You simply cannot continue flooding the world with $700 billion per year (trade deficit) and $350 billion per year (50% of federal deficit) and not see the dollar fall. As the dollar falls foreigners who own dollar denomiated assets see them depreciate. Thus the Fed has to raise interest rates to compensate for the depreciation, and perhaps slow it down. The U.S. government does not want the dollar to fall, since a falling dollar makes US securities less attractive as an investment. Americans now have a zero % savings rate, so we cannot finance our own government's debt.
Then you look down the road at the unfunded liabilities of the social security system and Medicaid. See this from Bush's State of the Union:
By 2030, spending for Social Security, Medicare and Medicaid alone will be almost 60 percent of the entire federal budget. And that will present future Congresses with impossible choices -- staggering tax increases, immense deficits, or deep cuts in every category of spending. Congress did not act last year on my proposal to save Social Security -- (applause) -- yet the rising cost of entitlements is a problem that is not going away. (Applause.) And every year we fail to act, the situation gets worse.
Presently the SS system pumps about $130 billion surplus into the federal coffers each year. By 2016 that annual surplus will disappear, as SS begins to run a deficit. So you can add roughly $200 billion more to the federal deficit by 2020 for that item alone. My conclusion is that after you add in the immense debt service required to pay the interest on our ever rising debt, the government will be unable to meet its obligations in the early 2020's by taxation and borrowing. Their only option will be to print enough dollars to pay their debts. Got gold?
LOL, the mother of all referendums will be when we have to vote on what to do with the governement's tax receipts.
either pay interest on the debt or pay welfare, for there won't be enough $ to do both anymore.