BREAKING ECONOMIC NEWS
The Coming Financial Collapse of
the U. S. Government: Fed papers reveal what's in
store for Americans
by Mike Adams
http://www.naturalnews.com/z019659.html
The bankruptcy of the
United States government has been talked about for
years by independent observers. If you've read the
book, "Empire of Debt," then you know where the U. S.
is headed financially. But most people have no idea
about the ultimate financial consequences of decades of
borrowing and spending by Washington, and they remain
irrationally convinced that the status quo will remain
intact for eternity. No one in any position of
authority, you see, has yet admitted that the U. S.
government is indeed going bankrupt.
Until now, that is.
In a remarkable paper posted by the Federal Reserve of
St. Louis, and authored by a Boston University teacher
named Prof Kotlikoff, it is revealed in blunt, powerful
language that the era of borrowing and spending without
consequence may soon come to a close. The paper,
entitled, Is the United States Bankrupt, may not remain
posted for very long once the public gets word of
what it actually says.
And what, exactly, does it say? For starters, Kotlikoff
explains, "Unless the United States moves quickly to
fundamentally change and restrain its fiscal behavior,
its bankruptcy will become a foregone conclusion."
The country
is bankrupt
He goes on to explain, "[that] the United States is
going broke, [and] ... that radical reform of U. S.
fiscal institutions is essential to secure the nation s
economic future."
Failure to engage in these massive reforms will
inevitably result in the financial demise of the United
States, Kotlikoff says: "[W]e have a country at the end
of its resources. It s exhausted, stripped bear,
destitute, bereft, wanting in property, and wrecked (at
least in terms of its consumption and borrowing
capacity) in consequence of failure to pay its
creditors. In short, the country is bankrupt and is
forced to reorganize its operations by paying its
creditors (the oldsters) less than they were
promised."
We might possibly be saved, he explains, if the nation
engages in massive, radical reform in three areas: 1)
Eliminating the current income tax system and moving to
a national retail sales tax of 33 percent. 2)
Privatizing social security so that workers own their
savings accounts and the federal government can no
longer swipe funds from Social Security. 3) Launching a
national health insurance program that covers everyone
and relies on a system of government-issued vouchers
that citizens can spend with health insurance
companies.
These radical reforms are necessary because the future
gap between what the government owes and what it stands
to receive in revenues is already monstrously large,
and it's growing by the minute. This gap, called the
Gokhale and Smetters measure, currently stands at an
astonishing $65.9 trillion. (Yes, with a "T".) As
Kotlikoff explains, "This figure is more than five
times U. S. GDP and almost twice the size of national
wealth. One way to wrap one s head around $65.9
trillion is to ask what fiscal adjustments are needed
to eliminate this red hole. The answers are terrifying.
One solution is an immediate and permanent doubling of
personal and corporate income taxes. Another is an
immediate and permanent two-thirds cut in Social
Security and Medicare benefits. A third alternative,
were it feasible, would be to immediately and
permanently cut all federal discretionary spending by
143 percent."
If you read that last paragraph with any presence of
mind, you now begin to understand the magnitude of the
fiscal problem facing the United States. It could be
solved, as explained above, by doubling all personal
and corporate income taxes. But then what's the point
in working? It could also be solved by slashing
promised benefits in Social Security and Medicare. But
what about the inevitable street riots?
None of these solutions are likely to occur. And that
leaves the Ace up the sleeve. It's the Ace that all
government eventually play on their way to bankruptcy
and collapse, and it's the Ace that the United States
will ultimately be forced to play, too: hyperinflation.
The U. S. will have to print more money to escape the
financial consequences of its unbridled spending.
Hyperinflation is inevitable As Kotlikoff explains:
"Given the reluctance of our politicians to raise
taxes, cut benefits, or even limit the growth in
benefits, the most likely scenario is that the
government will start printing money to pay its bills.
This could arise in the context of the Federal Reserve
being forced to buy Treasury bills and bonds to
reduce interest rates. Specifically, once the financial
markets begin to understand the depth and extent of the
country s financial insolvency, they will start
worrying about inflation and about being paid back in
watered-down dollars. This concern will lead them to
start dumping their holdings of U. S. Treasuries. In so
doing, they ll drive up interest rates, which will lead
the Fed to print money to buy up those bonds. The
consequence will be more money creation exactly what
the bond traders will have come to fear. This could
lead to spiraling expectations of higher inflation,
with the process eventuating in hyperinflation."
It's not like it hasn't happened before. Hyperinflation
is actually the norm, not the exception, and it's the
escape route taken by virtually every country suffering
under the burden of payment promises is cannot possibly
keep. Whether we're talking about Germany after World
War I, or the United States over the next few years,
hyperinflation is the only option remaining for
politicians who refuse to practice fiscal sanity.
No politician ever got elected by promising voters
their entitlements would be halted, did they? Political
popularity is derived from promising voters precisely
what the nation cannot afford: Endless entitlements and
runaway spending without apparent consequence.
The China factor
The only thing keeping the U. S. afloat right now is
the temporary willingness of Asian countries to keep
buying U. S. debt, thereby pumping up the U. S. economy
with dollars earned on the backs of Chinese
laborers.
But even the Chinese -- known for their tolerance of
hard times and manual labor -- may eventually tire of
lending money to a posh, arrogant Western nation that
has all but abandoned the concept of saving money. Says
Kotlikoff, "China is saving so much that it s running a
current account surplus. Not only is China supplying
capital to the rest of the world, it s increasingly
doing so via direct investment. The question for the
United States is whether China will tire of investing
only indirectly in our country and begin to sell its
dollar-denominated reserves. Doing so could have
spectacularly bad implications for the value of the
dollar and the level of U. S. interest rates."
