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ECONOMICS AND ESOTERICA FOR A NEW PARADIGM

America is Broke

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by Greg Hunter
Originally posted USAWatchdog.com
February 21, 2011

Saturday, the House of Representatives passed legislation with more than $60 billion of budget cuts.  It is the proverbial “drop in the bucket” when compared to the $14.1 trillion (and counting) outstanding federal debt.  Soon, this ever increasing national debt will eclipse the Gross Domestic Product (GDP.)  That means America will owe more than all the goods and services it produces in one year. When you owe more than you make, isn’t that a sign you need to change course?

The new Speaker of the House, John Boehner, said this just after the budget cut vote, “We will not stop here in our efforts to cut spending, not when we’re broke and Washington’s spending binge is making it harder to create jobs.” I think it is ironic Congress wants to cut $60 billion today and then turn around and consider raising the debt ceiling $1 trillion tomorrow. This is crazy, but that is exactly what’s going to happen because if we don’t, Treasury Secretary Tim Geithner says it could cause “catastrophic damage to the economy.”

I don’t think most people grasp just how serious America’s budget problem really is. When Mr. Boehner says, “we’re broke,” he’s not kidding. America is broke. The only reason this has gotten so out of control is the U.S. dollar is the world’s reserve currency, and the government can just print money whenever it needs funds. Right now, the Fed is creating $75 billion a month to help finance government operations. This is met with a shrug, like it is no big deal.  But, it is a big deal, and it comes with a significant downside – inflation. Sure, there is deflation in housing, but everything else is going up in price.

It is not just the federal government that’s swimming in red ink, but more than 40 states in the union are also tens of billions of dollars underwater in deficits, pensions and health-care obligations.  The union protests in Wisconsin are just the tip of the iceberg. Contrary to what left wing commentator Rachael Maddow says, the $137 million deficit problem in Wisconsin was not caused by Governor Walker’s tax-cut bills approved in January. Here’s how The Wisconsin Journal Sentinel summed up the false story, “There is fierce debate over the approach Walker took to address the short-term budget deficit. But there should be no debate on whether or not there is a shortfall. While not historically large, the shortfall in the current budget needed to be addressed in some fashion.”

I was a guest on the nationwide radio show Coast to Coast AM last week. I was there to talk about the protests in Wisconsin and elsewhere. I said this was only the beginning because many states were billions of dollars in the hole.  The states cannot print money, so unions will have to take cuts to pay and benefits. I got some very foul and angry emails from listeners. One wrote, “F*** YOU!  Unions are the only reason we had good wages and decent places to work in the USA. It’s greed by companies that have destroyed this country.”

Another anonymous email said, “You don’t have any idea of what is going on. Now you think the Gov’t workers should get screwed. You subservient dick.I wrote back and said, “What you are angry about is something we all face.  The nation is broke, and we are headed for a crash. In the end, we are all screwed, government workers are just first.” But that really is not correct. I should have said, “It is now the government workers’ turn to feel the pain the rest of America has been feeling.” These emails are examples of how Americans will just not accept that we are out of money. The sovereign debt problem is here today staring us all in the face.

State and city budgets are so deep in red ink that former L.A Mayor Richard Riordan said recently, “Throughout the country, 90 percent of cities and states are going to go bankrupt within the next five years, many of them sooner.” Things have gotten so bad that investors are starting to shun municipal bonds. (This is the state version of printing money.) Sales are way off, and one reason may be that Congress has been quietly talking about letting states go bankrupt. Here’s how the New York Times reported the story last month, “Bankruptcy could permit a state to alter its contractual promises to retirees, which are often protected by state constitutions, and it could provide an alternative to a no-strings bailout. Along with retirees, however, investors in a state’s bonds could suffer, possibly ending up at the back of the line as unsecured creditors.”

On one end of the spectrum, I see, at the very least, high inflation. On the other end of the spectrum of possibilities is the financial collapse of the United States. Economist John Williams of Shadowstats.com has been talking about this possibility since I first met him in 2008. He says hyper-inflation leading to collapse is a definite possibility. Williams is not the only one who thinks there is a potential breakdown coming.

Dmitry Orlov, author of the new book “Reinventing Collapse”, witnessed firsthand the Soviet meltdown in the early 1990’s. Orlov says, “Something similar is happening here where we have people in all branches of government, both political parties trying to prop up the financial industry, which has become completely irrelevant to most people in the United States, who don’t have savings and are not creditworthy. They’re basically trying to use up people’s savings and use up people’s retirement to prop up this set of institutions that only help the very rich people, and these very rich people are only rich on paper, they are “long paper,” all of them. What they own is pieces of paper with letters and numbers on them, which will turn out to be worthless. So this is all just basically musical chairs, and something very similar was happening in the Soviet Union, and something like that is happening here.”

Just the fact that collapse is a possibility should be sobering to anyone. Americans are fooling themselves if they think we can get back to the way things were before using borrowed and printed money.

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