Debts Just Don't Disappear

I believe we are in the early stages of a major currency and debt crisis we have never seen here before in the United States. Yet, our government continues to paint a rosy picture. Why can’t they fess up and tell us the truth as to what is really happening and how dire the situation really is? I don’t believe anything that comes out of Washington DC these days and it doesn’t seem like I am the only one. I just heard last week, 2 CNBC contributors who we see nearly every morning talking about economic data say they don’t believe anything Washington says either. What people don’t realize is, this crisis, if it plays out, could rock the foundation of the United States, like never before. The US dollar is the foundation of the world banking system and has been the reserve currency for the last 50 years. If it loses it’s status, all hell will break loose. I know, you don’t think it can happen but did anyone think Freddie Mac, Fannie Mae or General Motors could go bankrupt? Or that the mortgage sector would meltdown? Those who did were a small minority.

If you think things are bad now, don’t be so surprised if at some point in the future, we see riots and protests as we did in the Middle East on a large scale basis. In fact, we have seen protests already breakout in Wisconsin not too long ago. I believe this could be just the beginning; I hope I am wrong.

The government bailed out bankers and thieves of Wall Street and has transferred all their debt to the public. Mind you, not one person went to jail. Our government thinks we can fix this problem by printing more and more money. It sure looks to me like we cannot fix our currency and debt crisis unless we see our standard of living decline. We surely cannot continue to print money to pay existing obligations and interest on our debt. Debts just don’t disappear and bailoutsALWAYShave huge consequences whether felt immediately, or down the road.

Our Debt Problem

The mainstream media will tell you the deficit is around $1 Trillion a year because the government counts the $865 Billion of payroll taxes from Social Security and Medicare as current income but it’s not. Those taxes are suppose to be funding the future liabilities of those programs but we are spending it now. This is just one example of how our government tries to mislead the public and manipulate numbers. In fact, Social Security will post a deficit of $600 Billion over the next 10 years. If a private corporation did the same thing, heads would roll and people would end up in jail. Why is it ok for our government to do this? Stop and think about this, even if all US Citizens were taxed 100% of their income, it still would not be enough to balance the Federal Budget. We still would need to borrow money to maintain the status quo. This is absolutely ridiculous, yet do we see these facts ever reported anywhere? I wonder why? Even raising taxes could not end our annual deficits let alone pay our debts back. I wonder why we never see any real credible plan to solving our problems? Simple answer, there is nothing we can do about it and both the Democrats and Republicans know this.

The scary part of this is that the cost of maintaining our debt could skyrocket if interest rates begin to move higher. Right now, the Fed has basically manipulated rates to zero. As a result, the interest rate at which the government can borrow is at record low levels, at less then 1.5%. This won’t last forever and that is a scary thought. One might ask, how much we will have to spend in interest in order to actually afford the money we have already borrowed? Right now we are paying about $200 Billion a year in interest and that equates to around 15% of Federal Tax receipts. However, if we assume a real market-based interest rate of around 6%, the Federal government would be spending $840 Billion on interest, which would equate to 76% of tax receipts. And that is just on the interest on the debt we owe today. We surely cannot afford these astronomical numbers nor can we continue to print trillions of dollars to fund our debts. We are trapped and our government knows it!

Using numbers provided by CBO (Congressional Budget Office) a debt default by the US government would be inevitable if it were not for our ability to print money. The US can’t go broke in essence, because we can print money to pay for our debts because the dollar is the reserve currency. We are the only debtor in the world who can legally print US dollars. The dollar is what forms the basis of the worlds financial system.

Because commodities are based in US dollars, foreign countries must first buy US dollars in order to buy these commodities. Therefore, in order to maintain the value of their currency, they must produce as much as they consume from around the world; otherwise, the value of their currency will fall causing prices to rise and their standard of living to fall. But in America, we can consume as much as we want without worrying about acquiring the money to pay for it because our dollar is accepted everywhere around the world. In short, this means we have not had to produce anything or export anything to get all of the dollars we need to buy oil or other goods our country requires because all we have to do is borrow and print more money.

However, the smart money, China, is already slowly getting out of the dollar because they see the endgame is nearing. Once the dollar falls further, there will be less demand for dollars around the world and the implications will be skyrocketing interest rates. Imagine what that will do to the cost of getting a mortgage.

Interesting Facts You Might Not Know

  1. China, Japan, Russia, and France got together last year for a secret meeting without the United States present. The news behind the meeting is that Gulf Arab States along with China, Japan, Russia, and France want to end dollar dealings for oil. Sure doesn’t sound too good for the dollar.
  2. The IMF has proposed replacing the US Dollar with something called (created in 1969) SDR’s, special drawing rights (represent potential claims on the currencies of IMF members). Sure doesn’t sound good for the dollar maintaining reserve currency status.
  3. There are reports of 150 of these alternative local currencies around the USA being accepted. USA Today newspaper has reported the most popular currency is called Berkshares, and is being used in the Berkshire region of Western Massachusetts. As reported by the USA Today, since 2006, 2.3 million of this currency has been circulated. Even some people in the United States don’t want to use the dollar for transactions anymore.
  4. Jim Rogers of (Roger International Commodities Index), a savvy American investor has been quoted as saying, “the dollar is not in a decline; it’s a mess. If something is not done soon, I believe the dollar could lose its status as the world’s reserve currency and medium of exchange, something that would lead to a huge decline in the standard of living for US citizens like nothing we’ve seen in nearly a century.” Jim Rogers also said, “History teaches us that such imprudent monetary and fiscal behavior has always led to economic disaster.” I think we should listen to what he is saying.
  5. In 1979 there were 61 companies that had a top level AAA credit rating by Moody’s and today there are only 4 - JNJ, MSFT, ADP, XOM. This certainly does not sound like a robust country or economic recovery does it?
  6. When things get real bad a government will do desperate things, such as, 80 years ago they outlawed the ownership of gold. I wouldn’t put anything past our government if things get real bad, nor should you.
  7. Did you know there is already talk about nationalizing automatic 401(K) and retirement plans? Sounds scary to me when I hear the word nationalize.
  8. 44 million Americans are on food stamps, 14% of the entire population. Doesn’t sound like to me an economy or country getting stronger.


We could be in the midst of a major collapse of our national monetary system and our government is not telling us. The Federal, state and local governments all have major debt problems. The only difference is the Federal government can print money. Remember one thing, the US government can only continue printing money as long as it is remains the world reserve currency. If the US dollar loses it’s perch as the world reserve currency, the economy will suffer a devastating blow, far more worse than the mortgage crisis in 2008. What happens when QE 2 (Quantitative Easing) ends, will our economy be able to sustain itself without the governments help? All I can say is, don’t think a major collapse of our monetary system can’t happen here in the United States, because it can.

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About the Author

Senior Trader
BrianP [at] ProfessionalStockTraderLive [dot] com ()