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That we have lost the facility to reduce the world's total indebtedness without resorting to default or monetary depreciation becomes clear at once if we consider the fact that a debt of x dollars can no longer be liquidated.If it is paid off by a check, the debt is merely transferred to the bank on which the check is drawn. Treasury, the ultimate guarantor of these liabilities.Mainstream economic orthodoxy teaches that a depreciating currency is a boon to the country, and a valid tool in the hands of the government to increase competitiveness and thus to reduce or to eliminate the current account deficit.A debased currency makes the country an attractive place for foreigners in which to buy and an unattractive place in which to sell.The year 1996 marks the twenty-fifth anniversary of the Brave New World of reckless debt breeding.A quarter of a century is not a great length of time in the course of history.Or do the negative results of this experiment call for a more careful examination of the principles involved than hitherto provided?The question is not raised, and the anniversary is being ignored by the opinion-makers. Officially, the topic is off limits to scholarship and research.
It is true that the option to consume his savings remains open to him -- but is it not a strange monetary system, to say the least, which forces the savers to consume their savings whenever they are dissatisfied with the quality of available debt instruments, or with the terms on which they are offered?
The grievous faults of the prevailing monetary arrangements raise serious questions about the regime's stability and durability.
The governments are busily constructing an enormous Debt Tower of Babel, apparently without giving the slightest thought to the wisdom or safety of their construction.
Previously, in the world's most developed countries, money (and hence credit) was tied to a positive value: the value of a well-defined quantity of a good of well-defined quality. Ever since, money has been tied not to positive but to negative values -- the value of debt instruments.
This innovation has had two immediate consequences, both of which are pointedly ignored in the technical and scholarly literature on the subject: (1) the power to reduce the world's total debt in the course of normal payments has been lost: total indebtedness can now be reduced only through default or through currency depreciation; (2) countries have lost the option to balance their current accounts with the rest of the world: each country has to cope with unending deficits.