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It Is Mathematically Impossible To Pay Off All Of Our Debt

Money - Public DomainDid you know that if you took every single penny away from everyone in the United States that it still would not be enough to pay off the national debt?  Today, the debt of the federal government exceeds $145,000 per household, and it is getting worse with each passing year.  Many believe that if we paid it off a little bit at a time that we could eventually pay it all off, but as you will see below that isn’t going to work either.  It has been projected that “mandatory” federal spending on programs such as Social Security, Medicaid and Medicare plus interest on the national debt will exceed total federal revenue by the year 2025.  That is before a single dollar is spent on the U.S. military, homeland security, paying federal workers or building any roads and bridges.  So no, we aren’t going to be “paying down” our debt any time in the foreseeable future.  And of course it isn’t just our 18 trillion dollar national debt that we need to be concerned about.  Overall, Americans are a total of 58 trillion dollars in debt.  35 years ago, that number was sitting at just 4.3 trillion dollars.  There is no way in the world that all of that debt can ever be repaid.  The only thing that we can hope for now is for this debt bubble to last for as long as possible before it finally explodes.

It shocks many people to learn that our debt is far larger than the total amount of money in existence.  So let’s take a few moments and go through some of the numbers.

When most people think of “money”, they think of coins, paper money and checking accounts.  All of those are contained in one of the most basic measures of money known as M1.  The following definition of M1 comes from Investopedia

A measure of the money supply that includes all physical money, such as coins and currency, as well as demand deposits, checking accounts and Negotiable Order of Withdrawal (NOW) accounts. M1 measures the most liquid components of the money supply, as it contains cash and assets that can quickly be converted to currency.

As you can see from the chart below, M1 has really grown in recent years thanks to rampant quantitative easing by the Federal Reserve.  At the moment it is sitting just shy of 3 trillion dollars…

M1 Money Supply 2015

So if you gathered up all coins, all paper currency and all money in everyone’s checking accounts, would that even make much of a dent in our debt?


We’ll have to find more “money” to grab.

M2 is a broader definition of money than M1 is, because it includes more things.  The following definition of M2 comes from Investopedia

A measure of money supply that includes cash and checking deposits (M1) as well as near money. “Near money” in M2 includes savings deposits, money market mutual funds and other time deposits, which are less liquid and not as suitable as exchange mediums but can be quickly converted into cash or checking deposits.

As you can see from the chart below, M2 is sitting just short of 12 trillion dollars right now…

M2 Money Supply 2015

That is a lot more “money”, but it still wouldn’t pay off our national debt, much less our total debt of 58 trillion dollars.

So is there anything else that we could grab?

Well, the broadest definition of “money” that is commonly used is M3.  The following definition of M3 comes from Investopedia

A measure of money supply that includes M2 as well as large time deposits, institutional money market funds, short-term repurchase agreements and other larger liquid assets. The M3 measurement includes assets that are less liquid than other components of the money supply, and are more closely related to the finances of larger financial institutions and corporations than to those of businesses and individuals. These types of assets are referred to as “near, near money.”

The Federal Reserve no longer provides charts for M3, but according to John Williams of, M3 is currently sitting somewhere in the neighborhood of 17 trillion dollars.

So even with the broadest possible definition of “money”, we simply cannot come up with enough to pay off the debt of the federal government, much less the rest of our debts.

That is not good news at all.

Alternatively, could we just start spending less than we bring in and start paying down the national debt a little bit at a time?

Perhaps that may have been true at one time, but now we are really up against a wall.  Our rapidly aging population is going to put an enormous amount of stress on our national finances in the years ahead.

According to U.S. Representative Frank Wolf, interest on the national debt plus “mandatory” spending on programs such as Social Security, Medicare and Medicaid will surpass the total amount of federal revenue by the year 2025.  That is before a single penny is spent on homeland security, national defense, paying federal workers, etc.

But even now things are a giant mess.  We are told that “deficits are under control”, but that is a massive hoax that is based on accounting gimmicks.  During fiscal year 2014, the U.S. national debt increased by more than a trillion dollars.  That is not “under control” – that is a raging national crisis.

Many believe that that we could improve the situation by raising taxes.  And yes, a little bit more could probably be squeezed out of us, but the impact on government finances would be negligible.  Since the end of World War II, the amount of tax revenue taken in by the federal government has fluctuated in a range between 15 and 20 percent of GDP no matter what tax rates have been.  I believe that it is possible to get up into the low twenties, but that would also be very damaging to our economy and the American public would probably throw a huge temper tantrum.

The real problem, of course, is our out of control spending.

