[NTBKtrader]

On the long-term fiscal status of America, Rep. Dennis Moore, a Kansas Democrat, quoted a recent speech by David Walker, the comptroller-general of the United States and head of the Government Accountability Office. "The United States is now the world's largest debtor nation," Mr. Walker observed. "In the last five years alone, our nation's total liabilities and unfunded commitments have gone from about $20 trillion to over $46 trillion," Mr. Walker said. Asked by Mr. Moore if the comptroller general was correct, the chairman of the Federal Reserve replied: "Those are numbers which I think are consistent with the actuaries for Social Security and Medicare."

http://washingtontimes.com/op-ed/200607 ... -5010r.htm

[seahorse]

So, do deficits matter? Cheney says no.

[rogerhb]

$this->bbcode_second_pass_quote('seahorse', 'S')o, do deficits matter? Cheney says no.

[firestarter]

At Daily Reckoning, Bill Bonner laid out the scale of the debt situation quite succinctly last week:

$this->bbcode_second_pass_quote('', '"')...A budget deficit brings a warm and friendly feeling in the year it is incurred.

But as in every public spectacle, the suffering, regret and disillusionment, are pushed off into the future, after the farce runs to its inevitable conclusion. This is especially so in the matter of the U.S. deficit. While the drugs, retirement checks, subsidies, public works, wars and other spending programs are taken up like free drinks by the present generation, the generations still to come will get stuck with the bar tab. Just for the sake of math that we can do on the back of an envelope, let’s say tomorrow Congress and the president came to their senses and decided that henceforth, people will pay for what they get. From this moment forward, the U.S. government would work on a “pay as you go” basis - effectively fixing the present “fiscal gap” at its current level, $65.9 trillion. It is to go no higher.

And then, let’s say that the next generation was put to work to pay down this burden to zero, so that future generations would come into this life on at least as good terms as past ones - with nothing. And let us stipulate that the total number of people in this next generation is 100 million. That leaves each of them with $659,000 to pay off. Assuming a working life of 40 years, that’s $16,000 per year...in principal alone.

With interest, annual payments could be twice that much - or about the entire after-tax income of the typical worker (inflation has been set aside for these calculations). In other words, this entire generation would have to work its entire life just to pull the country out of the debt that its parents and grandparents built up...."

[Tyler_JC]

Yes, the Debt Bomb is a big problem.

But never underestimate the impact of inflation and government trickery.

The government has a very clever plan. The Cost of Living Adjustments (COLA) are tied to the core inflation rate. COLA are used to set Social Security payments as well as pay raises for government employees.

As we all know, the core inflation rate excludes food and energy (both set to dramatically increase in price over the next few decades). Thus real inflation is much higher than the core inflation that we see printed in the various reports.

COLA will lag true inflation, giving the Federal Government a lot of much needed breathing room.

If Social Security payments go up by 5% a year and real inflation is 10% a year...the government comes out ahead by billions of dollars. Over the course of 15 years, the inflation-adjusted cost of Social Security decreases by half!

Granted, the difference between COLA and the real cost of living may be more like 2%-3%, that small difference will be magnified over time.

Also don't forget that inflation will increase the wages of most people resulting in more tax revenues as people move up the graduated income tax structure into the higher brackets. I know that Payroll taxes are capped at a flat rate right now, but there is no gurantee that they won't try to "soak the rich" in the future.

https://www.ssa.gov/OACT/COLA/colaseries.html

The Cost-Of-Living Adjustment for 2005 was only 4.1%.

Did your cost of living only go up by 4.1%? I doubt it!

And remember, we haven't had serious inflation in the USA since the early 1980's. If we have year after year of double digit inflation, the national debt will become increasingly marginal. Remember, much of debt is in long term bonds that are locked in to relatively low interest rates (4%-6%).

We will be screwed by very high inflation which will be used to reduce the actual cost of these liabilities. Tax rates do not necessarily need to skyrocket to pay for everything.

In the end, however, the impact on our standard of living will essentially be the same.

[Heineken]

$this->bbcode_second_pass_quote('seahorse', 'S')o, do deficits matter? Cheney says no.

[KhanCEO]

This debt bomb was created by a private government that wishes to make you their very own slave.

Think I'm kidding? Please tell me why the federal reserve system (private bank with shareholders) that makes HUGE profits everytime the government gets into debt isnt putting a stop to it. The government could print its own money interest free; only paying on the principle. However the FED wont let this happen, they truly are the REAL government. Sad thing is the FED controls how much you pay for your house payments, credit cards, student loans, car loans, and all types of debt. This is what gives them their power. They have total control of the economy.

To say the Federal Reserve System "influences" government is like saying a robber pointing a gun at your head only "influences" you to give him your money.

It is debt like this that make 3rd world countries, 3rd world.

[firestarter]

Paul Saxena:

$this->bbcode_second_pass_quote('', 'I')'ll let you in on a secret, which is essential to your success as an investor. You must understand that the central banks don't raise interest-rates to fight inflation. After all, the modern-day central banking system IS inflation! Central banks raise or lower interest-rates in order to manage the public's inflation fears or expectations. During such times when the public wakes up to the inflation problem and starts losing faith in the world's paper currencies (present scenario), central banks raise interest-rates to show that they're fighting inflation. Interest-rates are pulled up in an effort to restore confidence in the world's currencies as a higher yield makes currencies more attractive. On the other hand, when the public's inflation fears are under control and confidence in the monetary system is high, central banks lower interest-rates to create even more inflation!
During cycles of monetary easing, the rate of inflation (money-supply and credit growth) accelerates, thereby creating an economic boom. On the other hand, during periods of monetary tightening (such as now), the rate of inflation (money-supply and credit growth) slows down temporarily, causing financial accidents in a highly leveraged global economy. Make no mistake though, the response or cure offered by the central banks to every financial accident is always more inflation and credit.

