Tag Archives: economic depression

Pull Back on the Joystick – We’re going to Crash!

Take the threat seriously!

Although economists have been warning us for decades about an inevitable crash in the value of the US dollar, the threat has been voiced for so long that most Americans have stopped taking it seriously.  After all, the Federal Reserve has always bailed us out of every single recession.  Why shouldn’t they be able to just continue to do what they have always done?   But what caused the downturns in the first place? Not enough Americans understand that the real problem is actually that which claims to be our savior, the Federal Reserve itself.

Until the late 70s, the U.S. economic plane had already been on a long and gradual descent. That was when the descent turned into a nosedive. The American people are the passengers, and are assured by the Captain, the Federal Reserve, that everything is just fine.  The Captain keeps pulling back on the stick, but nothing he can do is pulling the plane out of its downward spiral.  Meanwhile as the Captain continues to wrestle with the stick, he announces over the PA system “Ladies and Gentlemen, we’re preparing for a comfortable landing, so just sit back and enjoy the flight!”   

It’s the Federal Reserve driving the crash!

The Federal Reserve is best known for printing currency, but it also carries out the very manipulations which its printing of currency is designed to correct.  Its theoretical job is to control the cash supply and to keep the economy in balance.  Among many other tricks, it manipulates the economy by controlling interest rates, printing and circulating cash, and by selling bonds, which in plain language translates to borrowing money. The sale of government bonds is the primary driver of our out of control national debt.

The truth is that our economy is so far from being balanced, and that returning to a state of solvency is now simply no longer possible.  We are in fact in the midst of the beginning stages of a major collapse.

Selling Bonds:  A friendly phrase that means borrowing money

Why is the federal government $17 trillion in debt? For 100 years they have been overselling bonds.   A bond is a loan to the government from an investor.  It’s a vehicle used to inject cash back into circulation by simply borrowing it.  When individuals get into a pinch, they go to the bank and get a loan. An individual can be either turned down, or granted a loan, depending on their credit score.

That’s exactly what the federal government does, but it doesn’t have to get any approval to get funded.  They just go to the Federal Reserve, who either prints the money out of thin air, and/or  borrows currency by selling bonds to investors.  The result is that the government always gets its funding, the dollar continually loses more value, and the national debt grows even bigger, and our government increasingly operates on pure borrowed capital, much of it coming from economies which are currently stronger than our own, such as China.

Doesn’t the Government have a savings account to fall back on?

The federal “reserve” is the government’s savings account.  It currently has a balance of around $56 billion in it.  That sounds like a nice amount to have in a nation’s savings account doesn’t it?  It is nothing at all when the entire balance sheet is taken into account.  We have $56 billion in the bank, but we owe $17trillion in debt, and have unfunded obligations in the hundreds of millions of dollars on top of the debt.  Those unfunded obligations include Social Security, Medicare, Medicaid and a host of other programs.  Where are they going to get the money to pay these obligations?  They can ether print it out of thin air or go and borrow even more.

Think of that on an individual basis.  Let’s divide the numbers by a million to put them into the perspective of amounts of cash that real people commonly hold.  Imagine you had $56,000 in your savings account, but you lived in a house with an unpaid mortgage of $17 million! Would there be any realistic expectation that you could pay off your $17 million dollar mortgage on the salary from which you managed to save your $56,000?  But if you were like the Federal Reserve, you could solve the problem by going to your garage and printing some counterfeit money, and/or by going to the bank and getting an easy approval to keep borrowing more so you could pay all your bills.  Wouldn’t that be convenient?

What is happening to the federal government’s credit rating?

Why is the government developing a bad credit rating, and why do they even need a credit rating? Our government has accumulated so much debt from the sale of bonds that it’s no longer possible for them to even pay back only the interest.  We recently actually reached that point.  That makes for a bad credit rating because for the government because potential bond purchasers are losing confidence to buy more bonds.  They know that the US is no longer capable of paying their obligations.  Bad credit disables the government’s ability to borrow more money just to pay interest.

Given an inability to borrow anymore, an insignificant sum in the federal  reserve savings account, and an insufficient sum of incoming federal revenue to pay the bills, the only remaining solution would be to print more (counterfeit) currency.

The national debt continues to grow out of control because the federal government continues to turn to the Fed to get unlimited supplies of cash, no questions asked.   Real people learn to adapt their lifestyle to their income level.  The federal government has no such restraints, but it does have the Federal Reserve Bank to pull money out of thin air to keep this county operating.

That’s why you really need to take this warning seriously. Jim Rickards, author of Currency Wars and The Death of Money is a great resource for more information.

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