Our economic house of cards: When will it collapse?

The national debt looks pretty scary until you look at it closely. Then it looks terrifying. Photo: Esther Gibbons/Flickr.com

WASHINGTON, D.C., October 30, 2012 — Looking at our national debt is a pretty scary thing.  It is in excess of $16 trillion and growing at a rate of about $47,000 per second.  Whether you blame this administration or the past one, or even the Federal Reserve, we have a very big problem.

Since the creation of the Federal Reserve, we have always been in debt. We have never decreased the debt. Before you leap to your feet to remind us that we had a surplus under President Clinton, let’s understand that there is a big difference between deficit and debt. 

Think of it like this; if you are $100 short this month on your bills, you have a deficit of $100. If you add up everything you owe on your car, your mortgage, your credit cards totals, and so on, that total is your debt. If you have $100 left after all your bills are paid this month, you have the “Clinton surplus” which ignores the total debt. 

When President Clinton took office, the national debt was about $4.4 trillion. When he left office, it had grown to about $5.8 trillion. I am not saying that that is bad (far from it by today’s standards), but it is what it is.

There is a shell game the government plays with money, so We the People think they are doing a much better job with our tax dollars than they actually are. They do it with some pretty fancy smoke and mirrors, and manipulating a system called intragovernmental holdings. They borrow money from one internal agency that is doing well financially, to fund one that is not.

So while the “box against the wall which never lies” tells us that we had a surplus, if you add what they borrowed internally to the “surplus”, it still adds up to more total debt. 

This concept is more commonly known as raping Social Security.

Here is our big problem: We are bankrupt, and very soon, it will get much worse. Let’s take a look at the three possible scenarios.

1.) The Federal Reserve keeps the interest rate at 0%.  This keeps our interest payments on the national debt relatively low, about $250 billion per year on our current level of debt.

While this sounds great, there is a big problem with this scenario. The United States operates in a deficit every year. 

President Obama’s proposed budget has us at about a $1.4 trillion deficit each year in the near future, with not less than $800 billion long term. This means, that to pay for programs such as Medicare, Medicaid, welfare and a myriad of others, we must borrow money. 

We borrow money by selling bonds, or I.O.U’s. They promise the buyer that we will pay them the face value, plus interest, at a rate of, say, 0 percent. Couple that with a conservative estimate of 3 percent inflation over the next ten years, and you just waited 10 years to lose 30 percent on your investment. 

Now, you may be able to convince a few people that that does not sound too bad, but most likely not enough to make up that $1.4 trillion each year.

Let’s look at option two, which can’t be any worse than that, right?

2.) The Federal Reserve raises interest rates to attract investors to buy bonds.  They buy bonds, we continue to have free healthcare, housing and food for everybody forever, the end. So how high do they have to raise the rate to attract buyers?

Well, you have to cover inflation of course, so there is 3 percent. You have to make a profit, lets go with 4 percent profit. We also have to account for the fact that our nation’s credit rating has slipped for the first time in history last year. 

As you know, the lower your credit rating, the higher your interest rate. Let’s assume a 10 percent total to cover inflation, profit, and a lower credit rating. Now our potential investors are convinced that the possible gains outweigh the risks.  Ten percent – not too bad. I have a credit card that is higher than that, interest payments are not that much. 

Imagine racking up your credit card to $16 trillion dollars and see what your 10 percent interest payment ends up at: $1.6 trillion per year. 

We are currently operating at a deficit of $1.4 trillion, paying only $250 billion per year.  How will we survive with another $1.4 trillion per year piled on?  Apparently the answer is to simply print more money. The only problem with printing money is that it is borrowed from your future, trading your debt and interest for inflation. 

Quantitative easing (making money from nothing) certainly has its rightful place in a fiat monetary system, where money just has a number stamped on it and its only value is your trust in the issuer. That’s the money we use today. It is a tried and true method of getting out of a mild recession, but we are well past that being a viable option at this point.

You must also keep your eye on inflation. Every time you print money, you decrease the value of money already in circulation, or that you’ve saved in places like your 401K. It gets diluted every time you add more money without adding more value to what that money is supposed to buy.

So imagine that we are paying $30 for a gallon of gas, $45 for a gallon of orange juice, and everything is domestically produced, of course, because nobody outside of our country will accept dollars anymore. 

The people living on fixed income would be long done for by that point, because government cannot increase their benefits to even come close to inflation. These price increases would be followed by massive civil unrest, which is just a nice name for massive riots, closely followed by martial law. Goodbye constitution.

Very few people are willing to look at what we are truly facing and admit that we need a very drastic change, now. This is obvious from the polls, with Obama and Romney neck and neck, both with plans to get us to a balanced budget in about 30 years. Thirty years? Are you kidding me? We will most likely not last to the end of this next administration.

As a nation we are at the edge of a cliff, too bad we are walking backwards with our ears plugged.

And then, there is option 3.

3.) Cut spending now by nearly 50 percent.

There’s only one problem with that. It will not get you elected. It will, however, get you blackballed from presidential debates. Just ask Ron Paul. He wants to cut Medicare by 50 percent, that guy wants to spend $716 billion more on Medicare. So tough to decide!

Keeping the truth from the American people is a must. Do you honestly think that the elite of our society will suffer? Think again. They will be able to buy up this entire country for pennies on the dollar. Well, actually they will have to split it up with our foreign debt holders, but you get my point.

Gary Johnson, along with pretty much every non-partisan (not employed by Obama or Romney) economist recognizes what is happening. He understands that we have no choice but to make drastic cuts now or collapse in the near future.  You say are concerned about “draconian” cuts to Medicare, Medicaid and other social programs? If we do not act now, those programs will cease to exist altogether. We will be lucky to have something to eat when this house of cards we have built comes tumbling down.

You ever see those crazy guys with the bunkers full of food and guns in their back yard?  This may be a pretty good time to go introduce yourself.

To become sick to your stomach, visit:

www.usdebtclock.org 

For more information on a candidate with a painful, but honest plan based on reality, visit:

www.garyjohnson2012.com  


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Mike Shortridge

Mike is a former Marine who served in the Middle East. He is disgusted with both the Republican and Democratic parties, seeing them as two heads of the same beast. He writes from the conservative perspective, with a focus on making complex subjects easy to understand.

 

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