The Price of Debt
Debt, once created, never goes away, until repaid or defaulted upon. Yet it’s treated as a convenience, an easy means to live beyond your means, financially and ecologically. Meanwhile, while debt exists, it confiscates interest payments, a form of currency devaluation, because more money must be repaid than borrowed. That increases your buying cost but spreads the cost over time, assuming the full amount can be repaid. Therefore the only useful remedy is prevention - do not initiate debt. Debt is an intriguing aspect of money - once created it is immortal - imagine if money itself had that attribute.
In the debt bubble described as the American economy, the supposed world’s “richest nation,” its only genuine support is the consumption of other nation’s savings as well as thorough exploitation of all natural and human resources from around the world. It is finally becoming apparent that debt levels actually matter, after long being overlooked in the management of the world-reserve currency, the US$. The notion that debt is real cannot exist in the same universe as Modern Monetary Theory (MMT). The reality and permanence of debt shows the massive flaws in MMT, which assumes that there are no real consequences in printing as much money as needed. These flaws were disguised by other nations betting on the strength of the US economy leading to their purchase of US Treasury bonds (T-bills) as investments, often allocated to their foreign currency reserves. These T-bills were thought of as property assets while actually they are debt instruments - IOUs from the US Treasury used to fund American’s over-consumption of, well, everything on Earth. See George Tsakraklides’ essay on economics and consumption.
Expensive consumer products have a negative value for Earth - the process of consumerism is to steal materials from Nature, transform them into non-durable products, transport long distances, use for a while then landfill the trash. What was once a “Garden of Eden,” a lone blue globe hanging in the vast emptiness of Space, has been damaged by a rogue species which employed it as a nearby resource-planet rather than as our only home.
This conflict of values is outlined in The Value Crisis, but I think George has done a better job of it in his article. Yes, we prostituted ourselves to capital, and as per Marx’s dialectic, we are both victims and beneficiaries.
And the human crime with eternal legacy was the creation of plastics and forever chemicals, violating the preconditions for existence on this planet - that all materials must be infinitely recyclable. The corruption of all life with nanoplastics is well under way, it is a fatal error and cannot be undone - a genuine predicament. This greatly advances the 6th Extinction, resulting in mass die-off of most species in 2-3 generations. Just replacing our value systems cannot alter this demise. See my article on Limits to Progress.
"An excellent example of the collective insanity of humanity is the dissemination of plastics into a biosphere which requires that all matter be continuously recyclable in the closed-loop system of Life." (My quote from 2013)
The global level of actual liquidity by some data such as the M2 Global Liquidity Index seems to be increasing, but according to market reactions appears to be sharply contracting. I can’t imagine how rising Bitcoin prices indicate a higher global liquidity level - Bitcoin is a DEBT asset, not a property asset. If you are holding a Bitcoin, you are simply holding a fancy IOU and probably a Ponzi scheme. Recently the Trump regime has been promoting a “stablecoin” which will be backed by T-bills, in a clever ploy to get more T-bills into the hands of mass-market investors. They claim there are not enough T-bills in the marketplace to fund ever-increasing US government debt, and the result is institutions swapping T-bills to each other, but in a market glitch, someone might get burnt. So they want to be able to pass a good portion of this burn over to the general population instead of financial institutions always taking the losses. Will you volunteer to share in the losses? The above M2 money-supply figure includes money that banks have lended out into the economy, but that is not genuine liquidity - the banks create that out of thin air in their fractional-reserve banking process. Real liquidity should be considered funds that you can draw on to make a payment with tomorrow. Such as cash in an accessible account. It should not include the value of illiquid assets, such as real property. The problems of liquidity arising now are shown by the decline in the “good-as-cash” attribute of T-bills, since there are more sellers than buyers as people abandon the US$. In that regard, T-bills are becoming an illiquid asset, besides being a debt asset rather than a property asset. They are only good-as-cash if there is a ready buyer at their full value. Don’t be conned into buying crypto-coin backed by T-bills, unless you want to participate in the losses.
