questioning how much time he takes, or hassling him about the cost of materials, when I offered to pay him part up front because he was having domestic difficulties, etc I was not using money as a weapon. I felt good about the quality of his work but I could not compensate him easily any other way except money which he gladly accepted in order to pay his bills. If money is always a weapon, a manipulator how do you explain its presence in this transaction that we both felt good about?

"But I think we disagree much less than you think."

Oxi and Porge, I think the above line is the truth, much of what we are discussing is something of a clarification of semantics.

And Porge, I think we absolutely in agreement about the banks and the speculative financial community.

Cheers to all on what has been one of the more stimulating discussions I have seen here on TOD in some time...feels like the old days...:-)


Global debt has reached the point where it can never be repaid

Money is nothing more than paper.

For those who think deflation is going to happen... The last time, the governments stole the wealth from the people so that they could inflate the debts away. These days they don't have to physically acquire gold. All they have to do is print more money.

The great depression happened because money was backed by a physically scarce commodity. Credit is elastic, it inflated up, then deflated back down. Money hasn't been backed by anything since 1971, there is nothing to anchor the credit. There will be no deflation, it's not politically expedient, there will only be inflation.

Look at the past. Take a look at the types of people who are in power. Of course they are going to inflate the debts away. They are again going to steal from the savers and give to the spenders.

You think it's going to be a deflationary armageddon. Nope it's going to be another inflationary boom time. Best be in energy and agriculture though, that's where the inflation will come through.

I think we've entered the early days of a deflationary spiral. When all the debt is worked off (if we get to that point intact), then — possibly — inflation might occur.

No inflationist has sufficiently explained to me how all this money that will supposedly produce inflation is supposed to get into circulation. The government can't print it forever because it shows up as debt on their books thus requiring interest to be paid. In that sense, there is a built-in limiting mechanism to how much the government can do.

The government could free up capital for the banks by buying more of their bad debt. Again there is a limit to that. I don't think the public will stand for the government doing that (much) more. The pressure is building now. Woe to the next sector who comes to the government asking for a bailout. If granted, many people really may go ballistic.

At the same time, banks have to keep up their reserve ratios because of all the toxic debt they own. No matter what Obama asks them to do ("Lend more") the bank regulators are telling the banks to lower their leverage. It's now down to about 24 to 1, last time a checked. With so much debt that could go bad, the banks can't, in this analysis, issue enough new debt to cause hyper-inflation.

Looking at one more part of the equation, businesses and consumers are trying not to take on more debt as the job market worsens. I think it will take a little while longer before everyone figures out this isn't a temporary recession and when they do I would bet that the pull for credit will drop even further.

So here is my honest question that I'd like an inflationist to answer: how will the money that will cause hyperinflation get into circulation with this set of circumstances? I'm open to being shown how because I just can't see what you see.

BTW, some products will certainly experience inflation in real terms, probably energy and food as you note. I'm considering with the bigger picture with my question.

Also, apparently the President by executive order has authority to issue a new currency, presumably one that doesn't show up as debt to the Fed. If that happens, after the current one is exchanged at some loss, then the flood gates would truly be open since the limiting factor I mentioned above will not b present.

So, css1971, I'm honestly asking for you to describe the mechanism the money will get into the market because I'm just not seeing it.

Giant "tax rebates". Give back everyone all the tax they paid in their entire life in tranches with a cap for upper limit.
It is the best and fastest mechanism I can think of and it is already an established system.
It is de facto dollar devaluation.


yeah they can electronically put $ in our accounts in hours; but will they?

Stoneleigh[of TAE] says they will not put that kind of power in 'our' hands.

I can see this when the 'banker' class has exited & politicians are desperate because we are collapsing economically & they are trying to avert political collapse; but that would be the 'at the end' hyperinflation.

edit to add: i believe this is essentially Michael Panzer's thinking

in 'when giant's fail'

i can't see another case/scenario; like aangel i'm open if someone sees one!

How about using C-5s and CH-46s to drop tons of new bills with the ink still wet down all over the country and let everyone grab what they can.
It is kind of like the way it is here now except it will be more action packed!

And my rebate thing is just a possible and in no way assumes that the worthless pieces of Sh#t care about us at all.

When is it time to storm the Bastille?

If the government has an unsuccesful auction of bonds, meaning they do not sell the intended amount, the Federal Reserve can issue currency and buy the bonds, that is monetize the debt. This may have happened to some extent lately, but I do not follow this closely.

We would have had deflation if the Fed had not purchased the mortgage assets from banks. Bank depositors and holders of money market funds would have lost a lot of money had the government not come to the rescue. That would have been outright deflationary.

It is assumed by a lot of people that in a supposedly deflationary environment that the government can get away with some monetarization. However, the Fed's increase in the money supply has been the cause of the 95% declne in the dollar since 1913 and the price of gold going from $20 to today's level. Inflation soared in the 1970's because 1) productivity growth dramatically declined, 2)financing of the Vietnam war, 3) the oil shocks, 4) the end of wage and price controls and Nixon ending settlement dollars for gold.

The money supply increase preceeded the price explosion, but as long as people had faith in the money inflation was subdued.

Our foriegn exchange partners will be the ones who will tell us when inflation is again a problem. The price of oil, copper and other resources will soar.

Yes to all the above.

And it still comes down to whether the options used thus far will continue to be available, it seems to me. If they are, inflation can occur. If they are foreclosed, then as the credit bubble contracts we will experience deflation (largely the same thing).

Inflation soared in the 1970's because ... the end of wage and price controls

At minimum, that appears to be a contradiction. Wage and price controls were instituted specifically to fight inflation, and whatever effect they may or may not have had, it is difficult for me to see their effect being increased inflation.

Shortages of many products developed under wage and price controls. Buyers at manufacturing companies I worked for had a hard time finding adquate supplies.

Natural gas prices were regulated across state lines, but in Louisiana we had to pay much higher prices.

PVC pipe and telephone poles were in short supply, among other things.

Prices surged when controls were lifted.

"Debt monetization" is a term leftover from the gold standard. In the modern monetary system, it does not apply. The Federal government creates money by spending, and destroys it by taxing. "Borrowing" is simply the exchange of non-interest bearing financial instruments for interest bearing ones in order to maintain a non-zero rate of interest - it is not a financing operation.

Any organization that was bailed out should have been essentially reduced to zero value-that is, every single stockholder should have seen his share values drop to zero , and all senior management having to do with fiscal management fired, with no parachutes.All assets essentially confiscated, and then auctioned once the bail out was finished.All proceeds over actual expenses to the treasury.

This would possibly have taught the stockholders to pay more attention next time.

Everyone's situation is going to be different, but I basically agree w/Matt from Boston. I paid off the credit card, but in a way that didn't over stress other priorities. Now the only debt I have is a small loan for my car. And I could pay that off tomorrow if I wanted to, but I'd rather just run out the term over the remaining two years as originally planned. I own my house and have the money to maintain it without home improvement loans.

But I'm in my late fifties and it looks like I'm going to have a job for at least the next three years (Peak Oil willing). What will work for me isn't necessarily going to work for someone else.

I am a little bit surprised by all the talk of defaulting on loans on moral grounds. It seems to me that no one puts a gun to anyone's head when the terms are signed. I don't see anything morally excusable about deliberately defaulting on an agreement that you freely enter into. But I know that people will rationalize whatever they want to. God help us.

The answer completely depends on a) whether you can afford the long-term cashflow of the debt and b) your view on inflation. If you have a 30yr mortgage at 6%, and you think that Bernanke's printing presses will cause an inflation spike, you should not pay down the debt as you will be paying it back with dollars that will be worth far less than what you owe today. On the other hand, if you think the economy will be in a long term recession with deflation as the theme, then you want to pay down the debt, since dollars will be more valuable the longer you wait.

Now, all you have to do is get it right one way or the other on the inflation/deflation question!

Hey dude...,

Stop freaking out about having to walk 3 or 4 miles up and back to an empty store..., and stop worrying about walking 10 or 15 miles round trip to see a doctor..., worry about paying down your DEBT.

We have paid off our mortgage but it is important to remember to save each year for property taxes. We also see is as necessary to 'update' our home in order to insure its essential resale value when we downsize at retirement. Despite these ongoing costs after paying off the mortgage, the value for us of paying off the mortgage is that it has given us better cash flow at a time when the kids are in college.

We have also done some energy improving of our home and, after an energy audit, have some additional goals to meet in this area.

We have never gotten into the other kinds of debt, so we have not thought about them so much. However, we would be more willing than most to walk away from an 'underwater' mortgage as a strategic financial decision. We also fear that, the impending commercial real estate defaults will be much quicker to happen, since businesses do not have the same degree of loyalty to the home that underwater home owners have. Home owners also cannot 'write off' a mortgage as business can mitigate capital investments and expenses with accelerated depreciation. Depending on the mix of high credit borrowing and accelerated depreciation in the preceding 4-5 years, this might actually be a good time for some businesses to go bankrupt.

Debt is a pit that you either fill or dig deeper. It means that someone/thing owes a part of you, and you are beholden until you pay it off. It is debt (financial, environmental, moral) that served as the path to the future we now face. No. 1 - Stay out of debt! If you can't afford to pay for it up front don't buy it. Chances are that you really don't need it anyhow. No. 2 - If you are in debt pay it off! Don't play the game of chance that inflation will somehow reduce the value of your debt. Even if it does your debt reduction will probably balance out somewhere else in your life. Debt is a moral as well as a financial responsibility. Trying to weasel out of it is a sign of weakness and failure. The challenges awaiting just over the horizon will require you to be strong, dependable and trustworthy. Don't give up your claim to those qualities by welching on your debt.

wheeldog, You said,
"Don't play the game of chance that inflation will somehow reduce the value of your debt. Even if it does your debt reduction will probably balance out somewhere else in your life."

Of course it may be paying off debt with dollars that are worth less, but you will also be buying everything you need with dollars that are worth less, i.e., you income will be deflated right along with the inflation of currency, and your income will certainly not be increased fast enough to stay up (it never has been in history that I am aware of). Your right, inflation vs. deflation is a very small consideration in whether or how to repay debt, if it is any consideration at all.


Another consideration in paying off debts is that for the period when we are collapsing but not collapsed, if you are in debt you may have assets taken from you. Those who lost their homes recently might have not lost them if they could have held out until collapse was in full swing, but right now your assets, house, car, etc can be repossessed. It is also possible that debtor prisons could be re-established, however briefly on the way down. Because I am a "doomer" I think such things as seizing of assets and debtor prisons to be short term, on the long term however once the repossessors are a thing of the past, seizers may take what is left.

Skills go with your body. Investing in skills may well prove to be the best investment of all. Being flexible and mentally prepared for things to change in major and perhaps unexpected ways will help. Having less assets might in fact be the best way to go - sell everything you don't need and pay off what you do. I never lock our 30 year old run down cars (which run just fine) as they are not worth anyone stealing even though they fulfill their intended function for us just fine (their intended function is not to impress people but rather to transport).

I think you are crazy about debtors prisons etc.

There are 200 million guns in America.

I am financially secure but I do believe in social justice and so do many, many other Americans of rising ire.

Who the hell are all these repo-men going to be?

The first ones that don't come back will send a real message that Dog The Bounty hunter is just TV bullshit.

Think for a minute.

Do you really think people that have done nothing but count money all their lives have that kind of balls?

No Way. They rely on intimidation and the legal system which is morally unfair and eventually people start to realize that it is not them that is effed up but the rules of the game that are effed up.

I don't know about debtors prison, but "law enforcement" across the country, with few exceptions, are fulfilling their basic roll of protecting the property of the wealthy.

Anyone with half a brain can see that the whole mortgage business became completely corrupt in the last ten years, but when people default on those corruptly made deals, sheriffs still show up their door with eviction notices.

I haven't heard of many cases where the well-armed community rose up and stopped the sheriff from fulfilling his 'duty.'

Hi dohboi,

I have personally witnessed the Sheriff-Eviction scenario - I think it is one of the biggest mistakes in the US legal system. I don't pretend to have all the answers to this issue, but many such cases should involve a more humane process than the Sheriff showing up at the simple request of the landlord. I experienced this scenario (many years ago) just because the landlord wanted to sell the property for new condo project. I had to get a lawyer and go to court to get an extension so my kids could finish out the school year. We were never behind in our rent payments - in fact the Sheriff showed up the day after the landlord cashed the latest rent check.

