If you increased your credit card spending by a couple thousand dollars per month would your lifestyle improve? Of course it would. By going into large amounts of debt, it is possible to live a lifestyle that you can't really afford, at least for a while. But if you keep racking up huge amounts of credit card debt every single month, eventually it gets to a point where it is extremely difficult to even keep up with the minimum monthly payments and the credit card companies will not lend you any more money. Well, on a larger scale it is the same thing with government debt. Right now, the U.S. government is spending more than a trillion dollars more than it takes in every year. Even if the U.S. government spends all of that money on incredibly stupid stuff, it still gets into the pockets of ordinary Americans. In turn, those ordinary Americans use that money to pay the mortgage, buy food, shop at the mall, etc. All of this borrowing and spending by the U.S. government has created a "false prosperity" bubble that is not real. It may feel real to you right now, but it is unsustainable by definition. If the U.S. government suddenly started spending only the money that it actually brought in every year, our economy would be doomed and all of this "false prosperity" would rapidly disappear. But if the U.S. government continues to rack up debt at this pace we are doomed as well. In fact, every dollar that gets borrowed makes our eventual collapse ever worse. We are heading down the exact same road that Greece has gone. Eventually the rest of the world is not going to lend us gigantic mountains of super cheap money anymore. When the flow of cheap money stops, it can be extremely painful. Anyone that has ever seen the interest rates on their credit cards go above 20 percent knows how this feels. If we had addressed these problems as a nation a decade or two ago, perhaps we could have found a solution. But now there is no way out under our current financial system and a devastating economic collapse is on the horizon no matter what we do.
If there was a Hollywood movie where some crooks successfully stole 150 million dollars, what would you think of those crooks?
Would you have admiration for them?
Would you be disgusted with them?
Would you feel like your intelligence was insulted because nobody could ever steal 150 million dollars and get away with it?
Well, right now the federal government is stealing approximately 150 million dollars from our children and our grandchildren every single hour.
That's right - the U.S. government is borrowing an astounding 150 million dollars an hour that our children and our grandchildren will be expected to deal with.
It is a theft so vast that it is almost unimaginable.
So what should be done?
A lot of people out there think that our problems would be solved if the government would just quit borrowing so much money.
Well, it is just not that simple.
Look at Greece. They were forced by the EU and the IMF to dramatically reduce government spending. But when Greece reduced government spending, that caused the economy to shrink rapidly and it caused tax receipts to go down more than expected. So Greek budget deficits were even larger than anticipated and so Greece was forced to cut spending even more. But that created even more economic problems.
A recent article by John Mauldin described the nightmarish effect that this cycle has had on Greece....
And as Greece began shake and bake its way to "austerity," the very act of cutting deficits pushed the country into recession, which lowered tax revenues and increased expenses, putting the elusive goal of a balanced budget even further off. We should quickly note that this is not just a Greek problem. Spain's "draconian" cuts have meant that its 6% deficit target for the year has this week been raised to a more likely 8%, making it harder to get back to even.
For country after country, this is the Endgame. It is the end of the Debt Supercycle. Debt has grown to the size that it cannot be sustained. The market will not lend any more money on terms that can be afforded, and any efforts to cut spending and raise taxes will result in an even worse economy, in various degrees of recession, with falling revenues and rising costs.
This is what happens when a country that has been spending far beyond its means is forced to dramatically cut back.
Those that are convinced that balancing the federal budget in the United States will be relatively painless should take a close look at what is happening in Greece.
As I have written about previously, the Greek economy has been plunged into a 21st century "Great Depression". In Greece, 20 percent of all retail stores have already shut down, the unemployment rate for those under the age of 24 is sitting at 39 percent, and one third of the entire nation is living in poverty.
And this is only just the beginning for Greece.
Things are going to get even worse.
Unfortunately, many believe that the United States is destined to experience far worse pain than Greece is currently experiencing.
For example, Peter Schiff insists that the United States is in worse financial shape than Europe at this point. Just check out this video....
Anyone that attempts to downplay the U.S. debt problem is making a serious mistake. Yes, we are still able to borrow trillions of dollars for next to nothing, but that is going to come to an end.
