May 20, 2017

The U.S. Federal debt

Under Obama, the quantity of U.S. dollars on issue grew exponentially.  If all holders of dollars tried to spend them, however, the result would not be pretty. The quantity of goods and services available would remain largely unaltered but with trillions of dollars competing to buy them, the value of a dollar would fall dramatically -- as far as one cent in terms of today's purchasing power.  Virtually all savings would be wiped out -- as has happened in many places in the past, Weimar Germany, modern Venezuela etc.

So the USA is essentially bankrupt.  It cannot give value for what it owes.  Fortunately, all that huge overhang of money is at present stashed in financial institutions and overseas debt, with China being a big holder of U.S. dollars, so the money is not being spent and the buying power of the dollars has remained fairly stable.

China, however saw some years ago what was happening and has taken steps to rid itself of its possibly worthless dollars. It resists taking in any new dollars and has gone on a worldwide spending spree to unload the dollars it already holds.  It is buying up real estate, farmland and profitable companies worldwide. Basically the Chinese government encourages its companies and people to buy up anything overseas that moves and some things that don't.

What could happen, however, is that all that money locked away in banks and company reserves could start to be spent.  Mr Trump has engendered a feeling of optimism in business and many businesses are going to feel encouraged enough to start expanding.  And they will go to the banks and make good cases for borrowing.  And the banks will see what looks like good uses for their money.  They will see that they could start to earn interest on their otherwise unused money.  So they will lend on the applications to them and business will get a big new pile of money in their hands.  And what will business do with that pile of money?  Spend it!

And then comes the crunch, a whole heap of new money will be added to the money already in circulation and that will greatly increase the demand for goods and services.  But the available goods and services will not increase significantly so the only way anybody can now grab what is available will be to offer more money for it.  Prices will soar and the buying power of everybody's dollar will drop.  America will have roaring inflation and all that money you spent years saving will become near-worthless.   What you can buy today for $100.00 will in future cost you $1,000.00 or more. You will have been comprehensively robbed of your savings.  You will suddenly be poor.

What happens then is the question.  What normally happens in response to roaring inflation is that the existing currency is scrapped and new money is issued.  You might get one new dollar for a million old dollars.  America will have walked away from its debts.  The nation will be effectively bankrupt

Is that going to happen?  I am not alone in expecting it.  All the gold bugs expect it and I see that some wiseheads expect it soon. Below is an email just received:

>>>>>>>>>>>>>>>>>>>>>>>>>

Dear Reader,

I just got wind that the people in charge of "the Fed" are scrambling to keep America's money system alive...

According to my source, Fed members just wrapped up a special "behind-closed-doors" meeting to discuss one of the most dramatic changes to the U.S. dollar in the last 100 years.

A change that not only affects how we spend, save, and earn...

But that will also transform the very nature of "money" itself.

To uncover the story, I flew down to Aspen, Colorado to meet with NY Times Best-Selling author, currency expert and multi-millionaire speculator Doug Casey.

Casey is one of the most connected men in the financial world.

He was Bill Clinton's classmate at Georgetown... He's debated presidential candidates... He's met with former Fed Chairman Alan Greenspan... And he's also been invited by the leaders of twelve different countries to discuss monetary reform.

Some even credit Casey with introducing the concept of "economic citizenship," where individuals can become citizens of a country simply by making an investment.

In my interview with Casey, you'll hear his warning to Americans regarding the consequences of a new potential money plan by the Fed that could start in the next 6 months.

You'll also hear the four steps he's personally taking today to prepare himself and protect his savings.

To watch my exclusive interview with Casey, click here.

Regards,

Bob Irish
Retirement Insider

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How should the government handle the problem when it comes?

With close co-operation between Congress and the administration, the crisis could in fact be handled very constructively -- so should be handled while one party controls both the administration and the legislature, as it does at the moment.

The first step should be a total abolition of the old currency, meaning that debts owed in that currency cease to exist.  People laboring under student debt, people who have borrowed big to buy a house and businesses labouring under huge borrowings would suddenly find themselves debt free and owing nobody anything.  A great cry of joy would arise across the fruited plain.

Cities and states owing huge retirement benefits extorted by strong labor unions would also feel their budgets freed up for urgent roadworks etc.  The retired unionists would have to get by with social security, like everybody else.

As soon as the old currency is abolished a new currency should be issued, called (say) "Federal Notes", abbreviated as "Feds". And the distribution of the new money could be used first and foremost to benefit the little guy.  All dollar savings deposits in the banks could be transformed into deposits of Feds on a one-to-one basis up to a maximum of 5 million.  That should keep 95% of the population happy immediately.

Businesses actually making things like cars and machinery could be given Feds to the value of 6 months of their turnover. Service business are not usually very capital intensive so could get the equivalent of one month's turnover.  Their ongoing revenues should keep them going after that.  Freed of debt, American business should roar ahead.

So who would be the losers?  Basically China and Wall St.  And I can't see many Americans crying over that.  Wall Street is basically a parasitic tumor on American productivity anyway so would hopefully die out at that point.  And China has its own currency so is in no way dependent on U.S. dollars.

It would all generate lots of uproar to be dealt with so everybody would be in agreement that such a disruption should never be repeated.  People would agree that the cause of Obama's excess money issue should be addressed.  And the cause is plain:  The great expansion of the Federal bureaucracy under Obama.  Obama spent three dollars for every two he raised in taxes.  And he mostly spent it on useless bureaucrats whose main job was to hold America back in various ways.

So the bureaucracy would have to be drastically trimmed.  And there is an easy way to do that.  All Federal departments that overlap with State government departments could be abolished.  There are extensive State departments dealing with the environment, healthcare, education etc so there is no need for Federal activity in such fields.  In effect America would be re-Federalized, with most functions going to the States.  And that is how America was during its great period of growth so nobody could plausibly say that that would not work.  America would be returning to its healthy roots instead of becoming just another version of a corrupt and overweening European state.

And such a big shrinkage could enable useful Federal tax cuts. Company taxes and death taxes could be abolished, freeing up big constructive energies. The whole world would want to set up business in America, with the result that all those unemployed Federal bureaucrats could get jobs doing something useful.

So there would be something for just about everyone. Even the Democrats might like to see the worker liberated from his debts -- if they do really still care about the worker. And the Left worldwide has traditionally been hostile to Wall St. Again, however, we could not rely on the Democrats for that. Big Wall St contributions to their campaign coffers seem to have "bought" just about all of them by now.





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