END OF THE AGE ECONOMICS
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U.S. FEDERAL DEBT
In
1980 the total federal debt was $ .7 trillion.
From 1980-89 the federal debt
increased $1.4 trillion.
By 1989 public debt was at $2.1 trillion.
Jan.
2009, the total federal debt stood at 6.3 trillion.
Aug. 2010 the total federal debt
grew to $8.8 trillion;
An increase of $2.5 trillion.
“CBO estimates that the deficit
for 2010 will exceed $1.3 trillion”.
2011 deficit is expected to be the second-largest shortfall in the past 65 years: At 9.1 percent of
gross domestic product (GDP), that deficit will be exceeded only by last year’s deficit of 9.9 percent of GDP.”
At
this rate the U.S. ECONOMY will be bankrupt in the very near future resulting in hyperinflation, a further decline in the
economy and job losses.
The folks at the
Office of Management and Budget have released an update of the budget deficit as of 6/2010. The latest estimate shows the
budget deficit reaching a record $1.47 trillion this year. The government is now borrowing 41 cents of every dollar it spends.
The forecast
for the U.S. is incredibly dire. The gap for 2011 is only seen narrowing to $1.42 trillion. Projections show the U.S. national
debt doubling between now and 2020, when it’s forecast to hit over $26 trillion.
These latest figures show the
debt will top 100 percent of the nation’s Gross Domestic Product in 2012.
People seem to have adopted a “what-I-don’t-see-can’t-hurt-me”
mindset. When the financial system breaks down, people may be shocked at how fast our economy implodes.
America is too
big for any bailout. At best, the world could put together a trillion-dollar rescue package. We would burn that amount of
money in a matter of months. If we should collapse, the rest of world will either seek shelter or try to profit from our downfall.
A huge
financial collapse is headed our way. The timing seems to imply that it has a strong link to prophecy. The only rescue package
is the one from the Lord Jesus Christ.
“Watch ye therefore, and pray always, that ye may be accounted worthy to escape all these things that shall
come to pass, and to stand before the Son of man” (Luke 21:36).
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Historian warns of sudden collapse of American ‘empire’
Aspen Daily News (Link) - Brent Gardner-Smith (July 14, 2010)
Harvard professor and prolific author Niall Ferguson opened the 2010 Aspen Ideas Festival
Monday with a stark warning about the increasing prospect of the American “empire” suddenly collapsing due to
the country’s rising debt level.
“I think this is a problem that is going to go live really soon,” Ferguson said.
“In that sense, I mean within the next two years. Because the whole thing, fiscally and other ways, is very near the
edge of chaos. And we’ve seen already in Greece what happens when the bond market loses faith in your fiscal policy.”
Ferguson said
empires — such as the former Soviet Union and the Roman empire — can collapse quite quickly and the tipping point
is often when the cost of servicing an empire’s debt. “It will be the case in the next five years.”
The U.S. is
now deeply in the red as a country because of a combination of the Great Recession, the resulting federal stimulus and financial
bailout programs, two wars, the Bush tax cuts, and a growth in social entitlement programs.
And economic debt can lead to a sudden
loss of military power and global respect, Ferguson said.
“By combating our crisis of private debt with an extraordinary expansion
of public debt, we inevitably are going to reduce the resources available for national security in the years ahead,”
Ferguson said. “Because as a debt grows, so the interest payments you have to make on it grow, even if interest rates
stay low. And on current projections, the federal debt is going to be absorbing around 20 percent — a fifth of all the
taxes you pay — within just a few years.
“The item of discretionary federal expenditure most likely to be squeezed
is of course defense. And there are lots of historic precedents for that,” said Ferguson, who is the author of “Empire:
The Rise and Demise of the British World Order and the Lessons for Global Power.”
Ferguson said the financial crisis
that started in 2007 “has accelerated a fundamental shift in the balance of power,” with the U.S. shedding power
and China absorbing it.
Posted
at 10:19 PM in America, Economic Crisis | Permalink
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A Bushel of Wheat for a Penny Part
1: Commodity Money and Fiat Money
Fiat Money
A government puts fiat money into circulation first by connecting it to a gold or silver standard, but then cuts
the link and says that gold and paper are no longer convertible, making the piece of paper “legal tender for all debts
public and private.” It is obvious that debtors would be very happy if the paper money lost its value because they could
pay their debts with inflated currency.
Today, fiat money will always bring on inflation for two reasons: 1) Politicians like to induce inflation because
it gives the people the illusion of prosperity and 2) its declared value is much higher than the cost of producing it. Whether
it is a $1 or $100 bill in fiat money, it costs only 4 cents to produce. In today’s electronic age, the production cost
for new money is zero since money creation is just a keystroke and an entry in cyber-space. On the other hand, in history,
if you had a $20 gold piece, the cost of that gold piece, less the cost to produce it, was about $20.
Inflation Always Follows Fiat Money
The history of price inflation in
the United States is repeated in every country that uses paper money. When a government inflates its currency, it increases
prices by reducing the purchasing power of the money. The short-term effects though, can seem to be positive. Like a drug
addict, inflated money gives the illusion of prosperity, making people feel good. But like the addict, withdrawal follows
the high.
At first, the
surge of more money makes people feel good because they can pay off their debts with cheaper money and they seem to have more
disposable income. As prices catch up, people then find it more expensive to live. In addition, their tax burden goes up,
since many government taxes are progressive in nature, meaning the percentage tax increases as in-come or asset values (houses,
cars, etc.) increase. Eventually the market will try to correct itself and a depression will follow.
At this point, people start to feel the pinch of their money
buying less. They demand that their government do some-thing. Since studies have shown that voters only have a memory of one
year when it comes to politics, politicians will make sure that the economy is good in an election year.
They will artificially stimulate the economy to give voters
the illusion that times are good again and reelect the incumbents. This lasts only so long and inflation, with its problems
kick in again. This cycle of increasing the currency supply and price inflation ultimately ends with the collapse of the currency,
sometimes preceded by hyperinflation. (Hyperinflation and its cultural effects will be covered in Part 3 of this series.)
Surprisingly, the country has not learned its lesson and the devalued fiat currency is replaced with yet another fiat currency.
One way to balance the
national books is to implement harsh and unpopular spending cuts. Another way is to default on their debt. This would seriously
damage the Euro as other countries look at default as a way out of their financial problems. (In fact, financial experts are
predicting the demise of the Euro in as early as five years.) A third way out is to separate itself from the Euro, go back
on the drachma (fiat currency again) and then set an exchange rate of the drachma to the Euro at an artificially high number.
The cycle of fiat money would then begin again.
As long as a country is on a fiat currency, inflation is sure to follow. Using a fiat currency could well reduce
a civilization to work an entire day for a “bushel of wheat.”
In Part 2 of this series we will look at central banking and how the banks
can change a society.
