How long can our debt levels keep growing much, much faster than the overall economy? We haven’t had a year of 3 percent growth for the U.S. economy since the middle of the Bush administration, but we keep borrowing money as if there is no tomorrow. Much of the focus has been on the exploding debt of the federal government, and that is definitely something I plan to address once I get to Washington. But on an individual level, U.S. consumers have been extremely irresponsible as well. In fact, one new survey has found that more than 80 percent of all American adults are currently in debt…
It’s no secret that America is a nation that runs on debt, but it may surprise you to learn that the overwhelming majority of U.S. adults owe money in some way, shape, or form. According to new data from Comet, here’s how many Americans have debt at present:
- 80.9% of Baby Boomers
- 79.9% of Gen Xers
- 81.5% of Millennials
For most of us, it starts very early. We were told that going into debt to get a college education would not be a problem because we would be able to pay those loans off with the good jobs we would get after graduation.
Unfortunately, those good jobs never really materialized for many of us, and now millions of former college students are absolutely drowning in debt…
A study released Friday by the Brookings Institution finds that most borrowers who left school owing at least $50,000 in student loans in 2010 had failed to pay down any of their debt four years later. Instead, their balances had on average risen by 5% as interest accrued on their debt.
As of 2014 there were about 5 million borrowers with such large loan balances, out of 40 million Americans total with student debt. Large-balance borrowers represented 17% of student borrowers leaving college or grad school in 2014, up from 2% of all borrowers in 1990 after adjusting for inflation. Large-balance borrowers now owe 58% of the nation’s $1.4 trillion in outstanding student debt.
In addition to owing more than a trillion dollars on student loans, Americans are also now carrying more than a trillion dollars of auto loan debt and more than a trillion dollars of credit card debt.
Corporations have been incredibly irresponsible as well. Corporate debt has doubled since the last financial crisis, and corporate bankruptcies have been rising steadily in recent years. All it would take for the dominoes to really start falling is some sort of a major economic downturn.
Local, state and federal government debt levels are all at record highs as well. It is now being projected that our national debt will hit 30 trillion dollars by 2028, and those projections are probably too optimistic.
My guess is that we will almost certainly hit the 30 trillion dollar mark far sooner than that.
We can’t keep doing this to ourselves. Our incessant greed is literally destroying the future, but anyone that tries to warn about the collective insanity that has descended upon our society is mocked and ridiculed.
Let me ask you a question.
Would you willingly choose to give yourself cancer?
Of course not, but that is essentially what we are doing to ourselves as a society.
Debt is economic cancer, and as Lance Roberts has pointed out, if we continue to allow debt levels to grow like this eventually it will kill our entire economy…
Debt is, by its very nature, a cancer on economic growth. As debt levels rise it consumes more capital by diverting it from productive investments into debt service. As debt levels spread through the system it consumes greater amounts of capital until it eventually kills the host.
Debt is addictive, because it does boost our standard of living in the short-term. It is so easy to keep going back for one more “hit”, but every time we do it just makes our long-term crisis even worse.
Most people out there seem to think that our economic problems have been “solved”, but that is not true at all.
The truth is that our long-term problems just continue to grow with each passing day, and that is one of the reasons why I am so determined to go to Washington. We are at such a critical juncture right now, and if something is not done the prognosis is extremely negative.
If we stay on this current path, the very best that we can hope for is a “soft landing” and a greatly reduced standard of living for future generations of Americans. Here is more from Lance Roberts…
The processes that fueled the economic growth over the last 30 years are now beginning to run in reverse, and when combined with the demographic shifts in the U.S., the impact could be far more immediate and prolonged than the media, economists, and analysts are currently expecting. Sacrifices will have to be made, the economy will drag on at subpar rates of growth, individuals will be working far longer into their retirement years and the next generation of Americans will lead a far different life than what the currently retiring generation enjoyed.
It is simply a function of the math.
I am sorry for not writing more lately. I have been working night and day to get ready for May 15th. With Donald Trump in the White House, this is our opportunity to take our government back. If we miss this window, we may never have this sort of opportunity ever again.
America is drowning in debt, but of course our problems go far beyond that. Our economic, political, cultural and spiritual problems go very deep, and we desperately need to change course as a nation.
Unfortunately, most of the population is in a deep state of sleep, and my hope is that we can wake them up while there is still time to turn things around.
Michael Snyder is a pro-Trump candidate for Congress in Idaho’s First Congressional District, and you can learn how you can get involved in the campaign on his official website. His new book entitled “Living A Life That Really Matters” is available in paperback and for the Kindle on Amazon.com.
If the economy is getting better, then why do incomes keep falling? According to a shocking new report that was just released by the U.S. Census Bureau, median household income (adjusted for inflation) has declined for five years in a row. This has happened even though the federal government has been borrowing and spending money at an unprecedented rate and the Federal Reserve has been on the most reckless money printing spree in U.S. history. Despite all of the “emergency measures” that have been taken to “stimulate the economy”, things just continue to get worse for average American families. Americans are working harder than ever, but their paychecks are not reflecting that. Meanwhile, the cost of everything just keeps going up. The Federal Reserve insists that inflation is “low”, but anyone that goes grocery shopping or that stops at a gas station knows that is a lie. In fact, if inflation was calculated the exact same way that it was calculated back in 1980, the inflation rate would be somewhere between 8 and 10 percent right now. Paychecks are being stretched more than ever before, and that is probably the reason why about three-fourths of the entire country is living paycheck to paycheck at this point.
According to the Census report, the high point for median household income in the United States was back in 1999 ($56,080). It almost got back to that level in 2007 ($55,627), but ever since then there has been a steady decline. The following figures come directly from the report, and as you can see, median household income has fallen every single year for the past five years…
How far does that number have to go down before we admit that we have a major problem on our hands?
The new Census report also revealed that 46.5 million Americans are living in poverty. As CNSNews.com noted, this is far higher than when Barack Obama first entered the White House…
During the four years that marked President Barack Obama’s first term in office, the real median income of American households dropped by $2,627 and the number of people on poverty increased by approximately 6,667,000, according to data released today by the Census Bureau.
So why does Obama continue to insist that things are getting better?
Right now, one out of every five households in the United States is on food stamps.
One out of every five.
How bad does it have to get before we acknowledge that what we are doing economically is not working.
Will half of us eventually end up on food stamps?
In addition, the new Census report also says that 48 million Americans are currently without any kind of health insurance whatsoever.
The biggest culprit for this is the stunning decline of employment-based health insurance. Back in 1999, 64.1 percent of all Americans were covered by employment-based health insurance. Today, only 54.9 percent are covered by employment-based health insurance.