We just had an election in Canada with both major parties promising a tax cut in order to buy votes. That was obscene stupidity when seen alongside their proposed massive spending. Sounds like more printing of money will be the answer, with Bank of Canada soaking up yet more government bonds to fund even bigger deficits. If USA is broke, Canada is even more of a basket case. With rising interest rates, more of government revenue is fed into interest on the debt. This debt cycle must end, fiscal responsibility must come back into play. Neither USA nor Canada has the productivity to afford their levels of social services, without sopping up the savings of other nations. Here are some data on debt levels. This shows external debt (owed to other countries, not total national debt), source wikipedia.org.
Canada, per capita: $76,474, %GDP: 136.08 USA, per capita: $75,852, %GDP: 88.45 Japan, per capita: $37,502, %GDP: 105.59 (Sept 2024)
As of May, 2025, Japan’s total national debt was about 260% of GDP.
Canada has a much worse problem than USA, and lower productivity as well. Yet we have this new Prime Minister handing out a tax break to get elected and now talking up big projects to jump-start the economy and bogus projects such as new pipelines. How many economic air-heads do I have to listen to in a week? On May 26, at a lecture in Berlin, Christine Legarde of ECB was talking up the possibility of the euro becoming the world’s reserve currency - “The ongoing changes create an opening for a ‘global euro moment’.” Not in your wildest dreams. The EU has a common currency but is not a fiscal union. Would they consider running either a permanent trade deficit or massive foreign aid to get their currency circulation level in the world high enough to facilitate world levels of trade? Who exactly would be the “lender of last resort” to replace the US Fed? The ECB is a second-level central bank, it is NOT on the same level as the US Fed; it is in effect a subsidiary of the US Fed. As is Canada’s supposed central bank. They are deemed secondary because all these other lesser central banks still count on the Fed as the lender of last resort. There are plenty of US$ in circulation (M2) to facilitate world trade, but some other entity must back them up - the former USA (United States’ Asylum) has lost all credibility. Difficult to imagine how a basket of counties could collectively back up this amount of paper in circulation, and again, who could step up as lender of last resort? And even more US$ could flood into the market if T-bill sellers are in a liquidity crunch, can’t find ready buyers and have to start redeeming them for cash at the Fed, and where would the Fed find the funds? It’s getting serious.
So here we have Canada pretending to have access to the same monetary levers as the US Fed, to will into being all manner of expensive infrastructure projects, as well as a military buildup, during a time of everyone dumping government bonds and finding increasing levels of illiquidity world-wide, including hedge funds, private equity, derivatives - just about every sector is in contraction. The private sector is NOT going to buy into these Canadian schemes, the government will have to print money, and out the back door force the Bank of Canada to buy government bonds, again sending inflation sky-high. Has the BOC balance sheet improved since the COVID bonds fiasco?
The PM has promised to eliminate interprovincial trade barriers by July 1st. Not possible. Most of that is provincial responsibility, and how many other legislatures besides British Columbia have already booked off for the summer? Then there’s the massive “energy” projects, building more pipelines (also to keep Alberta, USA happy). A pipeline, from imagination through construction and useful life is about 50 years. That takes us to 2075. Fossil fuels will have to be TOTALLY shut down well before that, or we’re all cooked. So stop this pipelines crap!
Of course this government has to get its fiscal act together, starting with fixing the bloated bureaucracy. Compare the atmosphere of (at least in the old days) of visiting a USDA extension agent’s office where they are working with you for a better outcome, to the situation in a Saskatchewan NDP government ag office where it is just regulate, regulate, regulate. The government should be the adult in the room, rather than an incompetent. A typical government these days has the attitude of a person in poverty - always a hand out for more money (which blows right out the money sprayer), never living within their means, and contributing nothing to society at large. That’s right, nothing. Oh, that’s right, they deliver the mail and stamp passports, but want to privatize the mail - and passports? Six-weeks’ waiting list. But they really need to clean up their act and totally eliminate many of the stinky “levels of government” in this country, which we just can’t afford. No, I’m not starting to sound like Pierre Poilievre and doing “austerity” - a report in Jacobin about deficits says:
“…looking at eighteen major countries, on average, high-debt and -deficit countries are more unequal and have higher poverty rates than low-debt/low-deficit countries. The Nordic social democracies have small public debts and deficits, countering the belief that deficit spending is somehow egalitarian.”
