Here is more from Bill Buckler's latest Privateer, showing the pickle or the squeeze or the cliff or the impossible situation that we are in.
$this->bbcode_second_pass_quote('', '-')----------(snip)-------------------
Physically Intact - Financially Prostrate:
Economically, in the most basic of ways, the US today is
financially a Germany of 1945 - but in reverse.
It is in reverse because the US is physically intact but its huge
financial system is way beyond economic recovery. This fact
is easily proven. No economy has ever in history managed to
stand with a debt load of nearly 400 percent of its GDP, and
that is without accounting for the bigger unfunded debts.
RADICAL Alternative Cases:
If the proverbial "financial neutron bomb", the one which
destroys all financial instruments and all the cash paper
money, was to strike the US financial system overnight, the
US would still stand physically in an undamaged position with
all structures intact. It could, just as post-war West Germany
did, restart by the simply means of putting another paper
Dollar into circulation, this one without the debt over-hang.
If the proverbial "monetary inflation bomb" strikes, the one
which overnight adds 2,3,4 or 5 zeroes to each individual's
cash holdings and to their accounts in the financial system, the
US would still stand physically intact. But its paper money
and money on account or deposit would be void in its
purchasing power. Still being legal tender, it would certainly
be very easy to pay all debts off.
Financially And Economically - The US Is Boxed-In:
Since neither of these two out-at-the-edge cases are likely, the
US is stuck somewhere in between. A financial recovery
would require that the US Federal and all State budgets were
brought back into real surplus with the surpluses used to pay
down past outstanding debts. If these surpluses were gained
through tax increases with government spending remaining at
current levels, the result would be a severe recession as living
standards fell because of the higher taxes being paid. The
other means is through spending cuts. Even that would be
recessionary, but not as bad because the artificial "stimulus"
would no longer be there. At least most Americans would
manage to maintain their current standard of living.
The US could not stop there. Its massive credit expansion
would also have to be brought to a dead halt. That would
mean higher interest rates, rates so high that the volume of
new loans dried up. The act of raising US interest rates to
such a height would trap all US borrowers, private or
business, with higher costs for all their past debts.
Bankruptcies would be the result and the financial system
would take losses.
Even then, this would not be enough. A lengthy period of real
monetary savings would have to take place to set the
economic foundation for new investments in capital plant and
machinery before the US could start to increase its real output
and begin to sell to the world and in that manner repay
external debt.
As The Privateer has repeatedly stated, the real damage has
already been done. The height of debts show this damage and
now the debts are here, they really are here. The Privateer is
also certain that today there are few, if any, US politicians
prepared or willing to act in this direction, even incrementally,
so there is no economic solution in sight from the US political
side. Lastly, The Privateer is fully certain that if the
American public discovered that there was a five to fifteen
year (see the cases of Russia, Germany and China) job in front
of them to repair their financial system and their real
producing economy, there would be riots in the streets of the
US. Be that as it may, the "BOOMERS" will act to cause a
resolution.
The "boomers" are, of course, the baby boomers, the 75
million Americans who are now 42 to 60 years old and are
heading toward retirement. Most of them have next to no real
monetary savings - but they sure have debt. By 2008, the first
of this fabled generation will turn 62 and apply for Social
Security pension payments. By 2011, they start to become
eligible for Medicare health care payments. All these payouts
will multiply so that by about 2030, they will be claiming 18
percent of US GDP.
That would amount to almost ALL the tax revenues now
collected by the US government. THAT would leave a total
of ZERO Dollars for any other spending - including spending
for defence and education.
The Insoluble Dilemma:
Future baby boomer "entitlements" equalling present tax
revenues just about wraps up the situation which is now
rolling towards the USA. On hard economic fundamentals, it
comes down to a doubling of taxes in the US over the generation
ahead - or a brutal printing of money in lieu of raising taxes -
or a blunt denial of payment, or lower payments to the elderly
and the retiring by ever tighter bureaucratic means.
On present actuarial calculations, the unfunded liability for
the "boomers" comes to $US 57 TRILLION. Yes, the
"boomers" have paid their taxes, but all this money has
already been spent.
How It Could Have Been:
If, after the Civil War and the Greenback episode when the
US Treasury simply printed its own paper money as required
for the purposes of the war, Americans had avoided the early
growth of the welfare state, the current situation would never
have arisen. The post Civil War Greenback period itself, in
fact, had a profound public effect. The American public hated
the Greenback because it plummeted in value against Gold
and Silver. This is what eventually caused the US Dollar to
be firmly established on the Gold Standard at the post 1837
rate of $US 20.67 per ounce of Gold. The reason why
Americans had this extraordinary interest in what money was
and its value was because there was no US welfare state.
Each American had the firm understanding that however hard
it might be, they had to save. To save in a money which lost
its value over time was understood to be the negation of
savings for the purpose of having the monetary means in hand
with which to live when one later approached one's older years.
But with the growth of the slowly expanding US welfare state
after WW I and with the later arrival of Presidents Roosevelt,
Kennedy and Johnson with the latter's "Great Society"
programs, Americans lost interest in personal savings. They
had been promised money to retire on by sequential
presidents. These political promises have now reached the
astounding and unfunded height of $US 57 TRILLION!
Four Parallel Economic Cases:
The post 1991 case of Russia is brutally economically simple.
After its international debt default and its financial collapse,
the Ruble was worthless, as were the debts owed in Rubles.
Russia fell into an economic depression much deeper than the
one the US had in the 1930s. The Russian mortality tables
soared and the average length of life in Russia contracted by
nearly ten years. The obvious result was that millions of
elderly Russians died of cold in unheated apartments and lack
of sufficient food, their former pensions now being near
worthless. In the case of post war Germany, the years from
1945 to 1955 were very hard. But with a new hard currency,
the D-Mark, there was again money in circulation worth
saving and the Germans did just that - for a while. But with
the re-expansion of the German welfare state in the 1970s and
1980s, the private German savings rate slowed down
markedly, though to this day Germans in general still save
about 12-14 percent of their individual monetary earnings.
China had to wait until after Mao and the breaking of the
"iron rice bowl" - the common rice bowl everybody was
supposed to eat out of. But now, Chinese individual private
savings have soared to 30-40 percent of all individual private
Chinese monetary earnings. The comparative US case is
simple. There are NO US savings - NONE!
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Copyright 2006 - The Privateer
http://www.the-privateer.comcapt@the-privateer.com(quoted with permission)
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Conclusion: Only one way out of this is through unprecedented crash, as always.