During the past two decades, spending by the federal government has grown 63 percent more rapidly than inflation, and “mandatory” spending on programs such as Social Security, Medicare and Medicaid has actually doubled after you adjust for inflation.

We simply cannot afford to keep spending money like this.

And then there is the matter of interest on the national debt.  For the moment, the rest of the world is lending us gigantic mountains of money at ridiculously low interest rates.  However, if the average rate of interest on U.S. government debt was just to return to the long-term average, we would be spending more than a trillion dollars a year just in interest on the national debt.

So the best possible environment for “paying down our debt” that we are ever going to see is happening right now.  The only place that interest rates on U.S. government debt have to go is up, and our population is going to just keep getting older and more dependent on government programs.

Meanwhile, our overall debt continues to spiral out of control as well.  According to CNBC, the total amount of debt that Americans owe has reached a staggering 58.7 trillion dollars…

As the nation entered the 1980s, there was comparatively little debt—just about $4.3 trillion. That was only about 1.5 times the size of gross GDP. Then a funny thing happened.

The gap began to widen during the decade, and then became basically parabolic through the ’90s and into the early part of the 21st century.

Though debt took a brief decline in 2009 as the country limped its way out of the financial crisis, it has climbed again and is now, at $58.7 trillion, 3.3 times the size of GDP and about 13 times what it was in 1980, according to data from the Federal Reserve’s St. Louis branch. (The total debt measure is not to be confused with the $18.2 trillion national debt, which is 102 percent of GDP and is a subset of the total figure.)

As I discussed above, there isn’t enough money in our entire system to even pay off a significant chunk of that debt.

So what happens when the total amount of debt in a society vastly exceeds the total amount of money?

Is there any way out other than collapse?

You can share what you think by posting a comment below…

The Federal Reserve Is Paying Banks NOT To Lend 1.8 Trillion Dollars To The American People

House Of Cards - Photo by ArealastDid you know that U.S. banks have more than 1.8 trillion dollars parked at the Federal Reserve and that the Fed is actually paying them not to lend that money to us?  We were always told that the goal of quantitative easing was to “help the economy”, but the truth is that the vast majority of the money that the Fed has created through quantitative easing has not even gotten into the system.  Instead, most of it is sitting at the Fed slowly earning interest for the bankers.  Back in October 2008, just as the last financial crisis was starting, Federal Reserve Chairman Ben Bernanke announced that the Federal Reserve would start paying interest on the reserves that banks keep at the Fed.  This caused an absolute explosion in the size of these reserves.  Back in 2008, U.S. banks had less than 2 billion dollars of excess reserves parked at the Fed.  Today, they have more than 1.8 trillion.  In less than five years, the pile of excess reserves has gotten nearly 1,000 times larger.  This is utter insanity, and it will have very serious consequences down the road.

Posted below is a chart that shows the explosive growth of these excess reserves in recent years…

Excess Reserves

This explains why all of the crazy money printing that the Fed has been doing has not caused tremendous inflation yet.  Most of the money has not even gotten into the economy.  The Fed has been paying banks not to lend it out.

But now that big pile of money is sitting out there, and at some point it is going to come pouring in to the U.S. economy.  When that happens, we could very well see an absolutely massive tsunami of inflation.

Posted below is a chart that shows the growth of the M2 money supply over the past several decades.  It has been fairly steady, but imagine what would happen if you took the hockey stick from the chart above and suddenly added it to the top of this one…

M2 Money Supply

The longer that the Federal Reserve continues to engage in quantitative easing and continues to pay banks not to lend that money out to the rest of us, the larger that inflationary time bomb is going to become.

In a recent article for the Huffington Post, Professor Robert Auerbach of the University of Texas explained the nightmarish situation that we are facing…

One reason that the excess reserves grew to an extraordinary level is that in October 2008, one month after the financial crisis when Lehman Brothers went bankrupt, the Bernanke Fed began paying interest on bank reserves. Although it has been 1/4 of 1 percent interest, this risk free rate was not low compared to the Fed’s policy of keeping short-term market rates near zero. The interest banks received was and is an incentive to hold the excess reserves rather than lend to consumers and businesses in the risky environment of the major recession and the slow recovery.

The Bernanke Fed is now facing a $1.863 trillion time bomb, they helped to create, of excess reserves in the private banking system. If rates of interest on income earning assets (including bank loans to consumers and businesses) rise, the Fed will have to pay the banks more interest to hold their excess reserves.

