The Systemic Poison of U.S. Debt

The U.S. debt has ballooned from $1 trillion in 1981 to $15 trillion today.  Annual deficits under President Obama routinely exceed $1 trillion.  Regardless of the party in power, the ruling class continues to employ the "kick the can down the road" tactic.  The tactic implies an infinite road with no end.  In reality, the road is more like a runway with a definitive endpoint, and we are nowhere near take-off speed.

Consider these ten facts:

1)  U.S. debt-to-GDP ratio is over 100%.

2)  The U.S. borrows ~41 cents of very dollar it spends.

3)  Mandatory spending (i.e., entitlement programs + debt interest) exceeded federal revenues in 2011 ($2.384 trillion vs. $2.177 trillion).

4)  In 2011, the U.S. borrowed money to pay for all discretionary ($496 billion) and non-discretionary ($891 billion) spending.

5)  Real inflation rates from 2000 through 2011 were between 5% and 10%.

6)  Real unemployment rates according to the Bureau of Labor Statistics averaged 16.02% in 2011.

7)  The labor participation rate is at a thirty-year low of 63.9%.

8)  The top 10% of taxpayers paid 70.47% of all federal income tax revenue in 2009 while the bottom 50% paid less than 3%.

9)  The base money supply (M0) has expanded from $1 trillion in late 2008 to $2.7 trillion today.  The broadest money supply measurement (M2) expanded from $3.7 trillion in early 2008 to $9.7 trillion today.

10)  There are $8.23 trillion of deposits at bank and savings institutions and $111 billion on deposit at the Federal Deposit Insurance Corporation.

The amount of systemic leverage is astounding.  Today, there is roughly $62 trillion of government (local, state, federal), private-sector, and household debt outstanding.  Additionally, there is $8.23 trillion in deposits at bank and savings institutions, bringing the total outstanding claims on base money (real dollars) to $70 trillion.  The ratio of claims on money to actual printed money (M0) is 26 to 1.

Moreover, most leading economic indicators published by the federal government are deceptive at best and outright lies at worst.  The Consumer Price Index (CPI) and the Gross Domestic Product (GDP) are manipulated statistics reported in nominal terms.  In the early 1980s, the government revised inflation calculations.  More significant modifications occurred in the early 1990s, and today, the CPI is meaningless.  If 1980 inflation calculations were applied to the years 2000, 2004, 2008, and 2011, the real inflation rates would be 9%, 9%, 10%, and 9%, respectively.  In fact, from the year 2000 through 2011, the real inflation rate is bounded in the range of 5% on the low end to 11% on the high end.

The GDP is also manipulated to provide the appearance of real economic growth when it is merely monetary policy and banking lending policies (i.e., fractional reserve banking) generating the illusion of growth through debt and credit expansion rather than measuring true productive economic output.

The ruling class should drop all pretenses of impartiality and simply consolidate all these functions under a Department of Disinformation.  When it comes to propaganda, the ruling class would make Joseph Goebbels blush.

Not to worry.  The U.S. isn't the only country in this predicament.  European countries are in similar or worse predicaments than the U.S., and recently it was reported that the Japanese debt is about to exceed one quadrillion yen.  That's right: a quadrillion.  The only question is how long before the term "quadrillion" is introduced into the vernacular of the ruling class and the mainstream media here in the U.S. 

Paul Brodsky of QB Asset Management Company wrote an article titled Change we Can Believe In.  Brodsky wrote:

The Greek, Italian, Spanish, Irish, U.K., French, Japan [sic], and U.S. debt and economic situation is a manifestation of the same problem:  There can be no political solution for extinguishing debt other than formal currency devaluation via asset monetization that would collateralize systemic debt.  Public and private sector debt is irreconcilable across all major established economies without more money "manufactured" to repay it, a process that diminishes the value of currencies and savings.