Most other people on the block (landlord owned many homes) panicked because they did not understand the process and what recourse they had available. The Sheriff was being used as a tool of intimidation. This is the kind of thing that causes poor folks to really distrust our legal system.

Maybe the laws are different now.

Porge, there are 200 million guns in America and our prison population is over 2 million. Do those 200 million guns prevent people from being arrested and sent to jail for marajuana possession. There are 200 million guns in America and people have cars repossessed all the time. There are 200 million guns in America and people are being thrown out of their homes. I saw one video where the people renting the home were given 1 hour to leave because the owner was being foreclosed on.

I didn't say it would last long, it won't. But the people who count money pay good money to security guards and are fawned over by the police. When things get bad do you think that the government and TPTB are going to play by the rules they play by now? Until the government dissolves, they have the army and as long as the army (navy etc) remain loyal they hold all the cards.

Did you know that the US government aerial bombed American Citizens (mine workers) in the Battle at Blair Mountain. 15,000 miners, many just returned from WWI armed, and battle tested confronted the Mine owners On orders from the famous General Billy Mitchell, Army bombers from Maryland were also used to disperse the miners, a rare example of Air Power being used by the federal government against US citizens.

Back in the 60's when there was a black candidate for mayor of Gary Indiana I went to college on a nearby campus. The US government stationed tanks on our campus in case of rioting. No point in having them there unless you intend to use them... How well will all the guns in the US stand up against the tanks in the US

Your assumption about 200 million guns assumes that the government doesn't start using the military and all their weaponry against their own citizens. Dangerous assumption.

Did you know they had poor houses in the US up to 1950.

n early Victorian times (for Britain see Poor Law and workhouse), poverty was seen as a dishonourable state caused by a lack of the moral virtue of industriousness (or industry as it was called). As was depicted by Charles Dickens, a poorhouse or workhouse could resemble a reformatory and house children, either with families or alone, or a penal labour regime to give the poor work at manual labour and subject them to physical punishment. As the 19th century progressed, conditions became better. The term is commonly applied to such a facility that housed the destitute elderly; institutions of this nature were widespread in the United States prior to the adoption of the Social Security program in the 1930s. Facilities housing indigents who are not elderly are typically referred to as homeless shelters, or simply "shelters," in current usage. Often the poorhouse was situated on the grounds of a poor farm on which able-bodied residents were required to work; such farms were common in the United States in the 19th and early 20th centuries; it could even be part of the same economic complex as a prison farm and other penal or charitable public institutions.

I know someone whose father grew up in a poor house. It was little different than debtors prison, and I can easily see the homeless in tent cities springing up around the country being sweeped up by our government and "helped" by putting them in a poor house with required work.

PS the government has tanks, tear gas, and has been investing in new crowd control weapons

Low frequency sound cannons are weapons of various types that use sound to injure or incapacitate subjects using a focused beam of sound or ultrasound. While described as "non-lethal", they can still kill under certain conditions. Active denial systems (ADS) are a non-lethal, directed-energy weapon developed by the U.S. military. The ADS directs electromagnetic radiation, specifically, high-frequency microwave radiation, at a frequency of 95 GHz, which causes the water in the upper epidermis to boil, stimulating a "burning" sensation in the nerve endings and generating intense pain. Dazzler lasers are directed-energy weapons that use intense light to cause temporary blindness or disorientation of rioters.

Ok then I am speaking for myself.

Guns are still useful because they allow one to go out with a "bang" so to say, rather than a whisper.

If you are the end of your useful, free life, it might just be worthwhile to take out a few police or paramilitary thugs with you. In addition, or alternatively, guns make suicide relatively easier.

Guns, in short, make it less likely that you will be abused by the state. Doesn't reduce the risk 100% but it does reduce it.

I agree that it is a useful deterrent against tyranny.
It makes them actually have to be able to use force to suppress and when that happens a lot of questions arise.
There will be a lot of dissension amongst members of the military and police when they are pointing guns at there friends and family.
This won't be the nameless, faceless enemy that they were trained to confront. They can't just throw a name on them like "Jap", "Gook", "Kraut", "Rag Head" etc.
Depersonalization is the first thing that you do if you want people to kill someone.
Don't you guys see this.
I was in the Military for 8 years and had all the brainwashing worked on me and fell for it hook, line and sinker. I know what I am talking about.

Hi porge,

had all the brainwashing worked on me

I was a draftee and had to go through bayonet training. We lined up facing each other and then screamed "kill" at the top of our lungs as we lunged at our opponent. The screaming was supposed to startle the opposing soldier and provide a split second of opportunity to push your bayonet into his chest - along with a good upper thrust and a twist just to be sure you did a competent job of killing him. Fortunately, I never had to actually use this training.

However, at the time of this training, it occurred to me that some other guy half way around the world was getting essentially the same training. Most likely neither of us had much of clue why we doing this other than the military propaganda - and, of course the Chaplin was there every day - a subtle way of assuring us that god was on our side and we were doing the "right" thing and the other guy holding his bayonet was "wrong" and deserved to be killed.

I was a Naval Aviator and I remember being "interviewed" regarding how I thought about bombing enemy targets and if I had any reservations about who might be killed etc.
Also the training for Survival and POW escape evade (SEER) was done in a Russian theme with the actors all dressed and speaking with accents to program us that they were the enemy.
Amazing during SEER how many young enlisted guys cracked after no food or sleep for a week.

Unfortunately I think the military will have no trouble getting all the volunteers it needs because of the complete lack of opportunity for young men now.
When I joined I had the spark of adventure in mind and had not thought much about the moral issues behind anything.
All in all, from a personal selfish perspective flying Navy jets off carriers was the thrill of a lifetime and I hate to say it but I would probably do it again even knowing what I know now.

Within the expected part of the decline where our currency retains some value, I'd have to agree with the priority you put on paying off mortgages first, and the value of owning a house free and clear...if it is in an area that you believe to be safe and sustainable in the long-term. My own is in a nice semi-rural community, and I've spent years building up relations, getting it in shape, and building up the soil in a large garden. I plan on staying, so its an advantage to be mortgage-free. In other circumstances a big mortgage and cash-in-pocket would offer the most options and easy mobility.

On other debt, I've gone back and forth...I don't see any feasible way that Weimar-style hyperinflation can be avoided, looking at the big picture in the US, but then again I don't see how it hasn't happened already. The skills of our monetary wizards are beyond me, but I still have little doubt that money will continue, consistently or dramatically, to lose value; as money loses value, so debt loses significance. An example would be my mother's house, purchased in 1973 or so for 28k; by 1982 or so it was valued at 100k, by 2000 it was 400k. That's money losing its value relative to a marketable item, and the debt incurred in its original purchase shrinking (relatively) to insignificance.

I focus on keeping debt payments manageable within the monthly budget, other than that no worries; if procrastination leads to lingering debt but sufficient money in the bank, so much the better, keeping in mind that money is of limited value now, and less later.

I don't see how it hasn't happened already

I think I have a clue.

The bailout and the debt servicing has not cost us anything in terms of energy. The bailout money and the stimulus money did not go to a WPA infrastructure. It just kept the states road projects up and running and kept the banks open. Its all digital bits. I can have a kajillion dollars in a computer but if I have to translate it to real energy (hard goods or services) that's when I find out the limits of our currency.

The arguments over the money are an irrelevant side show, because those bits can never become real.

Weimar-type inflations happen when a government loses the ability to tax effectively. This is usually precipitated by a major reduction in the productive output of a nation (in the Weimar case, it was losing the Ruhr valley's industrial output; in Zimbabwe, it was the destruction of the White farms by Mugabe). If a peak oil scenario causes a similar reduction in output we could see the same here, but the increase of nominal debt of the government (which merely adds to the savings of the private sector) will not do it.

Weimar's 1923 inflation was a direct result of the treaty of Versailles which made Germany pay the WWI war debt of the Allies.
The immediate cause was that the Allies demanded the war debt be paid in foreign currency or gold which caused the devaluation of the mark. The Germans attempted to pay the war debt with dollars (T-bonds) purchased with marks, stimulating hyperinflation. Negotiations to stabilize the mark collapsed and hyperinflation took off.
The German government told the Allies they were broke but the French were remorseless and seized the Ruhr coal mines to pay the debt in coal(Jan 1923). The German government and public were outraged at this violation of the treaty of Versailles and a massive strike was launched to paralyze the French occupiers in the Rhineland. The German government printed more money to pay the Ruhr strikers.
The government pegged a new currency, the Rentenmark, to the price of gold bonds and the Reichsbank stop printing T-bills.

The German example shows the weak position of both parties in a bankruptcy. The debtor loses most of his assets
and credit-worthiness and the creditor usually walk away with ~50% or more of the debt versus interest and principle, so there are incentives to renegotiate the payments.

The USA is the #1 military and economic power, not a
pushover like Hungary or Weimar Germany. Arbitrary debt to income ratios aren't critical. The government doesn't need to print money like mad to balance the budget as the Germans had to. Once the wars in Iraq and Afghanistan are over the budget deficit will fall, health care will fix medicare inflation and social security increases will probably be frozen after the retirement age is increased. Finally, tax increases will pay down the swollen national debt just as it did under Clinton.

Unfortunately, all this will not help the USA with the necessary mitigation for Peak Oil. We have to handle that the hard way.

We have paid off our mortgage but it is important to remember to save each year for property taxes. We also see it as necessary to 'update' our home in order to insure its essential resale value when we downsize at retirement. Despite these ongoing costs after paying off the mortgage, the value for us of paying off the mortgage is that it has given us better cash flow at a time when the kids are in college.

We have also done some energy improving of our home and, after an energy audit, have some additional goals to meet in this area.

We have never gotten into the other kinds of debt, so we have not thought about them so much. However, we would be more willing than most to walk away from an 'underwater' mortgage as a strategic financial decision. We also fear that, the impending commercial real estate defaults will be much quicker to happen, since businesses do not have the same degree of loyalty to the home that underwater home owners have. Home owners also cannot 'write off' a mortgage as business can mitigate capital investments and expenses with accelerated depreciation. Depending on the mix of high credit borrowing and accelerated depreciation in the preceding 4-5 years, this might actually be a good time for some businesses to go bankrupt.

That means never have credit card debt. I think mortgage debt is a good idea, fixed rate at low interest. Invest the borrowings in natural resources, gold, sliver, platinum, farm land and other hard assets in fixed or declining supply. Returns on timberland have historically been among the highest of any asset class, although this may be giving way to oil.

Drive older, depriated cars that are paid for and inexpensive to insure. Don't get stuck hodling expensive cars when the dollar collapse causes $300 / bbl oil. A new car can last 20 years, but affordable oil won't.

I am not a believer in deflation, except asset deflation. Chronic deflation was a problem under the gold standard during the great productivity revolution of internal combustion, agricultural mechanization, railroads, mass production, and electrification. Chronic inflation is what we have with rising oil imports and oil prices, rising taxes to support Social Security, Medicare and the ageing population.

Housing was an inflated asset, concentrated in the speculative boom areas. Housing prices will return to their long term trend. I can't believe how ignorant buyers were, paying so much over true replacement cost of housing. And where were the regulators who should have known better?

We have national leadership who are clueless in believing we can recklessly tax and spend in a long term economic decline. Add peak oil to the economic stagnation and you have a disaster.

If you need to build your lifeboat on credit so be it. I don't think anyone had to pay their bar tab after the Titanic sank.

Don't look at me..., debt is the last thing on my mind.

Why worry about paying down debt???

What are they going to do? Start sending us to debtors prison?

Start chopping off body parts?

Are they going to start sending thugs after us to rough us up?

Are they going to start targeting innocent family members for the sins of their parents?

I don't think so..., ever heard of the guillotine?

...Own a house free and clear

I live in a Los Angeles Suburb..., what am I supposed to do with a house over here..., live off the fat of the land?

We aren't surrounded by orchards or farms anymore....

I say, continue with BAU..., print money as fast as possible. and continue to borrow and spend like there's no tomorrow.

I bet if I ran on a platform of print more money and borrow and spend like there's no tomorrow..., I'd probably win in a landslide.
Maybe I'd have to tinker with the platform so that it's..., you
CAN have your cake..., and eat it too..., indefinitely!!!

Being a slave to debt is just not something I'm all that worried about right now.

Everyone has assumed that loans would work for so long, and now it is becoming clear that repaying debt with interest really doesn't work very well. The question is how this all plays out.