And of course as I noted yesterday, even more companies are going to be dumping health insurance plans because of Obamacare.
All in all, what we have been witnessing over the past decade and a half is the systematic evisceration of the middle class.
After accounting for inflation, right now 40 percent of all U.S. workers are making less than what a full-time minimum wage worker made back in 1968.
Over the years, our incomes have certainly gone up, but inflation has increased even faster.
Back when I was growing up, $50,000 a year sounded like a whole lot of money. I thought that anyone should be able to live a very comfortable lifestyle on that amount of money.
Unfortunately, $50,000 a year doesn’t go nearly as far as it once did.
If you take the current median household income ($51,017) and divide it up by 12 months, it comes to just a little bit more than $4000 a month.
And as I noted last year, it is not easy for the average American family to do everything that it needs to do on $4000 a month…
So can an average family of four people make it on just $4000 a month?
Well, first of all you have got to take out taxes. After accounting for all forms of taxation you will be lucky if you have $3000 remaining.
With that $3000, you have to pay for all of the following…
*At Least One Vehicle
*Home Or Rental Insurance
*Student Loan Debt Payments
*Credit Card Payments
*Entertainment (although it is hard to imagine any money will be left for that)
Have I left anything out?
The truth is that $3000 does not go as far as it used to.
No wonder American families are feeling so stretched financially these days.
The new Census report also noted that the gap between the wealthiest Americans and the rest of us continues to grow. There is certainly nothing wrong with making money, but if the economy was working properly all Americans should be able to have the opportunity to better themselves.
According to CNBC, the 400 wealthiest Americans now have more money than the poorest 50 percent of all Americans combined.
So why is this happening? Well, certainly there are a lot of reasons, but in recent years quantitative easing has definitely played a role. As I noted in my recent article about the Federal Reserve, quantitative easing has been incredibly good for those with stocks and other forms of financial investments. All of that liquidity has juiced the financial markets, and the extremely wealthy have been loving it.
Meanwhile, things just continue to get even tougher for most of the rest of the American people, and the frightening thing is that the next major wave of the economic collapse has not even hit us yet.
How bad will things be for average American families once that happens?
And there are certainly lots of troubling signs as we get ready to head into the fall season…
-Total mortgage activity has dropped to the lowest level that we have seen since October 2008.
-One of the largest furniture manufacturers in America was just forced into bankruptcy.
-According to the Wall Street Journal, the 2013 holiday shopping season is already being projected to be the worst that we have seen since 2009.
Hopefully the slow and steady economic decline that we have been experiencing will not accelerate into a full-blown avalanche any time soon.
But I would definitely get prepared just in case.
This is no time to be complacent. Massive economic problems are erupting all over the globe, but most people seem to believe that everything is going to be just fine. In fact, a whole bunch of recent polls and surveys show that the American people are starting to feel much better about how the U.S. economy is performing. Unfortunately, the false prosperity that we are currently enjoying is not going to last much longer. Just look at what is happening in Europe. The eurozone is now in the midst of the longest recession that it has ever experienced. Just look at what is happening over in Asia. Economic growth in India is the lowest that it has been in a decade and the Japanese financial system is beginning to spin wildly out of control. One of the only places on the entire planet where serious economic problems have not already erupted is in the United States, and that is only because we have “kicked the can down the road” by recklessly printing money and by borrowing money at an unprecedented rate. Unfortunately, the “sugar high” produced by those foolish measures is starting to wear off. We are going to experience a massive amount of economic pain along with the rest of the world – it is just a matter of time.
But for the moment, there are a lot of skeptics out there.
For the moment, there are a lot of people that are declaring that the problems of the past have been fixed and that we are heading for incredibly bright economic times ahead.
Unfortunately, those people appear to be purposely ignoring the economic horror that is breaking out all over the globe.
The following are 18 signs that massive economic problems are erupting all over the planet…
#1 The eurozone is now in the midst of its longest recession ever. Economic activity in the eurozone has declined for six quarters in a row.
#2 Italy’s economy has now been contracting for seven quarters in a row.
#3 Industrial production in Italy has fallen for 15 months in a row. It has now fallen to its lowest level in about 25 years.
#4 The number of people that are considered to be “seriously deprived” in Italy has doubled over the past two years.
#5 Consumer confidence in France has just hit a new all-time low.
#6 The number of unemployed workers seeking a job in France has hit a brand new all-time record high. Many unemployed workers in France are utterly frustrated at this point…
“I’ve sent CVs everywhere, I come to the unemployment agency every day, for 3 or 4 hours to look for work as a truck driver and there’s never anything,” said 42-year old Djamel Sami, who has been unemployed for a year, leaving a job agency in Paris.
#7 Unemployment in the eurozone as a whole has just hit a brand new all-time record high of 12.2 percent.
#8 Youth unemployment continues to soar to unprecedented heights in Europe. The following is from an article that was recently posted on the website of the Guardian that detailed how bad things are getting in some of the worst countries…
In Greece, 62.5% of young people are out of work, in Spain it’s 56.4%, then Portugal with 42.5%, and then Italy with 40.5%.
#9 Youth unemployment is being partially blamed for the worst rioting that Sweden has seen in many years. The following is how the Daily Mail described the riots…
Sweden is reeling after a third night of rioting in largely run-down immigrant areas of the capital Stockholm.
In the last 48 hours violence has spread to at least ten suburbs with mobs of youths torching hundreds of cars and clashing with police.
It is Sweden’s worst disorder in years and has shocked the country and provoked a debate on how Sweden is coping with youth unemployment and an influx of immigrants.
#10 An astounding 10 percent of all banking deposits were pulled out of banks in Cyprus during the month of April alone.
#11 Economic growth in India is the slowest that it has been in an entire decade.
#12 Suddenly Australia is experiencing some tremendous economic challenges. The following quotes are from a recent Zero Hedge article…
-“We’re seeing a much sharper contraction in the Australian economy than we’d anticipated four or five months ago”. Coffey MD, John Douglas. The engineering group has seen its shares, which traded above $4 in 2007, hit 10c last week.
-“By 10am, the Fitness First gym in the city is packed full of brokers who’ve had a gutful of sitting at their desk doing nothing – salary cuts are starting and next it will be jobs” Perth broker
-“Oh mate, the funding market is dead. You are now seeing a few deeply discounted rights issues for those that are reaching desperate levels ….. liquidity has completely disappeared” Perth broker
#13 The financial system in Japan is beginning to spin wildly out of control. The Japanese stock market has now declined about 15 percent from the peak, and many believe that the yen will continue to get weaker and that interest rates in Japan will start to rise significantly.
#14 Global cash flow is declining at a rate not seen since the last recession. This indicates that we could be headed for a global credit crunch.