[MountainHiker]

$this->bbcode_second_pass_quote('firestarter', '
')The question is, how long can the Ponzi scheme go on? Probably longer than we think.

[Heineken]

Any of you own US savings bonds? I'm sitting on a pile of them and, since I no longer trust the US government's long-term solvency (or anything else about the US government), am thinking of cashing them in. Can you envision a scenario in which the US would actually renege on its savings bonds?

[MountainHiker]

I dug out all of my savings bonds about 18 months ago and cashed them in. It was only a few hundred dollars worth. I drove straight from the bank to my local coin deal and put all of the money into silver and gold. So far, I'm much better off holding the gold and silver than I was holding the bonds.

Time will tell wether or not is was a wise move or not. However, I feel better about it right now. I'd rather have the physical metal in my hand instead of a promise from the government that can't spend enough money.

[Heineken]

$this->bbcode_second_pass_quote('MountainHiker', 'I') dug out all of my savings bonds about 18 months ago and cashed them in. It was only a few hundred dollars worth. I drove straight from the bank to my local coin deal and put all of the money into silver and gold. So far, I'm much better off holding the gold and silver than I was holding the bonds.

Time will tell wether or not is was a wise move or not. However, I feel better about it right now. I'd rather have the physical metal in my hand instead of a promise from the government that can't spend enough money.

[MountainHiker]

If you haven't done so already Heineken, consider reading Empire of Debt by Bill Bonner and Addison Wiggin. It does a good job of looking at the history of past empires and comparing them to America today. Naturally a person could argue that things are different this time, we're a global economy, etc. But it's still worth the time to read and it fits well with PO and it's implications without delving into it.

I's also recommend reading all of the free essay at Kitco.com and other contrarian precious metals websites too. I'll admit they sell precious metals so they have a reason for pushing them as an investment. However, they present a solid enough case to me for avoiding many of the paper money investments of the past.

One of the things that struck me most in Kunstler's Long Emergency was his examination of the American economy and the availability of cheap energy. Expensive energy = recession, depression, etc. Personally, I believe we're at or near PO and I'm trying to consider the economic implications that means and trying to move my modest savings to the safest bets.

My financial planning friends think I'm a fringe doomer, but when I told them I bought into gold & silver a couple of years ago they said that was a good move. But they still push bonds and stock on their wealthy clients, and so far I'm not wealthy due to my own investments. So I wouldn't recommend anyone following my advice on investments.

Anyway, good luck in your investing moves Heineken, and all others here. If you come accross any "must read" info or investing strategies, please feel free to share.

[mattduke]

$this->bbcode_second_pass_quote('Heineken', 'A')ny of you own US savings bonds? I'm sitting on a pile of them and, since I no longer trust the US government's long-term solvency (or anything else about the US government), am thinking of cashing them in. Can you envision a scenario in which the US would actually renege on its savings bonds?

[Heineken]

$this->bbcode_second_pass_quote('mattduke', '')$this->bbcode_second_pass_quote('Heineken', 'A')ny of you own US savings bonds? I'm sitting on a pile of them and, since I no longer trust the US government's long-term solvency (or anything else about the US government), am thinking of cashing them in. Can you envision a scenario in which the US would actually renege on its savings bonds?

[Heineken]

$this->bbcode_second_pass_quote('MountainHiker', 'I')f you haven't done so already Heineken, consider reading Empire of Debt by Bill Bonner and Addison Wiggin. It does a good job of looking at the history of past empires and comparing them to America today. Naturally a person could argue that things are different this time, we're a global economy, etc. But it's still worth the time to read and it fits well with PO and it's implications without delving into it.

I's also recommend reading all of the free essay at Kitco.com and other contrarian precious metals websites too. I'll admit they sell precious metals so they have a reason for pushing them as an investment. However, they present a solid enough case to me for avoiding many of the paper money investments of the past.

One of the things that struck me most in Kunstler's Long Emergency was his examination of the American economy and the availability of cheap energy. Expensive energy = recession, depression, etc. Personally, I believe we're at or near PO and I'm trying to consider the economic implications that means and trying to move my modest savings to the safest bets.

My financial planning friends think I'm a fringe doomer, but when I told them I bought into gold & silver a couple of years ago they said that was a good move. But they still push bonds and stock on their wealthy clients, and so far I'm not wealthy due to my own investments. So I wouldn't recommend anyone following my advice on investments.

Anyway, good luck in your investing moves Heineken, and all others here. If you come accross any "must read" info or investing strategies, please feel free to share.

[CARVER]

$this->bbcode_second_pass_quote('mattduke', 'T')he government does not produce wealth. Where do you think the government gets the money to pay back the bonds?

[mattduke]

$this->bbcode_second_pass_quote('CARVER', 'T')he government borrows money for an infrastructure project for example. Uses it to pay people and companies to build and maintain it. Then taxes the users for their use of it to pay off the debt and interest. Except from the way it charges its 'clients' it seems similar to how a privately owned business produces wealth. I'm not saying that all/most of their projects produce wealth btw, alot of it is merely redistributing it, or destroying it.

[CARVER]

$this->bbcode_second_pass_quote('mattduke', 'S')o the government borrows money from the public to construct something and then taxes the public in order to repay the public.

[MountainHiker]

$this->bbcode_second_pass_quote('Heineken', 'I')n turn I can recommend "The Sorrows of Empire," by former CIA agent Chalmers Johnson.

I'm a big fan of gold and have been since the mid-1990s, when I started to see the light.

I also own a small pile of natural resources stocks and utilities and live on the dividends, not like a king, but with my basic needs met (except health insurance, of course).

Love your avatar.