Perpetual Debt and Inflation: The Vicious Cycle Sustaining the Economy

Perpetual Credit: Inflation as Anesthesia for Endless Debt

The current monetary system operates on a logic of infinite debt. Each new loan expands the money supply, which generates inflation; this inflation becomes normalized, and then credits become increasingly larger. A vicious cycle that feeds itself and, for now, remains unbroken.

The Fiat Money Gearbox: Debt That Creates Money

Fiat money has no inherent value. It is created through debt: when a bank grants a loan, it creates money out of nothing. That money, as it expands, loses value over time through inflation. Those who argue that inflation is the simplest mechanism to liquidate debt are correct: if a State owes 100 and annual inflation is 10%, the real liability decreases each year. This allows the system to continue requesting larger loans because the weight of the past is diluted.

The Unsustainability of Perpetual Growth

But it is not all that easy. Some point out that perpetual growth is a mathematical and thermodynamic aberration. Nothing in the universe grows forever. Proponents of this idea note that classic capitalism sought to generate real wealth from production, whereas financial capitalism only requires the value of assets to rise, even if there is no underlying production. When an asset appreciates without foundation, the bubble inflates until someone notices the house of cards. Panic can unleash a collapse.

The Lesson of the Gold Standard: Deflation with Growth

A historical fact challenges the Keynesian argument: between 1820 and 1850, in the United Kingdom, prices fell by 50% while the economy experienced a brutal boom thanks to the strict gold standard. The United States went through a similar process in the late 19th century. Without inflation, real growth was explosive. This suggests that monetary addiction is not necessary for an economy to prosper. But in a perpetual debt system, inflation is the lubricant that prevents stagnation.

The Cantillon Effect and Stagflation

Inflation does not affect everyone equally. The Cantillon Effect describes that new money is not distributed homogeneously: those who receive it first—banks, large corporations, States—benefit before prices rise. This concentrates wealth and impoverishes those living on fixed incomes. Furthermore, some analyses point out that we are not facing simple inflation, but stagflation: stagnant growth coupled with rising prices. In that scenario, the control of the printing press and its allies becomes the only clear winner.

Towards Technofeudalism

Meanwhile, automation and artificial intelligence are eroding the demand for labor. Economist Yanis Varoufakis has popularized the term 'technofeudalism,' where digital platforms become the new feudal lords and users are serfs. For some, the next step will be a Universal Basic Income that merely perpetuates the control system, utilizing central bank digital currencies (CBDCs) to track every transaction. Perpetual credit would be the perfect tool for keeping the population indebted and controlled.

The question is how long this balance can hold. Cheap energy and confidence in the currency are the pillars. If they break, the house of cards may collapse. But proponents of the system argue there is always a plan B: print more, distribute more credit, normalize more inflation. Repeat into infinity.