Worldwide, an incredible tower of debt has been under construction since 1971, when President Nixon defaulted on the gold obligations of the US government. His decree severed the redeemability of the dollar for gold and thus eliminated the extinguisher of debt. Debt has been growing exponentially everywhere since then. Debt is backed with debt, based on debt, dependent on debt, and leveraged with yet more debt. For example, today it is possible to buy a bond (i.e. lend money) on margin (i.e. with borrowed money).

The time is now fast approaching when all debt will be defaulted. In our perverse monetary system, one party’s debt is another’s “money”. A debtor’s default will impact the creditor (who is usually also a debtor to yet other creditors), causing him to default, and so on. When this begins in earnest, it will wipe out the banking system and thus everyone’s “money”. The paper currencies will not survive this. We are seeing the early edges of it now in the euro, and it’s anyone’s guess when it will happen in Japan, though it seems long overdue already. Last of all, it will come to the USA.

The purpose of this article is to present the early warning signal and explain the actual mechanism to these events. Contrary to popular belief, it will not be that the central banks increase the quantity of money to infinity. The money supply may even be contracting (which is what I expect).

To understand the terminal stages of the monetary system’s fatal disease, we must understand gold.

Defining Backwardation