Saturday, March 26, 2011

Drowning In Debt

The American Dream

An ancient proverb that is oft-repeated even in our time is that you will always end up reaping what you sow. Well, the U.S. government has been sowing seeds of debt for decades and our politicians have endlessly attempted to assure us that everything is going to be just fine. Well, everything is not going to be just fine. The truth is that the U.S. government is literally drowning in debt. Right now, the total debt of the U.S. government is $14,223,730,274,180.80. It is a debt that is so large that it defies comprehension. It is also a debt that is absolutely impossible to pay off under our current financial system. Someday the weight of this debt will completely collapse our entire economy. The only thing that is keeping that from happening already is our ability to borrow even more money.

For the moment, the U.S. government is still able to borrow gigantic sums of money at extremely low interest rates. That makes it possible for us to be able to rack up amazingly large budget deficits. For example, the Obama administration is projecting that the federal budget deficit for this fiscal year will be an all-time record 1.65 trillion dollars.

All of this borrowing is enabling the U.S. economy to maintain a false level of prosperity at least for now. But we are working with borrowed time. The U.S. government will borrow about 43 percent of what it spends this year. That cannot continue indefinitely.

A small minority of our politicians in Washington D.C. want to get this debt under control, but the truth is that it would not be easy to do even if there was the political will in Washington D.C. to do it. If we wanted to balance the federal budget today we would have to eliminate 43 percent of federal spending.

Doing that would absolutely collapse not only the U.S. economy, but the entire global economy as well.

But if we continue to add to our debt at this pace it will make our eventual collapse much worse.

We really are caught between a rock and a hard place.

Our choices are massive economic pain now or even worse economic pain later.

At this point, it appears completely impossible that we will ever have a balanced budget again under the current system.

The White House Office of Management and Budget is now projecting that mandatory federal spending (mostly for entitlements) will exceed the total of all federal revenues in this fiscal year. Back in 2008, the federal government warned us that this could happen 50 years from now. Instead, it is happening right now.

Do you understand what that means? It means that if we wiped out all discretionary federal spending (including the entire Department of Defense) we would still have a federal budget deficit.

Yes, the U.S. government really is drowning in debt.

Running a 1.65 trillion dollar budget deficit is national financial suicide.

Most Americans cannot even conceive of how much money a trillion dollars is.

If you were alive when Jesus was born and you spent one million dollars every single day since then, you still would not have spent one trillion dollars by now.

That is how hard it is to spend a trillion dollars.

If you went out today and started spending one dollar every single second, it would take you over 31,000 years to spend one trillion dollars.

Unless the United States resorts to some Zimbabwe-style money printing, the truth is that there simply is not enough money in existence to pay off the U.S. national debt even if we wanted to.

If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.

Are you starting to get an idea of how much trouble we are in?

Sometimes it is helpful to try to break it down to a more personal level. Have you ever run up a balance on a credit card? It can be a lot of fun to go out and spend all that money, but eventually a day of reckoning comes.

Well, on a national level we have lived the "high life" for decades. It has been a great party. But now that party is coming to an end and a great day of reckoning is fast approaching.

If you divided up the national debt equally among all U.S. households, each one would owe a staggering $125,475.18.

So do you have an extra 125 grand sitting around to pay your share?

Sadly, instead of attempting to grapple with the situation, our politicians have pushed the debt accelerator to the floor.

During Barack Obama's first two years in office, the U.S. government added more to the U.S. national debt than the first 100 U.S. Congresses combined.

Wow. That is quite an "accomplishment".

But haven't people been warning about this for decades?

Yes, they have. The national debt was a huge issue when Ronald Reagan ran for president back in 1980. Back then our politicians were pledging that they would do something about our exploding debt.

Well, that didn't work out too well. The U.S. national debt is now over 14 times larger than it was back in 1980.

But we haven't gone off a cliff yet, have we? Is there a chance that somehow we are going to come out of this okay?

No, there is not. Debt is a very cruel master, and it is only a matter of time before financial disaster strikes.

The following comment was recently posted by a reader named "Bob" on the Economic Collapse website....
The current debt “problem” the US faces kind of reminds me of a similar situation a friend of mine was in back in the mid 1990′s. He had a credit card. He maxed it out. He ordered another credit card from another lender to use it to pay off his maxed out credit card. Then he kept on using the NEW credit card until it too was maxed out. Then he went out and ordered another credit card from another lender and started the process all over again. In the end, when he finally filed for bankruptcy, he had 8 maxed out credit cards @ $40,000 each, a house & car payment and all the other things needed to stay alive. When it was all over he ended up with nothing and was living in a trailer park AFTER his wife divorced him for keeping it all a secret from her. This will NOT end well for the US if it keeps up
The only way that the game can keep going is for the U.S. to be able to borrow the trillions of dollars that it needs each year to roll over existing debt and finance new debt.

However, there are signs that our lending sources are drying up.

Japan is the second largest foreign holder of U.S. government debt, but due to the recent disaster in that nation, they will not be buying more of our debt for the foreseeable future. In fact, they will probably be selling off much of the debt that they already hold. Japan currently holds about $882 billion in U.S. Treasury bonds and they are likely going to have to liquidate much of that in order to fund the rebuilding of their nation.

Also, some of the "big boys" in the bond industry are now moving away from U.S. government debt. For example, PIMCO, the biggest bond fund in the entire world, recently acknowledged that they are dumping all of their U.S. Treasuries.

That is not good news for U.S. government finances.

A recent article on Business Insider noted that PIMCO has moved out of U.S. Treasuries very, very quickly....
Investing firm Pimco, the world's biggest bond trader, recently disclosed that its largest mutual fund, the Pimco Total Return Fund, has reduced its holdings of U.S. government securities from 12 percent in January to nothing at all.

Does PIMCO see some trouble on the horizon?


The truth is that anyone with half a brain should be able to see that there is trouble on the horizon for U.S. government finances.

With the U.S. government drowning in so much debt, the only way that the system is going to avoid collapse is for the Federal Reserve to continually print increasingly larger amounts of money and for the U.S. government to continually borrow increasingly larger amounts of money.

PIMCO and others can see the horrible inflation that is on the horizon and they are not going to jump back into U.S. government bonds until interest rates are much, much higher.

But when interest rates on U.S. government debt go higher, that means that interest payments on the national debt will absolutely soar.

What a mess.

There is no way that this thing ends well.

Perhaps that saddest thing of all is what we are doing to our children and our grandchildren.

We are saddling them with the biggest debt in the history of the world and we are completely destroying their economic future.

Is that not a crime?

If you were in their position, how would you feel about what this current generation is doing to them?

We were the wealthiest, most prosperous nation on the planet. We didn't have to go into debt. We didn't have to mortgage the future for the sake of the present.

But that is what we did. Now we are absolutely drowning in debt.

We are trapped in a debt black hole that is going to swallow up all of the wealth and prosperity that previous generations handed down to us.

Shame on you America. Things did not have to turn out this way.

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