The US fiscal growth engine in careening towards a catastrophic collision with reality.
I’m not alone in this assessment.
Federal spending in excess of federal income has been going on for decades, generating a sovereign debt crisis of epic proportions.
US political and economic behavior (over four decades), in which a malign feedback loop between subsidy-hungry political constituencies and vote-buying politicians has driven a debt-financed bubble – this resembles something all too familiar. The profile is eerily similar to substance abuse addiction. At some point all of those ‘too good to be true’ scenarios end in a crash.
The USA’s collision course with the FISCAL WALL has been radically accelerated by the current administration.
JUST HOW CLOSE TO THE CRASH ARE WE? THAT IS UP TO THE CHINESE.
An excerpt from my recent piece, “THE COMING FISCAL EARTHQUAKE AND WHAT WE CAN DO ABOUT IT” (YES, WE CAN DO SOMETHING ABOUT IT.)
WHAT WILL THE WALL LOOK LIKE IN THE YEAR WE HIT IT?
At present, almost all of the “stimulus” spending and about 20% of every federal dollar is borrowed. In practice that means that the everyday operations of the federal government require that the borrowing continue. When that becomes impracticable because the lending markets lose confidence in the US economy, lenders (particularly foreign lenders) will no longer be willing to subsidize our government’s spending on any terms that will support the current budgets. That’s when the politically driven economies hit the WALL.
The resulting crash will resemble the credit freeze that followed the collapse of overleveraged real estate assets. But we used borrowed money to bail ourselves out of the real estate-driven bank crash. If and when our government’s fiscal scheme crashes, there will be no bailout. Hundreds of thousands of federal employees will be furloughed, benefit checks will be slashed – eventually fiat money will be printed, then ordinary commodity prices will double and more.
But…within a few weeks or months of the FIRST WALL EVENT, those measures will be obviously insufficient
WHAT WILL THE WALL LOOK LIKE BEFORE WE HIT IT?
READ THESE TWO REPORTS
U.S. marks 3rd-largest, single-day debt increase
$166 billion jump spurs concerns over policy
The nation’s debt leapt $166 billion in a single day last week, the third-largest increase in U.S. history, and it comes at a time when Congress is balking over higher spending and debt has become a key policy battleground.
The one-day increase for June 30 totaled $165,931,038,264.30 – bigger than the entire annual deficit for fiscal year 2007 and larger than the $140 billion in savings the new health care bill will produce over its first 10 years. The figure works out to nearly $1,500 for every U.S. household, or more than 10 times the median daily household income.
China rules out ‘nuclear option’ on T-bills
By Geoff Dyer in Beijing and Peter Garnham in London
Published: July 7 2010 10:44 | Last updated: July 7 2010 23:56
Given the US government’s huge funding needs, some analysts worry that China’s stated objective of diversifying its reserves could also lead to higher US interest rates if it buys fewer Treasuries.
However, Safe said that the “nuclear” option of selling huge volumes of US assets was “completely unnecessary”. Given its security, liquidity and low transaction costs, the US Treasury market was “a very important market for China”. It added: “Any increase or decrease in our holdings of US Treasuries is a normal investment operation.”
WHAT, ME WORRY?
China’s reassurances are like that of a predator with one claw against the prey’s aorta, speaking softly and soothingly. We have become beguiled by our addiction that we chronically misread the signs OF OUR PERIL. We think that our drug dealer, sorry I meant our BIG CREDITOR was saying, “Don’t worry, I won’t cut you off,” when, in reality, the statement was more like, “I expect payment, you know, and I will get it by any means necessary, just not today….”
OUR POLITICAL LEADERS ARE LIVING IN A DELUSIONAL WORLD IN WHICH THE ‘BORROWING ALWAYS FUELS PROSPERITY’ BROMIDE ATTRIBUTED TO ST. KEYNES STILL HOLDS TRUE IN THE INTERNATIONALIZED ECONOMY.
NOT SO, IMHO.
Jay B Gaskill
Attorney at Law
“The Keynesian Collapse http://www.jaygaskill.com/KeynsianCollapse.pdf