Remember all of those "suckers" that signed up for mortgages at "teaser rates" that later got jacked up dramatically?
Of course you do.
So what happened to them?
When the rates went up many of them ended up losing everything.
Well, we have gotten ourselves into the exact same kind of a position. All of this cheap money has enabled us to live very nicely for now, but when the cheap money ends the nightmare will begin.
Right now, our debt is growing much, much faster than our economy is. Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period.
What would your household finances look like if your total debt grew by 61 percent next year but your income only grew by 4 percent?
When I was a little boy, the U.S. national debt was considered to be a huge national crisis. Politicians from both major political parties were promising that they would fix things.
But what has happened since then?
Well, when Ronald Reagan took office the U.S. national debt was less than 1 trillion dollars. Today, the U.S. national debt is over 15.2 trillion dollars.
During 2011, the federal government went into more debt than the U.S. government accumulated from the time that George Washington became president to the time that Ronald Reagan became president.
That may be hard to believe, but it is true.
During fiscal year 2011, the U.S. government spent 3.7 trillion dollars but it only brought in 2.4 trillion dollars.
That is utter insanity, and yet most Americans have become convinced that this is "normal" and that there is nothing to worry about.
It is hard to grasp how much money a trillion dollars is.
If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.
That is how much money a trillion dollars is.
And things look even worse when you look at the balance sheet of the U.S. government.
The U.S. government has total assets of 2.7 trillion dollars and has total liabilities of 17.5 trillion dollars. Those liabilities do not even count 4.7 trillion dollars of intragovernmental debt that is currently outstanding.
But it is not just the federal government that has been living a fantasy.
The chart posted below shows the growth of total debt in America over the past several decades. Consumers, businesses and government officials have been on a debt binge that is absolutely unprecedented....
The scary thing is that even with all of this borrowed money, our economy is still in the dumps.
So what in the world is it going to look like when the debt bubble totally bursts?
Even with all of this "borrowed prosperity", anger at the government is rapidly growing. A recent Gallup poll found that "satisfaction with government" in the United States is now at an all-time record low of 29 percent.
So how angry will the American people be when all of this "borrowed prosperity" disappears?
When this whole thing comes tumbling down, a lot of people are going to blame our problems on "capitalism".
In fact, it is already happening. Just check out what the founder of the World Economic Forum is saying....
"We have a general morality gap, we are over-leveraged, we have neglected to invest in the future, we have undermined social coherence, and we are in danger of completely losing the confidence of future generations," said Klaus Schwab, host and founder of the annual World Economic Forum.
"Solving problems in the context of outdated and crumbling models will only dig us deeper into the hole.
"We are in an era of profound change that urgently requires new ways of thinking instead of more business-as-usual," the 73-year-old said, adding that "capitalism in its current form, has no place in the world around us."
But capitalism is not the problem. Capitalism has produced the greatest eras of prosperity that the world has ever seen.
No, the real problem is our debt-based financial system that is managed and run by the central banks of the world.
You see, debt-based central banking is not capitalism. But way too many people equate the two.
A lot of people cannot even imagine this, but theoretically you could have capitalism without any debt whatsoever.
But what we have today is a financial system that has debt as the very foundation. And such a system is inevitably going to fail someday.
As I have written about so many times before, the Federal Reserve is at the very heart of our economic problems here in the United States.
The Federal Reserve was designed to be a perpetual debt machine. And it has performed that task very well. The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.
So yes, even though things seem somewhat "stable" for the moment, there are all kinds of reasons to be concerned about the viability of our economy and our financial system in the years ahead.
The other day, I was quoted in a Reuters article about our coming economic problems....
"Most people have a gut feeling that something has gone terribly wrong, but that doesn't mean that they understand what is happening," he said. "A lot of Americans sense that a massive economic storm is coming and they want to be prepared for it."
Of course the Reuters reporter did not even bother to spell my name correctly, but at least he got the quote right.
A great economic storm is coming.
Don't let this false prosperity and this "calm before the storm" fool you.
We are living in the greatest debt bubble the world has ever seen, and no matter how it plays out there is going to be a massive amount of pain.