By "spectacularly bad implications," Kotlikoff means
the value of the U. S. dollar would plummet, the level
of U. S. interest rates would skyrocket, and
hyperinflation would be well underway. U. S. citizens
would find not only their dollars to be near-worthless
on the global market, but their savings to be all but
wiped out as well. Sure, you'll still have the same
number of dollars in your bank account, but they won't
be worth anything.
This is what eventually happens, by the way, when a
government eliminates the gold standard and separates
its currency from precious metals. The U. S. dollar, a
green piece of paper, technically stands for nothing
other than the U. S. government's promise to pay. But
when push comes to shove, the government will have no
choice but to hyperinflate its way out of financial
obligations, thereby rendering all currently-held U. S.
dollars to be virtually worthless. Those investors or
citizens who hold savings in U. S. dollars will be
wiped out by a government that will essentially steal
their wealth without having to snatch a single physical
dollar from their hands.
Future obligations cannot be met
And yet, despite the seriousness of the U. S. fiscal
situation, Americans and their elected representative
live their merry lives oblivious to financial reality.
National newspaper headlines even add to the denial,
running headlines that claim the nation's economy is
strong because the 2006 budget deficit will be "only"
$296 billion.
That this is considered a success by the Bush
Administration is testament to the psychotic fiscal
self-deception that now serves as the norm in the
United States. It's like a family that owes $1 million
on a $200,000 home announcing "success" because it has
just reduced its monthly credit card borrowing from
$15,000 to $12,000. And that's if you actually believe
the numbers, because if there's one area where
Washington has proven its skill, it's the expert
deployment of smoke and mirrors on all things involving
numbers.
Cutting the annual budget deficit won't save us anyway.
It only means that we're barreling head-first into a
brick wall at a slightly slower pace than before. The
entitlements will still come due:
"There are 77 million baby boomers now ranging from age
41 to age 59. All are hoping to collect tens of
thousands of dollars in pension and healthcare benefits
from the next generation. These claimants aren t going
away. In three years, the oldest boomers will be
eligible for early Social Security benefits. In six
years, the boomer vanguard will start collecting
Medicare. Our nation has done nothing to prepare for
this onslaught of obligation. Instead, it has continued
to focus on a completely meaningless fiscal
metric the federal deficit censored and studiously
ignored long-term fiscal analyses that are
scientifically coherent, and dramatically expanded the
benefit levels being explicitly or implicitly promised
to the baby boomers."
The result of this is not in question: The United
States government is already running on fumes, and in a
few more years, it will suffer financial collapse.
"Countries can and do go bankrupt," says Kotlikoff, and
the U. S. is no exception to the laws of economic
reality.
Oblivious to what's coming
The American people, as usual, remain oblivious to the
financial future that awaits them. Even as the housing
bubble is now beginning to burst in the nation's most
overpriced real estate markets, most people don't have
a clue what "hard times" really means. To today's
debt-ridden yuppie spenders, "hard times" means
shuffling six different credit card accounts to cover
the payments on an overpriced house, two new SUVs in
the driveway and a vacation to Paris, none of which the
yuppie couple can afford.
The idea of ever having to pay back their debt and live
within their means is as foreign to most Americans as
it is their own government. Financial consequences have
been put off so habitually, for so long, that people
forget they even exist. And thus the reality awakening
becomes ever more rude when it finally appears. To say
that most Americans will be in a state of shock when
their life savings are suddenly wiped out is an
understatement: These people will have never even
imagined such an event is possible, much less
contemplated how it might affect them.
Rome is burning
It's too late to save the United States from its
financial meltdown, I believe. For starters, there is a
complete lack of willingness to make tough financial
decisions and begin paying off the national debt. Such
an idea is so foreign to the U. S. that no presidential
candidate in the last two decades has even seriously
proposed such a plan, save perhaps Ross Perot, a man
with such well-grounded ideas of cutting government
spending that he was immediately branded a crackpot by
the status quo.
Even worse, there's not even recognition among the
masses that a financial problem exists. As long as the
President continues to proclaim the economy is in good
shape, and the press remains complicit with its
printing of economic half-truths, few will recognize
any problem at all. Besides, any such recognition of
the financial problems now facing this nation requires
the observers to actually be able to do basic math. Our
public education system, which is now largely
considered institutionalized day care for
nutritionally-deficient children, has seen to it that
mathematics instruction never gets in the way of
diagnosing children with Attention Deficit
Hyperactivity Disorder and drugging them up on
amphetamines so powerful that they actually have a
street value as recreational drugs.
Thus, few young Americans can even do math. And none of
them lived through the Great Depression, nor did they
understand the study of it in school, meaning they are
precisely the kind of naive, overconfident yuppie
spenders who are ripe for being financially obliterated
by an economic meltdown. When their ignorance turns to
fear, the ever-widening spiral of financial panic
becomes unstoppable until the whole system hits rock
bottom. And "rock bottom" is far, far below the
relatively luxurious lifestyle to which American
consumers have become so smugly accustomed.
Protecting yourself from the inevitable
The timetable for this economic collapse is unknown,
but it's very unlikely to happen in the next year or
two. A collapse by 2012 is certainly possible, and
seeing it by 2020 is almost certain.
That leaves the more intelligent among us plenty of
time to prepare. But the usual preparatory actions by
Americans won't suffice in such a large-scale collapse.
FDIC-insured banks, for example, will almost certainly
collapse and take the DFIC down with them. Even if you
are repaid by the FDIC, you'll only be paid in
worthless U. S. dollars anyway.
Beating the odds on this financial hurricane
requires exceptional planning and preparedness. I'll
publish practical solutions and strategies on this
website in the months and years ahead. If you'd like to
stay informed, subscribe to the free NaturalNews email
newsletter (see below) and make sure you select either
"All topics" or the "CounterThink" topic.
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