If interest rates move up dramatically (and they are already starting to rise significantly), banks will have an incentive to take that money out of the Fed and start lending it out.  Professor Auerbach suggests that this could cause an “avalanche” of money pouring into the economy…

Eighty five billion a month will seem tiny compared to the avalanche of the $1.863 trillion excess reserves exploding rapidly into the economy. That would devalue the currency, cause more rapid inflation and worry investors about a coming collapse.

So the Fed has kind of painted itself into a corner.  If the Fed keeps printing money, they continue to grossly distort our financial system even more and the excess reserves time bomb just keeps getting bigger and bigger.

But even the suggestion that the Fed would begin to start “tapering” quantitative easing caused the financial markets to throw an epic temper tantrum in recent weeks.  Interest rates immediately began to skyrocket and Fed officials did their best to try to settle everyone down.

So where do we go from here?

Unfortunately, as Jim Rogers recently explained, this massive experiment in financial manipulation is ultimately going to end in disaster…

I’m afraid that in the end, we’re all going to suffer perhaps, worse than we ever have, with inflation, currency turmoil, and higher interest rates.

The Fed and other global central banks have created the largest bond bubble in the history of the planet.  If the Fed ends quantitative easing, the bond market is going to try to revert to normal.

That would be disastrous for the global financial system.  The following is what Jim Willie told Greg Hunter of

Everything is dependent on Fed support. They know if they take it away, they’re going to create a black hole. The Treasury bond is the greatest asset bubble in history. It’s at least twice as large as the housing and mortgage bubble, maybe three or four times as large.

But even if the central banks keep printing money, they may not be able to maintain control over the bond market.  In fact, there are already signs that they are starting to lose control.  The following is what billionaire Eric Sprott told King World News the other day…

It’s total orchestration. And it’s orchestration because they might have lost control of the bond market. I find it such a juxtaposition that central banks on a daily basis buy more bonds today than they ever purchased, and interest rates are going up, which is almost perverted. I mean how can that happen?

They’ve lost control of the market in my mind, and that’s why they are so desperately trying to get us all to forget the word ‘taper.’ In fact, we probably won’t even hear the word ‘taper’ anymore because it has such a sickening reaction to people in the bond market, and perhaps even people in the stock market. They will probably do away with the word. But the system is totally out of control. And then we’ve got this quadrillion dollars of derivatives. It just blows blows my mind to think about what could really be going on behind the scenes.

Sprott made a really good point about derivatives.

The quadrillion dollar derivatives bubble could bring down the global financial system at any time.

And remember, interest rate derivatives make up the biggest chunk of that.  Today, there are 441 trillion dollars of interest rate derivatives sitting out there.  If interest rates begin skyrocketing at some point, that is going to create some absolutely massive losses in the system.  We could potentially be talking about an event that would make the failure of Lehman Brothers look like a Sunday picnic.

We are moving into a time of great financial instability.  People are going to be absolutely shocked by what happens.

Our financial system is a house of cards built on a foundation of risk, leverage and debt.  When it all comes tumbling down, it should not be a surprise to any of us.

Shut Them Down! – Payday Loan Companies Are Making Billions Preying On The Misery Of The Poor

Payday Loan Companies Are Making Billions Preying On The Misery Of The Poor - Photo by VinceesqWould you take out a loan that has an annual percentage rate of 391 percent?  Yes, I know that sounds absolutely crazy, but millions of Americans do it every single year.  The typical payday loan requires borrowers to pay about 15 dollars for every $100 that they borrow for two weeks.  That comes out to a yearly rate of about 391 percent.  And the payday loan companies know exactly who to target.  They have set up thousands of shops in the poorest communities all over the nation over the last several decades.  Each year, approximately 12 million Americans take out payday loans and they pay approximately 7.4 billion dollars in interest and fees on those loans.  Sadly, once you get hooked on payday loans they are very hard to stop.  In fact, one study found that only 13 percent of payday borrowers get two loans or less per year.  All other borrowers take out more loans than that.  In fact, more than a third of all payday borrowers take out between 11 and 19 loans during the course of a single year.  And as was mentioned earlier, the interest rates on these loans are beyond exorbitant.  Payday loans are estimated to be about  20 times more expensive than bank loans, with annual interest rates that are sometimes as high as 500 percent.  The payday loan companies circle the poor like vultures, because they know that the poor are the only ones desperate enough to agree to such terms.  This is why we need to shut them down.  The payday loan companies are making billions preying on the misery of the poor and it needs to be stopped.

And it just isn’t small, disreputable banks that are involved in these practices.  The truth is that some of the largest banks in America are now making payday loans…

Some, including U.S. Bank, Fifth Third Bank and Wells Fargo, offer payday loans under names such as Ready Advance, Fast Loan and Early Access, according to the Center for Responsible Lending (CRL). They can carry interest rates averaging between 225 and 300 percent, CRL said.

