Trillions upon trillions of new debt. High unemployment. Anemic growth.
Let’s face facts: THE WORLD IS IN SHAMBLES. Unfortunately for all of us, neither Romney, Obama, or resurrecting Ronald Regan from the afterlife will solve the problems. To compare the federal government (or the governments of the Euro Zone) to your own household, the only thing the economies of the world are running on right now are borrowed funds. When the United States wants to borrow money, they sell treasury bills to investors to raise funds. The issue coming to the forefront lately is that sooner or later, the United States will reach the tipping point with its debt load, and no longer will be able to afford to make the interest payments. At that point, investors will no longer be willing to lend even more money to the United States, and the currency will collapse.
Sound unrealistic, and like it can’t happen here at home? It’s already dangerously close to happening in Greece, Ireland, Italy and Spain. The United States is already borrowing as high as 40 cents of every dollar it spends, and total tax revenues collected are far less than the amount needed to pay for the massive largesse of federal and state government services, medicare, social welfare programs, and all that’s left in the social security “fund” is a bunch of ‘IOU’s” from Uncle Sam. We face the beginning of the current wave of the baby-boomers retiring, which will swell the ranks of social security receipients, thereby exacerbating the problem.
If this was your household, this would mean that you earned, for instance, $4,000 per month in take home pay, but had bills the debt service was $6,000 per month. Obviously, millions of americans did just that as bonuses disappeared, hours were cut, and jobs were lost over the past five years. And they resorted to borrowing money from credit cards and lines of credit in order to fill the $2,000 per month gap between income and expenses. As they did so, the payments increased. The gap of $2,00o per month soon became $2,300 per month, then $2,700 per month, and on and on until there was no more available credit since the credit limits were reached. this same scenario is unfolding across the nation at the state and county government level, since as people have lost jobs, companies have shuttered their doors, deferred purchases, and generally tightened the proverbial belt, tax revenues have fallen dramatically for many local governments.
The only difference between your household (same goes for local governments) and the federal government is that neither you or Stockton, California can print its own currency… but Uncle Sam can. And boy, has he ever. The only reason Bernanke & Co. have been able to get away with this much artificial stimulous has been general deflation of assets and slow growth, which is keeping inlfation in check, despite Bernanke going hog wild with the printing press. If the economy picks up steam, inflation is sure to follow. The problem here is two-fold: First, if this scenario unfolds, inflation is likely to be incredible. Inflation is based on expectations, and the premium we will all have to pay is based on the “expected” loss of purchasing power in the future. The second thing is wealth will further be destroyed for the banks (and ultimately investors) when we repay our long term debt on things such as home mortgages with inflated dollars. In either case, current consumption in excess of current income creates a destruction of wealth. The bottom line is that whether its your household or the federal government, or the whole world for that matter, consuming more than we produce eats into the excess we have stored up. When the excess is all gone (and as a world we are dangerously close to the tipping point), wealth is destroyed, and there will be riots in the streets. There already are riots in many parts of the world, and the reality is here with us now.