This is where the runway is coming to an end.  There is simply too much systemic debt across all major economies.  Many people fail to connect the dots.  All public- and private-sector debt in the U.S. is denominated in the same currency as wealth/savings.  Regardless of which political party you support, both parties are leading the American people down the same path of destruction, albeit at slightly different speeds.

Government's primary methods to raise revenue are through taxation or borrowing.  According to 2008 IRS data, income tax returns filed with an adjusted gross income of $1 million or more paid $249 billion in federal taxes.  The total taxable income for the same group was $938 billion.  Even if the government taxed all income above $1 million at 100%, revenues would increase by $689 billion.  However, many of those people will simply curtail their production, as there is no incentive to generate additional income if government confiscates 100% of it.

Clearly, the government cannot tax its way out of the debt problem.  The government could continue to borrow money to fund deficit spending, but this simply exacerbates the situation.  If you are in a hole, you don't keep digging a deeper hole.  So adding more debt to the existing debt is not a viable solution.

The only other option government has at its disposal is inflation.  This is where it becomes personal for everyone with a pension fund, 401K, annuity, equity investments, treasuries, municipal bonds, Social Security, etc.  While inflation is often treated as an economic event, it is truly a political event.  For purposes of political expediency, the ruling class and the Federal Reserve will simple print more money, increasing the base money (M0) supply.  When the Fed prints more money, it dilutes the purchasing power of all dollars.  Since our wealth is stored in dollars, wealth simply vanishes.  The ruling class's favorite economist, John Maynard Keynes, said that "inflation is taxation without legislation."

An anonymous writer under the pen name FOFOA aptly describes what will transpire:

Debt is the very essence of fiat. As debt defaults, fiat is destroyed. Hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! Worthless dollars, of course, but no deflation in dollar terms! We will have hyperDEflation in everything measured against real money, GOLD, and we will have hyperINflation in everything measured against paper dollars.

It's impossible to predict when the U.S. reaches the end of the runway.  Eventually the ruling class will no longer be able to kick the can down the runway.  A day of reckoning is coming.

This is the destructive Keynesian endgame pursed by the ruling class.

The U.S. debt has ballooned from $1 trillion in 1981 to $15 trillion today.  Annual deficits under President Obama routinely exceed $1 trillion.  Regardless of the party in power, the ruling class continues to employ the "kick the can down the road" tactic.  The tactic implies an infinite road with no end.  In reality, the road is more like a runway with a definitive endpoint, and we are nowhere near take-off speed.

Consider these ten facts:

1)  U.S. debt-to-GDP ratio is over 100%.

2)  The U.S. borrows ~41 cents of very dollar it spends.

3)  Mandatory spending (i.e., entitlement programs + debt interest) exceeded federal revenues in 2011 ($2.384 trillion vs. $2.177 trillion).

4)  In 2011, the U.S. borrowed money to pay for all discretionary ($496 billion) and non-discretionary ($891 billion) spending.

5)  Real inflation rates from 2000 through 2011 were between 5% and 10%.

6)  Real unemployment rates according to the Bureau of Labor Statistics averaged 16.02% in 2011.

7)  The labor participation rate is at a thirty-year low of 63.9%.

8)  The top 10% of taxpayers paid 70.47% of all federal income tax revenue in 2009 while the bottom 50% paid less than 3%.

9)  The base money supply (M0) has expanded from $1 trillion in late 2008 to $2.7 trillion today.  The broadest money supply measurement (M2) expanded from $3.7 trillion in early 2008 to $9.7 trillion today.

10)  There are $8.23 trillion of deposits at bank and savings institutions and $111 billion on deposit at the Federal Deposit Insurance Corporation.

The amount of systemic leverage is astounding.  Today, there is roughly $62 trillion of government (local, state, federal), private-sector, and household debt outstanding.  Additionally, there is $8.23 trillion in deposits at bank and savings institutions, bringing the total outstanding claims on base money (real dollars) to $70 trillion.  The ratio of claims on money to actual printed money (M0) is 26 to 1.

