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The U.S. government has put us between the proverbial ‘rock and a hard
place’. Cutting spending to improve our country’s financial situation would surely trigger rioting in the streets by those Americans most adversely affected yet not cutting spending will trigger much higher inflation – even hyperinflation – which will also result in rioting….Government cannot control how this ends. They may be able to tinker with the timing a bit and they still have the choice of poisons with which to destroy the country, [but] that the country is gone, that is no longer alterable. Words: 930
So says ”Monty Pelerin” (a pseudonym derived from The Monty Pelerin Society) in edited excerpts from his original article* as posted at www.economicnoise.com .
Lorimer Wilson, editor of www.munKNEE.com (Your Key to Making Money!), has edited the article below for length and clarity – see Editor’s Note at the bottom of the page. This paragraph must be included in any article re-posting to avoid copyright infringement.
Pelerin goes on to say, in part:
We have reached the point where [the U.S.] government can no longer meet its obligations with traditional financing….[It] became a real Blanche du Bois, “living off the kindness of strangers” but now the strangers are no longer interested in supporting Blanche’s profligate spending. Furthermore, they have incredible needs themselves and are busy with their own printing presses.
The Fed purchased 61% of the total net Treasury obligations that were issued in 2011 (prior to 2008 the amounts were negligible) and it is likely to have to purchase even more in 2012 [given that] deficits are not being reduced in the U.S.. The world recognizes that America’s fiscal situation is out of control. Their confidence in our bonds is decreasing rather than increasing….Markets understand that the U.S. is becoming a dangerous credit risk…
The U.S. government has reached the point where it cannot pay for its level of spending via tax revenues or market-based Treasury sales. [Read: U.S. Can NOT Avoid Coming Economic Collapse – No Matter What! Here’s Why] There are only three courses of action available to the Federal Government:
- Raise Taxes – This option cannot raise enough money to close the gap. Attempting to raise taxes could exacerbate the deficit by dampening economic activity. U.S. corporate income tax rates are now the highest in the world [although personal income taxes are among the lowest – see Stop Complaining! U.S. Taxes Are MUCH LESS Than Almost All Other Countries! Take a Look]. If anything, taxes should be lowered.
- Cut Spending – This is the proper solution. Government has grown past the point where the productive sector will or can support it. Spending should be cut back to the point where deficits are eliminated.
- Print Money – This is the political solution and exactly why the Federal Reserve bought 61% of Treasury Bonds last year. It is not a real solution and it is highly dangerous. Each purchase of Treasury Bonds by the Federal Reserve increases the base money supply. Any time the Fed expands its balance sheet it adds an asset and creates money/credit. Since 2008 the Federal Reserve has almost quadrupled its balance sheet. That puts into the system the potential for 300% price inflation. [Read: Any Way You Look At It Very High Inflation Is Inevitable – Here’s Why]
Politicians never want to cut spending and almost never want to increase taxes (unless it can be done as class warfare aimed at punishing the few to get the votes of the many). It is exactly this type of behavior, with special emphasis on the spending part, that has put the country into the impossible situation it is in. [Read: U.S. “Deficit Disorder” Means Broken Promises + Even More QE! Here’s Why]
My guess is that printing money will continue until high inflation, possibly hyperinflation, engulfs the nation. [Read: High Inflation is Coming but Hyperinflation is Highly Unlikely – Why is That?] We are in uncharted territory for this great printing exercise. Creating more money or liquidity always leads to higher prices. The potential for damage based on money already in the system is staggering. Furthermore, additions in excess of last year’s money creation will likely be added this year….
Past Fed actions have already released the inflation genie into the system. When he decides to explode no one can predict, but an explosion is inevitable unless government spending is cut by almost 1/3 and the Fed begins to reverse the excess money in the system. Neither one will happen until it is too late….
- According to one new survey, approximately one-third of all Americans are not paying their bills on time at this point. [Read: 75% of Americans are in Deep _ _ _t!]
- The U.S. housing industry is bracing for another huge wave of foreclosures in 2012. [Read: U.S. House Prices Have MUCH Further To Fall! Here’s Why] The following is from a recent Reuters article: “We are right back where we were two years ago. I would put money on 2012 being a bigger year for foreclosures than 2010,” said Mark Seifert, executive director of Empowering & Strengthening Ohio’s People (ESOP), a counseling group with 10 offices in Ohio.
- The Citigroup Economic Surprise Index, a key indicator watched by many economists, is on the verge of heading into negative territory.
- We are supposed to be in the middle of an economic recovery in the United States, but bad news just keeps pouring in from major companies. For example, Yahoo is firing thousands of workers and Best Buy is closing dozens of stores.
- Richard Russell says that the “big money” is starting to quietly exit from the financial markets….“My guess is that this is the big money that has been holding off as long as it decently can — and then dumping their goods just before the close. I don’t think the big money likes this market, and I think they have been slowly exiting this market, as quietly as they can.” [Read: We’re at the “Beginning of the End” for the Markets – Here’s Why]
- Goldman Sachs is projecting that the S&P 500 will fall by about 11% by the end of 2012. Read: Marc Faber: We Could Have a Crash Like in 1987 This Fall! Here’s Why and Pento: Markets Will Fall Significantly This Summer – Here’s Why and Charles Nenner: Dow to Peak in 2012 and Then Decline to 5,000!]
- All over the country, local governments are going into default [Read: Municipal Bankruptcy Crisis in U.S. to Have Dire National Consequences! Here’s Why – and How and American Cities Feeling the Financial Pinch] and we have not even entered the next recession yet….
Rioting in the streets is an almost certain outcome. [Read: Monumental Change is Coming for Most Americans – Here’s Why] Cutting spending would trigger it but not cutting spending will trigger high inflation which will also result in rioting.
* http://www.economicnoise.com/2012/04/06/how-the-country-dies/
Editor’s Note: The above article may have been edited ([ ]), abridged (…), and reformatted (including the title, some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The article’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article.
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