Depressing, but probably accurate – and very important

Charles Hugh Smith, whom we’ve met many times in these pages, has a gloomy forecast for the economy in the short to medium term.  It’s depressing reading, but it’s vitally important to understand what’s probably heading towards us.  Too many people are only looking at superficial details, not examining the “big picture” and planning (or failing to plan) accordingly.  Mr. Smith doesn’t make that mistake.

Here’s an excerpt.  Bold, underlined text is my emphasis.

While the stock market euphorically front-runs the Fed and a V-shaped recovery, the reality is the crash has only just begun. To understand why, look at income and debt. Income, earned and unearned, is in free-fall, while debt — which must be serviced by income — is exploding higher.

Bailouts are not a permanent substitute for income. In the short-term, bailouts are a necessary substitute for lost income. But longer term, subsidizing income with borrowed money weakens the currency and the economy, as productivity stagnates.

As for servicing debt — the unemployed working class is getting an extra $600 a week not out of kindness but to make sure these households can continue to service their debts: auto and truck loans, student loans, credit cards, etc. Absent a federal bailout, millions of unemployed would cease making loan payments, creating a financial crisis for lenders.

. . .

The money that’s being sent to unemployed workers is borrowed, and small businesses are being offered loans, much of which will be forgiven if the funds are used to pay wages. In other words, all of these trillions of dollars being substituted for earned income are borrowed … there are no capital flows which will support a return to commerce and productivity that will pay wages or generate investment income.

. . .

The crash has only just begun. Everything, including a rational, connected-to-reality, effective financial system, is on back-order and unlikely to ship any time soon.

There’s more at the link.

I’m afraid that from a logical, rational perspective, Mr. Smith is quite correct.  Every cent the government is throwing at the coronavirus pandemic and its economic consequences is borrowed money – and that’s on top of trillions upon trillions of dollars already borrowed in the past.  That leaves only three possibilities to deal with so vast a burden of debt:

  1. The debt will be repaid, but that’ll take a long time (decades), and the burden on the economy will hobble further growth and development.
  2. The currency will be deliberately inflated (i.e. the dollar will be allowed to weaken), thereby allowing the “old” debt to be paid off with new, much cheaper dollars.  This will lead to massive economic disruption (see the Weimar Republic for details).
  3. The debt will be repudiated (i.e. rejected and not paid) – which will destroy the “full faith and credit” of the United States, and have catastrophic worldwide consequences on the international economic system.

Right now, I ‘d say #1 is practically impossible – the debt is already too large to be repaid out of current and future revenues.  #2 is most likely, IMHO, but #3 isn’t beyond the realms of possibility, especially if economic illiterates like Alexandria Ocasio-Cortez and her Democratic Socialists have their way.

Mr. Smith teamed up with Gordon Long to discuss the impact of the current economic situation on municipal and local governments.  Since many of us live under the administration of such entities (including yours truly), this is a vitally important subject, as well as a microcosm of what our big cities are facing.  As Mr. Long points out, such governments have “expenses going out, but nothing coming in”.

I respectfully suggest that this video provides vitally important information for all of us.  It’s half an hour long, but well worth your time, IMHO.

Brace yourselves, folks, and keep your powder dry – economically and in every other way.



  1. #2 AND #3 for the Socialist win if Biden gets elected.

    Bet, 100%, that if the Dems keep the House they will hold back-to-back impeachment hearings non-f*cking-stop until they get something that sticks and Trump is gone. Without a moment's hesitation they'll go after Pence, and IMHO will work to deny him the confirmation.

    Then, ready for Speaker Pelosi who will appoint – duh! – Her Heinous the Crone of Chappaqua, then resign, to "right the wrong" of the 2016 election.

    "There is no safety for Conservatives than to assume every evil of Liberals".

  2. All to keep Trump from being re-elected.

    Unemployment filed for, no money received. House destroyed by tornado. Little help received thanks to the "pandemic". Savings being used and sadly, debt is increasing.

    Praising God for sparing us and keeping us safe while moving forward.

    Be safe and God bless.

  3. I was banned from an excellent Survival site for saying that the Socialist-Democrats would be Voted in and our beloved Republic would become Venezuela 2.0 American Edition for the same reasons Mr. Smith was discussing. Seems that offended the Patriots too much. As much as I love my country and served her for over 20 years I can see the writing on the walls. Sheeple VOTE. Gimmie Dat's who are spending their little "Free Money" VOTE.

    They Choose not to see that while the Government can create Electronic Digits THEY Cannot Create Bread to Buy with those Digits.

    AND THAT will soon be the Real Problem and the Sheeple-Gimmie Dat's will scream for the Government to DO SOMETHING.

    And the same advice I gave them still applies. Useful skills with the tools needed, well developed gardens-skills, fruit trees, small livestock, a well that doesn't require the Grid and shelter along with MOST Important Trusted Friends and acting now while you have a chance to use caches and other disinformation methods to keep a low profile worked for many folks over the other Socialist takeovers.

    Electronic digits can be frozen-eliminated in a blink of the eye. Trusted friends who have your back and you theirs is a blessing in good times and bad. Being able to hide your assets from Gimmie Dat's and accepting that betrayal will happen so have sacrificial things to lose to the Fairness Police and such while crying about starving and such as they leave MIGHT let you and your family live outside a prison to rebuild with your trusted friends.

    Look around folks, this COVID19 situation while dangerous is a minor problem compared to Civil War 2.0 and Socialist Fairness Police actions. How well did you and yours do during this small disaster? NOW fix those weaknesses, the Waterfall event is still to come.

  4. This isn't anything new. I have been saying this on my own blog since we were "only" $6.3 trillion in debt. Now, we are going to borrow more than that just this fiscal year.

    The spiral will continue. Anyone who can understand basic math can see where this is headed. Sadly, that doesn't include more than half of the country.

  5. "#1 is practically impossible – the debt is already too large to be repaid out of current and future revenues."

    Particularly when the interest rate heads back up again.

    Don in Oregon

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