Perpetual debt: the hidden engine behind inflation

Perpetual debt and the normalization of inflation: a cycle with no way out

The current monetary system rests on a self-reinforcing cycle: every time debt is issued, money is created; that extra money pushes prices up; inflation becomes normalized and accepted as inevitable; and then society borrows even more. The thesis is not new, but it has never been so clearly framed from the perspective of money as perpetual debt.

Recent history is a warning. Between 1820 and 1850, the United Kingdom experienced a 50% fall in prices while its economy grew at an explosive rate, thanks to the gold standard. That era shows that monetary injection is not needed for pogre. Yet the current system seems incapable of functioning without that addiction.

Inflation: the instrument that liquefies debt

Inflation is not an accident, but a tool. In a system where debt is perpetual, growth of the money supply is the only way to avoid collapse. Public and private debt is liquefied by inflation, which allows ever more borrowing without breaking a sweat. The normalization of inflation is, in reality, the normalization of the invisible tax paid by society as a whole.

The Cantillon effect and the financial economy

Not everyone loses out. The Cantillon effect explains that money injection does not affect everyone equally: those who receive it first get richer, while those who receive it last suffer the devaluation. As a result, the financial economy grows faster than the real economy, and unproductive companies benefit from the environment. Productivity stops mattering; what matters is leverage.

The limits: energy and resources

But the system has a physical ceiling. The depletion of cheap resources and the decline of EROI (energy returned on energy invested) call into question the sustainability of indefinite growth. Without surplus energy, the wheel cannot keep turning. To this mix, add stagflation: high inflation with stagnant growth, where central banks lose their ability to act.

How can you protect yourself?

Faced with this outlook, the emerging recommendation is to diversify into scarce assets: gold, silver, bitcoin or shares in productive companies. Holding debt, such as bonds or cash, means being exposed to perpetual devaluation. The conclusion, however, is that as long as cheap energy flows, the system can be stretched out indefinitely; when it runs short, the house of cards will find its storm.