#15 Real wages continue to decline in the United States. Even though we are being told that the U.S. is experiencing an “economy recovery”, real weekly earnings have declined from $297.79 in 2010 to $295.49 in 2011 to $294.83 in 2012. (The preceding calculation is based on 1982-1984 dollars)
#16 Wall Street is buzzing about the fact that “the Hindenburg Omen” appeared at the end of last week. So exactly what is “the Hindenburg Omen”? The following are the criteria that are used to determine whether it has appeared or not…
1. The daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.
2. The smaller of these numbers is greater than or equal to 69 (68.772 is 2.2% of 3126). This is not a rule but more like a checksum. This condition is a function of the 2.2% of the total issues.
3. That the NYSE 10 Week moving average is rising.
4. That the McClellan Oscillator ( a market breadth indicator used to evaluate the rate of money entering or leaving the market and interpretively indicate overbought or oversold conditions of the market)is negative on that same day.
5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs).
When the Hindenburg Omen makes an appearance, it supposedly means that the U.S. stock market is likely to experience a serious decline within the next 40 days.
#17 As I wrote about the other day, the SentimenTrader Smart/Dumb Money Index is now the lowest that it has been in more than two years. That means that lots of “smart money” has been getting out of the market and lots of “dumb money” has been pouring in.
#18 Margin debt on the New York Stock Exchange has set a new all-time high. The following is from a recent Market Oracle article…
Margin debt—that’s the amount of money borrowed to purchase stocks—on the New York Stock Exchange (NYSE) reached its all-time high in April. Margin debt on the NYSE registered at $384.3 billion as the key stock indices hit new record-highs. (Source: New York Stock Exchange web site, last accessed May 29, 2013.) The highest margin debt ever reached prior to this was in July of 2007, when it stood just above $381.0 billion. At that time, just like today, the key stock indices were near their peaks and “buy now before it’s too late” was the prominent theme of the day
Whenever margin debt spikes like this, a stock market crash almost always follows. If you doubt this, just check out the chart in this article.
Wall Street has had a good couple of years, but it has been a “false prosperity” that has been pumped up by reckless money printing by the Federal Reserve. Just like all of the other stock market bubbles that we have seen in recent years, this one is going to burst too. And as Marc Faber recently pointed out, this bubble has been particularly beneficial to the wealthy…
The Fed has been flooding the system with money. The problem is the money doesn’t flow into the system evenly. It doesn’t increase economic activity and asset prices in concert. Instead, it creates dangerous excesses in countries and asset classes. Money-printing fueled the colossal stock-market bubble of 1999-2000, when the Nasdaq more than doubled, becoming disconnected from economic reality. It fueled the housing bubble, which burst in 2008, and the commodities bubble. Now money is flowing into the high-end asset market – things like stocks, bonds, art, wine, jewelry, and luxury real estate.
Money-printing boosts the economy of the people closest to the money flow. But it doesn’t help the worker in Detroit, or the vast majority of the middle class. It leads to a widening wealth gap. The majority loses, and the minority wins.
The fact that the U.S. stock market has set new all-time record high after new all-time record high in recent months means very little. At this point, the stock market has become completely divorced from economic reality. When this current bubble bursts, the adjustment is going to be very painful. Wall Street will likely whine and complain and ask for more bailouts, but they may find that authorities are not nearly as sympathetic this time.
Much of the rest of the world is already experiencing the next major wave of the economic collapse. Reckless money printing by the Fed and reckless borrowing and spending by the federal government may have delayed the inevitable in the United States for a little while, but those measures have also made our long-term problems even worse.
There was one piece of advice that Ben Bernanke included in his commencement speech to students at Princeton recently that I thought was particularly ironic…
“Don’t be afraid to let the drama play out.”
Will he take his own advice when the next great financial crisis strikes the United States?
That seems very unlikely.
Unfortunately, things are not going to be so easy to fix this next time.
What happened back in 2008 was just a preview.
What is coming next is going to absolutely shock the world.
Why are Greece, Spain, Italy, Portugal and so many other countries experiencing depression-like conditions right now? It is because they have too much debt. Why do they have too much debt? It is because they allowed themselves to become enslaved to the bankers. Borrowing money from the bankers can allow a nation to have a higher standard of living in the short-term, but it always results in a lower standard of living in the long-term. Why is that? It is because you always have to pay back more money than you borrowed. And when you get to the point of having a debt to GDP ratio in excess of 100%, you are basically drowning in debt. Huge amounts of money that could be going to providing essential services and stimulating your economy are now going to service your horrific debt. Today, citizens in Greece, Spain, Portugal and Italy are experiencing a standard of living far below what they should be because the bankers have trapped them in endless debt spirals. Sadly, the vast majority of the people living in those countries have absolutely no idea what is at the root cause of their problems.
The truth is that no sovereign nation on earth ever has to borrow a single penny from anyone.
In theory, there is nothing stopping a government from printing up debt-free money and spending it into circulation.
But that is not the way our world works.
Instead, our national governments borrow money that has been zapped into existence out of thin air by central banks.
Now what kind of sense does that make?
Why don’t our governments just create the money themselves?
If the government of Greece had been directly issuing debt-free Greek currency all these years, they would have a national debt of zero and they would not be in the middle of a deep depression today.
So why isn’t anyone proposing that they go to such a system?
Instead, everyone is trying to figure out a way that the Greeks can muddle through this depression and keep paying on their unsustainable debts.
It is such a tragedy what has happened to Greece. The city of Boston has a larger economy than the entire nation of Greece at this point.
But this is what happens when you allow the bankers to trap your country in debt. The central banking systems of the world are designed to be endless debt spirals that systematically transfer wealth from the people through the governments and into the hands of the ultra-wealthy.
Just look at what is happening in the United States. The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.
Greece, Spain, Italy, Portugal and the rest of the nations of the western world did not get into all this debt by accident.
This happened by design.
And we can see what happens when the system starts to unravel by looking at what is happening in Greece and in Spain right now.
The following are 11 things that can happen when you allow your country to become enslaved to the bankers….
#1 At some point nations that are drowning in debt must implement “austerity measures” in an attempt to stay solvent.
This causes economic slowdown and unemployment skyrockets. We are seeing this happen in Greece, Spain and a whole bunch of other nations right now.
Over the past four years, the Greek economy has contracted by close to 25 percent. Just this week it was announced that the unemployment rate in Greece has risen to 23.1 percent.
A year ago it was just 16.8 percent
In Spain, the unemployment rate is even higher. It has hit 24.6 percent, and some analysts expect it to eventually reach 30 percent.
This would have never happened if these nations had not gotten into so much debt.