Moreover, most leading economic indicators published by the federal government are deceptive at best and outright lies at worst.  The Consumer Price Index (CPI) and the Gross Domestic Product (GDP) are manipulated statistics reported in nominal terms.  In the early 1980s, the government revised inflation calculations.  More significant modifications occurred in the early 1990s, and today, the CPI is meaningless.  If 1980 inflation calculations were applied to the years 2000, 2004, 2008, and 2011, the real inflation rates would be 9%, 9%, 10%, and 9%, respectively.  In fact, from the year 2000 through 2011, the real inflation rate is bounded in the range of 5% on the low end to 11% on the high end.

The GDP is also manipulated to provide the appearance of real economic growth when it is merely monetary policy and banking lending policies (i.e., fractional reserve banking) generating the illusion of growth through debt and credit expansion rather than measuring true productive economic output.

The ruling class should drop all pretenses of impartiality and simply consolidate all these functions under a Department of Disinformation.  When it comes to propaganda, the ruling class would make Joseph Goebbels blush.

Not to worry.  The U.S. isn't the only country in this predicament.  European countries are in similar or worse predicaments than the U.S., and recently it was reported that the Japanese debt is about to exceed one quadrillion yen.  That's right: a quadrillion.  The only question is how long before the term "quadrillion" is introduced into the vernacular of the ruling class and the mainstream media here in the U.S. 

Paul Brodsky of QB Asset Management Company wrote an article titled Change we Can Believe In.  Brodsky wrote:

The Greek, Italian, Spanish, Irish, U.K., French, Japan [sic], and U.S. debt and economic situation is a manifestation of the same problem:  There can be no political solution for extinguishing debt other than formal currency devaluation via asset monetization that would collateralize systemic debt.  Public and private sector debt is irreconcilable across all major established economies without more money "manufactured" to repay it, a process that diminishes the value of currencies and savings.

This is where the runway is coming to an end.  There is simply too much systemic debt across all major economies.  Many people fail to connect the dots.  All public- and private-sector debt in the U.S. is denominated in the same currency as wealth/savings.  Regardless of which political party you support, both parties are leading the American people down the same path of destruction, albeit at slightly different speeds.

Government's primary methods to raise revenue are through taxation or borrowing.  According to 2008 IRS data, income tax returns filed with an adjusted gross income of $1 million or more paid $249 billion in federal taxes.  The total taxable income for the same group was $938 billion.  Even if the government taxed all income above $1 million at 100%, revenues would increase by $689 billion.  However, many of those people will simply curtail their production, as there is no incentive to generate additional income if government confiscates 100% of it.

Clearly, the government cannot tax its way out of the debt problem.  The government could continue to borrow money to fund deficit spending, but this simply exacerbates the situation.  If you are in a hole, you don't keep digging a deeper hole.  So adding more debt to the existing debt is not a viable solution.

The only other option government has at its disposal is inflation.  This is where it becomes personal for everyone with a pension fund, 401K, annuity, equity investments, treasuries, municipal bonds, Social Security, etc.  While inflation is often treated as an economic event, it is truly a political event.  For purposes of political expediency, the ruling class and the Federal Reserve will simple print more money, increasing the base money (M0) supply.  When the Fed prints more money, it dilutes the purchasing power of all dollars.  Since our wealth is stored in dollars, wealth simply vanishes.  The ruling class's favorite economist, John Maynard Keynes, said that "inflation is taxation without legislation."

An anonymous writer under the pen name FOFOA aptly describes what will transpire:

Debt is the very essence of fiat. As debt defaults, fiat is destroyed. Hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today's dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! Worthless dollars, of course, but no deflation in dollar terms! We will have hyperDEflation in everything measured against real money, GOLD, and we will have hyperINflation in everything measured against paper dollars.

It's impossible to predict when the U.S. reaches the end of the runway.  Eventually the ruling class will no longer be able to kick the can down the runway.  A day of reckoning is coming.

This is the destructive Keynesian endgame pursed by the ruling class.

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