You can take care to build a house of cards and it can stand for a long time if nothing disturbs it, but take away one card at the bottom and the whole thing comes tumbling down.
This is pretty much what I think about our current financial system. There was a time when people used to live within their means, only buy what they could afford, seems pretty sensible I think.
Then came credit! If people wanted to buy something they could have it straight away! Just borrow the money, have what you want right now, don't worry about how you will pay it back just spend, spend, spend, consume, consume!
Governments have encourged this by cutting interest rates to record lows. "We need to kick start the economy, go out and spend" has been the cry!
Never mind that racking up personal debt can have serious concequences for peoples wellbeing!
The trouble with debt is that one day it has to be paid back.
Really trying to borrow and spend our way out of economic meltdown is asking for trouble. Massive govenment borrowing is papering over the cracks and may solve things in the short term but it is surely no long term solution.
One reason that governments have borrowed so much is because the interest rates are so low at the moment below 1% for a country with a good credit rating.
One way to make paying this record borrowing back easier is to have a period of high inflation. This can be devastating for the ordinary people if it spirals out of control. The money they have is worth less and less each day because of inflation.
A 10 year period of inflation at around 4% would still be difficult, but people could live with it, they would not notice the effects so acutely.
If the interest on the govenment debt was only 1% then a period of 4% inflation would effectively reduce the debt in real terms.
Other things that governments could do of course is print more money! This of course reduces its value.
What else could they do? They could impose higher taxes.
Lets face it, the situation is dire, the whole system is broken, it may be able to stand for some time, but eventually they will run out of tools to fix the mess they have gotten themselves into.
What can we do about it?
Well for a start, maybe keep some of out investments in an inflationary hedge, for example gold. There is only a finite supply of gold.
What else?
Well come to think of it maybe we could keep some of our assets in Bitcoin Cash too. This also has a finite supply and is in my view a good inflationary hedge against the whole financial system falling down like a house of cards!
Disclaimer: This is not investment advice, always do your own research.
My own article
Pictures courtesy of pixabay
