Much has been written and said of the impending USDollar collapse below is another cheery article 😉 but well worth the full read at CrisisHQ. The pressure is ever increasing, as 2013 brings with it $5-6 trillion in US debt to be repaid. The official debt figure of $16 trillion is nowhere near the mark. Its more like closer to $70 trillion.
U.S. government’s real financial burden is close to 70 trillion dollars. This is because the national debt of 16 trillion does not account for obligations like Social Security, Medicare, Public Employee Pensions and other liabilities which the government is already committed to.
These liabilities are ticking time bombs, primed to explode with each new wave of retiring baby boomers. On top of this, medical costs continue to rise across the board driving Medicare expenses through the roof.
Ultimately the unsustainable debts will lead to 2 options, default or permanent money printing which is the solution favoured by politicians as the people who run the financial system are part of the problem.
How long can we keep borrowing?
Some economists like to imagine that we can just grow our debt endlessly, because we have the ability to print dollars out of thin air. These “experts” allege that the treasury market is as strong as ever and we can just keep borrowing endlessly. These are the same “experts” that insisted that real estate prices will continue to rise perpetually, right up to the 2008 crash. According to them, we just need to raise the debt ceiling and keep growing that debt evermore.
But even though we can raise our debt ceiling time after time, there is still a natural debt limit we cannot cross. The notion that our government can keep growing our debt without end is preposterous.
First, it’s based on a foolish assumption that the rest of the world is willing to lend us money that they know we can’t pay back. Second, it ignores a mathematical consequence: exponential growth due to interest alone. Third, it presumes that the U.S. dollar will forever remain the world reserve currency.
The Federal Reserve has been keeping the interest artificially low to help the government keep borrowing. Of course this is no favor on the FED’s part because the end result is debt enslavement. Since whatever the government owes is inherited by the people, it’s the people who get screwed in the end. If the interest was allowed to return to market rates, it would help prevent the government from borrowing beyond its means.
However, at this point our lenders are realizing that our debt has long passed a sustainable level. If you have ever applied for a loan, you should be familiar with the following universal rule. When the borrower is in too much debt, the loan becomes high-risk and so the lender demands a higher interest to make the reward worthy of the risk. With every passing day, America plunges into a deeper debt pit and this makes lending to the U.S. (by buying treasury securities) a more and more risky investment.
To make things worse, the FED is devaluing the dollar at an increasing pace by issuing bailouts, stimulus packages, quantitative easing, etc… and our lenders are realizing this too. This means that the dollars that our creditors are loaning to us now are worth less when they get them back.
For these two reasons, the U.S. treasury securities (government IOU’s) are now high-risk, low-return investments. What was once considered the safest investment is now a Ponzi scheme at the point of collapse.
Who will bail out America when it runs out of lenders?
Our pool of willing lenders is starting to shrink as our creditors are waking up to the fact that treasuries are now a high-risk, low-return investment. To compensate for this the Fed is forced to buy up all the long term U.S. treasuries in an effort to artificially stimulate demand, to keep up the smokescreen. Of course this only inflates the U.S. bond bubble even more.
When the pool of willing lenders dries up, the scheme will reach its end and the final bubble will explode. Without lenders, the U.S. government has only two appalling choices, default on debt or hyper-inflate the dollar.
is to default on all debt. Essentially declaring bankruptcy to renegotiate all obligations. This would create a severe financial shock as the dollar collapses and loses its status as reserve currency. This would lead to a sharp increase in the cost of nearly everything, as more US dollars would be needed to pay for imports, resulting in a catastrophic economic impact for every American. The government will be forced to cut spending dramatically. A broad range of government payments would have to be stopped, including military salaries, Social Security and Medicare payments, unemployment benefits, tax refunds, etc. Companies would be crushed by a US consumer that would no longer have any buying power. In addition, credit would dry up virtually overnight, which would force untold numbers of companies to shut their doors. Unemployment in the country would spike to obscene levels. Interest rates would rise significantly forcing millions of families with adjustable mortgages to go into foreclosures.
is to have the Federal Reserve create trillions upon trillions of dollars out of thin air. This creates an illusion that the debt is being paid back, but in reality the dollars issued to pay the debt would become increasingly worthless, turning rapid inflation into hyperinflation. This would actually create a much worse scenario then the first option as hyperinflation will be even more economically destructive for the average American. Prices would soar to unimaginable levels, unemployment would skyrocket. The average American would be forced to work overtime just to put food on the table, that is if he or she is lucky enough to still have a job.
It’s worth mentioning that it is highly unlikely that the U.S. will choose default (option one). Even though hyper-inflation is by far more destructive for the American people in the long term, the government will most likely try to print its way out.
Either way the economy will collapse. Economically, the first option would feel like a heart attack and the second option like terminal cancer.
The ripple effects of either scenario would be unprecedented. It would not be the end of the world, but you can expect massive social unrest, protests, riots, looting, arson, etc., basic supply disruptions on all levels, utility failures and infrastructure decay, rampant violent crimes, especially in metropolitan areas, followed eventually by a long and very painful period of readjustment of living standards for most Americans.
What if we cut spending, raise taxes and balance the budget?
It’s amazing, that even now you hear the same old catch phrases like, “recovering economy”, “budget cuts” and “responsible spending”, thrown around by politicians on all the major news shows. But, anyone out there that insists that this crisis can be fixed under our current system is lying.
The spending cuts and tax increases that Congress is talking about are absolutely meaningless when compared to how rapidly our debt is exploding.
Calling those cuts and taxes “pocket change” would be an insult to pocket change.
No bailout, stimulus package or manipulation by the Federal Reserve is going to avoid the massive financial pain that’s coming our way.
So what can our government do to fix the current financial crisis and avoid the dollar crash? What would it take?
It would take the kind of measures that are our government considers too extreme to even discuss and so there’s no chance of them being approved. For starters we would need to abolish the Federal Reserve, go back to the gold standard, shut down overseas military bases, completely reform the tax code, restructure entitlement programs, etc.
Unfortunately, proposing such changes is the fastest way to lose your political funding, become the laughing stock of Washington and be ignored or ridiculed by the mainstream media. Just ask Ron Paul.
Our Congress knows full well that fighting against the system is political suicide. And so no meaningful change that would help lessen the impact of the coming crash will be approved.
As far as the oval office and Congress is concerned, postponing the crash by issuing bailouts and stimulus packages is a more politically favorable approach, even though this ensures an even bigger catastrophe in the end.
The bottom line is this: we’re on a path to an inevitable dollar crash. The ones that run our monetary system and hold the keys to our economy are actually part of the problem instead of the solution. The ones in power that can make the desperately needed changes dare not.
Rather then risk their careers, they will continue to shamelessly distribute our hard earned money among their friends on Wall Street. The handful of our honest politicians that are actually brave enough to stand up for the people are shut out by the system.
At this point, we’re on a run away train without brakes, so you better brace yourself. The good news is there is still time for you to prepare for what’s up ahead. Most people will be completely unprepared when the whole thing comes crashing down.
Don’t be part of that group.