#2 Economic progress can actually go backwards in a debt-based system.
In Greece, a very large number of citizens have actually been giving up their cars and have gone back to riding bikes….
The high cost of road tax, fuel and repairs is forcing Greeks to ditch their cars in huge numbers. According to the government’s statistics office, the number of cars on Greek roads declined by more than 40 percent in each of the last two years. Meanwhile, more than 200,000 bikes were sold in 2011, up about a quarter from the previous year.
#3 Your banking system will inevitably melt down at some point.
Every debt bubble eventually bursts, and authorities all over Europe are desperately trying to keep the European banking system from completely imploding.
But despite their efforts, people are pulling money out of banks in southern Europe at a staggering pace. Just check out the slow motion bank run that is unfolding in Spain….
Capital outflows from Spain more than quadrupled in May to €41.3 billion ($50.7 billion) compared with May 2011, according to figures released on Tuesday by the Spanish central bank.
In the first five months of 2012, a total of €163 billion left the country, the figures indicate. During the same period a year earlier, Spain recorded a net inflow of €14.6 billion.
#4 In all countries with a debt-based system, eventually your taxes will be raised to ridiculous levels.
When the income tax was introduced in the United States back in 1913, the vast majority of Americans were in the 1 percent tax bracket.
Throughout the years there have been countless promises that taxes would be limited, but those promises always end up getting broken.
Even when they give us “tax cuts” with one hand, they usually end up raising taxes ten different ways with the other hand.
In the United States today, we are literally taxed in dozens and dozens of different ways.
Our politicians love to come up with new and inventive ways to tax us without us really even feeling it.
In the end, they are going to take as much away from us as they can possibly get away with.
Just look at what is happening in France.
The newly elected socialist president of France says that his party plans to raise the top tax rate in France to 75 percent.
But even though our politicians tax us to death, they still manage to run up gigantic mountains of debt on top of that.
#5 Your currency slowly but steadily becomes worthless.
Most people don’t realize that inflation is a tax. Every dollar you currently have in the bank is constantly losing value. That is because in a debt-based system like we have, the total amount of money and the total amount of debt is supposed to keep perpetually expanding.
Since the Federal Reserve was created, the U.S. dollar has declined in value by well over 95 percent.
This did not happen by accident. Every other major currency around the globe has been steadily declining in value as well.
#6 When things get bad enough, there will be rioting in the streets.
A few weeks ago, a total of more than a million public employees took to the streets in more than 80 different Spanish cities. You can view footage of some of the violent clashes with police that took place right here.
#7 When a debt-based economy crashes, money becomes very tight and shortages tend to happen.
Just look at what is happening in Greece. Medicine shortages have become a tremendous problem. The following is from a recent Bloomberg article….
Mina Mavrou, who runs a pharmacy in a middle-class Athens suburb, spends hours each day pleading with drugmakers, wholesalers and colleagues to hunt down medicines for clients. Life-saving drugs such as Sanofi (SAN)’s blood-thinner Clexane and GlaxoSmithKline Plc (GSK)’s asthma inhaler Flixotide often appear as lines of crimson data on pharmacists’ computer screens, meaning the products aren’t in stock or that pharmacists can’t order as many units as they need.
“When we see red, we want to cry,” Mavrou said. “The situation is worsening day by day.”
The 12,000 pharmacies that dot almost every street corner in Greek cities are the damaged capillaries of a complex system for getting treatment to patients. The Panhellenic Association of Pharmacists reports shortages of almost half the country’s 500 most-used medicines.
#8 Your population will eventually become so desperate that they will start banding together to loot food and supplies from stores.
When people have no work and they cannot feed their families they often find themselves doing things that they never imagined that they would do. Just check out what is happening in Spain right now….
Unemployed fieldworkers and other members of the union went to two supermarkets, one in Ecija (Sevilla) and one in Arcos de la Frontera (Cadiz) and loaded up trolleys with basic necessities. They said that the people were being expropriated and they planned to “expropriate the expropriators”.
The foodstuffs, including milk, sugar, chickpeas, pasta and rice, have been given to charities to distribute, who say they are unable to cope with all the requests for help they receive. Unemployment in the Sierra de Cadiz is now 40%.
#9 If things get bad enough, even essential services may start shutting down.
Authorities in Greece are legitimately concerned that there may be interruptions in the supply of natural gas and electricity. Suppliers are leaving bills unpaid for extended periods of time, and one day millions of Greeks may wake up to find that the power to their homes has been cut off….
Greece’s power regulator RAE told Reuters on Friday it was calling an emergency meeting next week to avert a collapse of the debt-stricken country’s electricity and natural gas system.
“RAE is taking crisis initiatives throughout next week to avert the collapse of the natural gas and electricity system,” the regulator’s chief Nikos Vasilakos told Reuters.
RAE took the decision after receiving a letter from Greece’s natural gas company DEPA, which threatened to cut supplies to electricity producers if they failed to settle their arrears with the company.
#10 In an economic depression, many people begin to totally lose hope.
An increasing number of parents in southern Europe are facing such desperate situations that they are actually abandoning their babies.
The following is from a recent CNBC article….
According to SOS Villages, a European charity that attempts to help families in financial hardship before abandonment occurs, in the last year alone 1,200 children in Greece and 750 in Italy have been abandoned. That is almost double the 400 children abandoned in Italy a year ago, and up from 114 children abandoned in Greece in 2003.
#11 Just like we saw during the Great Depression of the 1930s, there is a spike in suicides when an economy crashes.
Greece has never seen anything like what is happening now. The suicide rate has been absolutely soaring.
The following is from a Reuters article back in April….
On Monday, a 38-year-old geology lecturer hanged himself from a lamp post in Athens and on the same day a 35-year-old priest jumped to his death off his balcony in northern Greece. On Wednesday, a 23-year-old student shot himself in the head.
In a country that has had one of the lowest suicide rates in the world, a surge in the number of suicides in the wake of an economic crisis has shocked and gripped the Mediterranean nation – and its media – before a May 6 election.
If you live in the United States, you need to watch what is happening in Europe very closely, because similar conditions will come to the United States soon enough.
Just like Europe, we have allowed ourselves to become enslaved to the bankers, and now we will suffer the consequences.
Sadly, most Americans do not even realize how we got into this mess. The following is from a recent article by Professor Steven Yates….
It should have been clear that the country—indeed, Western civilization itself—was on the wrong trajectory as governments and central banks, working in tandem, severed ties between their currencies and precious metals, allowing massive credit expansion to run rampant and the national debt to skyrocket—making, e.g., the pseudo-prosperity of the roaring 1990s possible. Nixon had “closed the gold window” on August 15, 1971; our national debt was around $400 billion. Slightly over ten years later, the debt crossed the $1 trillion threshold. Ten years after that, it reached $6 trillion. When George W. Bush left office having been the biggest spending Republican in U.S. history, it had risen to over $11 trillion. Today, under the watch of the catastrophic Obama presidency, by the time this reaches print the national debt might have surmounted $16 trillion with no end in sight.