One theoretical possibility (if there were a general debt jubilee) is that lenders will forgive the unpaid loans, and allow people continue to live in the house, keep their cars, and the things credit cards will buy. I have a hard time seeing this happen, though. It seems like even if loans are cancelled, occupants of houses would have to continue to pay "rent", at least until most people lose their jobs. Prior to that, those without money for "rent" could find themselves out on the street, or living with relatives. If it is not the bank that gets the money, it might be the government that gets the money.

It seems like with car loans, if you stop paying, you are likely to lose the car. It is hard to believe in debt jubilee for auto loans, unless the cars become worthless (no gasoline, perhaps).

Credit card debt and student loans are more iffy. It seems like the cutoff might come in the availability of new debt. Then people would have to live within their incomes.


The notion of paying down debt is based on the assumption that deflation or unemployment will make the debts harder to repay. The part that I am hazy on is this: If debts become more difficult to repay, don't they also become more difficult to collect?

The get out of debt crowd assumes that debts will be a serious burden if things go wrong in a big way. But if things go wrong in a big way then doesn't the systems capacity to collect those debts tanks as well?

If credit as we know it disappears then so does the importance of credit ratings and the stigma of bankruptcy. If a college degree can't land you a job, then the gov can't garnish your wages to recover the student loans. Right?

The asymmetry in the get out of debt argument has always bothered me.

Sounds reasonable to me

**If debts become more difficult to repay, don't they also become more difficult to collect?**

In a word, no. Not for most people. When the debt bomb hits, it will be big business to chase down money from anyone and everyone that may pay to clear that debt. Electronic bank records will facilitate that. Remember, follow the money.

I would think that the lenders will contract with bill collectors using payment as % of recovered $$. There will be a lot of 'free agents' (aka 'unemployed') willing to snoop and dig around. Hid some gold and silver with a friend or relative? Maybe someone puts some pressure on them to see what pops up. All those tools, guns, and supplies folks diligently collected in better days could be auctioned off to the highest bidder now that their worth has been rediscovered by the masses.

Can debt be legislated to be multi-generational? What's to stop that bill from being passed? Philosophically, isn't that where Social Security is right now? Maybe some smart lobbyists can have that formally applied to the private sector.

For anyone paying down debt with current wages, it's an Achilles heel now and more so in the future. Borrowing against future income curtails your options and puts you at risk of being cornered and fleeced if corruption starts in earnest. I think it's worth owning your own house or apt or whatever, but not worth the risk of a mortgage longer than 5-10 years for anyone primarily paying that debt with their wages. But if you have a large savings and fairly secure income, then taking on reasonable debt is less risky and maybe even advantageous from the opportunity cost & diversification perspective.

When the debt bomb hits, it will be big business to chase down money from anyone and everyone...

Maybe the big one hasn't hit, but the little one we're in offers some lessons: I know the manager of the biggest collection agency in my area. About a year and a half back his business started to ramp up, he hired a couple more people and things looked good. Then a year ago he had to let the two new people go, now he's down to short shifts with his original staff to avoid laying people off. Its not that he doesn't have a huge stack of accounts to collect, its that he's actually collecting so little he's having trouble making payroll himself.

It doesn't matter how hard you try or how many people you have trying to collect...if people are broke even collection companies suffer, and lower their expectations.

Repoed cars are usually auctioned off for a small fraction of what is owed. There is the possibility for someone to stop paying on the loan and setting aside the cash for several months until the car is repoed and use the cash to buy back the car without a lien on it and then declare bankruptcy. You would need an accomplice to hide these shenanigans from the courts and creditors. There may be a few desperate used car dealers out there who would help out for a small commission. This in effect is close to what large corporations do when they reorganize debt.

I think if govt. or banks push too hard, there could be a backlash.

I am unable to fathom how a debt jubilee would work. Lots of debts are on business books as 'accounts payable' for example the Social Security System, as well as millions of small businesses with trade credit. A general debt jubilee could lead to a lot of violence from people who had extended credit in good faith and were left holding the bag. After a debt jubilee, I can't see how anyone would ever again be willing to extend credit. The financial system would shut down, but maybe that is what will happen anyway.

Anyone out there willing to explain, at least in broad strokes, how a debt jubilee would actually work?

I think a more focused approach, say a jubilee on ARMs for people under a certain income, would be doable.

If that keeps people from giving ARM to poor folks in the future, so much the better for everyone.

leduck, your "have your cake and eat it too, indefinitely" platform sounds like Reagans "Morning In America" campaign, and it worked for him...:-)


More importantly, don't go into debt! I know, easier said then done. Here are a few simple suggestions:
1) Rent
2) Purchase a used econobox with cash rather than a shiny new Escalade (or Prius) with credit
3) Attend a less expensive local or state college/university, and try as much as possible to pay as you go. If this is not feasible, consider becoming an auto mechanic or farmhand.

I have no suggestions for business debt, and I'll get off my high horse now.

I agree with renting in the short term. Paying off a house concentrates your wealth in USD and 1 single (possibly illiquid) asset. I think I'm going to rent for a while to stay diversified in currencies and flexible in location. I've been in this house for 6 years and selling it now is still a money-losing proposition, even with some extra payments along the way. Why pay interest on a depreciating asset...? I'm betting there will be a better entry point down the road.

Of course, cars should be bought used and with cash. Easier said than done though once you or the wife have set that standard.

Done, done and done!

You might be able to show me the effect of a computer virus, but can you show me the virus itself.
How much does it weigh?

Same with Evil.
I cannot show you Old Nick nor can we weigh him but I say he exists.

If He exists then He is the Prince of Illusions.
What could be more illusionary than money when 98% of it is digits on a computer screen?

Remember the Scary Magician in the movie The Yellow Brick Road?
Beware the Prince of Illusions.

As I could if I wanted to show you a computer virus, and it'll only weight anything if it is printed out on paper. It does have substance albeit in the same digits as the computer it is stored on, and uses. Likewise to a "living" virus (as whether or not they live like we do is still an issue) does have mass.

What you might use next time is gravity, you can fall down, and feel it, but you can't hold it in your hand, it's like a thought just a wisp of wind but only there when I tell it to you.

I get your thought picture though, debt is just what we have made it, we could just wipe them all away and say be done with all debt. But we'd have to totally change how we progress from that point forward and it would look nothing like what he have been living up till this time. Nice Idea though.

BioWebScape designs for a better future.

I don´t know what will happen in the future.

I´m 25, and owe $70,000 in Private Student Loans and $8,000 on Credit Cards.

I was lucky to get a job with the Census, and my paycheck is about $2,000 a month.

My plan is to pay the minimum on my Student Loan($700) each month and my Credit Cards($300). I'm left with about $1,000 dollars each month, because I am living with my mom now and don't pay rent or food.

I have been investing the monthly $1,000 on the following...

-Gold and Silver Coins
-Garden Supplies and Organic Seeds
-Wind turbines and Solar panels

I have spent a long time thinking about paying my debt, but I realize that everything is not going to be the same in a few years, and I would be better off spending my money on these things.

Any advice would be greatly appreciated, but this is the situation I'm in. I'm always asking my credit cards for the lowest interest rate and my student loans won't give me a forbearance or deferment.

I understand I'm one of many, and I wish luck to everyone. I think now it's very important, to get close with family and make a plan to work together in the future.

Everyone has their own specific circumstances, and this is a very personal choice.

Why pay your credit card at all?

At the rate your going, you'll never have it paid off anyway. And if you are already stockpiling coins, seeds and wind turbines, you may as well max that puppy out and walk away. Check with an attorney but it should be a 'non-recourse' loan and they shouldn't be able to do anything besides wreck your credit. That is my plan if the black swan hits. I will max my entire non-recourse credit collection out in a heartbeat and then stop paying.

Even if it doesn't crash, you are still cool. In seven years its gone.
Truthfully, if anyone really needs a credit score at this point in the game, you are a cog in the wheel that will crush you.
It is your moral obligation, and a badge of honor, to take banks down.

The guy is 25, with a job paying him $24,000pa net, and you're telling him to destroy his credit score, and default on loans? I think you should both try the planet of reality ... that is fairly outrageous advice from both of you (assuming you are not being tongue in cheek - but irony is not a well-known American trait). Have either of you done it?

Late Breaking News: the world is not going to end tomorrow!

Personally - I think he should forget the seeds and gold and turbines and so on, and (a) pay his debt down more quickly, and (b) get himself much more independent of his mother (who at that age has his mom buy his food?), and (c) look for other relationships in his life. Being close to one's "family" is fine - assuming they're not all total nutjobs - but having a loving relationship with a partner is much more important. Good luck.

You are still in the BAU paradigm. If you plan on staying there, and believe we will, you are correct.
I don't think it will matter in a short while.

And , yea, I have done it.

I disagree ... I think it is you who is still in the "BAU paradigm", with a very casual attitude to the management and payment of debt, including CC debt, living beyond your means because of a sense of entitlement to the good life, and then looking for someone to blame when it goes bad, and retaining childhood fantasies into adulthood. The world isn't going to end tomorrow, or even change that much very soon, so preparing for a realistic mature future (by paying off debts rather than defaulting like a loser) seems like the best non-BAU approach to me.

Like I said, this is a very personal choice. Based on all the information, if this guy is already collecting seeds, gold and wind turbines anyway, you can see what sort of worldview he already has. I don't think he shares your view that the world as we know it is going to make it much longer. It just seems like a total waste to ship BAC and JPM $300 per month if you really are convinced that things are that bad. Just default and get over it. Besides, he is working for the census which won't last much longer, perhaps he should just buy as much food as possible from Sams Club and Costco? I would also add he should look for better long term employment prospects.

He should plant the seeds and that will help feed him and his mom. Spending on seeds and plants for the growing of food is hardly going to be wasteful, any more than going to the local Wally-food-a-thon to buy the food trucked in from who knows where.

Granted he might still want things that he can't grow himself. But telling him to not spend money on those seeds is part of the problem we are all in.

As to moving out of Mom's house, that to is a problem, why ever does he need to do that? Just so he can have ANOTHER home built for him, or use more energy fueling his needs?

Family is important, and getting a spousal unit is not something you have to do out on your own, if you are trying to live on wages while also trying to pay off those debts, or live with limited income. If Mom is willing, he and spousal unit can live with her and share the money worries.

I am 46 and live with my parents. I have been married 3 times, have had my own homes, have had my own yards to grow things in, etc etc. No without a spousal unit, am still helping one of them live elsewhere, I am living in my old bedroom, growing plants in my old garden, and cooking in a kitchen I used to cook in.

I did wonder at his mention that he did not pay anything for food and room, I help pay some of the bills around here, and treat the place as if it's mine, even though I am not listed on the deed.

As far as the poster not paying the credit cards, that is up to him, but the Student loans likely were taken out through the US gov't even if it were via a bank, they hold title deed, and they will hunt you down till the end of said Gov't to get their money back, they also use the SS number and the IRS to get at you till they have gotten fully paid back, so running out on them is not a pretty sight unless you are looking at total death of the USA.

BioWebScape designs for a better future.

hightrekker, you are correct, but in taking down the banks, we must try to avoid getting hit by the shrapnel.

Many here on TOD have preached "localization". I admit that I have often been a doubter. But if we accept localization as a goal, in fact as the only path forward, it MUST begin with relocalization of currency, debt and finance. There can be no material relocalizations until debt and money are decentralized and diversified and brought closer to home.


Developing the informal economy is one path forward toward increasing localization, which inherently ignores and bypasses the Big Money issues of debt and finance:

I think hyperinflation in inevitable. If so then pay off the credit cards but keep the min on the student loans

Then when hyperinflation hits the student loans will be cheaper by the year. My 2 cents.

We are at the point when nobody is mentioning about end of the crisis, nor the industries reviving. there are only two scenarios for this crisis to evolve further: inflation or deflation. Latest events with the Fed and circumstances lead me to conclude that it is the deflation scenario will be chosen. With this huge amount of debt, that is going to hit us very, very hard. My advise is to stay away from debt, especially those that have recourse on you. After all, it is the interest-bearing vehicles or anything associated with it that we should stay away from.

Deflation would strengthen the dollar and increase the trade deficit, while inflation would do the opposite. We need the dollar to be worth about twenty cents to be competitive.

Deflation also essentially increases the value of money, which increases the relative significance of debts already outstanding. Deflation would increase the size and significance of US debt relative to GDP, and increase the size and significance of US foreign debt beyond any sane expectation of repayment. I don't see how that is even possible, even if someone decided it was a good idea.

