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[2009 update] I actually wrote this article in 2000 and updated some debt figures and inserted a few comments along the way but it is now 2009 and what I said about what would be coming is now taking place as I speak. Since this articles is read by thousands each month I think I owe my readers an update on the crises.
We are now at the point where we will either go into a full fledged depression or where government bailouts will cause hyperinflation. Which one happens is hard to say, it may be out of our control and it makes little difference anyway. Either path will bring the worst economic depression in living standards in modern times.
There is no answer to the problem because many people and nations have been living beyond their means for many decades amassing debt. So now the chickens have come home to roust. Our credit line is now maxed out. As a nation we cannot keep living like we have twice the income that we really have. Trying to throw more money at the problem like our government is doing now will just make matter worse in the long run because this nation cannot afford to take on more debt.
Passing the costs of this downturn to the future is simply not going to work. First, there is no future generation that can pay this huge rapidly increasing debt. Second, nobody is going to be stupid enough to finance our debt at low interest rates. The more risk of default or currency devaluation, the more we are going to be charged in interest to finance our debt. We may be able to pay $15 trillion dollars of interest at 3 percent with a little pain, but at 6 percent it is a major problem. Taxes would have to be raised causing a further downturn. If interest rates go higher than that - which is extremely likely - we would either have to default on our debt or just create money and then find ourselves in a situation like what is happening in Zimbabwe.