The United States has accumulated the greatest mountain of debt in the history of the world and it will totally crush us at some point.
Unfortunately, the vast majority of Americans are living paycheck to paycheck and are totally unprepared for the economic chaos that is coming.
One study found that 64 percent of all Americans have less than $1000 in the bank.
Can you believe that?
Even though we could be on the verge of another global food crisis, most Americans do not have enough food in their homes to last a single month.
Even though the U.S. economy is on the verge of another recession, most Americans are still running out and buying toys that they don’t need and paying for them with credit cards that they should not be using.
If you want to see where we are headed, just look at Greece and Spain.
They are going through economic hell, and we will be joining them soon enough.
Get ready while you can.
Do you want to see what a 21st century economic depression looks like? Just look at Greece. Once upon a time, the Greek economy was thriving, the Greek government was borrowing money like there was no tomorrow and Greek citizens were thoroughly enjoying the bubble of false prosperity that all that debt created. Those that warned that Greece was headed for a financial collapse were laughed at and were called “doom and gloomers”. Well, nobody is laughing now. You see, the truth is that debt is a very cruel master. Greeks were able to live way beyond their means for many, many years but eventually a day of reckoning arrived. At this point, the Greek economy has been in a recession for five years in a row, and the economic crisis in that country is rapidly getting even worse. It was just recently announced that the overall rate of unemployment in Greece has soared above 20 percent and the youth unemployment rate has risen to an astounding 48 percent. One out of every five retail stores has been shut down and parents are literally abandoning children in the streets. The frightening thing is that this is just the beginning. Things are going to get a lot worse in Greece. And in case you haven’t been paying attention, these kinds of conditions are coming to the United States as well. We are heading down the exact same road as Greece went down, and the economic pain that this country is eventually going to suffer is going to be beyond anything that most Americans would dare to imagine.
All debt spirals eventually come to an end. For years, Greece borrowed huge amounts of very cheap money, but there came a point when the debt became absolutely strangling and the rest of the world refused to lend the Greek government money at such cheap rates anymore.
Greece would have defaulted long before now if the EU and the IMF had not stepped in to bail them out. But along with those bailouts came strings. The EU and the IMF insisted that the Greek government cut spending and raise taxes.
Well, those spending cuts and tax increases caused the economy to slow down. Tax revenues decreased and deficit reduction targets were missed. So the EU and the IMF insisted on even more spending cuts and tax increases.
Even after all of the spending cuts and all of the tax increases that we have seen, the debt to GDP ratio in Greece is still higher than it was before the crisis began. Today, the Greek national debt is sitting at 142 percent of GDP.
Now the EU and the IMF are demanding even more austerity measures before they will release any more bailout money.
Needless to say, the Greek people are pretty much exasperated by all of this. They created this mess by going into so much debt, but they certainly don’t like the solutions that are being imposed upon them.
Protesters in Greece are absolutely outraged that the EU and the IMF are now demanding a 22 percent reduction in the minimum wage.
Most families in Greece are just barely surviving at this point. Unfortunately, Greece is probably looking at depression conditions for many years to come.
Over the past three years, the size of the Greek economy has shrunk by 16 percent.
In 2012, it is being projected that the Greek economy will shrink by another 5 percent.
Sadly, that projection is probably way too optimistic.
Over the past couple of months, it has been like someone has pulled the rug out from under the Greek economy. Just check out the following numbers from an article in the Telegraph by Ambrose Evans-Pritchard….
Another normal day at the Hellenic Statistical Authority.
We learn that:
Greece’s manufacturing output contracted by 15.5pc in December from a year earlier.
Industrial output fell 11.3pc, compared to minus 7.8pc in November.
Unemployment jumped to 20.9pc in November, up from 18.2pc a month earlier.
I have little further to add. This is what a death spiral looks like.
Can you imagine unemployment going up by 2.7 percent in one month?
This is what a 21st century economic depression looks like.
And needless to say, civil unrest is rampant in Greece.
The following is how a USA Today article described some of the protests that we saw in Greece this week….
Scores of youths, in hoods and gas masks, used sledge hammers to smash up marble paving stones in Athens’ main Syntagma Square before hurling the rubble at riot police.
The country’s two biggest labor unions stopped railway, ferry and public transport schedules, and hospitals worked on skeleton staff while most public services were disrupted. Unions were planning protests in Athens and other cities around midday.
Greek citizens are exasperated by the endless rounds of austerity that are being imposed upon them. They wonder how far all of this is going to go.
How much higher can taxes go in Greece? Greece already has tax rates that are among the highest in Europe….
Greece has the third highest rate of VAT in Europe, second highest gas/petrol tax, third highest tax on social insurance contributions, fifth highest VAT on alcohol, highest property tax and one of the worst corporate tax rates, without the quality of living or competitiveness to match.
How much farther can government pay be cut? Greek civil servants have had their incomes slashed by about 40 percent since 2010.
How would you feel if your pay was reduced by 40 percent?
Large numbers of Greeks are rapidly reaching the end of their ropes. The following is from a recent article in the Independent….
“People are scared and haven’t really realised what’s happening yet,” George Pantsios, an electrician for the country’s public power corporation, said. He has only been receiving half of his €850 monthly wage since August. “But once we all lose our jobs and can’t feed our kids, that’s when it’ll go boom and we’ll turn into Tahrir Square.”
Instead of turning violent, others are simply giving in to despair. According to the Daily Mail, large numbers of Greek children are being abandoned because their parents simply cannot afford to take care of them anymore. The note that one mother left with her little toddler was absolutely heartbreaking….
One mother, it said, ran away after handing over her two-year-old daughter Natasha.
Four-year-old Anna was found by a teacher clutching a note that read: ‘I will not be coming to pick up Anna today because I cannot afford to look after her. Please take good care of her. Sorry.’
Sadly, there are an increasing number of Greeks that are giving up on life entirely. The number of suicides in Greece rose by 40 percent during just one recent 12 month time period.
But we haven’t even seen the worst in Greece yet. The worst is still yet to come.
And the people of Greece are going to get angrier and angrier and angrier.
According to one recent poll, about 90 percent all of Greeks are unhappy with the interim government led by Prime Minister Lucas Papademos.
This week, that government has started to fall apart. Over just the past few days, 6 members of the 48-member government cabinet have resigned. Not only is there real doubt if the new austerity measures will be approved, there is very real doubt if this government will be able to hold together much longer.