"Latest events with the Fed and circumstances lead me to conclude that it is the deflation scenario will be chosen. "
There is a lot of unnecessary confusion about what is meant by inflation and deflation. What focuses my attention is that a lot of dollars will continue to flow out to by oil and we don't seem to have much to sell to those who are piling them up. Thus, transportation and energy in general are going to cost more. Food is going to cost more. You can be very clever at explaining that is not inflation. But what ever it is called, that's what I see as happening. And people will generally call it "inflation".

Naturalsoda - Our society is conditioned to spend all our money each month, whether on useless frappachinos or useful organic seeds. I'd suggest spending less each month than you bring in, and yeah I don't always take my own advice.

Gail and all,

It's a complicated question. My wife and I took out a mortgage last September -- we timed the housing crash pretty closely, and got a very nice older house (with a root cellar already in place!) for a fraction of what it would have cost at the peak of the bubble. This is the first home we've ever been able to buy, and having it is central to our plans for weathering the next round of crisis, so going into debt for that was, for us, the right choice.

On the other hand, we have other debts -- medical, moving costs, and the like. Our goal on those is to zero them out as soon as possible.

Now of course there's a real chance that the US will go into hyperinflation, and all dollar-denominated debts will act like a punctured whoopee cushion. Of course we're aware of that. The problem is that it's impossible to be sure whether than will happen, or when, or under what terms. (Just for starters, I can all too easily imagine Congress passing a bill that allows the banks to redenominate consumer debt, mortgages, etc. in euros or yuan or some other more stable currency.)

Now and again it does happen that somebody is able to borrow money and not pay it back, but it's never safe to assume that you can get away with that. That being the case, I tend to think that it's reasonable to take on a modest amount of debt for very good reasons, and equally reasonable to get those and all other debts paid off as promptly as you can manage.

Hi John,

This is very interesting.

re: "I can all too easily imagine Congress passing a bill that allows the banks to redenominate consumer debt, mortgages, etc. in euros or yuan or some other more stable currency."

What do other people here think of this?

Is there an historical precedent?

If the US currency is not stable, does that necessarily mean that any other currency *will* be stable?
If so, why would this be the case?

About China - if they do secure oil, cut off the US, and start selling to themselves and India, - is this a scenario? If so, how plausible? Then, does this mean that there would not be a flight to the yuan by the big money guys ?/(I'd say gals as well, but we might as well call them guys)

I'd like to understand more.


I have already posted far too much on this string, but this subject fascinates me. I am also perplexed trying to follow some of the logic here...

For example:

- Your point is exactly correct when you say "If the US currency is not stable, does that necessarily mean that any other currency *will* be stable?
If so, why would this be the case?"

Why would folks assume that the Euro or yuan be any more stable than the dollar in the future? They are all members of the hated "fiat" currency family. If oil is the issue, Europe is in far worse shape than the U.S., being almost completely dependent on imported oil and natural gas. We would have to give up over half of our consumption immediately if imported oil were cut off, but the Europeans and Japanese would have to essentially give up all of their consumption if their imports were cut off.

And India and China...are we to assume that they can continue to massively export their goods to nations that no longer have access to oil? Does that really make sense? Export to whom? It is hard to make money by starving your biggest customers to death.

We are all in this mess together, the recent financial crisis proved this, and if climate issues are to be considered of concern along with resource depletion issues, there is no nation can run but you can't hide...this has been my whole point in being cynical about so called "localization". There seems to be this Shangri-La myth afoot of a quiet secluded valley that we can run to...sorry, it ain't gonna happen. This does not mean that a certain type of localization is not possible and needed...I consider it more of a geographical diversification than localization. And it must indeed begin with money.


My old country Rhodesia.

It was decided by our Moral Superiors that it must become Zimbabwe.

Zimbabwe has given up on their currency and now everything is in American Dollars.

Are you reading this Bernankie?

Good point. Even back in the inflationary times of the late 1970s most of the world considered the US dollar as more valuable than their local currency. Back then only the Yen and the Swiss Franc were considered more valuable but there weren't that many people who could acquire those as easily as they could the Dollar.

Aniya, political games with currency are about as old as currency itself. When I wrote this, I was thinking of the way that the government of Argentina, a few years back, suddenly converted all of its citizens' dollar-denominated bank accounts into Argentine currency, which just as suddenly lost most of its value. So most of a nation got screwed out of most of its savings. The Roosevelt-era law that made it illegal for American citizens to own gold, and required them to turn it in to the federal authorities at a fixed price, also comes to mind. Still, I'm by no means stuck on the specific hypothesis -- it's just an example of something a future US government could do in order to keep people from getting out from under their debts in a time of hyperinflation.

The crucial point is that none of us knows exactly what the economic future holds in detail, and those who make high-risk plans based on the assumption that this or that "must" happen are most likely to crash and burn.


My premise is that constrained oil supplies are acting as an accelerant--like an aerial tanker dropped napalm on a raging forest fire instead of fire retardant--pushing us faster along the path to inflation/hyperinflation.

Westexas, that's quite plausible. My own guess at this point is that what we're facing might best be called "hyperstagflation" -- a situation where consumer and producer prices are rising steeply, due primarily to resource constraints, while other economic measures are continuing to tank. Still, that's just a guess.

JMG - You seriously need to climb out of the history books and maybe read this;

Eeyore, I've read it. It's precisely because I pay attention to the history books that I know that claims of this sort are nothing new.

I agree with most of the other posters, it completely depends on your personal circumstances.

My wife and I have decided to take a multi-pronged approch, a sort of financial buddism - moderation in all things -

We have a 15 yr mortgage that will be paid for in 9 years.
We are not taking on any more consumer debt.
We are paying off our small remaining CC balances and vehicles.
We are stockpiling physical PM each and every month.
We are investing in cash flow positive multi-family residental real estate.
We are purchasing foreign, dividend paying stocks & securities.
Still investing in the 401k for the tax benifit.
Still saving a small amount each month in case of an emergency.
We have a decent sized cache of food and survival supplies in the crawlspace. - more for in the event of a massive natural disaster -

Obviously, I think everyone can agree it is very important to understand that NO ONE can predict the future or time the next 'black swan' event that sets off a system meltdown.

A lot of my friends have a mortgage based on two incomes. They need to work both otherwise there is no money to live. If one out of two loses a job they will have a huge problem, as they will not be able to pay the interest as well as pay for normal daily life. If the economy really goes south there will be a lot of people who will loose their job which they need to pay for all kinds of debts. If there is a huge inflation because of all the funny money floating around big chance that wages / income will not keep up with inflation. Prices for energy and food will rise, but prices for housing will go down.

Result, even if you will have to sell your house you will be left with a debt and the result is poverty. Better to pay of your mortgage.

Further my savings account pays 2% interest, but my mortgage costs 5.5% it's a no brainer for me to pay of now and gain some freedom from the bank.

With regards to other loans, don't start with them ;) But no good reason to have a CC loan against 12%

Banks are in a much better position to get their money back then you in keeping it.

Interesting, all this hyperinflation talk. IMHO, we have to work our way through a potential 10 to 20 year debt deflation / stagflation before there's even a chance of hyperinflation. And by that time, hyperinflation may be the least of our concerns; instead we'll wonder how long the war with Iran is going to last, and if our son is going to return home alive. Of course, we will sure like having that assembly line job building predator drones.

Precious metals should do well either way.

It's government spending, or rather deficits, that will drive inflation, possibly hyperinflation. The Japanese, US and European governments are broke, boomers are retiring and golbalization will coninue to cost US and Europe jobs. Governments are monetizing debt. One of these days the bond buyers will revolt. Interest rates will soar. Governments will then be in a much more difficult situation. They will either default or hyperinflate.

Paul, please see my post above and perhaps provide your answer to my question. I would appreciate it.

Everything economic goes in cycles. Yin and Yang, inflation - deflation, expansion - contraction. Debt and prudence or ... debt and savings? Who cares?

Borrowing and lending are definitely passe:

This is a graph of money multipliers from What this chart shows is the decline in money creation - lending. People lack the means to repay debt so they don't borrow or banks and other businesses won't lend to them.

Forget about finance and sovereign debt - they are either irrelevant (Sovereign) or ridiculous (finance) artifacts of double- entry bookkeeping.

One of the yins - or is it yangs? - of the finance/currency scheme is the relative values of dollars/crude oil. Since last fall, the Saudi government has sought to hold the value of crude below a hypothetical 4% of (somebody's) GDP.

Psst! Saudia! The world is a lot poorer, oil is at 5 or 6% of GDP right now! No wonder the Eurozone is having the bends!

If the dollar/crude relationship is fixed it means the dollar price won't change as crude becomes more valuable, it means each dollar becomes more valuable instead. Since we are in the infancy of this 'dollar value' process, it hasn't dawned on much of finance or business what is happening. And that is Saudia selling deflation to the USA along with each barrel of oil.

- It sells a lot of oil to China because China has a lot of dollars. China won't for much longer!

- It takes dollars instead of other currencies because there are dollars everywhere in the world.

- Saudia takes dollars knowing that dollars are scarce. HUH! Are you kidding me!? Dollars! Scarce!? Didn't you read how the Fed is 'printing money like there is no tomorrow?' Well ... dollars are going into the liquidity trap(s). Dollars ARE scarce. Fixing dollars to oil creates a self- fulfilling dynamic. People around the world will have to buy dollars first - in order to buy oil. This causes an equivalent devaluation in the 'Brand X' currencies as a dollars are horaded; they can buy either crude or increasing amounts of other currencies. Witness what is happening in Europe and the UK.

The 'Ides of November' last year were when the dollar started acting like a hard currency as measured by the dollar/gold trade.

- The onrushing dollar preference is an expression of the fundamental perversion of financialism which any country's 'production' is a measure of that production's ability to amplify oil consumption ... which in turn amplifies the value of the recently pegged dollar. Even though the finance managers can't seem to grasp this situation as such, because of the dollar/crude peg, the end of bailouts and non- stop consumption - pro 'growth- promotion has arrived. This phenomenon is now manifest in both the US and elsewhere such as in the failure of the Eurozone to speedily bail out Greece.

- The Fed and other central banks are irrelevant. They can attempt to print or 'QE' or whatever you wanna call it ... and crude prices will go up and the various economies will crash due to the resulting oil price shock as happened in 2008. This will be a financial heart attack for consumers. The destruction of demand will then cause oil prices to plummet ... making a further dent in oilfield investment and production ...

- Eventually the latter plus demand recovery will cause prices to rise again and the oil/dollar peg will reestablish itself.

- The stupid humans are now trapped within the crude/dollar peg. As more and more traders recognize the peg for what it is there will be an increasing dollar preference ... even within oil producing countries! That is, if you don't have dollars in Iran or Mexico you will not be able to buy gas for your taxicab.

- To find out what will happen next read about the Great Banking breakdown that took place shortly after the failure of the Vienna bank Creditanstalt in 1931. Substitute oil for gold and you will see what the world has in store for us all.

- We are all living in the land of poor people who have no dollars.

- Food stamps are the new alternate US currency along side the dollar.

Keep in mind that there is an ongoing debt moratorium at most levels where losses are accounted off institutional balance sheets. There is no reason for this to not continue. As dollars become more valuable, debts off balance sheets will be resolved for pittances in cash. Keep this in mind. Cash is the duke now but soon to be Emperor!

- Individuals seeking to resolve debts in this manner will find the process excruciatingly difficult and treacherous. It will probably be easier to do open heart surgery on yourself.

- The Chinese economy will continue to 'grow' as long as it has spendable dollar reserves. As dollars become more valuable ... you fill in the rest! Unlike the USA and Europe with many finance assets and low savings as hedges against inflation, in China there are lots of savings, few available hedging assets, a (strongly self- interested) command economy and other macro incentives for China to hyperinflate. China cannot tolerate a deflationary collapse as is taking place now in the US. China's communist establishment has borrowed trillions in now- hard yuan (thanks to the dollar/yuan peg) to speculate in real estate. Do you think the government officials and their pets are going to let each other crash in a deflating bubble?

The only way to break the dollar/crude peg is for industrial countries to deindustrialize and go off oil as economies went off gold in the mid- 1930's. There is no other way. Even setting off a small nuclear 'device' under the capital - to free up the trapped gas - won't do. We are at the end of oil. It is now too valuable to consume (waste).

