Next year’s deficit is expected to be around $1T. That is an Obama-sized deficit.
Not enough money in the world to pay all the politicians promises
The U.S. government financial entitlement world is coming to an end. How certain? About 100%. When? Hard to say.
It pisses me off when people ask those questions. What they want is to ignore the looming financial calamity.
Living within our means is not optional
The U.S. federal government is not living within its means. Ultimately, it must. With each passing year, the amount by which entitlement spending must be cut will increase. Politicians do not cut spending. Politicians are in charge. Therefore, the federal government will be unable to make deposits of social security into bank accounts and to pay Medicare bills and Medicaid payments and so on.
There are three ways to continue deficit spending:
1. Raise taxes by amounts so huge they would cause taxpayers to retire early and to leave the country which would not ultimately increase revenues enough.
2. Just keep selling bonds as in the past. Not feasible because the U.S. credit rating has fallen and will do so in the future as the debt-to-GDP ratio of the U.S. approaches and exceeds the all-time record of 122% (caused by WW II and Korean War expenditures). We are now at 105%. As the fundamentals fall, the interest rate the U.S. needs to pay will rise prohibitively and the market for the bonds will shrink ultimately resulting in bond offerings that do not sell.
3. Sell U.S. bonds to the U.S. Federal Reserve Bank, in other words, return to so-called “Quantitative Easing” only this time an endless “Easing” that triggers hyperinflation of the U.S. dollar. The mechanism is the Fed buys those bonds with money it conjures out of thin air. That increases the money supply catastrophically which, in turn, makes the dollar worthless.
Hyperinflation will “solve” the entitlement problem—by paying the entitlements with worthless money that recipients cannot use to buy anything. The national debt will also disappear because of the hyperinflation, by making all dollar-denominated assets worthless. Which assets are those?
• annuities including Social Security
• cash in U.S. dollars
• all U.S. government, corporate, municipal bonds (i.e., the national debt)
• all U.S mortgage bonds
• savings and checking account balances
• IOUs where you are the U
Who wins? Debtors. Who loses? Owners of the above-named dollar-denominated assets, medical-service providers like doctors, nurses, pharmaceutical companies who bill Medicare and Medicaid, federal government employees, federal pensioners.
Who is unaffected? Owners of other assets like foreign currencies, real estate in the U.S. and elsewhere, owners of commodities.
What about stocks? Unpredictable. Those that own a lot of dollar-denominated assets are probably not good investments. Ditto those who would be hurt by price controls. History shows stocks skyrocketing and plummeting at various times during hyperinflation.
Hyperinflation lasts about six to 24 months, then ends overnight, because it is absolutely intolerable. It ends by letting you use any currency you want (e.g., Zimbabwe) or by the hyperinflated currency being replaced by a new one with a credible story as to why it will not hyperinflated (e.g., the Rentenmark in Germany in 1923).
Then those who read my book return home from abroad to the U.S. The radically changed Congress and Oval Office will start from scratch with entitlements cutting them drastically because they will henceforth have to pay them with real money, not Federal Reserve magic money. Sympathetic (poor) persons who owned dollar-denominated assets that became worthless will get a token “sorry about that” 5% or thereabouts real money compensation for their loss.
There is a chance that socialists may win the political battle to rule the post-hyperinflation U.S.
The collapse of the entitlement state already happened in Sweden to a large extent. Here is what Newpol said about it:
“What went wrong? Critics claim that the welfare state had simply become unsustainable and its cost had sent the budget deficit soaring. Yet shortly before the slump, Sweden still had full employment, a strong welfare state and a hefty budget surplus. To understand what happened, consider the background: the growing power of Swedish business, pressures from globalization and the race to join the European Union, with its requirements for low budget deficits and inflation but none for low unemployment. Neoliberalism had penetrated even the Social Democratic Party. The emphasis was on free markets, deregulation, and privatization. Perhaps as a consequence, the national government has increasingly thrust responsibility for health and social services onto local government. Also, a sweeping tax reform favored the rich and cut deeply into government revenues. Financial deregulation had sparked a wildly speculative real estate boom and a related near collapse of the banking system. These policies required an expensive government bailout, a stubborn, futile and costly defense of an overvalued krona that pushed interest rates briefly to 500 percent and helped to turn a recession into a depression that coincided with an international slump. Above all was the abandonment of the full employment priority.”
Word to the wise.
The books advice is like buying insurance against hyperinflation or depression, not betting that either is going to happen. If we somehow avoid hyperinflation or depression, no harm no foul. It will be like when you buy a one-year fire-insurance policy on your home and it does not burn down during the year.
As always with insurance, it is better to have it and not need it than need it and not have it and it is infinitely better to have it a day early than to try to get it a day late. If the people of Venezuela had read and followed my book before their current hyperinflation, they would generally be out of the country and saved from the disaster there.
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