Frustration with the EU and the IMF has reached a fever pitch in Greece. Just check out what Reuters is reporting….
In a letter obtained by Reuters on Friday, the Federation of Greek Police accused the officials of “…blackmail, covertly abolishing or eroding democracy and national sovereignty” and said one target of its warrants would be the IMF’s top official for Greece, Poul Thomsen.
So what is going to happen next in Greece?
The truth is that nobody knows.
But whatever kind of “deals” are reached, the reality is that nothing is going to keep Greece from continuing to experience depression-like conditions for quite some time.
Unfortunately, Greece is not an isolated case.
Portugal, Ireland, Italy and Spain are all going down the same path and Europe does not have enough money to bail all of them out.
To get an idea of how much money it would take to bail out the financially troubled nations of Europe, just check out this infographic that was recently posted on ZeroHedge.
A day of reckoning is coming for the United States as well. As CNBC recently noted, the U.S. debt problem is far worse than the European debt problem is.
That is why I have written over and over about the U.S. national debt and about how the U.S. government is spending too much money.
Right now, the U.S. government is still able to borrow gigantic mountains of very cheap money and is spending money as if tomorrow will never come.
Well, just like we saw in Greece, when debt gets out of control a day of great pain eventually arrives.
What we are watching unfold in Greece right now is coming to America.
You better get ready.
One of the most important steps that we could take to bring prosperity back to America would be to nationalize the Federal Reserve. Doing so would allow the federal government to quit borrowing money, dramatically reduce taxes and eventually pay off the entire U.S. national debt. Instead of inheriting the largest debt in the history of the world, future generations would actually have a chance at economic prosperity because they would not be forced to pay off the horrific debt of previous generations. The Federal Reserve is a perpetual debt machine, it has almost completely destroyed the value of the U.S. dollar and it has an absolutely nightmarish track record of incompetence. There are no good reasons to keep the status quo. Our current debt-based monetary system will inevitably lead to a complete and total economic collapse. We desperately need to make a change while we still can. As you will see below, there are a ton of good reasons why we should nationalize the Federal Reserve.
Right now, most Americans believe that the Federal Reserve is actually an agency of the federal government. But that is simply not the case. The truth is that the Federal Reserve is about as “federal” as Federal Express is.
The Federal Reserve openly admits as much. For example, in defending itself against a Bloomberg request for information under the Freedom of Information Act, the Federal Reserve stated in court that it was “not an agency” of the U.S. government and therefore not subject to the Freedom of Information Act.
So who owns the Federal Reserve?
As the Federal Reserve’s own website describes, it is the member banks that own it….
The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation’s central banking system, are organized much like private corporations–possibly leading to some confusion about “ownership.” For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.
The debt-based monetary system established by the Federal Reserve has greatly enriched the big banks and the people that own them. This has been at the expense of the American people.
A private central bank should not issue our currency, set interest rates and run our economy. Rather, we need to return control over the currency to the American people where it belongs.
The following are 14 reasons why we should nationalize the Federal Reserve….
#1 The U.S. Constitution says that the federal government is the one that should be issuing our money.
In particular, according to Article I, Section 8 of the U.S. Constitution, it is the U.S. Congress that has been given the responsibility to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.
#2 Our current debt-based monetary system is a perpetual debt machine. It is absolutely imperative that we nationalize the Federal Reserve and begin to issue debt-free money.
In a previous article about money and debt, I explained how more government debt is created whenever the U.S. government puts more money into circulation….
When the government wants more money, the U.S. government swaps U.S. Treasury bonds for “Federal Reserve notes”, thus creating more government debt. Usually the money isn’t even printed up – most of the time it is just electronically credited to the government. The Federal Reserve creates these “Federal Reserve notes” out of thin air. These Federal Reserve notes are backed by nothing and have no intrinsic value of their own.
This process creates a huge problem. When each new dollar is created, the interest owed by the federal government on that new dollar is not also created at the same time.
Therefore, more debt is actually created than the amount of money that the federal government receives from the Federal Reserve.
This is a Ponzi scheme that is designed to drain wealth from the American people and transfer it to the banking system.
This is why I call the Federal Reserve system a perpetual debt machine. Today, the U.S. national debt is more than 5,000 times larger than it was 100 years ago.
Back in 1910, prior to the passage of the Federal Reserve Act, the national debt was only about $2.6 billion.
By going to a system of debt-free money, the U.S. government would never have to borrow a single dollar ever again.
#3 Our current debt-based monetary system requires very high personal income taxes to pay for it. It is no accident that the personal income tax was introduced at about the same time that the Federal Reserve system came into existence.
If we nationalized the Federal Reserve and capped federal government spending at a reasonable percentage of GDP, it would be entirely possible to massively cut taxes and still keep our promises regarding Social Security and other important social programs at the same time.
I believe that eventually the entire personal income tax system could be completely wiped out and the IRS could be totally shut down. This would save our economy billions upon billions of dollars in income tax compliance costs.
However, as an initial first step, I believe that we should eliminate all payroll taxes, all “self-employment taxes” and all taxes on the first $100,000 earned by every American.
This would provide much needed relief to the millions of poor and middle income families that have been hurt so badly by this economic downturn.
Also, I believe that we could instantly reduce the corporate tax rate to levels that would be competitive with the rest of the world, while closing corporate tax loopholes at the same time. This would remove the temptation for companies to leave the United States in order to escape our brutally high corporate tax rates.
Yes, the proposals above would definitely cut taxes.
So where would we make up the difference?
Well, the U.S. Constitution provides one clue. According to Article I, Section 8 of the U.S. Constitution, the U.S. Congress has the right to impose “duties, imposts and excises” on goods sold in this country.
For way too long, big corporations have been taking advantage of sweatshops in the third world. For way too long, other nations have used predatory trade practices to take unfair advantage of us. For way too long, we have allowed nations with horrific human rights records to ship their goods into our country for free.
Well, we need to bring that to an end. By raising tariffs we would raise money for the federal government and we could potentially start to reverse the flow of jobs and businesses that have been leaving this country.
Access to the U.S. market is a privilege, not a right. High tariffs would be imposed on goods from any country that allows slave labor wages to be paid. Very high tariffs would be imposed on goods from any country that is using predatory trade practices against us. Extremely high tariffs would be imposed on any nation that does not respect basic human rights.
However, please keep in mind that none of this would work if we did not nationalize the Federal Reserve. The tax cuts proposed above would be suicidal under our current debt-based monetary system. But if we nationalize the Fed, we really could do this. It may sound crazy, but it really would work.
