I woke up this morning with the bitter taste of coffee that, I suspect, will soon be a luxury reserved for optimists. As I watched the steam rise from the cup, I couldn’t help but think about how we like to delude ourselves. We get up, check our HIVE notifications, look at the token price and feel we have some control over our little digital corner of the world. But off-screen, in the carpeted corridors of Washington and the oil terminals of the Strait of Hormuz, a bill is being cooked up that none of us remembers ordering (generating), but which we will all undoubtedly end up paying.
Odessa Beach, in southern Ukraine. Asya is wearing the traditional Venezuelan dress that was sent to her in 2009.
Yesterday I read 
We’re often sold the idea that there are ‘good’ and ‘bad’ countries. We’re told that the Nordic countries are the epitome of virtue and austerity… Rubbish! There’s no such thing as a sovereign country free of debt. Not a single one. It’s like looking for a vegetarian at an Argentine barbecue (I haven’t been to one in years); you might find someone who claims to be one, but if you look closely at their plate, there’s fat everywhere.
Japan, for example, owes twice what it is capable of producing in a whole year. The United States is saddled with a figure that no longer even sounds like money, but rather an astronomical figure: 36 trillion (US) dollars. Are we really capable of grasping the magnitude of that? To give you an idea... if you tried to count a trillion dollars by hand, one dollar bill per second, it would take you about 31,000 years. The United States, then, owes 36 times that amount of time.
Debt is not money; it is time stolen from the future. It is a bet against our grandchildren’s ability to breathe without asking permission. Governments spend more than they collect because the political cost of saying ‘no’ is too high. Politicians prefer the third way: borrowing. It is easier to mortgage 2029 than to cut back on the privileges of 2024. After all, by the time the system collapses, most of those who made the decision will be enjoying their golden pensions on some island that hasn’t yet sunk, or perhaps they will no longer be with us.
This is where the plot thickens... Who lends that money? We buy bonds, pension funds buy bonds, China and Japan buy US bonds as if buying life insurance on a plane that already has one engine on fire. But when the market loses confidence, the global ‘tuxedo-clad debt collector’ appears: the International Monetary Fund (IMF).
The IMF is that relative who lends you money to stop you from being evicted, but in return demands that you stop eating meat, sell your television and hand over the keys to your car. Its austerity measures tend to make the wound worse before it heals, creating recessions that wipe out the middle class whilst the elites move their assets to safety.
But what really keeps me awake at night —and should keep you awake too— isn’t the IMF, but the monster living in the basement, yes, that very one… private credit. A $2 trillion market that grew in the shadows whilst traditional banks were being regulated in the wake of the 2008 disaster. Funds such as Blackstone and Apollo have been lending to companies that no one else would touch. And now, with artificial intelligence threatening to render thousands of those companies obsolete and interest rates through the roof, that system is starting to creak. The big Wall Street banks are already selling insurance against default on these funds. They’re betting that the neighbour’s house will burn down so they can collect on the fire insurance.
If debt is the noose, oil is the soap that makes it slip. What has recently happened with the tensions between Iran and Israel is not just a geopolitical conflict; it is a shake-up of our personal finances.
Expensive oil means inflation. Inflation forces central banks to keep interest rates high. High interest rates make debt unpayable. The economy slows down, less tax is collected and, to plug the gap, governments ask for... guess what?... that’s right: more debt! It is a snake that not only bites its own tail, but is devouring itself right down the middle.
The IMF forecasts that by 2029, global public debt will stand at 100% of global GDP. A level that humanity has only seen after a World War – and for many, the third is already upon us. The troubling question would be: if we are not in a formal world war, why are we spending as if the world were to end tomorrow? Perhaps the answer is that, for the current financial system, tomorrow is an inconvenient concept that they prefer not to consider.
Many people believe that a country ceases to exist when it defaults. That is not the case. The flags continue to fly and politicians continue to deliver empty speeches. What collapses is confidence. And confidence is the only glue that has kept this circus standing.
Look at Sri Lanka in 2022. Power cuts lasting 10 hours (or more), a shortage of medicines, the Prime Minister fleeing for his life. Or my home country Venezuela, where paper money went from being an asset to being used as craft material, whilst others used it to wipe themselves after using the toilet. When people lose faith in the paper they carry in their pockets, the social contract disintegrates. That is why I emigrated.
Uruguay and Argentina are the perfect example that the difference is not just economic, but institutional. Argentina has defaulted nine times. It is the ‘compulsive gambler’ of nations. Uruguay, which was infected at the time, decided to implement serious reforms and is now a beacon of stability in South America. Debt can be managed, but stupidity and corruption are debts that cannot be refinanced.
The United States has an ‘ace’ up its sleeve: the dollar. It can print its own reserve currency. It’s like having a money-printing machine in the basement that the rest of the world is forced to accept in order to buy oil. But even that privilege has its limits. Rating agencies have already begun downgrading US debt. When the giant sneezes, the rest of the world catches pneumonia, but if the giant loses the ability to pay for its medicines, we are all in trouble.
What do we do whilst the titans are faltering? Most people expect the government to save them –typical, history and its cycles–... It’s a strategy about as brilliant as expecting the wolf to look after the sheep because he has a degree in ‘herd management’. Others just sit around waiting for a miracle to fall from the sky.
In communities like HIVE, we talk about decentralisation not just as a buzzword, but as a lifeboat –for Latinos, that’s how it is–. Understanding how the system works, who makes the decisions and who pulls the strings of power doesn’t make you paranoid; it makes you someone with an exit strategy.
Sovereign debt is a feast of shadows where we are the main course. The IMF’s warning about the squandering of poorly designed energy subsidies and the emergence of derivatives to bet against private credit are the smoke signals of a fire that has already started in the basement. But some are betting that white smoke will come out, heh, heh, heh.
Don’t wait for the news to tell you that the system has collapsed. By the time they admit it, the lifeboats will already be occupied by the very people who caused the shipwreck. Trust is a finite resource. Make sure you put yours into real things – stop daydreaming – into your skills, your community, assets that don’t depend on the whims of a bureaucrat in Washington or a sheikh in the Middle East.
Tomorrow will come, but it will arrive with a bill under its arm. And as for me, I’d rather find the bill paid and my own value printer up and running. What about you? Do you still believe dinner is on the house?