Me ... I have a nice collection of hand tools and I know how to use them! Debt ...? Zilch! My advice? Get out of debt completely. Get cash dollars and try to hang on to them. Trade dollars only for returnable assets such as tools, learning, or necessities such as medical care. Stay healthy; quit smoking, don't use drugs, stop drinking or drink less, get rid of the car(s) and other luxuries. These all represent dollar drains and embedded fuel demand. Time to stop TALKING peak oil and start LIVING peak oil.


The most important event of the second half of 20th century is an alliance between arabs and americans by which arabs had decided to take only dollars (not even gold) in return for their oil. This is a very overlooked event which most people don't know about. By fixing oil with dollars arabs guaranteed survival of american empire and downfall of russian empire (see how 1980s over production of oil by arabs resulted in falling oil prices to $10/barrel that eventually resulted in downfall of russian empire as their income from exporting oil reduced to a quarter).

Arabs supported americans in other ways too. One of that is investing their excess incomes (you bet they have a lot of excess income given their few numbers and plenty of oil) in america. Israel was a problem and arabs suffered huge humiliation in 1967 war when they lost bait ul muqqaddas in just 6 days while their four very large countries with plenty of resources suffered defeat from the tiny israel. Later on in 1973 arabs did defeated israel and sinai desert was regained but bait ul muqqaddas is still not. In the late 1970s arabs especially egyptians signed camp david agreement by which israel guaranteed it would never attack a free arab country again. Israel never attack a free arab country again but it do attack arabs in palestine and lebanon ever since.

America did a huge mistake when it invaded iraq. It was against the late 1970s agreement, though that agreement was that israel would never attack a free arab country, it was understood in arab world that it is an agreement with america in essence, as israel is nothing without america. Arabs did allowed and even invited america do invade iraq in 1990 but that was meant to free kuwait, not capture iraq. When in 2003 america invaded iraq with clear target of staying there in long term to bleed it dry from its oil (the target was not to overthrow saddam government, that was achieved in first three weeks of invasion, yet america is still there since more than 6 years, so american objective is very much clear though not to most of americans who are blinded as usual by their media) arabs knew that the agreement of late 1970s is broken.

What could arabs do? They didn't had the technology and weapons to fight. What they do is that they started taking out their investments in america. Back in 2005 it was in newspapers here that saudi arabian government has took out 1.4 trillion dollars from america that was invested there, and its just one arab government. Many other arab governments followed the path. Add in it the private investments of sheikhs and business men of arab world and you find one of the causes of downfall of america. Like arabs played a catalyst role in downfall of russian empire they are doing the same with american empire. In both matters the war arabs did is purely economical in sense, no bloodshed and lots of damage.

So, where did the excess investments go? Once they are out of america they could be invested in europe or japan or china but for the first time arabs made the right decision and not invested it anywhere in the land of enemies of islam. Arabs invested it in arab world, especially in dubai, and you see the huge boom in dubai economy. The recent downfall of dubai not take dubai all the way back to 2003. Only a fraction of economic gains of past 6 years in dubai are lost, so on net the dubai is still far better off than in 2003.

Some of the investments of arabs found their way to non-arab muslim countries, especially pakistan, bangladesh and malaysia. Arabs invested heavily in karachi stocks exchange since 2005 and bought large businesses such as PTCL in pakistan (though not fully, just 25% of it but its still a huge investment).

After the fall of russian empire the arabs no longer "need" america. America still need arabs and heavily so, not just because its dollars' intrinsic value is dependent on arabs selling oil for dollars only but also because america as a large and aggressive empire needs more finance to survive than it can produce itself. Arabs are not passive in the second half of the 20th century as it appears to many. Arabs have their own way of fighting, not make much noise and achieve targets at a minimum cost of lives though at a large cost of money, but money always comes after people so that is a good policy. In the 1970s there were many revolutions in arab world, the most significant ones were led by shah faisal of saudi arabia hand in hand by bhutto of pakistan and anwar sadat of egypt. The point of these significant revolutions was to free arabs from foreign control, first by taking control of all oil production and exports in arab world and then by freeing oil sale from dollars. The first target was successfully achieved by early 1970s but the later one couldn't due to martyr of shah faisal and death of bhutto. Later arab leaders of 1980s and 1990s were not as brave and revolutionary as their former leaders but still they did a great job in bringing down the russian empire.

Now in 2010, situation is altogether fatal to american empire. Being in iraq since more than 6 years no significant quantity of oil could be taken out, all three levels of govt in america is suffering huge deficits, china and india has eaten out about a quarter of jobs in america, technologically american enemies are catching up etc etc.

Very interesting, steve. However, I've learned since 2008 not to underestimate demand destruction, which may weaken the effect of the crude/dollar peg. I don't think that giving up oil quite amounts to complete deindustrialization. Solve transportation, and you solve peak oil. I have a feeling that Europe and China might come close to doing this. That is, if they control population, invest in coal and alternatives, and electrify transport, they just might dramatically reduce oil demand. Mind you, I don't think it will be enough to prevent collapse.

I've learned since 2008 not to underestimate demand destruction, which may weaken the effect of the crude/dollar peg.

Exactly - demand destruction ='s 'going off oil'.

Realistically, the amount of demand that needs to be destroyed is that sufficient for the US (dollars) to become the crude swing producer(!)

Think about it. Americans now consume 18 million barrels per day and produce 5mbpd of that domestically. We would have to cut consumption to leave a 1mbpd reserve - with no imports, obviously - so that the 1 million would be available to swing the market. Essentially, the US has to put Saudi Arabia - and other potential swing producers - out of business.

That means the US has to cut consumption by 14 million barrels per day! Keep in mind you read it here, first.

The alternative is the dollar peg nuking the banking, energy import and consumption sectors of the US economy to bring consumption to the 4mbpd level (anyway). This is what has ALREADY been taking place since ... well ... 2004 (or earlier. I have put the oil peak @ 1998). It's one set of events or another, nothing in between. I may be wrong, but I am preparing otherwise.

The biggest problem facing the US social and economic structure is a faulty assumption - that the American Way of consumption will never quit - that new supplies will always arrive to replace depleted ones. This is just like the assumption that real estate prices would never decline. Both assumptions are linked together. Just as the real estate price assumption was dead wrong so is the energy input assumption. We Americans have to make a choice between holding on to faulty assumptions or inventing another structure.

(Another duplicate post ...)

(Duplicate post ... )

Of course WFP is correct, the US has turned reasonable policy making into pointless crusades that have become more and more counterproductive.

This is what happens when the national interest coincides with "What is good for General Motors"!

Quit picking on GM.
The big crooks are the wall street banks.

I think it was a good thing to do if possible before 2008 but now I'm not sure. I read about a farmer in the great depression who was paying off more on his mortgage each year than he needed to to clear it then when things got bad and he couldn't make the usual payments the bank repossessed his farm anyway.

What Are The Terms? Back To The Basics

Okay, let's take this from the top. A brief history of debt...which will also explain why it is needed and what it is good for, and why you should reduce it.

-Debt allows two things, but they are very important things:
a. The funding of ideas
b. The use of objects while they are being paid for.

Debt existed long before the birth of the oil age, long before the birth of the fossil fuel era and long before the birth of the industrial age. And we can safely assume that debt in various forms will exist long after the fossil fuel era. When the oil age is considered a historical oddity, debt will remain.

Debt makes ideas applicable and useful. Very rarely does the man who has the idea, whether it be the colonization of the new world or the birth of the railroad, or the gas turbine engine or alternating electric power or large scale concentrating mirror solar plants, also have the money to fund it or build it.

The reason loans are made is because the lender hopes the ideas pan out, and he/she gets more in return than he lended. The people with few ideas lend, the people with ideas borrow. This is the way it has always been, from before Columbus (who borrowed to finance his trip to India but America got in the way) to Frank Whittle with the gas turbine to Steve Jobs with Apple, the people with ideas always borrowed, the ones without ideas but with money lend.

The second point, being able to use an item as it is being paid for, is fundamental to the importance of debt. From sailing ships to trains, from computers to cars, it is non-sensical to attempt to wait for the amount of money required to buy the item to get to use it. Without debt, how fast could the computer industry have grown, or the auto industry or the railroads? It is idiotic to assume that industrialism in all its glory (and all its sins if you view things that way) could have been possible without debt. Debt is as human as thumbs.

This brings us to the central point, that being the difference between productive debt and destructive debt.

-Productive debt is debt used to develop new technology, new ideas, new ways of doing things.

-Destructive debt is debt used for expanding non-productive consumption and luxury for the sake of luxury. It would be best if all non-productive spending could be funded from cash on hand, not on debt obligation. This would be true in a perfect world, but we do not live in a perfect world.

So the first goal at the personal level would be to reduce destructive debt, that is, debt that is for purely luxury spending, to zero. It is possible, but not easy.

The first thing to look at is the terms. Credit card and consumer debt terms are almost always the worst in the credit market place, with very high interest, terms that can be changed with no advance warning and usually used to fund non-productive spending (not always, but usually) It thus follows logic that these debts should be paid off first. Then work to pay off debts that were offered under better terms (converting variable rate mortgages to fixed rate as lower rates become available, then paying off the mortgage itself.

But why do it? Why should the level of debt be reduced at all? The answer is simple, but may sound odd at first:

The goal is to have "opportunity money" available. This is either cash or ready access to credit to be able to take advantage of opportunities that may, make that WILL occur. Your personal financial future will be decided by whether or not you are in a position to take advantage of these opportunities.

The difference between the rich and the poor is purely in this area: The rich have opportunity money and thus can buy dirt cheap, while the poor must always pay retail price.

Have we not recently seen the single greatest example of this? I beg those reading this post (few they may be) to consider what happened a year ago, almost exactly to the week.

The recent "crash" is right out of the investors handbook. It was a masterpiece to behold, something we should be thankful to have been alive to see. It will serve as a textbook example of the advantages of "opportunity money" in a real world way that no textbook can ever truly capture in the way that living through it does. It was like an economic "Mona Lisa" or "Les Demoiselles d'Avignon", and served to change the perceptions of those who paid proper attention. I am so glad to have been around to see it.

The Dow Jones was at some 6440 points one year ago this week. It is now 10,500. I will use myself as an example...I was able to pour some money into carefully chosen places...and last year was one of the best financial years I have known in my 32 years of adulthood...but not nearly as good as it should have been. Had I had more money available to me, or the credit to borrow more, I could have frankly made a fortune. So could anyone who paid any attention at all. I know people who did. It was one of those grand moments in history where it was a virtually assured bet...IF you had the money or the credit to raise the money (either would have done fine, because at the rate of return possible (probable, almost assured), the interest on the borrowed money would have been marginal, almost invisible).

Think for a moment of the fate of someone who had the opportunity capital, or had access to the credit to borrow it, one year ago today. All they had to do to STEAL the U.S. economy was pay a bit of attention and pour it in.

The principle reason, in fact, the sole reason to keep debt to a minimum or non-existant and on the best possible terms is to have access to opportunity capital when it is needed, and it will be needed. This was true before the oil age, it is true in the finale of the oil age (now), and it will be true long after the oil age. It is a core truth of individual wealth production. Like so many truths, it is much harder to do than to say.


Jeez, RC, no mention that your "good fortune" was only made possible by a trillion+ dollar govt bailout. I submit that:

1. Your above senario was only made possible due to borrowing on "my behalf" by my govt., an un-natural massive creation/transfer of (fiat) wealth.

2. Most of the people who will ultimately be held liable for that debt have not/will not be able to share in your "good fortune".

3. If you could get past your smugness and off your high horse you could see this. But as you seem to say, it's every man for himself. That's why BAU can't continue. Gross inequity, gross imbalance.

Spend it well, RC. Spend it soon.


Ya know, I would feel ever so guilty about it, but I remember 1982, when I was making about a dollar and a half an hour...and Ronald Reagan came into office as the "balance the budget" President, and bailed out Wall Street with the first trillion plus spending, and I was still making a freakin' buck and a half an hour while the economy roared off to the stratosphere and the boomers paraded around in two ton sport utes carrying their pedigree dogs and brats and building McMansions to the edge of the beyond...and I didn't see them feeling one bit guilty as the national debt shot past each new trillion dollar barriar on an almost monthly basis...where the 401f^'k was the guilt then?

What goes around comes the sport utes of the boomers sit in the junkyard and the McMansions sit empty, and now they want crock tears from me?