This newly elected government is intent on pushing through “energy” (read “fossil fuel”) projects, fast-track mining projects for very polluting critical minerals, and bypassing all regulatory and environmental regulations and Indigenous rights, in a one-stop project approval office. This is supposedly in contrast to the Trump regime? This is not taking a better path, this is taking the SAME path, since Trump is also gutting all regulations standing in his way. To counter the dictator you too become one?
All these initiatives are backward-facing, trying to build a glorified version of the past, while being totally blind to what is going on in the world RIGHT NOW. The coming economic collapse will be worse than the early-1970s economic shock, and that is NOT on this government’s radar. This supposed former central banker should be on top of world economic issues, not stuck in the past like this. For far too many years, Canadian governments, federal and provincial, have operated like an ATM without a pin number, spewing money, for example, the previous PM, every time he opened his mouth money came out. And it was mostly wasted, instead of going to necessary infrastructure to enable an efficient economy. This type of waste of government funds is well-documented in this book: Global Waves of Debt: Causes and Consequences, by World Bank: M. Ayhan Kose, Peter Nagle, Franziska Ohnsorge, and Naotaka Sugawara. This book speaks of four waves of debt in the past 50 years, resulting in crises. What is the outcome of the current wave of debt, enabled by artificially low interest rates and excessive borrowing?
“[I]n several crisis cases, it became apparent that borrowed funds had been diverted toward purposes that did not raise export proceeds or productivity or potential output. Apart from effective public finance management, policies that promote good corporate governance can help ensure that debt is used for productive purposes.”
Obviously you will never see the excessive borrowing done by any N. American government used for productive purposes.
A quote from Alexander Fraser Tytler:
“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world's greatest civilizations has been 200 years. These nations have progressed through this sequence: From bondage to spiritual faith; From spiritual faith to great courage; From courage to liberty; From liberty to abundance; From abundance to selfishness; From selfishness to apathy; From apathy to dependence; From dependence back into bondage.” ― Alexander Fraser Tytler
Can you see where we are on this broken-record of history?
But what can be done, instead of simply enlarging upon the past? Our relationship to debt is a major obstacle to improving the human situation. As mentioned, debt once created is permanent until repaid or defaulted upon. Most "investments" are not actual assets such as property assets, they are debt "assets," an expanded form of money abstracted from money as means of payment settlement. The assumed ability to create debt, both financial and extracted from Nature, fuels our ability to over-consume. So we have both a debt bubble, natural and financial and an excitement bubble which fuels our extravagant demand for fascinating distractions from our basic human boredom. Finding a pathway to living in harmony with this planet requires abandoning the need for excitement and learning to cope with boredom. That means setting limits to progress, such as ending Space adventurism, stop finding new “threats” to fuel new arms buildups, and finding a simpler life which would include the absence of air travel. Note that in these new government initiatives, besides ignoring the coming financial collapse, we see that government is the greatest climate denier - not any concern at all that virtually all port facilities will be lost under water.
References:
https://tsakraklides.com/2025/05/31/the-pseudoscience-of-economics/ The Value Crisis Limits to Progress https://en.wikipedia.org/wiki/List_of_countries_by_external_debt https://www.tradingview.com/script/cnrtcYQc-M2-Global-Liquidity-Index-10-Week-Lead/# https://jacobin.com/2025/05/us-credit-rating-trump-moodys Wildest Dreams https://www.reuters.com/world/europe/euro-could-become-dollars-alternative-lagarde-says-2025-05-26/ https://openknowledge.worldbank.org/server/api/core/bitstreams/dfe3e974-564c-533a-b5f6-b416905eef92/content https://www.goodreads.com/author/quotes/5451872.Alexander_Fraser_Tytler