You might want to get yourself and your family prepared for that.
So, what is to be after the dollar is cooked? Probably the underground economy will become “the” economy. Not the black market – that’s something else altogether.
I’m more than willing to barter, exchange, and be neighborly! Wish more folks around here and in the family were.
I Have Spoken about this before and people need to think about this the government has spent billions and years building underground shelters
for themselves and there loved ones,underground
military bases,ec.The question is where does this leave you? Why was offshore banking allowed in the first place? Some may believe that this is a bizzare way of looking at this
scenario,the rich and powerful obviously are not stupid at what they do they themselves it
has been rumored have been stockpiling supplies
if so,Where? Obviously in there own personal/
group underground shelters and who is to say that they do not have them? So the two groups
are well protected and when the smoke and dust clears not only will they be alive but there wealth will also be intact so when they start to rebuild the world they way they want it let
the fact be known that people in this country
are not included in there plans.Why? There is no civil defense program in this country,There is no where to go when shtf.What makes them so important/better than the person standing next to them? They created this problem and the american people are expected to make the ultimate sacrifice for them. They say they have to have these shelters so they can continue to run the government safely,this philosphy is insane based on the fact that if some people
do survive they are still going to have these
nutjobs in charge because who is going to stop them? Who is to say they would learn a lesson
from all this. Y2k was the biggest scam aver but
the government told people not to prepare,maybe it was meant to not create mass panic but at the same time the entire government was on alert
and it was again rumoured that they were stockpiling supplies before hand so for those who do not understand if and when shtf you are on your own the wait and see approach is now in effect.
Yet another Republican debate on TV this evening, NBC to be specific. TV Guide says there’s supposed to be a game show on this channel at this time slot. I’m already getting tired of this, and it’s not even November.
A brief summary so far:
Gingrich: “Move this chair to starboard!”
Romney: “No, move it to port! That’s the best view!”
Gingrich: “Look at that iceberg! Wow!!”
Romney: “Yeah! Tell the captain to steer a little closer! I want some good pictures!
Paul: “Man the lifeboats, you idiots!”
That Other Guy: He hasn’t said anything yet.
All hat and no cattle, as they say in Texas.
Yes, we are doomed.
Happy Chinese New Year!
Year of the Dragon? Nope. This year is the Year of the Debt-Ridden Sitting American Duck.
OBAMA WHITE HOUSE: A FULLY OWNED DIV. OF GOLDMAN SACHS
This is consistent with what socialism has always done – destroy, steal and murder. In fact, Dr. RJ Rummel of Univ. of Hawaii estimated various flavours of leftism (including the National SOCIALIST Workers’ Party of Hitler), murdered somewhere around 160 MILLION people last century.
How compassionate.
JR writes:
“This is consistent with what socialism has always done – destroy, steal and murder”"
Uh… May I suggest that you do some homework before making statements like this? The most successful socialist governments of all time, those of Northern Europe, have created a level of general prosperity which is at this time second to none and have existed comfortably alongside their own capitalist economies. They have murdered no one and destroyed nothing in the process. Their elections are as clean as they come. And they have given at least as much to the general welfare than they have taken in taxes. These countries are also acknowledged to be the most politically free; their educational systems run rings around ours…How much more would you like to know?
Evidently you are confusing socialism with failed Soviet Communism, which indeed deserved to fail. This suggests that you have drunk the libertarian kool-aid, and swallowed their simplistic philosophy, which disavows “tyranny” but prescribes no remedy for the absolute tyranny of an unleashed private sector.
“”Dr. RJ Rummel of Univ. of Hawaii estimated various flavours of leftism (including the National SOCIALIST Workers’ Party of Hitler)…”
Dr. Rummel should also do some homework. Anyone who’s studied the history of the period knows that the Nazis were “socialist” in name only. This was a sop thrown to the people; in reality Nazism was corporatism pure and simple. Nothing to do with Socialism in any recognizable form.