Don't think so.


Yeah, RC, I don't feel guilty wearing running shoes made by slave labor in a country with no environmental laws, from finite resources that will be denied to future generations. But I probably should.

Then again, what do I care about what stories my grandchildrens' children will tell about me? I'll be long gone, along with any chance they may have of living the kind of life I've lived. The abundance and opportunities of our generation will be gone as well, but not the greed and avarice.


Your points are well taken, I try not to be wasteful...I drive a 1992 model car, a 4 cylinder Mercedes, and my two before it were even much older, I live in a very small apartment, and am about 1.2 miles from where I work, so I do not consider myself in any way a wealthy person.

What money I have made has been used to reduce to debt, and I frankly would not have missed that chance for the world...paying off a loan I had for years with one of the big parasite banks brought real joy to my heart!

But let me ask you, let's just assume it were to happen again...the stock market wipes out, let us say it drops back to 5500 on the Dow...and you knew, just flat KNEW that it was going to turn around and come back up...and you had some companies spotted that were essentially recession proof, in fact, unless a meteor struck the earth or a thermo nuke war broke out, these companies were almost ANYTHING proof...and you knew you could triple your money in the next say year or two, plus dividend...are you telling me it is immoral to buy all of their stock you could afford?

Unless such a company was selling meth to school kids or some other type of immoral conduct, why would you not take advantage of the cheap price? You would be playing the game straight, (after all, you could be wrong and the Dow could keep going down to 2000...not likely but it could happen...) and you would be putting your own money at risk...what would be immoral about that? Do you think your friends and neighbors wouldn't? Do you think you would "change the world" by not taking advantage of the oddity in pricing at that moment? Do you think your heirs will hold it against you if you made money, especially if any of it trickles down to them? Have you ever noticed that most old money families don't seem to mind at all how the prior generations accrued wealth, as long as they get to inherit some of it?

When did it become our job to play the ascetic vow of poverty monk and turn the opportunity to make money on this scam "crash" we had? I am not trying to carry the world on my shoulders...most of my peers are living a hell of a lot better than I am and consuming far more...


a company was selling meth to school kids or some other type of immoral conduct

Selling meth to kids is immoral? Damn, now I have to rework my business model. How about selling meth to their parents?

"How about selling meth to their parents?"

Well, I could say what some have said about drug addiction, that it just thins out the competition, but I won't...oops, I kinda' already did, didn't I...


Addiction has little/nothing to do with substances... cards addict people to gambling?

Google "Gabor Mate" if you care...

Even though I don't much care for the comparisons to great works of art, I agree in general with RC's sentiment. Get what you can and get the hell out of Dodge.

1. Your above senario was only made possible due to borrowing on "my behalf" by my govt., an un-natural massive creation/transfer of (fiat) wealth.

Yes, but they always do. I'm with RC on this one. I acquired 30%+ last year (in the UK) and I would also have made far more if I'd had the balls. I find it shameful that this is how our monetary and political system works, that leeches are held in the highest esteem but that's how it is.

Problems arise when lenders are way to liberal extending credit.
And people start relying on credit way to much.
It's hard for me to be sympathetic with either side.

I'm about $30,000 in debt.
Could be worse. Could be better.

People were selling houses to people that could not possibly afford them.

That's why I'm not that sympathetic to lenders. If they make such risky bets..., why should anyone be surprised if they have trouble getting paid back with interest?

In the UK you take out debt that is either secured or unsecured. Secured debt is basically a mortgage against property, and has lower interest rates. Unsecureed debt has high rates, like credit card debt. You do not put property up as collateral.

However, if you default on debt and are declared backrupt, you can still lose your house even if you you have no debt sucured against it. For a debt of only a few thousand dollars the lending company can, through the courts, evict you from your house and sell it to recover debts and costs.

If you have anything to lose in the UK, pay your debts.

The one thing we do know is PO will impact your personal economy.

Things will be harder to come by, including jobs.

Better own the things you need outright.

And not give the court a reason to auction them off.

I can't really offer much of an opinion because I'm not really an expert in finances or anything, but from a personal perspective the whole debt situation is becoming seriously tiresome.

Until about a year and a half ago, I never personally accumulated any debt, but I rarely had any spare time or money due to working extra hard to pay off my parents' medical debts. Despite years of effort, all I could do is significantly slow down the rate of debt accumulation. My brother makes several times what I do, but he wouldn't help out because he was (and still is) busy saving up money to buy a house in friggin' Japan. Then my computer died and was unrepairable (self-employed, impossible to work without it), my roommate quit her job with no immediate prospects and nothing saved up (and no unemployment benefits due to having quit), and my landlord jacked up the rent in order to pay for "improvements" (which appeared to be largely cosmetic changes meant to attract higher-paying renters), pretty much all at once, so there wasn't much choice but to cut off my parents and get a credit card.

Present day. Cheaper apartment, same roommate, but she's only found a couple of fairly short-lived temp jobs and has been unemployed more than not, so I'm still responsible for most of the household expenses. The credit card debt took awhile to pay off, but it's gone now. My father disappeared, and the collection agencies have been after me for his debts (including unpaid utility bills), but I'm fairly certain that they've all given up now. And by disappeared I mean his apartment was abandoned with all his things still in it and his cats had died of starvation. My mother declared bankruptcy. She's now going to college for the first time, in hopes of being able to land a high-paying job that can cover her medical expenses. She's living off of student loans. Unfortunately, her grades are terrible due to having problems functioning since she can't afford all her medications. I won't be able to help much until my roommate gets a lasting job (who knows when that will be) and my brother still won't do anything.

And of course I'm owed a lot of money too, nearly $80,000 total so far - most of that's my parents, as they both promised to pay it back someday, but my father's probably dead and my mother's probably hopeless. My roommate also, much less but at least there's a chance to recover it there. And I'm also counting $6000 for my mother's ex-boyfriend, even though I'll definitely never get that back due to his having died years ago. And of course I'm dirt poor (or else have been living as if I were due to essentially giving away that money) so $80,000 is hardly a trivial sum.

Assuming things get worse, with rising costs and increasing unemployment, I speculate that we're going to end up with a lot of situations where you have 1 or 2 skilled and able-bodied but mega-stressed breadwinners desperately trying to support a group of 3-8 other people, mostly adults who aren't likely to get hired anywhere in an insanely competitive job market. And if something does happen to the breadwinner(s), which it eventually will, then the entire group is basically screwed. I hope I'm wrong on that.

Read this and be mindful it was written in 1940 by the guy that predicted Peak Oil.

Hmmm, interesting. So if I'm understanding the math right, after the great depression things were in the position of being "industrialization or capitalism, one of them's gotta go" and most attempts to "fix" this (like Franklin's New Deal in the US) were temporary stalling tactics. And then apparently WW2 and its aftermath changed the game enough that it could be reversed temporarily. Now that those effects have completely run out of steam, we're once again facing similar conditions and the same choice. Given what I know about the post-WW2 economy, it seems highly unlikely that the same things would work a second time.

The big difference is we are now running out of the raw materials especially energy but I think we might have enough if managed well a la Hubbert to land this mess without crashing and complete disaster.
And yes the way you see it is the way I see it.
It is going to take the same level of crisis though to get people to take a look at this stuff again.

When you read Hubbert you understand that it is not a time in history that is the problem but a structural flaw in capitalism's "everyman for himself" nature.

Speaking of nature: when people follow the doctrine of grab all you can while you can you end up where we are now with a massive tragedy of the commons.

Man is part of nature and doesn't know it because god made us the rulers of earth right?


Thanks for the link to Hubbert's paper. Many economists agreed with Hubbert's thinking that efficiency was putting people out of work. What they didn't foresee were the new technologies and industries of the post WW2 period, like commercial aviation, televisions in every home, interstate highway system, multiple car families, air conditioning in most homes, plastics, fiber optics, computers, internet, etc. One problem is that we have not come up with any new technologies for almost two decades. Not to say that resource depletion and globalization aren't bigger issues.

One of Hubbert's recommendations was that money should be spent rather than saved to insure full employment. Hubbert proposed non-transferrable money have a two year life, after which it expired. We have sort of accomplished that through inflation, just not in a two year period.


I'm so sorry to hear about your father.

Hang in there. You are right about people clustering around one stressed breadwinner. It's already happening.

I'm a little surprised that more has not been said about it, but this is not the first time that people who are "boomer" age or older have had to contemplate the collapse of civilization. We lived under the shadow of the mushroom cloud for decades, especially from the late 50s through the late 80s. There was a while there in the early sixties when it looked like a very real and frightening possibility indeed.

Of course, those who lived in obvious target locations like military bases or the major cities mostly came to divest themselves of any illusions: a nuclear war meant the quick incineration of themselves and everyone and everything around them. While this was frightening, there was a certain perverse comfort in knowing that at least one would be spared from having to live within the terrible aftermath of a suddenly wiped-out civilization.

The thing is, since almost everyone in the media, government, and arts lived in obvious target cities - New York, LA and Washington - they got it in their heads that nuclear war means quick incineration for EVERYONE. That's what it meant for them and their peers, as far as they were concerned that was everyone that mattered. Thus, this is the image that was communicated to the entire nation. The vast majority, including people living nowhere near big cities or military facilities, got it in their heads that if nuclear war came, there would be a flash of light and that would be it - for everybody.

At least a few of us of us who lived in "flyover land", outside the big cities and away from military facilities, knew that this actually wasn't true. The Soviets did have a large, but limited arsenal, and that the vast majority of the US land area would not see any impact from the heat or blast effects of nuclear detonations. A few of us knew that we WOULDN'T be incinerated in a blinding flash. Some of us also knew about fallout, we knew that radiation sickness was a terrible way to die, but that it was avoidable if one sheltered properly and promptly.

This presented the terrible prospect of actually surviving a nuclear holocaust and having to live in its aftermath. Not an attractive thought, to say the least. But it was one that some of us who did manage to actually inform ourselves independently (instead of just accepting uncritically the spoon-fed garbage dished out by the media) had to face.

People living in the target cities knew they didn't need to worry about repaying their loans in the event of a nuclear war. They just kept living their lives, and knew that if the unlikely event of a nuclear war came, in a flash they, their creditors, and the loans would all be gone.

Those of us living well outside of obvious target areas knew that while we might survive, our creditors were all based in the central business districts of large cities, and certainly would not be surviving. Nor would the banking and financial system, nor the legal system, nor would the government (at least to an extent that actually would make any real difference to most survivor's daily lives). Thus, we could safely assume that post-holocaust, all debts would be de facto wiped clean, whether or not they ever were done so on a de jure basis; most likely, there would be nothing about capable of doing de jure. Legal documents written in the past wouldn't matter; what would matter would be whatever actual property was in your physical possession. Possession would be ten tenths of the law, it would be the fact on the ground that actually counted. Thus, we also knew that loan repayment post-holocaust was a non-issue.

All of us also knew, of course, that while the possibility of a nuclear holocaust was a real threat, it was also a low-probability one. We knew that not only ourselves, but also the political and military leaders on both sides, wanted to live. We also knew that even those at the top, even if consumed with lust for power, had to realize that destroying everything would only mean that they would have no real power left - if they even survived. Thus, unless the global situation started to deteriorate alarmingly, it was only sensible to assume that things would continue more or less as "normal", and that we should get on with living our lives. That meant that there was no rational basis for seriously contemplating default on debts that one really could continue to pay. I am guessing, however, that there may have been at least a few people during the Cuban Missile Crisis that at least seriously contemplated skipping their loan payments. I know that there were a few people that skipped the country and headed for "safer" places.

So, how does this all apply to the question at hand in this thread?

What we are facing now is something different that the threat of global thermonuclear war in the past. The present threat is different in two dimensions:

First, while the extent and outcome of a full nuclear exchange was highly predictable (the government and military had a pretty good idea where the Soviet targets would be and the effects of the detonations, and there was enough open source material out there for those with the mental capacity and interest to inform themselves in order to make a pretty good guess), what we are facing in the future is far more uncertain. We have been discussing here a wide range of scenarios. Setting aside the technocopian optimistic scenarios (which really don't apply here - if everything is going to be coming up roses, then why mess up your credit rating by defaulting?), there is a range of scenarios from mild and gentle decline all the way down to a quick catastrophic crash and mass die-off. The latter differs in some important respects from the nuclear war scenario, but maybe not so much in the reality that most people die and civilization is left in shambles. Indeed, a nuclear exchange remains a very real possibility as one of the things that might happen as some of the most pessimistic scenarios play out. Thus, while we KNEW that debt repayment/default would be a non-issue in the aftermath of a nuclear war, we cannot be so sure that would be the case in some of these contingencies, especially with the milder and less pessimistic ones. If the economy is going to simply just keep getting a little worse each year, then that may have different repercussions for an early personal default on one's debt - especially as the legal system remains in place and one's creditors will continue to be very much up and running and interested in tracking you down and pursuing repayment. In other words, the cost/benefit calculus of a personal debt default changes depending upon what scenario is assumed.

