This is a terribly sad thing for all of us. I've been unable to put my thoughts together for a few weeks now. There have been numerous stories and issues to cover in the past weeks but they have all been distractions from the main attraction that is now upon us.
The American people have figured out the problem and for the past 21 months straight have been reducing their personal debt. Never in the recorded history of our country has such a streak occurred. The people know that too much spending and too much debt are the problem and have decided personally to reverse course.
The flip side to this good news is that our government sees what we are doing as the problem and is committed to doing the opposite at ever greater speeds. The Federal Reserve Bank, the institution created by the Treasury to create and manage the money supply has openly declared that it will begin buying federal debt.
To put this simply and clearly, the government is about to start buying its own debt, printing money out of thin air to buy the Treasury bonds our government uses to function. Is it any wonder seeing that we needed to sell 165 billion worth of new Treasury bonds just in the month of July in order to fund our federal government's spending.
Despite what you may have heard about an economic recovery happening the truth is that our nation has started down a path that can only end in collapse.
There are numerous numbers and statistics that are being thrown about to try and make the case for an economic recovery being underway. From GDP growth to unemployment rates all of these numbers are subject to accounting trickery to make the numbers look better. Lets look at some hard numbers.
Workforce Size 2009 vs 2010 (in thousands)
154,351 vs 153,560 Down 791,000 or 0.51%
Year to Date Federal Tax Revenue June 2009 vs June 2010 (in billions)
1584 vs 1596 Up 12 billion or 0.76%
Given that June 2009 represents a truly low point in our economy we see that a year later the number of people in the workforce is down by 791,000 and total tax revenues are slightly up. The numbers make sense since the average salary went up slightly in that time so the net taxable income would be a bit higher. Also, tax rates are set to jump in 2011 so corporations have been showing inflated profits to pay taxes at the lower 2010 rates. It stands to reason that tax revenue will fall substantially in 2011 despite the higher tax rates.
So what we are being told is a recovery is really just an end to the rapid downward spiral in GDP and employment at the cost of only 3 trillion dollars in deficit spending and trillions more in debt purchasing by the Federal Reserve. Recovery, the way it has always been in the past would be an actual improvement in the economy from the bottom of the recessionary period not just a slowdown in the rate of contraction.
There is an 800 pound gorilla in the room that cannot be ignored that makes this situation into a downward death spiral we may not survive. The charts below makes this very clear.
As the chart illustrates, the number of people retiring from the workforce between the ages of 62-67 who will be receiving Social Security, Medicare and Pensions is set to rise dramatically.
If you add up those three items, Social Security, Medicare and Federal Pensions for 2010 you get 1.67 trillion or 76% of all federal taxes collected. If you include the interest on the debt the number climbs to 85% of all federal taxes. There is no denying that these numbers have nowhere to go but up over the next 25 years and that tax revenue will have to skyrocket to keep pace. It simply cannot be done. Very soon these entitlements and the interest on the debt will consume 100% of all tax revenues forcing the government to borrow OR PRINT every dollar it spends on everything else.
That is the death spiral. If we are already having to print money to pay our bills then the only possible outcome for future years is an ever faster pace of money printing. Printing money with nothing to back it up always results in one thing, hyper inflation. If you have money saved or are living on a fixed income hyper inflation will make your savings worthless and destroy your spending power.
From a simply mathematical point of view I don't see any way out of this mess that does not include a collapse of the system and a reboot into something entirely new. How can an every shrinking workforce pay the burden of an every expanding group of retirees? Our current recession and spending crazed administration did not cause this problem it just got us to this point much faster than anyone expected. We no longer have the time that most economists thought we would have to make adjustments to our entitlements. We also have a debt burden that is larger than anyone could have imagined that is only manageable due to interest rates being as low as they possibly can. Once inflation forces interest rates to rise the interest on the debt will become a monster all its own.
The United States of America is bankrupt and is currently living on borrowed time. Only our reputation and the dependence upon our economy of other nations is allowing us to continue on this way. Cracks are slowly appearing with each passing day. More and more "unexpected" economic results are being reported.
You will be told this is just another cycle, a recurring downturn that happens every so many years. This is in fact a cycle but not the normal economic cycle that occurs in a free market economy. This is in fact the cycle of a republic from its inception to its demise. The cycle goes from bondage to liberty, from liberty to apathy, from apathy to dependence and from dependence to bondage. We are near the end of the apathy to dependence cycle, a fundamental transformation from individual liberty to collectivism. Once we become fully dependent the cycle to bondage will be happen seemingly overnight.
The tools of tyranny have already been given to the administrators in Washington courtesy of the health care and financial overhaul laws. Our benefactors will soon be crafting the regulations controlling our health and our finances based on each new crisis that arises. It would not surprise me to see Americans fleeing to Canada and Europe in the next decade for the chance of a better life.
I encourage you to watch this section of The Crash Course by Chris Martenson. In less than 15 minutes you will learn more about the next 15 years than most people will ever know.
If you are interested in viewing the entire Crash Course it can be found here.