America’s Pathway To Insolvency … Near Completion
In reading an article in the American Thinker, Jeff T. Allen highlights that our country is reaching a tipping point, that point in time where there is no return, where economic and societal crisis will be upon all of us. He believes that this crisis will visit us this year where averting a debt and currency implosion will crush us all.
Three major signs passed us by last week while we have been watching the Grammys, listening to reports from the unrest in the Islamic middle-east, and watched the start of the new season of the reality hit, Survivor.
All three of these events show a path of upheaval to the likes our nation has never seen and investing in Gold may not protect the average family nest egg.
First, the leadership in the House of Representatives backed off on its original promise of real control of government spending against an Executive Branch that is hell bent on pushing the money throttle to the floor.
Second, employment reporting by the government is never as clear as it is always first reported. The number of people unemployed always goes up “unexpectedly” yet what is rarely reported are the number of people who QUIT looking for work because it has become hopeless. All of these numbers are set against a “Benchmark” which were also revised. These benchmarks effect the adjustment of interest rates charged on the servicing of borrowed money which effect how well our current government and economic systems will work.
Third, Social Security payments to those who collect benefits has now passed collections by over 56 Billion dollars for 2011 as projected in a report released by the Congressional Budget Office (CBO). This occurrence was not supposed to happen until the year 2020
This excerpted and edited from the American Thinker –
A Tipping Point Is Nearing
By Jeff T. Allen – February 14, 2011
Out of a $3.8 trillion government spending agenda, the wonkish Mr. Ryan, considered by many to be the best hope for fiscal conservatives, revealed proposed cuts of a whopping $74 billion. After some tense meetings, (referred to as a “revolt” by some media) newly elected conservative congressmen convinced the leadership to commit to unspecified cuts of an additional $26 billion. The actual “cuts” from any such legislation will, of course, be less once the appropriate political log rolling and deal-making are done- let’s call it $50 billion (while the deficit grows by $26 billion during the week it takes to discuss it). So go the hopes for serious spending restraint from our newly elected wave of rabid, anti-big government Republicans. They may deliver cuts 1.3% of total spending that is itself approximately 90% greater than collected taxes. Let’s mark this spending reduction effort as an epic fail, at a time when epic success is almost required for survival.
The little-noticed (not by the bond market) aspect of the report was the “benchmark” revisions, an attempt to get the total picture more accurate each year than simply adding up all the monthly change numbers. This year’s benchmark revisions showed two alarming things: a decline from previously reported employment in December 2010 of nearly 500,000 jobs, and a reduction in the workforce of a similar amount.
In context, a 3.7% yield does not appear high by historical standards. In our current predicament, however, it is heading toward Armageddon. If interest rates on our debt rise by 1% it means our interest payments rise by more than $100 billion dollars annually (not including the interest payments owed to the Social Security Trust Fund–see below). As global liquidity and deficit spending have accelerated, food and commodity prices have skyrocketed, sending many prices up 25-50% worldwide since August.
[Social Security] Any limp action by conservatives to bring this program into solvency can be expected only to slow the raging river of red ink this behemoth program (along with its twin Godzilla, Medicare) spills on U.S. citizens. With no political will to fix them, these “entitlements” will obligate Americans to borrow more and more money from China–to honor promises we simply refuse to admit we can’t keep.
So why do these developments argue for a crisis of Great Depression proportions? Because they speak unequivocally of our pathway to insolvency, and the potential of currency failure via hyperinflation, despite the hopes of conservatives and market participants to see a halt of such direction. Housing prices, the foundation of so much of private citizen debt loads, are destined for stagnation — not inflation — as the supply of homes is far greater than the demand — 11% of the nation’s homes stand empty today. When the world begins to recognize that there is no fix for America’s borrowings, a fast and brutal exodus from our currency and bonds can send us a shock in mere weeks or months.
Unlike the Great Depression, however, we will enter such a shock in a weakened state, with few producers among us and record mountains of debt. More cataclysmic is the specter of inadequate food, as less than 4% of us farm, and those that do may cease to be as productive or may not accept devalued currency as payment, should the tipping point be crossed. Corn and wheat prices in the U.S. have nearly doubled in less than 12 months, using our rapidly evaporating currency as the medium of exchange.
The time for action has passed, which may only become apparent as the “aid” of easy money becomes seen as the harm that it is. May we all be spared the worst, but I offer no such prayers for those responsible. The harm that comes will be swifter, and more severe, than most of them thought possible.
We are not close to a growth-led recovery, and with the actions of our 44th President of the United States/Carter’s Second Term acting in interference to the efforts of States to carry out their elected duties, we are definitely a nation in economic chaos.