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Reeg, prepare for your family. It is going to get much worse and here is why:
Who will buy this debt?? June 30, 2011. Summer has begun. The kids are off from school. Lazy days at the beach. Barbecue in the backyard. The end of America as we know it. Allow me to explain. You have heard me rant about the policy of the Federal Reserve buying treasuries as part of “Quantitative Easing II” in its attempt to get the economy going through the wholesale creation of fiat money, money out of thin air. The Fed now purchases seventy percent, seventy percent! of our treasuries, the instruments of our debt. When we talk about our 1.5 trillion dollar deficit that we expect to run next year...again, we are really talking about people buying our treasury bonds, loaning us money, to finance our government’s exorbitant spending. We have put ourselves in the ridiculous position of borrowing 40% of the money we spend and the Republicans are talking about cutting what, $100 billion dollars at most? So we will borrow what, only 39%?!
In the not too distant past, foreigners and domestic investors purchased all the treasuries necessary to cover deficits in the ridiculous amounts of $200 billion or so. Now, all those investors, foreign and domestic, only account for thirty percent of treasury purchases. That means the Fed is expected to buy over $1 trillion dollars of debt over the course of a year to keep things running. That policy is supposed to end on June 30. Who is going to take up the slack? Who is going to buy an additional one trillion dollars of our debt every year? The answer is no one. No one, no country, has that kind of money. Warren Buffet and Bill Gates couldn’t cover the interest on our debt for more than a few months if government took everything they owned. Even if someone could, who is going to? Why invest in a ‘corporation’ that is run so irresponsibly and is accumulating debt at such a pace?
If no one buys we are talking about the real possibility of default. The debt ceiling means nothing if no one will lend you money. Basic federal obligation are not going to be met. The dollar will lose its status as the reserve currency and we will begin the long slide into the nightmare of hyperinflation. Two things will put this off temporarily. One, the Fed keeps buying. This may give us a few more months but what happens when the Fed’s portion of purchases is 90% or even 100%? Will the dollar mean anything to the world then? Or the interest offered by the treasury will rise to the point where people are willing to invest. This will make credit very expensive, giving a sucker punch to an already teetering economy. Our interest payments will soon crowd out every other federal expenditure and we will end up defaulting. There just isn’t enough money.
Is this inevitable? Let me ask you this. Do you think that there is enough political courage among the politicians in Washington to eliminate the deficit this year, only spend $2.2 trillion instead of $3.7 trillion, and then tackle the problem of entitlements? I don’t think so either. So how will you live over the next three to six months? Will you prepare? Will you tell your friends to prepare? Will you educate them, tell them the cause of the problem is what we have allowed our government to become? Will we muster the courage to endure and recreate America as the land of the free and home of the brave?