first majestic silver

Debt and the Credit Bubble

Part III

February 5, 2000

[Note: The following is of a multi-part installment examining the debt phenomenon, based on the book,"A World in Debt," by Freeman Tilden.]

O Judge, the father of mischief, have mercy upon us miserable debtors.

O Secretary, recorder of wrongs, have mercy upon us miserable debtors.

O Marshal, confiner of persons and divider of families, have mercy upon us miserable debtors."

—A Debtor's Litany, from a broadsheet of the year 1800.


"Nothing," writes Tilden, "has been more amply demonstrated during the past three thousand years than this: that the great majority of men do not esteem, or understand, or even desire personal liberty. What they value is the semblance of liberty accompanied by indulgence." Upon even a cursory examination of the historical record, it will be found that Tilden's assertion is borne out. Mankind, it seems, loves and relishes his role as a slave (but do not condescend to use this term to him, else you risk raising his ire. He would have his slavery styled in more gracious terms). Is it, then, any surprise that roughly three-fourths of mankind live under the shackles of socialism (in varying degrees)? And even in our highly "democratic," purportedly "free market" society in the United States there is nothing more than a mere semblance of freedom. For there can be no true freedom where there is no unrestricted movement of capital (witness our tyrannous and unconstitutional currency reporting laws), no ability to maintain the sweat of one's hard-earned labor (witness our confiscatory rates of taxation), no ability to initiate trade and business exchanges without first procuring the government's permission (hence, licenses), and no ability to retain the value of one's savings (inflation through fiat). Truly, the whole world lieth in socialism.


"Hence," Tilden continues, "the tyrant of old times, and the cunning dictator of today, alike maintained and can maintain arbitrary power by offering the greatest amount of apparent freedom combined with liberal gratification of a material kind. Self-government of the mass, like self-discipline in the individual, makes demands and calls for sacrifices too great to be happily borne by any race of men yet developed; thought for brief periods certain peoples have approximated the fleeting ideal."

And here we arrive at the crux of the matter—the essence of all lack of freedom is slavery, and the essence of slavery is debt. "It is quite useless to warn the prospective debtor that he sacrifices freedom when he borrows, for several reasons," writes Tilden. "In the first place, we must reckon with the insuperably stupid, who understand neither the nature of liberty nor that of the obligation, but merely respond to the primitive impulse to try to acquire what they immediately want, on unconsidered terms. To these must be added the victims of cheerful vanity, who regard the future as an ark of cheerful beneficence, ready to pour advantages to them as soon as the ungracious present is out of the way. These folk are not ignorant; but they cannot learn by example because they have never seen any examples that coincide with their own extraordinary merits and prowess. But some others are cunning. They know the dangers and the sacrifices attendant upon debt. They hope to elude them, capture the prize, and make their escape. They do not so much celebrate their own abilities as the vulnerability of the lenders. In the long run, they have observed, the capitalist is not happy, either. This might be his turn for sackcloth. In any case, however, the event is the same; a temporary submission of liberty for a quid pro quo."

Every generation has its notable affair with debt, and ours is no different. The most conspicuous example of debt adultery in our present generation is the incomparable magnitude of the global derivatives pyramid in the equities markets. This, we trust, needs no explanation. The myriad participants in this gargantuan Ponzi scheme have surely deluded themselves that they are "cunning enough to make their escape," by preying on the "vulnerability of the lenders." "After all," they reason, "this might be his turn for sackcloth."

"A thousand pages of…discourses could be assembled to demonstrate that freedom is incompatible with debt," writes Tilden. "In the field of non-trading debt, it may be stated at once that the person who is habitually in debt, whatever he may think of himself, is a miserable creature in the realm of economics. It is doubtful if his existence does the state any good whatever. As he is never solvent, it follows that he must in the final balance have destroyed some of the surplus created by others. It is a common fallacy, especially in modern economical thought, that this perpetual insolvent is useful "because he is a consumer." But the man on the dole is also a consumer; yet only a few romantics, and those mostly in government employ, are rash enough to suggest that the dole system is beneficial to a state. Merely to consume goods confers no benefit upon mankind; this can be effected by burning them or throwing them in the sea. The only kind of consumption that has any healthful economic significance is that which promotes the combination of happy productivity and well-spend leisure; though this by no means excludes artistic services or rational amusements, which indirectly contribute to the total productive effort."

Continues Tilden, "The Debtors Progress may be very briefly stated. All individual debt, except that incurred for trade speculation or because of absolute poverty, derives from the opinion of the borrower that he is entitled to more goods than his cash position warrants. He believes that he is good (a significant word) for an enjoyment of things based upon his future productivity; in other words, he thinks his anticipated wealth has an immediate value. In this he agrees with the sober conclusion of the economist McLeod. If he can find a lender to speculate on such a possibility, debt ensues." Such is our present legacy.

Tilden then proceeds to detail the inevitabilities that follow debt contraction: "The first experience of the individual in extinguishing such an obligation will pretty much determine his future in the economic world. If the way is hard, and only by heroic efforts and deprivation is the loan canceled, the debtor may conclude that the best way to acquire things is to produce first and buy afterward. And it happens that in times of general adversity, the circle of credit begins to be stopped at its source because the mass of people discover that it is the hardest way to acquire. Conversely, in prosperous times the circle of debt is greatly widened, both because borrowing is made easier, and because the debtor finds it easier to cancel any given debt. This is the natural relation: but when lenders seek borrowers, and propose that only under cover of a furious barrage of debt can the industrial machine operate, the debtor is led to fancy that his virtue is being happily capitalized."

Clif Droke is the editor of the three times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock sectors, natural resources, money supply and bank credit trends, the dollar and the U.S. economy.  The forecasts are made using a unique proprietary blend of analytical methods involving cycles, internal momentum and moving average systems, as well as investor sentiment.  He is also the author of numerous books, including “2014: America’s Date With Destiny.” You can view all of Clif's books here. For more information visit

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