Or four...
Posted on 11/24/2012 5:33:22 PM PST by upchuck
[Note: This editorial published on Nov 10, 2012]
We are now rushing down a course that is going to create incredible economic hardships for millions of Americans. The increase in the amount of debt that has been added to our economy is astronomical. And there is no end in sight. We now have over $16 trillion of debt, and with Obama’s policies it will be almost impossible to reverse that course.
Debt is the problem. Big debt is a big problem. There are only four ways to tackle it: increase taxes to bring in more dollars, reduce spending to save dollars, reduce entitlements to save dollars, and/or increase job growth which will result in more overall tax dollars coming in to the government.
Increasing taxes in the immediate future is going to be highly counterproductive in that it is going to put a damper on job creation by removing money from the private sector, which in the long run is the only sure way out of this mess.
Reducing entitlements will most certainly have to take place, but is going to be very difficult due to all the lobbying pressures and the fact that Obama has no intention of doing so. Obamacare will make the situation much worse.
Reducing other spending offers some avenues to help fix the problem, but the impact of such reductions will be smaller and will, again, take time to become effective.
Increasing jobs so as to increase revenues is really the only way out. But this would take quite a number of years to accomplish even with someone who knew what he was doing at the helm. Obama is not that person. He doesn’t know how.
At the very least, after another four years the debt load this country will be carrying will be well over $20 trillion dollars. This is close to an impossible load to bear. Our tax base right now, in a good year, is only $2.5 trillion, and in a bad year is around $2 trillion. That means we have a debt to income ration of 8 to 1 or 10 to 1.
In addition, we are spending about $3.5 trillion per year, which means we are borrowing about 40% of everything we are spending. It’s pretty hard to pay off any debt when you are doing that. And how long can that be sustained?
The crux of this problem is that we are unable to deal with the huge debt without facing massive inflation. The big debt has led us right into the ugly face of inflation, the major problem we face.
Generally speaking the amount of money in an economy should be enough so that products and goods and services can be paid for with the existing supply. If the amount of product goes up, it stands to logic that there should be more dollars printed and put in circulation to go with the demand for those products. However, if a great deal more money is printed than would fill that demand, then inflation will follow. For example, if we say that $100 is equal to 1/10th of an ounce of gold, and you print more dollars and don’t add any more gold to the pile, then each dollar will buy less and less gold as the dollar becomes inflated.
In the past four years, we have done just that. Since 2008, our monetary supply has increased over 300%. This is a great more money than was needed to keep up with any increase in the supply of goods, which certainly did not increase by anywhere near 300%. Unfortunately, a great deal of this money was just wasted. What we got instead was just a lot of debt.
In addition, it needs to be noted that 36% of the debt owed by the U.S. has a maturity of less than one year. That makes it subject to frequent refinancing, which will have a severe impact as interest rates go up. The higher rates will make it necessary to print more money to pay just the interest, which in turn will add to the inflationary pressures.
We are all living just now in a ‘dollar bubble’ which is equal in specter to the ‘housing bubble’ and ‘stock market bubble’ we have recently experienced. We are living in a ‘bubble economy,’ no matter how it feels. It is always hard to see the ‘bubble’ when you are inside it. But it would be prudent to plan for it even if it is hard to see and difficult to believe.
It’s going to happen. Massive, high inflation is coming. There is no stopping it now. The “dollar bubble” is going to pop.
Let’s crash the EBT system!!!
Sign everyone up for EBT and SNAP!!!!
Through an odd chain of circumstances, the people themselves might be able to fight back, but it takes some background information as well as organization.
To start with, there is not just one US currency dollar, but two. Virtual dollars exist only on computers, and can be “created” just by adding another zero on the end.
Physical dollars are printed in only two places in the US: Fort Worth and Washington, D.C. And even at full capacity, they only print enough paper money to back 5% of US daily retail trade. The other 95% is done with virtual money.
And paper money also has something that virtual money does not. It is “legal tender”, and this is very important.
Were America to not be able to access its virtual money, or if Americans just *refused* virtual money, insisting on physical cash, there would be something called a “currency split”, in which all the trillions of virtual debt would cause virtual money to hyperinflate; while at the same time, physical cash would *deflate* 20 to 1. That is, a physical nickel would have the purchasing power of a dollar right now.
All sorts of things could happen to cause this virtual money bubble to pop. All the people who owned virtual money would suddenly be impoverished, either by not being able to access it; or its value hyperinflating to nothing.
And one thing could happen to cause the massive deflation of paper money: the public refusing to trade in virtual money. Insisting on cash.
Since the government can’t physically print more money, could it print higher denomination bills? Actually not, for the simple reason that there are not enough lower denomination bills to make change for it.
