US Debt Crisis: What NOT to Do When Your Country is BrokeBill Bonner Another month gone by. Another month closer to bankruptcy. Not you, dear reader. We're talking about the US government. But hold that thought... Let's turn to the markets. Hmmm... Not much action. The Dow rose a piddly 4 points on Friday. Gold went up $15. Not much to talk about there... Investors are waiting to see what happens next week. They're sitting on the edge of their chairs. Will Ben Bernanke play it cool? Or will he want to do something really big, bold, and bumbling? We're not as curious as most investors. We doubt that he will want to go too far in either direction. Most likely, he'll do what investors expect... announce more quantitative easing - money printing, in other words - but being a little cagey about how much, and when. So, let's turn back to the biggest bankruptcy of all time. Many are the ways the facts are interpreted, distorted and bearded. But the numbers keep going up. The red numbers, that is. The US press barely reports the story. They know Americans aren't interested. In the US, people figure we'll muddle through... we'll work our way out of debt. Or, hey, maybe there will be a miracle! In the US, we believe in all sorts of things that are miraculous... unbelievable... and preposterous. Got too much debt? We'll fix it by giving you more debt! People short of real money? We'll fix that by giving them make-believe money. Did the authorities miss the biggest financial blow up of all time? Did they fail to stop the biggest Ponzi schemer in history - even after they were tipped off? Did they completely "blow it" when it came to controlling the bubble and the damage it caused? Yes? Well, let's give them $10 trillion of the taxpayers' cash and credit and see if they can do better the next time! Fantasies, hallucinations, delusions - and don't forget the "war on terror"... the first war on nobody in particular in history. But let's get back to who owes what to whom. We're talking about the US government. And Canada's Globe and Mail has the story:
Without drastic reform, Prof. Kotlikoff says, the only alternative would be a massive printing of money by the US Treasury - and hyperinflation. Wait a minute, says our old friend Jim Davidson. Professor Kotlikoff is wrong. He "unaccountably overstates the solvency of the US," he says. Jim makes a good point. It's not total GDP output that supports the government. It's just the private sector part. The government part is a cost...not a source of financing. The total fiscal gap - unfunded government obligations - is over $200 trillion. It's about 14 times GDP. But compared to the real output of the private sector, it's 20 times as great. If this were a more traditional debt burden, it would have to be financed. Interest rates are at a 60-year low. But they could easily be back up at 5% in short order. At that rate, it would take 100% of private sector output just to keep up with it. Professor Kotlikoff is right. The US is already broke. Busted. Bankrupt. It cannot possibly honor its commitments. One way or another, it must default on them. But how? That's what we're going to find out. And more thoughts... "Retirement Disaster Ahead," says The Wall Street Journal. Yep. Too many retirees. Too little money. They're counting on Social Security. But as we see above, government is going to have a hard time honoring its commitments. The other thing that is happening is that some basic costs - namely food and energy - are going up, even as the consumer price index stays flat. Why are food and energy becoming more expensive? Because the foreigners are buying food and energy. And there are a lot of them. Foreigners, that is. And why is that bad news? Where does that leave the typical US retiree? Without increases in the CPI the US government doesn't adjust Social Security payments to the upside. Meanwhile, the real cost of being retired - food, fuel... along with everything else - goes up. Most likely, the strain of trying to support so many retired people will destroy the modern welfare state model. As in Argentina, old folks will find that they don't get from the government what they were promised. They'll have to figure out how to make do on their own. Our advice: Don't grow old. Don't retire. Don't get sick. Don't trust the feds. And don't sell your gold. Regards, ### Bill Bonner Bill Bonner is the founder and editor of The Daily Reckoning. Bill's book, Mobs, Messiahs and Markets: Surviving the Public Spectacle in Finance and Politics, is a must-read. He is also the author, with Addison Wiggin, of The Wall Street Journal best seller Financial Reckoning Day: Surviving the Soft Depression of the 21st Century (John Wiley & Sons). In Bonner and Wiggin's follow-up book, Empire of Debt: The Rise of an Epic Financial Crisis, they wield their sardonic brand of humor to expose the nation for what it really is - an empire built on delusions. Copyright © 2000-2013 Agora Financial LLC. |