The January 29th Financial Times reports:
“DAVOS, Switzerland — Even as Congress looks for ways to expand President Obama’s $819 billion stimulus package, the rest of the world is wondering how Washington will pay for it all.
“Ernesto Zedillo, a former Mexican president said, Washington, unlike most other countries, had the option of simply printing more money, because the dollar was a reserve currency for the rest of the world. However, “The U.S. needs to show some proof they have a plan to get out of the fiscal problem.”
By asking if you Gringos have even a plan to get out of this mess, former president Zedillo implies his doubt that any escape may be possible.
“Alan S Blinder, a Princeton economist who is a former vice chairman of the Federal Reserve in Washington, explained why the dollar’s status as a reserve currency is unlikely to be threatened, saying “There aren’t that many safe havens.” [other than gold] Instead, it is the dollar’s long-term value against other currencies that is vulnerable. “At some point, there may be so much Treasury debt, that investors may start wondering if they are overloaded in dollar assets.”
At some point? At some point?! The federal gov-co’s current debt about $55 trillion. The total American debt is at least $75 trillion. God knows that’s got me “wondering”. Do you suppose that that might also be the “some point” at which other investors “start wondering”? Start wondering? That ship has sailed, sonny.
“Here in Davos the talk has been about the coming avalanche of Treasury debt needed to pay for the plan on top of the bailout measures approved last fall, like the $700 billion Troubled Asset Relief Program, or TARP.”
(The “TARP” might be more properly named the WARP (“Worthless Asset Relief Program”), BARP (“Bogus Asset Relief Program”) or maybe the PARP (“Ponzi Asset Relief Program”) or maybe even . . . well, you get the idea.)
“A top White House adviser promised in Davos that once the stimulus plan achieved its intended affect, the United States would “restore fiscal responsibility and return to a sustainable economic path.”
Indeed. “Once the stimulus plan achieves its intended affect,” all sorts of wonderful things are sure to happen. Likewise, once I get enough pixie dust from Tinkerbell, I’ll be able fly about the room like Peter Pan.
But what if I don’t get the pixie dust? And what if the “stimulus plan” doesn’t have its “intended effect”? Then what?
“Harvard historian Niall Ferguson has studied borrowing and its impact on national power and now estimates that some $2.2 trillion in new government debt will be issued this year. “You either crowd out other borrowers or you print money. This is a crisis of excessive debt, which reached 355 percent of American gross domestic product. It cannot be solved with more debt.”
Exactly. This is a crisis of excessive debt. I’ve said since last July that What can’t be paid, won’t be paid. That’s the reason for the crisis: most of our debt can’t ever be repaid. Truth is, gov-co not only can’t and won’t repay the debt—they don’t even intend to repay the debt.
Given that the existing debt is too great to ever be actually repaid, there are only two fundamental options: 1) lie—maintain the illusion of repaying the debt by repaying with highly inflated and virtually worthless paper dollars; or 2) tell the truth and declare national bankruptcy.
If we inflate the dollar enough to at least hold off the creditors, the dollar may lose roughly half of its current value. If we inflate enough to seemingly “pay” all the existing debt, today’s dollar might have to lose 80 to 90% of its current value. Such inflation would be painful, but if it’s drawn out over a period of several years—perhaps a decade—the pain might be survived.
On the other hand, if gov-co admits the truth and declares national bankruptcy, the paper dollar dies. Without the dollar, there’ll be no paper “reserve currency” to support global trade, one-world government or the New World Order. Worse (from the globalists’ perspective), the world will be driven back to a gold- and silver-based monetary system where it’s impossible for any government or people to live on credit for long. The balance of power would shift from bankers and governments which spin wealth out of thin air to those who actually produce tangible things by means of industrial capacity and hard work.
If the U.S. declares bankruptcy, the New World Order dies. Therefore the globalists (who currently dominate world politics) don’t want the U.S. to declare bankruptcy. Therefore, so long as globalists remain ascendant, the U.S. will inflate rather than admit bankruptcy.
But if the forces of nationalism (gold & silver currency, high tariffs and domestic industrial capacity) take hold, we might be headed for an express national bankruptcy.