Actualy Dan you should read some history. Socialism was made to be faling system in wich through its insustainble numbers creates govornment reliance on loans from the Banking Cartels. Gorge Bernard Shaw the Father of The Fabian socialists was A member Of CFR. But since i you have read your silly indoctrinated versions of history instead of formulating your own opinions i Doubt you realy know about the true orgins of socialism, its true purpouse, and or the CFR for that matter. I might be wrong, though due to your comment I doubt you have any clue about the operational mechenisims of central banking, fiat currencys, and the modern worlds monetary devices. I also have my doubts about your understanding of monetary history!
Dan, currently living in a socialist government controlled country in Europe, I see first-hand what this type of economy does. The unemployment in this country is right around 21% and roughly 25%+ for those under 25. What we have here causes great divide in such countries and only continues to guarantee that those in power will be the ones with the money. The US will face a similar, if not worse, situation than this. The difference that I see here is that food is cheap and healthcare is free; opposite of the US. When food and healthcare prices continue to climb and wages begin to fall, people will begin to riot. Bad times loom ahead for the US and its people. The socialist regimes in Europe are clearly not any better than the US, just look at the equally devastating financial crisis that is occurring. Another good example is the Japanese; they have a high standard of living but their unemployment is relatively low (4% est.) but their debt continues to hinder growth and burden their society. Their debt is almost 170% of the Japanese GDP; continuing this trend will only slow growth even more. The growing US debt will effect all those for many generations and who knows what will happen when the world stops giving us money for almost free.
right on JR you are exactly right. his and all administrations since Woodrow Wilson are owned by the Feder Reserve. Though our good freind Goldman and sachs along with J.P morgan,Citi bank, Bank of America,Wells Fargo and others are stock holders In the Federal Reserve.
Debt works if its managed properly. This is how companies can get the capital to grow, people to buy cars and houses, etc. But it depends on a stable money system, reasonable economic growth, and effective government regulation to stop the worst excesses of corporate greed. An informed citizenry (ie knowledge of compounding effects, the ability to save and budget, etc.) helps too. Once people (and governments) forget the basics things can start unraveling quickly.
In the US we could get some fiscal balance by greatly cutting our obscene military spending, stopping the moronic “war on drugs” (subsidizing the prison industry) and making some other obvious changes. All these would certainly shake the economy, but not as badly as unlimited spending. I expect things will start to change when commodities (oil, especially) starts being priced in a basket of currencies rather than just dollars.
If workers made a sufficient income to purchase goods and banks were stable and did not fractionally reserve the system would work just fine with very little debt. No highs, no lows just steady steaming.
You forgot to mention that russia, India, and soon China are ending there oil deals in dollars. Also china and japan trade there currencys amongst each other with out exchanging to dollars. for those who dont know what this mean it means that the dollar is being dethorned as the worlds reserve currency wich will be the begining of hyper inflation.
This also makes our sanctions on iran worthless besides for there true purpose, to set the domino off in Greece. I say this because of Greeces oil deal with Iran. Greece gets all its crude from Iran and they get it on front in other words They dont have to pay for it till 60 days after they receive it. This will be the ultimate crippler for Greece who is already broken. why do you think they didnt put sanctions on iran a year ago. It just wasnt time yet, the euro wasnt in enough trouble yet.
those that know, know!
Hey,can you shorten your article a bit?it is bloated and hard for me to keep up LOL…seriously
[...] State of the Union speech the other night was just abysmal. The federal government is spending way too much money, and yet Barack Obama is proposing even more government spending. Entrepreneurs and small [...]
Michael,
I found you through Rush.
It’s easy to find everyone talking about the mess and it’s eventual doom – So, how do we get out of this mess?
I want to save my country – what do we need to do?
Scott:
I am so glad you found the site!
Here would be a good place to start….
http://theeconomiccollapseblog.com/archives/14-reasons-why-we-should-nationalize-the-federal-reserve
Michael
[...] this point. As I have written about previously, if the U.S. government stops spending so much money we are doomed, and if the U.S. government continues spending so much money we are doomed. [...]
Michael,
I have been discussing the national deficit problem with anybody that will listen. So many people refuse to see the truth for what it is. Both the dems and the reps are responsible for the debt but will they deal with the fiscal insantiy in Congress before it’s too late? Time will tell.