Press TV has conducted an interview with Charles Hugh Smith from OfTwoMinds.com, and author, to further discuss the issue. The following is a transcription of the interview.
Press TV: You write about “let’s pretend” economics. Tell us about it and then relate it to the student loan market.
Smith: One of the structural problems with the global economy is its reliance on debt as the engine for everything that’s supposed to be good, and actually it’s the engine for everything that’s bad.
Student loans are the perfect example of that as students, at least in the US, are exiting higher education with 100,000-dollar loans and a sketchy education - sketchy in the sense of being worth anything in a rapidly changing, dynamic global economy.
This 100,000 dollars is an equivalent of a home mortgage. Yet there are people getting out of college now and their incomes are either stagnant or even declining so they’re really unable to service this debt much less buy anything else in the glorious consumer economy.
Press TV: Charles Hugh Smith, wasn’t the idea, going back a few generations, that if you invest in the brain trust of the country that it pays dividends down the road? -People get jobs, they do productive things.
If you saddle this generation with debt and they have to migrate into jobs that have the ability to pay off the debt instead of doing things that might be more beneficial to the economy, the economics of this are atrocious, really, in terms of what we can expect going forward, correct?
Smith: Absolutely. As many of your viewers know, student debt, thanks to intense lobbying by the banking cartel in the States, are not dismissible by bankruptcy like all the other debt you could possibly acquire. It truly is an indentured servant relationship between the banks -- which issue student loans as the new sub-prime.
In other words, nobody cares about your credit rating because you’re a debt serf, you cannot escape this debt. This is almost the ultimate debt serfdom in the sense that students cannot get out from underneath their student loans except by dying.
Press TV: A student graduates, they have 100,000 dollars in debt, let’s say; then to service this debt they’re going to go over to a portion of the jobs sector, I would imagine the finance area, where they might pay a lot of money but it doesn’t add anything to the economy; so the whole charade is compounded yet again, is that correct?
Smith: Absolutely. Well said, Max. The vast majority of jobs are in if not low pay then moderate pay service sector jobs which just don’t generate enough income for the ex-student servicing their debt nor do they really add that much to the economy.
It’s like a “let’s pretend” economy in that let’s pretend if you borrow a vast amount of money and get a four-year degree that we’re going to pretend that you’re going to get a good job. Unfortunately, that’s a “losery”.
Press TV: Right. Now, the total indebtedness here, the bubble if you will, is over a trillion dollars of bad student debt, correct? A lot of it, more than 25 percent of it, is right now “in our ears”.
Smith: Yes. What’s alarming to anybody that hasn’t swallowed all the propaganda completely is the ascent of that debt has skyrocketed just in the last five years. A part of that is people who have lost their jobs or have been downsized and they’re going back to school and taking on these loans not so much in the hopes of scoring a big paying job with a new MBA, they’re simply living off that student loan that they acquired.
That whole mechanism also has a dead end. When you exit, you have no new skills to earn more money but you’ve lived off the debt. That’s almost a metaphor for the entire US economy, you know, everybody’s living off of debt including the federal government.
Press TV: Right. Another interesting twist to this debt bubble, this debt growth is that for those who want to declare bankruptcy, the cost of declaring bankruptcy is such that people cannot even afford to declare bankruptcy. Walk us through that.
Smith: It’s Kofka-esque or Orwellian, you know. Choose your favorite analogy for a bizarre, twisted fascist system in which you enter a bureaucracy with no escape. Number one, if you have student loans, you can’t dismiss the debt even with bankruptcy court.
Number two, if you do want to declare bankruptcy, the banking lobby earlier in the decade changed the bankruptcy laws so now it’s very expensive and arduous to declare bankruptcy. So, even that avenue has been cut off.
Perhaps the solution is for the government to set up a new loan program so people can borrow enough to pay for their bankruptcy.
Press TV: Exactly. There seems to be no end to this idea of securitization, resecuritization, hypothecation, rehypothecation, repackaging, relending, reloaning. The debts continue to grow. The interest rates, of course, need to be kept artificially low.
Then you have that entire portion of society, the savers -- people living on pensions, etc -- who are penalized. They end up subsidizing the worst elements of the economy, the debt pushers, and it just compounds the problem even more.
Now, let’s move on to this idea of pretend money that’s floating the pretend economy with the pretend debts and the pretend jobs. Interestingly enough, in this digital age, those who are closest to the money printing, actually physically [within] geographic space, get a better deal, for example the high frequency trading on Wall Street. If you actually put a computer next to the exchange to siphon off the cash, you can benefit from the physical co-location, they call it, of your server.