#4 If we nationalize the Federal Reserve, there would be no more budget deficits. If the federal government was a bit short one year, it would just print up a little bit of extra money in order to make up the difference.
It would also be very important to cap federal government spending as a percentage of GDP so that we don’t have crazy Congress critters creating a lot of inflation by spending us into oblivion.
Just because we would be adopting a debt-free monetary system does not mean that we could throw spending discipline out the window. Rather, it would actually become more important than ever.
#5 If we nationalize the Federal Reserve, we would instantly reduce the national debt by 1.6 trillion dollars. That is the amount that is currently on the balance sheet of the Federal Reserve. The Federal Reserve just created this money out of thin air anyway, so it was never their money to begin with. Some members of Congress have already proposed cancelling the debt held by the Federal Reserve, and it is a great idea.
#6 If we nationalize the Federal Reserve, we could eventually get rid of the entire national debt.
Under our current system, the U.S. national debt will never, ever be paid off. We are 15 trillion dollars in debt, and at this point we add more than a trillion dollars to that number every year.
As I have written about previously, if the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.
But under our current system we are not paying it off. Rather we keep piling up more debt at an astounding pace.
In a system of debt-free money, there would be no more budget deficits, and we could actually start slowly paying off the national debt with newly issued “United States money”.
This would have to be done very slowly so as to not shock the financial system, but it could be done. As U.S. debt becomes due, a small percentage of it could be retired each year.
It is entirely conceivable that within 30 to 40 years we could pay it off entirely without causing tremendous damage to the financial system.
#7 If we nationalize the Federal Reserve, we will eventually totally eliminate the interest on the national debt. Most Americans don’t understand this, but each year we spend hundreds of billions of dollars just on interest on the national debt. For example, the U.S. government spent over 454 billion dollars on interest on the national debt during fiscal year 2011.
Under a debt-free monetary system, that number would eventually go to zero. That would save the federal government a ton of money.
#8 While there is certainly a danger that we would have inflation under a debt-free monetary system, the reality is that we are absolutely guaranteed inflation under the Federal Reserve system.
Most Americans believe that inflation is a fact of life, but the sad truth is that the United States has only had a major, ongoing problem with inflation since the Federal Reserve was created back in 1913.
If you do not believe this, just check out this chart.
Sadly, the U.S. dollar has lost well over 95 percent of its value since the Federal Reserve was created.
So, yes, there would be a need for monetary discipline under a debt-free monetary system, but it would be hard to do worse than the Federal Reserve has already been doing.
#9 If we nationalize the Federal Reserve, we would eliminate all of the financial bubbles that the Federal Reserve has been creating.
For example, there would not have been such a bad housing crash if the Federal Reserve had not created such perfect conditions for a housing bubble in the first place.
We should eliminate the Federal Reserve and allow the market to set interest rates. Having a central authority that sets interest rates is just simply wrong and it creates all sorts of problems.
#10 The Federal Reserve has not been doing a good job.
In case anyone has not noticed, Federal Reserve Chairman Ben Bernanke has a very long track record of incompetence. Nearly every major judgment that he has made since taking over that position has been dead wrong.
We are always told that we need someone to run the economy and that the Fed is there to keep depressions from happening.
Well, the truth is that the Fed actually greatly contributed to the Great Depression and it was at least partly responsible for the financial crash of 2008.
Now we are right on the verge of yet another massive financial implosion.
If someone keeps wrecking your car, you don’t let them keep driving it, do you?
#11 If we nationalize the Federal Reserve, we could potentially transition to “sound money” at some point.
There is great debate about this of course. But it is a debate that we need to have.
But before we go to “hard money” we need to do something about this horrific debt that we have piled up for future generations first. We simply cannot lock this debt in and expect them to pay for our mistakes.
We made this mess, so we need to clean it up.
Going to a debt-free monetary system would allow us to do that.
#12 If we nationalize the Federal Reserve, our local banks will have much more freedom. Most Americans simply do not understand just how much power the Federal Reserve actually has over our local banks.
For example, just last year Federal Reserve officials walked into one bank in Oklahoma and demanded that they take down all the Bible verses and all the Christmas buttons that the bank had been displaying.
#13 If we nationalize the Federal Reserve, we won’t have trillions of dollars of secret loans being made to big financial institutions on Wall Street and in foreign countries.
Most Americans don’t realize this, but the Federal Reserve made $16.1 trillion in secret loans to their friends during the last financial crisis.
Meanwhile, hundreds of small banks were left out in the cold and the American people got no help.
This is rampant corruption and it needs to be stopped.
#14 The Federal Reserve needs to be nationalized because it is an unelected, unaccountable “fourth branch of government” that has gotten completely and totally out of control. Even some members of Congress are now openly complaining about how much power the Fed has. For example, Ron Paul told MSNBC last year that he believes that the Federal Reserve is now more powerful than Congress…..
“The regulations should be on the Federal Reserve. We should have transparency of the Federal Reserve. They can create trillions of dollars to bail out their friends, and we don’t even have any transparency of this. They’re more powerful than the Congress.”
To learn much more about the Federal Reserve and how it is destroying prosperity in America, there is a great animated documentary on YouTube entitled “The American Dream” that you can watch right here.
It is absolutely imperative that the American people get educated about the Federal Reserve and about why a debt-based monetary system is bad for us.
In 1922, Henry Ford wrote the following….
“The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present system which put nations and peoples under control of the few.”
The U.S. government does not need to go into debt to anyone.
The U.S. government is a sovereign nation.
So why in the world are we 15 trillion dollars in debt?
We have allowed ourselves to become willingly enslaved.
In the book of Proverbs, it tells us the following….
The rich ruleth over the poor, and the borrower is servant to the lender.
By allowing ourselves to become enslaved to debt, we have become the servants of the international banking system.
Our founding fathers attempted to warn us about this.
For example, Thomas Jefferson strongly believed that when the federal government borrows money in one generation which must be paid back by future generations it is equivalent to stealing….
And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.
Not only that, Thomas Jefferson also once stated that if he could add just one more amendment to the U.S. Constitution it would be a ban on all government borrowing….
I wish it were possible to obtain a single amendment to our Constitution. I would be willing to depend on that alone for the reduction of the administration of our government to the genuine principles of its Constitution; I mean an additional article, taking from the federal government the power of borrowing.
If we had implemented that advice, how much better off would we be today?
We can still do this.
We can take back control of our financial system.
We can nationalize the Federal Reserve.
We can dramatically cut taxes and eventually shut down the IRS.
We can give our children and grandchildren a future that is debt free.
We can escape the tyranny of the international bankers.
The choice, America, is up to you.
