Pushing things to the limit

“There is no means of avoiding the final collapse of a boom brought about by credit (debt) expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit (debt) expansion, or later as a final and total catastrophe of the currency system involved.”

Ludwig Von Mises (the prince of the Austrian Economists)

Seems like a quote worth pondering when Citibank writes off 18 billion and Merrill writes off another 14 billion. If you can get out of debt, do so.

By the way, if the quote seems extreme, keep in mind that this week’s write-offs were considered worst case scenarios by at least some economists. But it’s not really an extreme statement at all. Reduce to common language and it simply says, “If you make a lot of money by borrowing a lot of money, you will eventually have to pay back what you borrowed. An individual might be able to ride it out and make and keep a fortune if he is skilled. But a society cannot. There are too many people without the experience and skills, off whom the skilled make their money. So when the society (the currency system) has to pay its bills, it will have a crisis. The sooner the better. But people who go into debt are people who are trying to avoid crises in the first place. So they’ll probably push the day of reckoning off as far as they can. If they push it too far, if they are allowed to push it too far, then eventually they will lose everything, including their currency system.”

This is not an unusual occurance in world history. It won’t be in the future either.

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