But it also has a lot to do with how the money is printed. If you’re first in line to get the printed money, it’s a caste system almost. You would imagine more medieval days than a modern society.
Tell us more about this system where the money printing access really determines your value in society.
Smith: Yes, I think you’re quite right to mention a feudal society because I think it’s very clear we live in a neo-feudal society where the access to credit and basically free money puts you in the upper reaches of the nobility and then the debt serfs have to borrow the money at 9, 10, 15 percent.
To follow up on your topic, as you know, the Federal Reserve gives money to large, too-big-to-fail banks at basically zero percent interest. They are the closest entities to the printing presses.
So the Fed prints off, electronically, a trillion dollars and then gives it to the banks at basically zero percent.
Then the banks can deposit the money with the Federal Reserve and earn interest from the Federal Reserve. Now that’s a pretty good scam! Would you like a trillion dollars at zero percent interest which you can then deposit into the Fed and then earn 1, 2, 3, percent free?
Then, the banks take the money and they originate student loans at nine percent. Some of my readers told me, yeah, student loans are not some sort of cheap, inexpensive funding as the pretend economy suggests. Nine percent on money you got for zero percent is an extremely, extremely good return.
Press TV: To keep on this theme of medievalism, going back to the medieval days, the dark ages, you had the religious institutions that were offering miracles in exchange for concessions, in exchange for tributes.
Here you have the Central Bank offering you the miracle of free money. The money is printed, it’s not backed by anything, it’s not collateralized by anything, there’s no sound economy backing it. It’s simply a miracle that this money appears.
Those who pay these institutions some kind of concession are first in line to get this money.
Then you end up with this hierarchy of monetary priests, if you will, and then, seemingly, the growth of this permanent peasant class all over the world including countries like the US and the UK is increasing. But the leaders don’t seem to recognize the fact that they are helping to create a permanent underclass, a permanent peasant class. How do they get away with that?
Smith: It’s extremely troubling, Max. We all wonder, how can people not recognize their debt serfdom? It’s a form of, you could say, denial.
I think it’s also a form of what you might call stress-related mental illness that people are under so much stress to succeed in a neo-feudal society that only rewards the top slice who serve the nobility: like if you get an MBA and you’re willing to go to work for the upper crust, then you’ll be compensated at a very high rate. But they’re not that many of those jobs and so we find people that are so stressed out that I think they’ve lost their ability to see their true situation rationally.
It’s sad because people still believe that acquiring a huge amount of debt to go to college is going to generate the security and the great career that they were promised. As those promises are revealed as false, there’s a huge disconnect between reality and what people have been told.
Press TV: Not to get overly baroque in this description of a vast conspiracy but I would imagine, since we’re on the subject, that you’d also have to add into this those companies that operate private prisons because they too are benefitting from this psychosis, this debt structure, the stress, the corruption, the permanent peasant class -- the fastest growing population in the US is the prison population. Some of the fastest growing companies in America are private prison operators.
Would it be wrong to include them in the mix?
Smith: Not at all. That brings up another disturbing twist to this whole feudal society that we’re discussing which is in the move to “save money”, many local governments are privatizing their security, i.e. their police force, or they’re adding basically private police forces.
Then you wonder, well, if the private police force happens to be owned by the same corporation as the private prison, then isn’t there a very strong incentive for the private police force to go out and bust a bunch of people for trivial violations of the thousands and thousands of various codes and laws, and then put them into private prisons? -I’d say the answer is yes.
Press TV: Charles Hugh Smith, speaking of dystopia nightmares, let’s talk a little bit about the consumer protection agency that was recently created to allegedly prevent the fraud that caused the financial crisis -- your thoughts.
Smith: You know, Max, so many things that we cover on your show or that you address are almost beyond belief. They’re like parodies, almost, like sick comedy. The consumer protection agency that’s been proposed to protect consumers from financial predation is such an example.
It turns out that the funding for this agency and the control of this agency is with the Federal Reserve which is not a federal agency. It is a private consortium of privately owned banks. So, it’s almost like please wake me from this nightmare which the Federal Reserve is now the guardian of financial predation. Isn’t the Federal Reserve the source of the financial predation because it supports this whole structure of too-big-to-fail banks which benefits immensely from this debt serfdom?
Press TV: Charles Hugh Smith, I want to bring up something, it’s a term that you have coined in one of your recent writings. People who are unfamiliar with your work should check it out, Charles Hugh Smith, because your economics analysis, of course, is quite excellent but there’s also some philosophy behind it. It’s like a George Soros with a conscious.
Imagine George Soros wasn’t just a greedy guy with a hedge fund, he’d end up with a Charles Hugh Smith who’s a thinker and an economist. Now, you’ve come up with a term called “derealization”. Tell us about this.