Second, the probabilities also differ. Global thermonuclear war was a high-impact but low probability scenario. Now, we are looking at a range of possible scenarios, and we really don't know what probability to assign to any of them. While most technocopians would disagree with me, I think it highly probable (near-certain, actually) that we will have to go through at least some sort of long-term economic decline, but I am not certain as to the exact scenario that will play out. There are others here, "doomers", who seem to be absolutely certain, or nearly so, that the worst-case catastrophic collapse is inevitable and unavoidable.

I suppose that if you are absolutely certain that a fast crash and die-off are what we are going to face, then it would be logical to default on one's debts now, and either try to do what one can to maximize one's chances of survival, or else decide that "survival" after such an event is undesirable - in which case it is "eat, drink and be merry, for tomorrow we die". Of course, there is the little problem: no matter how certain you might feel yourself to be, nobody actually does KNOW the future, and there are intelligent people of sound mind who have looked at the same data and arrived at different conclusions, so you just might possibly be wrong. The legal system is still up and runing, the creditors are still out there and actively going after those who have stiffed them, so you've got to ask yourself the same question that "Dirty Harry" posed: "Do I feel lucky today?" Well, do ya?

You people are missing the whole point. To look at it, make only two distinctions, you and system. You versus the system. The system here means the political, economical and societal system of the country you are living in.

Lets take the case of usa. The system of usa is made by strong people, bankers, politicians and military people. You as an american decided to live in this system as you believe when you were said that your country is best place in world and all other countries are backwards.

Living with the system of usa, the most brutal system in the entire world, you have to be very very careful. The basic thing you should consider in living in usa system is to be as free as you can. You can't win against the big boys being alone and weak. You have to engage with them as little as you can, and if you must engage with them try to fight at grounds where you can have as much advantage as you can muster.

Investing in education is one way of freedom for you. The more educated you are, the high income you get as long as the education field is of value to the corporations the big boys run. Do what jews did in 19th and early 20th century europe, they were hated and they had lacked behind in the development. All the scientific discoveries of european renaissance was by non-jews. What would a jew do in such a situation? He/she can't fight the system. The answer to that is investing in education. Most of world's phds are jews today. They made themselves needed by the system.

If you are too poor, too old or too dump to get a higher degree, by higher degree I ofcourse means higher than a masters, then stay low and maintain your freedom as much as you can. Take as little loan as you can, it is very very important if you are in your late 40s and have little chance to switching to a better career path but its also important if you are indeed in your 20s and can get a better profession.

If you are already loaded with debt then get out of it as soon as you can. You can't afford to be a slave. Remember that the system you are living in is the most brutal system anywhere on planet today. Your body and mind is owned by corporations. You are just a slave to the corporations. You can't fight with corporations, they are too big and too powerful. Your government itself is a puppet and show piece in their hands. Your government will never come to rescue you. Your government has effectively abandoned you and left you in the claws of the corporations.

You are living in a system where there is no safety net at all. The only entity of this world that is willing to help you financially is the banks and you know they take a very very big price for it from you. You can easily be forced out of your house if you lose your job, you can become a beggar very very easily in such a system. Your family and friends are either unwilling or unable to help you, given their own material desires and problems.

The real financial freedom is doing your own business. That way you get yourself out of the slavery of answering to a fat, ugly boss everyday who is much much less productive and intellectual than you but far far more cunning and criminal than you to take control of the system and have far far more friends than you to help him. Once you have your own business you have freedom in time and you usually earn far better than what you can get by serving others. As a matter of fact, if people had not fallen in the trap of flashy advertisements, signboards and lights of departmental stores, food chains and brands the natural way of business called small family businesses would have continued and there would not be large corporations, but people collectively are a bunch of fools, the intellect of a few thinkers is usually outnumbered by the idiotness of others and all together they are very dumb. People whose fathers and grand fathers had established family businesses in small towns and pretty large houses had abandoned their businesses and houses in pursuit of flashy lights of big cities. They ended up as slaves of corporations and now their next generation is bound to continue as slaves. People who did carried out their family businesses faced tough competition by corporations who bombarded the markets with flashy advertisements and unnatural price cuts. Since people are collectively dumb they rushed for the corporate goods and services abandoning small, neighbourhood family businesses. Those businesses saw their sales going down for many years and many had to shut down their businesses and their owners had to go become slaves of the corporations but atleast they fought before giving up.

So, the point is not when to pay the debt. The point is how to get free. There are many levels of freedom. The day to day level is financial freedom. There are two ways to be financially free: do your own business, be highly educated. If you are unwilling or unable to follow any of these two paths then you are just a corporate slave. If you are doing your own business then for the most part you are free. If you are highly educated you can talk in even terms with your corporate boss when it comes to pay raises and you can switch job if he not agree to you. Ofcourse for most of the people the high education option is not there for obvious reasons, so doing your own business is one of the ways. Some people consider a third way of financial freedom too, working for a not-for-profit organization. They make the point that since these organizations are not for profit their bosses don't bleed you dry at work and don't fire you that often and that easily. Such organizations are a good place to work as long as they have an independent source of income other than any donations they get from outside. If an organization is dependent on charity to run its operations then its infact dependent on corporations because normal working class people are not able to give as much charity as large corporations can. Working in such an organization is a risky career path. If the organization has its own source of income, for example its a university and its source of income is its fees then you are in safe ground. Its not necessary ofcourse that you have only one form of income. You can for example do a day job and have some income from there and have some property rented out if you are rich enough to have some income from there too. That second part of your income that comes from rent gives you more financial security than the first part.

The above paragraph is about income security. The other half of financial freedom is expenses security. How much of your expenses are fixed. It includes that interest payments you have to make no matter the level of your income and no matter you have an income or not. Thats the worst loss of freedom when you have to give interest. You know the tension you face all the time. Another fixed expense is your rent, if you are poor enough to not own a place of your own and have to pay somebody are rent just to have a place to sleep then you have lost some freedom there. Its not as bad as the interest payment, where the payment amount is fixed and there is nothing you can do about it, in case of rent you can actually go and live at a worse place at lesser rent incase of an income reduction. Nevertheless rent is a big hole in your freedom and bleed you every month. Your car related expenses including petrol and repairing expenses are also a fixed expense if you are locked in an american suburb. In living at such a place a man without car is a man without legs, unable to go to school, work and market. You have other fixed expenses too, including your insurance payments especially your health insurance payments.

So, what is freedom? Freedom is flexibility. Flexibility is what you need to survive in long term. Flexibility is resiliency. Flexibility is what eastern cultures have and western cultures had let go during industralization and post industralization. Higher the part of your income depends on other people's non-essential choices, higher loss of freedom you have to absorb. By non-essential choices I mean choices that they are not forced to make. For example going to a five star hotel for dinner every weekend is a non-essential choice, it can easily be avoided when going go bad. If you are working in such a place your income and job is highly likely to go down when economy worsens. An essential choice is one where there is little real choice. Keeping a chemical engineer at a chemical factory is an essential choice. Going to a doctor when you have a tooth-ache or car accident is an essential choice. If you are a chemical engineer or a surgeon you are more likely to have your job in future than a waitress or a ticket clerk or a telephone operator. So, there are two decisions to make here. Go in industry where people are forced to buy and be at a position where its very hard for corporation to fire you if you must work for others.

Flexibility is also needed in terms of expenses. Higher the percentage of your income locked in fixed expenses such as interest payments, insurance payments, rent and car expenses the lesser freedom you have and thus lesser ability to manouvre.

When you see a bright future ahead you lose freedom to get higher net gains. In other words, you lose resilience to get higher efficiency. Thats what been happening all through industralization and post industralization. Assembly lines were the first major decision made in this regard where people are made to work on only one part of product, producing more and better of it but losing the flexibility of switching to other jobs. The time we are facing now is imminent losses in economy, incomes have to go down and so do expenses. Without fossil fuels there would be less energy and with loss of energy there would be loss of economic activities and with that comes loss in incomes. So what should a person do? As a basic rule of survival, be flexible. Be as much flexible as you can, in both incomes and expenses.

If you are in debt, get out of the debt as soon as you can. Once you are out of debt you regain some of your financial expenses freedom. If you can educate yourself more, do it. When unemployment increases you would be facing a tougher competition from your fellow unemployed people for a lesser amount of jobs. In such situations a higher degree gives you more freedom. If you have to pay rent, try to move to a smaller, more affordable place with lesser rent. If you have money in pocket then living in a small house you can be more happy than if you are empty pocket but living in a large house.

The last point is, its not necessary to live in western world to be happy. All in all the western world is collapsing. It was the first and foremost to gain by industralization so its as logical that they would be the first and foremost to suffer from de-industralization as the other half of the peak oil graph is by looking at the first half of the graph. Your little net savings, the amount you can muster after selling all your assets and paying of all your liabilities may be little and insignificant to live on in a western country but in east due to exchange rates it can be a very, very large amount. A choice of moving to a less industralized and therefore less vulnerable to energy downfall country can be the best decision you ever made in your life. Not all of the less industralized and therefore "poor" countries are overcomed by crimes and dictators. World is very big and you are very little so you can find a place for yourself.

Remember, happiness is a function of freedom.

The jews are professionals because they were not allowed to be land owners.

The rest is a very long winded rendition of common sense.

You hit on what is the most important point for me in all of this: freedom. Debt is bondage. In some ancient societies, people with large debts lost voting rights, because it was clear that they could not act with a free conscience.

In view of inflation/deflation (I tend to lean towards the "consumer price inflation/housing and asset deflation" view) maybe some debts make financial sense. But the loss of freedom that accompanies them is for me too high a price to pay. Sure, I pay certain opportunity costs by maintaining this view, but I feel that, in this period of transition, remaining unencumbered is most important to my sense of security.

I think the greatest problem with this question is that there is too much uncertainty to really say for sure what the winning move is. But for me the object is not to find the winning move, but to not make a losing move.

Some of the doomers argue that if things collapse then we won't have to pay off the debts, but to me it is an unlikely scenario and even if it does come to pass it would be difficult to time properly. There would still be no guarantee that the financial system would still be hobbling along to a degree where someone else could purchase the note and then hire some thugs to throw you out.

I was in a position a year and a half ago where I could pay off our mortgage, so I went ahead and did it. Yeah, I suppose I could have invested the money instead (and watched it wither and then rebound), but just paying it off essentially eliminated uncertainty, and it eliminates stress. If I or my wife lose our job, we won't lose the house (we still have to pay taxes of course - but that's a relatively small fraction of what we were paying on the mortgage).

The absence of a mortgage payment means I can save - I don't have a specific objective in mind, but having the cash on hand gives us the freedom to quickly act in any number of ways should we need to.

Debt equals loss of freedom, pure and simple. Right now my job has turned nasty and I am thinking of quitting. Because we have no debt, I can do it. I will wait and see and make a decision in the next three months.

My parents were children in the thirties and we were raised to think debt can kill. However, my Dad always said that you have to also live in the moment, so like many here have pointed out, balance is key. In Canada, interest on mortgage (any portion), is not tax deductible. At the same time, when you sell your house you do not have to pay capital gains. As such, Canadians tend to pay off their houses as quick as possible, (at least most of them used to), as a safety net. It works.

A few years ago we sold out in town and bought a fixer-upper place on a river for 1/3 the price of our little rancher. We then took our extra cash and bought 16 acres across the road for the future. You can imagine our projects in the light of Peak and possible collapse. Not having debt allowed us to do this.

Credit card debt is insane. Do you really need that new pair of jeans, or the dinner out? Can the kids get a rebuilt used bike instead of the kind that cost as much as a car? Local college vrs university in the city is also a no brainer. The kind of job that sniffs at where your degree came from is not a good place to work, anyway. It is different with technical degrees, but arts degrees are a stepping stone. Apprenticeships are awesome life foundations.

