Very few people had debt a century ago. There were some with credit at the local store, and there were entrepreneurs with credit at the local bank. Those were the two groups of people with debt.
Today, just about everyone has debt. Students have debt. Houses are paid for by debt. Cars too are paid for in this way.
The thinking is that since money keeps loosing its purchasing power, keeping money in the bank makes no sense. Debt on the other hand is a great deal because it keeps loosing its value. Why work for something that inflation will pay down on its own.
The only problem, of course, is that interest rates may one day go up, and price inflation may stop.
If that should happen, everyone with debt will find their debt becoming increasingly difficult to pay, while their assets remain steady or fall in price. Negative equity will become the norm.
The problem with debt is that it is often perceived as free money. The only part that needs to be paid in full is the interest rate. The debt itself will be taken care of by inflation.
And truth is, this has been the case the last 35 years. Interest rates have fallen while asset prices have gone up. This gigantic free ride for anyone with the courage to put themselves in debt in order to secure assets for themselves, has lead to where we are today.
However, this trend is about to turn, if it has not already done so. Interest rates are going to go up, and asset prices are going to go down. For the vast majority of people, this will be a disaster.
Only net savers will benefit. Debt is going to make slaves of everyone except savers, and the only way to remedy this will be for central banks to ramp up their money creation. But that will not solve the problem. It will only give passing relief to the debtor at the expense of the saver, and since the saver is free to move into gold at any time, that's where the saver will go for relief.
The debtor will suffer, either through ever increasing interest rates, or through price inflation in everyday goods and services. Only those with skilled labor to offer, or savings in gold, will get out of a storm like that relatively unscathed.
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