Smith: The basic idea of derealization is -- the root word, of course, is realization or realize -- when we derealize something then we’ve disconnected from the obvious reality.
So this consumer protection agency that’s funded and controlled by the Fed is a perfect example of that because the average American who looks at the mainstream media will say, ‘Oh good, the federal government has stepped in here to protect us from financial predation’.
The reality is that with the Federal Reserve in control, it’s simply institutionalizing debt serfdom and the neo-feudal financial system we have. That realization is completely missing.
The reality: we’ve been derealized. No one is aware beyond those who wrote this law and lobbied for it that the Federal Reserve controls this whole consumer protection agency.
Press TV: It’s almost as if our ability to reason has been pretty much removed by some psychotropic, debt enabled lobotomy.
But, I want to move on to some of the possible “green-shoots”, I suppose you could call them. Is there anything the population can do to recover real jobs, real money, a real economy? Can they reverse the ravages of derealization and get real, Charles Hugh Smith?
Smith: People have to recognize that their participation in this system enables the system. Step one, don’t get 100,000 dollars of student loan. Save money. Go to your college -- go to your local college. Live at home. Do whatever you have to do. A lot of people do manage this, it’s not impossible. Get an education without debt.
As you’ve often said, buy silver. Start buying real things, things that generate real income in your local economy or real assets like silver and gold.
Stop voting for the lackeys and puppets that are currently in power. People say, ‘well, if you vote for a third-party candidate, you’re throwing away your vote’. I would say, that is absolutely derealized. This is the opposite of reality. In fact, you’re using your vote towards the best possible advantage by voting against the “Republicrats” or the “Demopublicans”.
Stop participating in this system to whatever degree you can. That’s a good start.
Press TV: To cut through the criminalization of all these paths, to recover the nonstop propaganda, the highly partisan nature of so-called debate in the media, the emotionalism that’s easily controlled, it seems a bit of a tall order to expect any kind of progress being made because the population is almost being, you could say, held hostage.
Going forward, Charles, we’ve got a couple minutes left. A country like the US that’s going down this path, internationally, can it continue to enjoy the success that it has been enjoying? There are other countries that are following in this path; certainly, the UK is mimicking the US and I wouldn’t expect any progress there. Are there any pockets of realness in the world that would offer a counter balance of the US? How do we see this shaping up going forward?
Smith: Max, in the past you’ve highlighted Iceland as an example, not as a world power, but as an example of another path which is to blow off all that debt, simply to refuse to acknowledge that debt, renounce all that debt. I think that’s really the way forward.
Unfortunately, China seems to be following the American model although people like to claim that China and the US are rivals and so on; but if you look at the immense debts that are being piled up in China, you have to conclude that, gosh, they’re just following that same Anglo-American banking model of borrowing immense sums and squandering it on questionable goods and services.
I would say the way forward is anybody that renounces debt, just completely says we’re not going to pay it, it’s gone, that would be the way forward and eventually that will happen everywhere. Either the currencies will go to zero, what people call hyperinflation, or the debt would be defaulted on.
Press TV: Clearly, Charles Hugh Smith, the various fiat currencies of the world are all in a lot of trouble in one way or another. Looking at the big currency, the forex market of the globe, are there any pockets of these currencies that are the least worst-bad?
Smith: Max, that’s a tough question because people used to like the Swiss franc but now it’s been tied to the euro which is doomed, so that’s questionable.
I think we might be looking in the next decade for the emergence of non-state currencies. In other words, currencies that are not based in nations, that they’re based on assets like a gold-backed currency that floats free of any state intervention or manipulation. That’s a nascent trend. It hasn’t yet emerged globally but I think we might be looking toward that as an alternative to these race-to-the-bottom, devaluating fiat currencies.
Of course, there’s precious metals, there’s productive land and assets in your own community. Those are alternatives.
Press TV: More and more communities are actually creating their own currencies and keeping the money localized. Is this a trend that you see continuing?
Smith: Yes, and I think that the internet is enabling digital forms of currency like Bitcoin and that kind of thing. I think we’re going to see the emergence of completely new currencies that are based on some sort of asset that cannot be devalued by pushing a button and printing more money.
Press TV: Just to wrap this up here, so in other words, if I’m hearing you correctly, there’s going to be a collapse of these fiat currencies one way or another. So the only question left is are people going to be prepared for it and is it going to be somewhat orderly or is it going to be outright chaos - your thoughts?
Smith: Yes, that’s right. The more of us who speak to the idea that it can be orderly, the renunciation of all this, then the better chance we have of getting through.
GMA/JR
