rates encourage present consumption and generate massive debt. In just
five years, total financial as well as nonfinancial American debt has surged
by 51 percent or $10.9 trillion to more than $32 trillion, three times the
annual Gross National Product. The Federal government itself is chafing
under a $6.8 trillion debt and adding $1.6 billion a day. At present
interest rates, this debt alone commands charges of $300 billion a year,
or more than $1,000 per man, woman, and child.
According to Hans F. Sennholz in his essay,
Saving the Dollar from Destruction, we are presented with a bleak financial
future. Even under optimal conditions the alternatives are not pleasant.
Now let’s ask the 64,000 dollar question. What will happen when interest
rates start to rise?
One needs to accept the fact that the world financial system rests upon an
illusion. Fundamental balances and empirical realities have been masked for
decades. Business relationships that produce real products and create intrinsic
value are systematically penalized as interest rates are manipulated and
currencies are crushed. All the time there is one constant -- the DEBT grows...
Fiscal responsibility is dead. The age of hyper inflation is the future.
Cash was once king during a crash, but that is no longer true. Today, the
lessons of the past have been forgotten and the former proven rules to protect
your wealth will not work. The worst of all times and the world hangs as
the Sword of Damocles over the markets. Reversing the inescapable is impossible,
that’s why it is inevitable.
Before you dismiss this analysis as dangerous cynicism, the onus to provide
an alternative how to service the debt rests with the critics. Surely, no
rational person can conclude that government spending is stable. Deficits
are dismissed as necessary and manageable. Prudence requires establishing
a debt level that can be serviced without destroying the ability to conduct
commerce. We are staring at an avalanche that will bury us when a critical
mass of consensus finally admits that the furtherance in productivity, new
technology and consumer demand can no longer support the ability to pay existing
Unprecedented low interest costs are unsustainable. As rates rise the current
debt becomes more difficult to finance; however, the real risk is that creditors
will refuse to rollover the bond debt. Equity markets will crash, because
the currency will be seen for what it has become -- a promise to pay that
can’t be met.
Never underestimate the measures that the financial magicians will use to
paper over the problem. A debt crisis based upon a geometric progression
of tax revenue shortfall requires a currency devaluation. Historic foreign
trade deficits, crazed escalating federal spending, housing prices that far
exceed homeowner after tax income ability to afford, costs of household necessities
that continually rise -- all add to the public and private debt. Individuals
are driven into bankruptcy, but governments remain intact even when they
Sennholz is a brilliant economist. Nevertheless, his libertarian sacred cow
is the fallacy that protective tariffs are always detrimental to the fiscal
health of the world economy. Folks, this core issue is crucial. The most
sincere and well meaning Free Traders, like Sennholz, doesn't deserve to
be in the camp of the Corp/State internationalists. The crowd that preaches
the benefits of open trade are the culprits that created the debt bubble.
This scholar of the Mises Institute contends: “Unfortunately, an American
slide into protectionism would have grave consequences not only in the United
States but also throughout the world. It would not alleviate the very
causes of the present imbalance: the Federal Reserve stimuli and Treasury
deficits. In fact, it would aggravate the situation as new import restrictions
would cause goods prices to rise, consumption to be curtailed, and standards
of living to fall. It would slash various sources of government revenue,
which in turn would boost budget deficits and make matters worse.” Clearly,
the Federal reserve is an artificial institution designed for placing and
keeping Americans in economic slavery, but the notion that international
trade conforms to a free marketplace is utterly absurd.
Government deficits are caused by foolish policies that pander to obscene
special interests and a demented guilt and a false sense of global responsibility.
Public debt is a result of the functions of a deranged Socialism that has
captured the culture of dependent serfs. Politicians grab power by feeding
the hungry, while the marketplace of legitimate business transactions is
tormented under the burden of regulatory altruism.
How can the purchasing value of the dollar be preserved under this scenario?
The way to judge tax rates is as a percentage of income. The true -- extreme
inflation -- is the rise in the ratio of personal wealth transferred into
the coffers of the State. When you add the fallen value in our currency to
this equation, the net sum for each person is that our new abode will have
a poor house address. Diminishing real returns on imaginary investments are
the fate for savers as their wealth is systematically expropriated and intentionally
confiscated. All the while the STATE carries on the business of protecting
We encourage advocates of the gold standard, because it places an external
restraint upon corrupt Mattoids. But don’t expect that such a position solution
will see the light of day. The demise of the US Dollar as the world’s reserve
currency means that the chickens are coming home to roost. When foreigners
stop holding Treasury debt the rush through the door will commence. They
may even break through the windows to get out of a house consumed by an inferno
of liabilities with no fire fighters left to put out the blaze. But don’t
worry, you won’t own your home at that point -- the mortgage will be called
in -- and refinancing options with Ditech will be over. Their sugar daddy
Citibank, just failed.
Sartre is the pen name of James Hall, a reformed political operative. His website is Breaking All the Rules.
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