All the people right now who get checks from the government for whatever, would find that the checks are worthless if nobody will trade them for cash, and nobody will accept checks, credit, debit or any other virtual instrument in payment for debts. Because they don’t have to. Because virtual money is *not* legal tender.
“I have a million dollars in the bank!”
“Good for you, but the price of a stick of gum is still 1 cent. Unless you have a cent, you cannot buy it.”
Now granted, this situation is untenable for the government, so they would have to do something, but by that point, “Gresham’s Law” would come into effect. Nobody would want their worthless virtual dollars, and would spend them as soon as they got them, for anything they could get. And everybody would horde physical dollars and coin.
And, as with the deflation during the Great Depression, the saying would hold true: “You could buy a pound of hamburger for a nickel, but nobody had any nickels.”
I'm thinking sell bonds, maintain gold, maintain stocks and YES move cash to RE.
Real estate is not a bad investment, although it can certainly go down more, and can be stolen by the government. Being a prepper works really well, here, as if you just load up on long lasting goods you know you will need anyway, like toilet paper, you don't need to sell your gold coins or get into a shootout like Mad Max when the inflation really hits. You will have locked in a lot of your wealth into things you will use.
What we all need to watch for, and I see no help from anyone determining this, is the point at which the US cannot pay the interest on the debt through its tax income. This is the upper limit on when the crash will happen. It will probably happen sooner than that though, as interest payments start crowding out all other spending.
At that point or before, and before the crisis, I believe the government will make a bold move, it will get rid of the federal reserve system and default on all debts owed to the federal reserve. After that, the treasury will just print money.
This is when the hyperinflation will really begin, because congress will now just be printing to keep the crowds docile, but those people have no chance at all of managing the economy back to health wisely.
It will also mark a completely new economic theory as we abandon capitalism. Previous to this event, wealth was generated by the productive, and the government taxed that wealth and spent it as parasites on the productive class. The new economic theory will be that the federal government creates money and distributes it through entitlement spending, and it trickles back to the government through the economy. The productive class will be the new parasites on the entitlement class, as they get money from the entitlement class by exploiting them.
I’ve tried to explain this to people.
And I’ve been laughed at, mocked, made fun of, flipped the bird, called a racist, etc.
The Republicans who are supposed to represent me and my interests have (to a large degree) joined in the mockery.
So this is what utter hopelessness and despair feels like? :(
Life sucks in Obamaland. :(
Government sponsored Hypothecation schemes.
Paper money is the only thing that exists outside the matrix. Even if a person buys gold, the cash used to buy it stays in the matrix and continues circulating. But good old cash lives outside. If it is not in an account in a bank, no one can loan against it, or confiscate it. You only need to protect it from theft and destruction. It is the only way to go Galt.
From WHO?
Just WHAT entity has that kind of money to LOAN?
Uhhhh... will you accept Treasury bonds ?
They’re a little low on cash at the moment.
But the bonds are just as good as cash, really.
Zero risk, really, just like cash.
yup!
SIN is the ‘problem’; not DEBT!
I live in a place where stuff grows readily (N. FL), but if I had to feed my family from seeds, we’d be in big trouble. I can water flowers, but I seem to kill fruits and veggies mostly.
Liberals still think the 'lockbox' is still there...
Explain to them that the Øbama tax cut to the 'payroll tax' cut their contribution money to their SS fund by 23% and you can hear veins popping in their heads.
The Payroll tax is the only money that goes into their 'lockbox'... and he slashed it. (say/write it and walk away...you won't hear a peep from them..they'll be dazed.)
Or four...
I look at the situation in Zimbabwe and figure that is probably how our scenario will play out.
They just said after x date, all old bills are no longer legal tender.
So you got paid twice a day because your dollar only bought $0.50 tomorrow.
Things finally crashed and stabilized when enough of the citizens refused to even take a Zim dollar and used foreign currency instead.
I agree...no balls this election to give us a stud candidate (Mitt was ok but not our guy) We will walk into the collapse with “our” guys. It won’t matter then. Game over...
Incorrect. Interest rates go up, property values go down. It's harder to sell real estate (land, housing) when interest rates are high. Higher interest rates drive the price down.
The only thing wrong with the headline is that it is labeled editorial. This time it aint a housing bubble, its a dollar bubble. Huge over supply of them.
You’re right.
The Clinton administration did the same thing to W, recognizing he was an incompetent ass and soon to be crowned president.
Unless he’s a true leader, the Republican President who will be elected in 2016 will be an empty suit to end all empty suits.
Sometimes.
I’m sure you can grow something better that will take less space and give more food energy.
Which is to say that ony a handful of politicians could ever appear in public again.
You’ve hit squarely on the dirty, little secret of the next four years - print so many greenbacks that they’re no longer worth the ink it takes to create them.
Watch for it - that nasty and mean-spirited troll is headed down the pike with a neon sign on his head.
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