I have been out of work before with two little kids, a mortgage, and a wife who stayed home with the children. It was not fun and I had to work away in three month stretches. It wasn't fun. It was terrible. When my unemployment cheque came in the mail, (they used to do that and they were bright green), I felt shame when I went to the bank. Many of you will know what I mean, but younger people might think I am crazy to have felt that way.

We just went to a memorial service yesterday for a friend who was far too young to die. I am reluctant to pay off interest with my short time on this earth. It is time to make sure I tell family how much they mean to me.

Gail, is it possible to have a focused topic on readers favourite books, or books that are valuable for TOD topics? Readers could post a short synopsis and maybe why they thought it was worth reading? Or, has this been done? I have really enjoyed 'listening' to TOD members and think a book source would be valuable to share with others.

Thank you.

I've already made this bet. To the tune of a couple of hundred thousand euros, timed as well as I could for the crash.

Money always inflates. It's a great way for the elites to steal the wealth of the populace. Inflate the money supply, wages increase with CPI if they're lucky, assets increase with the rate of credit inflation. One is 3% the other 9%. There is an effective movement of wealth from the workers to the asset holders. The only way wage earners can keep up is if they change employers every 3 or so years.

If money were still tied to something scarce, I'd be betting deflation. It isn't and i'm not. That isn't to say shit times aren't ahead, but they'll be inflationary shit times.

I wrote this several years ago, 06/07 passed it round friends and family, got blank looks and then gave up and posted it on wikispaces couple years ago. The crash was obviously coming.

My, my, my, it looks like dija vu all over again as Yoggi would have said, quick question...should Chinese citizens consider paying down their debt?

"Northwestern’s Shih estimated that borrowing by China’s 8,000 local-government entities may have totaled 11.429 trillion yuan in outstanding debt by the end of last year and they had credit lines with banks for an additional 12.767 trillion yuan. That may result in bad loans of up to 3 trillion yuan.

China’s banks had 497 billion yuan of non-performing loans as of Dec. 31, accounting for 1.58 percent the nation’s total advances, according to the banking regulator."

1.58 percent is not a bad number, but the "trust factor" seems to be fading, and easy money for unfettered growth may become a bit harder to come by...which of course is how the slowdown begins...choking off the money is like choking off the oil or the oxygen...growth begins to stall, and all sorts of oddities suddenly become apparent (wonder who the Chinese Bernie Madoff will be...because you know he is out there!)


In my view, paying off debt is important - and I'd say that the order of priority you have them in is roughly correct also. I'd agree with many of the other commenters that having claims against your 'home' is dangerous in uncertain time. There is a great deal of uncertainty about what time-course the various scenarios of collapse might take. And even more uncertainty on the response of governments (and banks) to such changes. So 'gambling' that a near future exists in which debts will be wiped clean is in my mind highly risky. Of course I may be kicking myslef in a few years when I find that the tens of thousands that I'd paid the bank to get out of debt faster was essentially wasted. Who knows? I'll go and buy a lottery ticket to even up the odds...

Fortunately I have no debt; home, land paid off, no car payments, no CC debt or anything.

My big worry about owing anyone anything, especially after further collapse, is that the rules will suddenly change and the (new?) PTB, can come take everything to "cover" any debt. (At least now only the IRS can take your home.) I think of poor Scarlett in GWTW during reconstruction. Who knows how high the taxes will go so that the new power holders can take what they want.

At least by not owing anyone anything, it might keep me off the radar screen for awhile longer.

It is best just not to own anything--
No leverage, and the only thing they can do is kill you or incarcerate you.
With the right attitude, you can really cause some damage.
We need to bring this down now.
Draw a line in the sand, and say "No more".

I live on a little more than $(usd)8,000 which works out to just barely enough to pay all my taxes and keep the house when my parents die and it passes to me. I am only paying off credit card debt. After the end of this year that will be Zero, and will only if ever be used in an emergancy.

I don't think of myself as poor, though if you use the standards of the day in the USA I guess you'll have to label me thusly. But Poor people in my book, have less than I do, which is a nice warm bed, and shelter out of the rain, and a yard to grow things in.

What might or might have been mentioned above is my debt to Society? How much of my living here on earth is damaging it for the rest of you? I have done those fancy carbon footprint calculations online, and I am sure just because I live in america and have a roof over my head I fail. All I can say in my defense is that I plant as many things as I cut down, have not reproduced. I still drive, just not more than 150 miles total a month, and when I do it is not alone. I still buy things from off ships that bring it 4,000 miles away, that's mostly food items that I'd love to grow in Central Arkansas but can't. Or rather I could just not without a big greenhouse and lots of more energy use than I already use(ie I can't afford).

Yeah I can lower my Debt to everyone else, but guess I'll do that later, so much for being a good treehugger.

BioWebScape designs for a better future.

Anyone want to join in a Coffee, Vanilla, Tea, Olive Oil plantation in Central Arkansas e.mail me.

Just a note on student loans from someone with a lot of them (~$100K) and some knowledge of the new laws: the recent legislation allows for payment schedules based on your disposable income (much more lenient than previous versions), as well as loan forgiveness for anyone working at non-profit organizations (all levels of government included in the definition) for ten years. In my case, paying on the disposable income-based schedule--even with a good job--and working at a public university for ten years will save around $60K in payments. Taxes in year ten will be problematic (the loan write-off is considered income), but it's still a pretty substantial savings in the long term.

I lived in Southern Italy (Avellino) for a time while I worked on the Autovon System at Mt.Vergine. My Italian friends had no debt ,credit, or "long term obligations". (Local,COMMON Italians) They couldn't borrow, so everything was paid for with cash. If they didn't have it, it wasn't gotten. My friend Sabatino wasn't married until mid30's. Condo paid for, house paid for... NO debt. No property tax. Family was more than socially bound, it was economically bound. All contributed. No pretentious weddings like in U.S. ... Large Gifts, YES, But to pay for Housing or Cars... A debt free society (poor, dark Southern Italy), but Rich in social connections. How different from our "Western Traditions". Pay down Debt? It is simply a contract that true families and societies would never allow. Imagine that. 'Nuff said...

That`s why I think people shouldn`t pay off debt. It does seem like an unstable phenomenon that is localized in highly industrial/wealthy countries and then in only certain regions of them. There are so many abandoned buildings (and they are obviously increasing) that I think people would always be able to find a local place to stay...if there is a real crash, who is going to keep records, be able to martial the sherrif to throw you out, etc. When things are local, they are local. Then you are going to have to deal with the people who are taking power then, or flee to live with your extended family, or something. So deal with living arrangements then. Now I would just keep the debt (as long as I had the job to pay to service the loan). Let the bank take the risk. If I lost my job then I would default, leaving the bank to deal with the problem. I would spend money on good food (to stay healthy) and maybe buy things with lasting value....a farm would have lasting value and I would pay off debt on that if I could be in a position to own one. But I`m not. I live in and work in a city so I can`t own a farm now.

It is so simple, yet so hard... The Bankster loans you 10, expects you to pay back 30... yet the Bankster only put 10 into circulation. Now, since I am SO SIMPLE< STUPID AND DRUNK< Lets add Smart financers, accountants, banksters and the like to tell me why this equation doesn't add up and how the other 20 that wasn't loaned will magically appear. Anyody that does not have to physically work for a living... if only I sowed 10 and reaped 30... Honest to God I can't make it any simpler... but I have come to believe that we have been taught to think that the illusion of more from less is to be expected. The all magic waving hand of "God" will create 20 in addition to the 10 you were lent. Western civilization was founded upon USURY, which is simply financial warfare. Your posessions will be stolen from you by masters of illusion. Imagine 30 when only 10 exist. Can you open your eyes?

Repaying usurious debt. Perhaps this is similiar to the wish that God would magically re-fill Ghawar and let the good times keep rolling. Not going to happen. Wishful thinking at best. Let those who are left establish a gifting society. (Google Georgia Guidestone Monuments)

Repaying usurious debt. Perhaps this is similiar to the wish that God would magically re-fill Ghawar and let the good times keep rolling. Not going to happen. Wishful thinking at best. Let those who are left establish a gifting society. (Google Georgia Guidestone Monuments)

I read earlier "Global debt is nothing more than paper". I rest my case. The World is led by socio-path liars. Debt is your word, however you have been fooled,through interest, by someone more clever than yourself into agreeing to a "legal contract" that you cannot possibly win. Debt goes far beyond simple economics, but enters the realm of psychology (for my simple understanding)... or more simply who you are and what your values are. Isn't "Debt" a quantified value for services rendered multipled by time, often exponentially. I'm no Christian, but talk about your pact with the devil. Now, people a lot smarter than me talk about "hedges" "insurances" "multipliers".... It's simply theft through semantics. Those of you who have a more "sophicated" sense of "financial instruments" will have to enlighten me. All I know (as dumb as I may be) is that life requires food, and that all the financil instrument wrangling or gold won't support it.

You are 100% spot on.
Local credit unions owned by the community/depositors is the first step.
I bank with USAA but even they are showing signs of having sold out.
I say over and over that the money belongs to the people and is to be a medium of exchange only and treated with the same reverence as water and anyone caught trying to gain off the system is commiting treason.

We need to boycott the banks and establish local community credit unions that are run honestly.
I had the idea of having a national network of credit unions only.
The funny thing is that our "sworn enemeys" the arabs do exactly what we need to do with their financial system. They actually look out for each other.
We have been brainwashed into supporting the very system that is trying to destroy us.

When you have saved for 10-20 years every cent and now have a few hundred thousand on the bank and you want to buy a house and you need to borrow another few hundred thousand to pay it, it feels like a completely different debt then when you buy the house with all borrowed money. I know people who don't have any money but a pretty good income. They live in larger houses then people who have money but a smaller income. Their entire attitude is to come to the month (and a few ahead) and they don't care about what they own or even owe. They only thing that is certain in their lives are themselves. The rest comes and goes.

I myself hate debts, but i am in doubt once in while to take some credit to buy a bigger house. But when i do that i put everything i have at stake and i don't want to do that with all the risk i see from peak oil and even earlier from a financial meltdown. The risk that hyperinflation is NOT the first thing that kicks in from now is just too big. You have to take into account that hyperinflation isn't a good thing for your debts as well when your income can't keep up with the inflation (it will certainly not be very good employment, so the chance of loosing your income increrases). It might turn out good not paying debts, but chances are it's not... We will see! Meanwhile i will make no debts... just to be a little bit more on the save side.

Our housing has gone from 4,500 s.f., to 1,800 s.f., and now to 1,200 s.f. Our small, fully paid for, home is my favorite so far. Really, big houses are a PITA in many ways and don't guarantee happiness.

LaurenB you are so right. We live in a 1,100 sq foot home that was going to be torn down. We got it for the cost of moving it. Actually it was 825 sq foot when we got it, we added a bit on. No debt, comfy, not much to clean, heat, light. I wouldn't trade it for anything larger.

Doesn't it seem like the common people tend to do exactly the wrong things, every time? A few years ago, everyone was rushing to buy
real estate for highly inflated prices. And now, everyone is rushing to pay down debts.
Ask yourself two questions:
Does the US government have the motivation to create faster inflation?
Does the US government have the power to create faster inflation?

For many months now, I have been occupied, in somewhat similar
fashion to many other commentators that I see here, in securing more hard goods, such as food, water, lumber, tools, precious metals, and trustworthy friends.
As part of that acquisition process, I am increasing my debts,
responsibly ... as best I can, since most of the banks simply are not
lending anything to anybody these days ... getting long-term, fixed rate loans ...

tx again, chiz

Pay down mortgages? It always seemed sort of dumb to think that house values would continue to increase. Clearly houses are not GM products, but there are really only a very few old houses on the planet. Almost all houses which were ever here are gone, like burned, rotted, decayed. So why don't houses depreciate like all other CAPEX? My take is that it makes sense to invest when such investments increase in value; it makes sense to rent when things are going the other way. Home ownership is a very recent US aspiration. As you know millions of apartments were made into condos and refinanced using individual debt packages. Everyone of those condos is no more valuable than when it was an apartment. My suspicion is that young people today should find better things to invest in than a shoddy built US house. Others, say the Germans, have houses that retain value. Good contemporary homes have triple glazing, super insulation, flexible and expandable wiring, etc. Mandated house quality could come here. But, it seems more likely that the existing housing stock is way overpriced, and now is just a the time to use other people's capital, like rent.