Others major banks not making such loans directly, but instead they are investing millions of dollars in the companies that do make the loans.  Bank of New York Mellon Corp., JPMorgan Chase and Bank of America are just some of the major banks that have invested large amounts of money in the payday loan industry.

These financial institutions are making billions of dollars by exploiting the people in our society that are the most vulnerable.  As I showed the other day, the bottom 90 percent of America is systematically getting poorer, and many Americans in desperate financial situations have found  the easy cash provided by the payday loan companies to be irresistible.  The following are some statistics about payday loans from a recent Pew Research study...

-Fifty-eight percent of payday loan borrowers have trouble meeting monthly expenses at least half the time. These borrowers are dealing with persistent cash shortfalls rather than temporary emergencies.

-Only 14 percent of borrowers say they can afford to repay an average payday loan out of their monthly budgets.

-Seventy-eight percent of borrowers rely on information from lenders—who sell these loans as a safe, two-week product—when choosing to borrow money. This reliance reinforces the perception that payday loans are unlike other forms of credit because they will not create ongoing debt. Yet the stated price tag for a two-week, $375 loan bears little resemblance to the actual $520 cost over the five months of debt that the average user experiences.

-While payday loans are often presented as an alternative to overdrafting on a checking account, a majority of borrowers end up paying fees for both.

-Some borrowers ultimately turn to the same options they could have used instead of payday loans to finally pay off the loans. Forty-one percent need an outside cash infusion to eliminate payday loan debt– including getting help from friends or family, selling or pawning personal possessions, taking out another type of loan, or using a tax refund.

-By almost a three-to-one margin, borrowers favor more regulation of payday loans. A majority of borrowers say the loans both take advantage of them and that they provide relief. Despite feeling conflicted about their experiences, borrowers want to change how payday loans work.

But those statistics don’t really convey the real world consequences that these predatory loans have.  Many Americans have lost everything that they had after they turned to payday loans.  In fact, it is estimated that at least 50,000 Americans a year go bankrupt due to payday loans.

A recent NBC News article profiled Raymond Chaney, a 66-year-old military veteran that had his life totally destroyed by these predators…

For Raymond Chaney, taking out a payday loan was like hiring a taxi to drive across the country. He ended up broke — and stranded.

The 66-year-old veteran from Boise lives off of Social Security benefits, but borrowed from an Internet payday lender last November after his car broke down and didn’t have the $400 for repairs. When the 14-day loan came due, he couldn’t pay, so he renewed it several times.

Within months, the cash flow nightmare spun out of control. Chaney ended up taking out multiple loans from multiple sites, trying to to stave off bank overdraft fees and pay his rent. By February, payday lenders — who had direct access to his checking account as part of the loan terms — took every cent of his Social Security payment, and he was kicked out of his apartment. He had borrowed nearly $3,000 and owed $12,000.

“I’m not dumb, but I did a dumb thing,” said Chaney, who is now homeless, living in a rescue mission in Boise.

Is there anyone out there that still wants to argue that we should not shut these predators down?

Sadly, many Americans in poor communities have very few alternatives to the payday loan companies.  In recent years, the large banking chains have been systematically closing down branches in poor neighborhoods while expanding in wealthy neighborhoods at the same time.  Since the Federal Reserve is paying banks not to lend money, it doesn’t make a lot of sense for them to make high-risk loans to poor Americans who may not be able to pay them back.  And recent regulations passed by Congress have made it not very profitable to offer checking accounts to poor people.  In many poor communities all over the country, it has now gotten to the point where it is becoming extremely difficult to find a bank branch anywhere.

So payday loan companies have been more than happy to fill the void.

But don’t look down on those that have taken out payday loans.  The truth is that almost all of us have willingly allowed ourselves to become enslaved to the system at one point or another.

For example, in a previous article entitled “Money Is A Form Of Social Control And Most Americans Are Debt Slaves“, I pointed out the utter foolishness of constantly carrying a balance on a credit card.  In that article, I included a great explanation from a former Goldman Sachs banker about how incredibly crippling credit card debt can be…

On the debt side of things, how much does your credit card company earn if you carry just an average of a $5,000 credit card balance, paying, say, 22% annual interest rate (compounding monthly) for the next 10 years?

In your mind you owe a balance of only $5,000, which is not a huge amount, especially for someone gainfully employed.  After all, $5,000 is just a quick Disney trip, or a moderately priced ski-trip, or that week in Hawaii.  You think to yourself, “how bad could it be?”

