Posted Apr 2, 2015 by Martin Armstrong
QUESTION: Hi Martin,
Saw ‘The Forecaster’ in London, only sorry it was not showing for longer as many friends would have liked the opportunity to see it, it was an excellent documentary.
Very much enjoyed watching the ‘Solutions Conference’. How do you see debt for equity operating in the UK alongside the abandonment of the Central Government income tax levy – Where would the cash come from to fund outstanding unfunded pensions which traditionally have been funded from current income tax receipts? Future pensions for those just starting to contribute to a pension could be moved to a new superannuation fund, I am confused as to how the current generations of pensioners + those who have already made the bulk of their contributions could be financed, unless they also could be funded through a debt for equity swap.
I would much appreciate your feedback as to how you see this working.
Many thanks for your fantastic public spirit in educating all those who read your blog and writings, you are a much needed breath of fresh air on the subject of finance and economic cycles! Let us hope many more of those who need to make the right decisions take note of your solutions and make the correct choices when the opportunity arises, even if it takes waiting for the crash and burn to change minds.
ANSWER: First we have to swap the debt and STOP the borrowing. Just monetizing the debt by having the central bank buy it back and then cancel it really accomplishes nothing for it will still leave us with escalating taxes and the debt cycle will continue. This is like just having to take a haircut as a bondholder. The rest is still there. You cannot cancel the debt without wiping out Social Security.
Part of the problem with pensions and the elderly getting screwed is all about government trying to keep interest rates low (1) to help bankers, and (2) to lower their interest rates costs. This is a conflict of interest which will hurt the pensions and the elderly. It pits government’s self-interest against the people.
As for the the unfunded liabilities, some portion will have to be monetized the same way Japan had to deal with the Postal Savings fund they abused. Keep in mind that all pension funds that hold federal levels of debt will then be transformed into real wealth funds. Keep in mind that most public funds like Social Security in the USA would be reversed and then private assets would flip negatives into positives reducing future unfunded liabilities.
You must also keep in mind that we have to take this one step at a time. Eliminate the important aspects of debt and borrowing terminating federal taxes. We have massive problems with the state and municipal levels of government and eliminating federal taxes will be the first step in reforming the state and local levels. We cannot deal with all the problems one time – that is revolution. This is a step by step approach to try to save our future rather than sit by and watch the bonfire of the society.