Anyone with an active interest in economics, or with the kind of bank account and job that causes them to read the Wall Street Journal should by now have a very good sense of what is coming down the pipe in the USA.
Most of the rest of the world – especially the Chinese – seem to have a very good sense of it.
While it is true that the USA is full of ingenious and enterprising people, and so probably won’t go up in a puff of smoke, it may soon be over in its current incarnation.
And here’s how we know.
When I arrived in the U.S. a few years ago, no one ever used the word trillion. Now we hear it on every news show. Depending on how you calculate them, bail outs represent government commitments of over $9 trillion Not all of this money has yet been spent, but it’s a fair number to use.
It happens that $1 trillion is very close to the total federal income tax receipts of the United States for the year 2006. As of June 2009, the total debt owed by the government of the USA is $11.4 trillion or $37,000 per capita, or $124,000 per taxpayer.
In other words, if nothing else changed in America, every single American would have to pay about double the income taxes they are paying now for about 11 years just to pay the principal debt owed by our government. That of course would mean total impoverishment. Even if that payment is spread out over an entire generation (25 years), income taxes would have to rise by more than 40% on top of what they are now.
It would be nice (but highly immoral) to say, “No problem; we can spread the payments out longer: our great grand children have it covered”, but at our current rate of deficit-building, they’ll have enough on their plate paying for the debts of our children and our grandchildren… and so it goes on… getting worse.
Indeed, we know the situation will be a lot worse even by 2014, when according to the government, the public debt will be an estimated $18.3 trillion, representing a 50% increase on today’s income tax rates for the entire working lives of every tax payer in America today.
If America were to attempt to raise taxes to cover these obligations, there would probably be (long overdue) riots on the streets. Quite right too.
This fact, and these numbers, confirm that the only possibility – and therefore surely the intention of those engineering this irresponsible nonsense – is for the USA to inflate its way out of all its obligations. We can be sure of it because they keep telling everyone that that is exactly what they are not going to do. The lady doth protest too much.
Inflation means printing more money without increasing productivity (which what we are already doing) to make each dollar worth less. In that way, all of the USA’s debts, which exist as a fixed number of dollars, become worth less in real terms and therefore easier to pay off. Thus, anyone paid back with these worth-less dollars ends up receiving a lot less value than they original loaned to the USA in the first place. This of course is the equivalent of defaulting on a loan – but much less honest.
It makes sense, then, the Chinese are talking about reducing their dollar holdings and have for some time been quietly buying real things of value with those dollars, like gold, the price of which in dollars will be rocketing over the next few years.
Moreover, the Chinese are now asking for their US bonds to be priced in their own currency, the yuan, rather than US dollars, because they know their yuan will be worth something when time comes for the Americans to repay – but they’re not so sure about the greenback.
More immediately, and perhaps even more frighteningly, rumors of a bank holiday are increasing. Reports are circulating among the financial cognoscenti that there could be a bank holiday as soon as the Fall. A bank holiday refers to a government-enforced closure of all banks for a few days… which then reopen with the currency revalued. In other words, on Friday, a tin of soup costs a buck; the banks are closed the following Monday, and then on Tuesday the same tin of soup costs two bucks. That of course is rampant inflation. This can only happen because the US currency is a “fiat” currency, meaning it is backed by nothing of fixed value – and so its value varies with the amount in circulation, or the money supply (and, admittedly, other factors, at least in the short run).
These rumors of a bank-holiday may come to nothing, in which case the inflation that has already been “built in” to the American dollar by the printing of huge amounts of money and borrowing that can never be paid back, will happen over a few months or years rather than a day or two of quiet high-streets.
Either way, if you love America, and want to help repair it after the fan has stopped working because of the large amount (18 trillion-worth, no less) of a bad smelling substance that has been thrown at it, get your money out of dollars now. Buy something real with them while you still can, like a few ounces of gold, or what the heck, some land and a few cows so you can at least have some milk and red meat to cheer you up when everyone else has to queue for food. Then, when things calm down again, you may be able to sell your gold for a few NADs (New American dollars) and invest again in the new America.
Let’s hope that America 2.0 keeps the old Constitution.
Article 1, Section 10: No State shall … make any Thing but gold and silver Coin a Tender in Payment of Debts.
Spooky. It’s almost as if they knew, isn’t it?
Robin Koerner is a British-born citizen of the USA, who currently serves as Academic Dean of the John Locke Institute. He holds graduate degrees in both Physics and the Philosophy of Science from the University of Cambridge (U.K.). He is also the founder of WatchingAmerica.com, an organization of over 100 volunteers that translates and posts in English views about the USA from all over the world.
Robin may be best known for having coined the term “Blue Republican” to refer to liberals and independents who joined the GOP to support Ron Paul’s bid for the presidency in 2012 (and, in so doing, launching the largest coalition that existed for that candidate).
Robin’s current work as a trainer and a consultant, and his book If You Can Keep It , focus on overcoming distrust and bridging ideological division to improve politics and lives. His current project, Humilitarian, promotes humility and civility as a basis for improved political discourse and outcomes.