Right now, interest rates are near historic lows. The U.S. government is able to borrow gigantic mountains of money for next to nothing. U.S. consumers are still able to get home loans, car loans and student loans at ridiculously low interest rates. When this low interest rate environment changes (and it will), it is going to absolutely devastate the U.S. economy. Without low interest rates, the U.S. financial system dies. When it comes to borrowing money, it is the rate of interest that causes the pain. If you could borrow as much money as you wanted at a zero rate of interest for the rest of your life you would never, ever have a debt problem. But when there is a cost to borrowing money that changes things. The higher the rate of interest goes, the more painful debt becomes.
The only reason that U.S. government finances have not fallen apart completely already is because the federal government is still able to borrow huge amounts of money very cheaply. If interest rates on U.S. government debt even return just to “average” levels, it is going to be absolutely catastrophic.
So what happens if rates go above “average”?
The reality is that if there is a major crisis that causes interest rates on U.S. Treasuries to go well beyond “normal” levels it is going to cause a complete and total collapse.
In 2010, the U.S. government paid out just $413 billion in interest even though the national debt soared to 14 trillion dollars by the end of the year.
That means that the U.S. government paid somewhere in the neighborhood of 3 percent interest for the year.
Considering how rapidly the U.S. dollar has been declining and how much money printing the Federal Reserve has been doing, a rate of interest that low is absolutely ridiculous.
The shorter the term, the more ridiculous the rates of interest on U.S. Treasuries are.
For example, the rate of interest on 3 month U.S. Treasuries right now is just barely above zero.
The Federal Reserve has been playing all kinds of games in an attempt to keep interest rates on U.S. government debt low, and so far they have been pretty successful at it.
But they aren’t going to be able to do it forever.
Up until now, other nations and investors around the world have continued to participate in the system even though they know that the Federal Reserve is cheating.
However, there are signs that a lot of investors are finally getting fed up and are ready to walk away from U.S. government debt.
China has been dumping short-term U.S. government debt. Russia has been dumping U.S. government debt. Pimco has been dumping U.S. government debt.
Others are taking things even farther.
In fact, there are some investors that plan on cashing in on the loss of confidence in U.S. Treasuries. Renowned investor Jim Rogers says that he is now going to be shorting 30 year U.S. government bonds.
Just check out what Rogers recently told CNBC….
“I cannot imagine or conceive lending money to the United States government for 30-years at 3, 4, 5 or 6 percent —you pick a number — in U.S. dollars”
And he is right. Who in the world would be stupid enough to loan the U.S. government money at a 4 or 5 percent rate of interest for the next 30 years?
Actually, most U.S. government debt is financed in the short-term these days. In fact, the U.S. government issues a higher percentage of short-term debt than any other industrialized nation.
This trend really got started during the Clinton administration. Back then they figured out that the U.S. could reduce its borrowing costs substantially by relying much more heavily on short-term debt. The Bush and Obama administrations have continued this trend.
So these days the U.S. government constantly has huge amounts of debt that are maturing and that need to be rolled over.
This is great as long as interest rates stay very, very low.
But when interest rates rise the whole game will change.
In a recent article, Pat Buchanan explained that the Obama administration is being completely unrealistic when it assumes that interest rates on U.S. government debt will stay incredibly low over the next decade….
“The average rate of interest the Fed has had to pay to borrow for the last two decades has been 5.7 percent. However, President Obama is projecting the cost of money at only 2.5 percent.
A return to the normal Fed rate would, by 2020, add $4.9 trillion to the cumulative deficit”
Most Americans really cannot grasp how incredibly low interest rates are right now.
Sometimes a picture is worth a thousand words.
The following chart shows how interest rates on 10 year U.S. Treasury bonds have declined over the last several decades.
As confidence in the U.S. dollar and in U.S. government debt declines, interest rates will go up.
In fact, there are troubling signs that we are starting to see a move in that direction right now. Last week, the yield on 5 year U.S. Treasuries experienced the biggest one week percentage jump ever recorded.
The big danger is that the political wrangling in Washington D.C. will start to cause a panic. The managing director of Standard & Poor’s recently told Reuters that if the U.S. government starts defaulting on debt at the beginning of August, the credit rating on U.S. Treasury bonds that are supposed to mature on August 4th will go from AAA all the way down to D….
Chambers, who is also the chairman of S&P’s sovereign ratings committee, told Reuters on Tuesday that U.S. Treasury bills maturing on August 4 would be rated ‘D’ if the government fails to honor them. Unaffected Treasuries would be downgraded as well, but not as sharply, he said.
“If the U.S. government misses a payment, it goes to D,” Chambers said. “That would happen right after August 4, when the bills mature, because they don’t have a grace period.”
When a credit rating gets slashed, interest rates on that debt can go up dramatically.
Just ask the citizens of Greece.
Today, the interest rate on 2 year Greek bonds is over 26 percent.
You are delusional if you believe that something like that can never happen here.
Right now the U.S. national debt is completely and totally out of control. If the U.S. government had to start paying interest rates of 10, 15 or 20 percent to borrow money it would be a total nightmare.
This year the U.S. government will have income of about 2.2 trillion dollars.
If in future years the U.S. government is spending a trillion or a trillion and a half dollars just on interest on the national debt, then how in the world is it going to be possible to even run the government, much less balance the budget?
But rising interest rates would not just devastate the federal government.
It would become much more expensive for state and local governments to borrow money.
Student loans would become much more expensive.
Car loans would become much more expensive.
Home loans would become out of reach for everyone except the very wealthy.
As we saw during the housing crash of a few years ago, rising interest rates can absolutely wipe homeowners out.
On a standard home loan, if you change the rate of interest from 5 percent to 10 percent you increase the mortgage payment by approximately 50 percent.
If you change the rate of interest from 5 percent to 15 percent, you roughly double the mortgage payment.
As the 30 year fixed rate mortgage chart below shows, interest rates are near historic lows right now….
Keep in mind that even with such ridiculously low interest rates the U.S. real estate market has been deader than a doornail.
So what would a significant spike in interest rates do to it?
When all of these low interest rates go away the entire financial system is going to change dramatically.
A significant spike in interest rates would wipe out U.S. government finances, it would push state and local governments all over the country to the brink of bankruptcy, it would bring economic activity to a standstill and it would destroy any hopes for a housing recovery.
This country, and in particular the federal government, is enslaved to debt but right now we are not feeling the full pain of that debt because interest rates are so low.
If you want to know when things are really going to start coming apart, just keep an eye on interest rates. When they really start spiking you can start sounding the alarm.
The truth is that the state of the economy is going to continue to get worse. Our debt is growing every single day and our country is getting poorer every single day. When interest rates start surging it is going to start knocking over a lot of dominoes.
I hope you are getting prepared for when that happens.