The answer, including the cost of monthly compounding, is $44,235, or about 9 times what it appears to cost you at face value.

This is why one of the top things that I recommend for getting prepared for the economic crisis that is coming is to get out of debt.

You do not want to be enslaved to financial predators when everything starts falling apart all around you.

So do any of you have any payday loan or credit card horror stories to share?  Please feel free to share what you have to say by posting a comment below…

Payday Loans - Photo by swanksalot

The Chart That Proves That The Mainstream Media Is Lying To You About Unemployment

Employment-Population Ratio 2013The mainstream media is absolutely giddy that the U.S. unemployment rate has hit a “four-year low” of 7.7 percent.  But is unemployment in the United States actually going down?  After all, you would think that it should be.  The Obama administration has “borrowed” more than 6 trillion dollars from future generations of Americans, interest rates have been pushed to all-time lows, and the Federal Reserve has been wildly printing more money in a desperate attempt to “stimulate” the economy.  So have those efforts been successful?  Well, according to the mainstream media, the U.S. unemployment rate is falling steadily.  Headlines all over the nation boldly declared that “236,000 jobs” were added to the economy in February, but what they didn’t tell you was that the number of Americans “not in the labor force” rose by 296,000.  And that is how they are getting the unemployment rate to go down – by pretending that huge numbers of unemployed Americans don’t want jobs.  Sadly, as you will see below, the truth is that the percentage of working age Americans that have a job is just 0.1% higher than it was exactly three years ago.  And we have not even come close to getting back to where we were before the last economic crisis.  For example, more than 146 million Americans were employed back in 2007.  But today, only 142.2 million Americans have a job even though our population has grown steadily since then.  So where in the world is this “economic recovery” that they keep talking about?

At this point, the “unemployment rate” has become so meaningless that it really isn’t even worth paying much attention to.  If you really want to know what the employment picture looks like in the United States, you need to look at the employment-population ratio.

As Wikipedia tells us, many economists consider the employment-population ratio to be far superior to other measurements of employment…

The Organization for Economic Co-operation and Development defines the employment rate as the employment-to-population ratio. The employment-population ratio is many American economist’s favorite gauge of the American jobs picture. According to Paul Ashworth, chief North American economist for Capital Economics, “The employment population ratio is the best measure of labor market conditions.” This is a statistical ratio that measures the proportion of the country’s working-age population (ages 15 to 64 in most OECD countries) that is employed. This includes people that have stopped looking for work.

A chart of the employment-population ratio in the United States over the past several years is posted below…

Employment-Population Ratio 2013

As you can see, the percentage of Americans with a job fell from about 63 percent to below 59 percent during the last economic crisis.  Since that time, it has not risen back above 59 percent.  This is the first time in the post-World War II era that we have not seen the employment rate bounce back following a recession.  At this point, the employment-population ratio has been below 59 percent for 42 months in a row.

Yes, we should be thankful that things have stabilized, but as you can see there has been no recovery.  The percentage of Americans with a job is essentially exactly where it was three years ago.  Despite the trillions of dollars that the U.S. government has borrowed, and despite the reckless money printing that the Federal Reserve has been doing, the employment situation in the U.S. has not turned around.

Data for the employment-population ratio from the beginning of 2008 is posted below…

2008-01-01 62.9
2008-02-01 62.8
2008-03-01 62.7
2008-04-01 62.7
2008-05-01 62.5
2008-06-01 62.4
2008-07-01 62.2
2008-08-01 62.0
2008-09-01 61.9
2008-10-01 61.7
2008-11-01 61.4
2008-12-01 61.0
2009-01-01 60.6
2009-02-01 60.3
2009-03-01 59.9
2009-04-01 59.8
2009-05-01 59.6
2009-06-01 59.4
2009-07-01 59.3
2009-08-01 59.1
2009-09-01 58.7
2009-10-01 58.5
2009-11-01 58.6
2009-12-01 58.3
2010-01-01 58.5
2010-02-01 58.5
2010-03-01 58.5
2010-04-01 58.7
2010-05-01 58.6
2010-06-01 58.5
2010-07-01 58.5
2010-08-01 58.5
2010-09-01 58.5
2010-10-01 58.3
2010-11-01 58.2
2010-12-01 58.3
2011-01-01 58.3
2011-02-01 58.4
2011-03-01 58.4
2011-04-01 58.4
2011-05-01 58.4
2011-06-01 58.2
2011-07-01 58.2
2011-08-01 58.3
2011-09-01 58.4
2011-10-01 58.4
2011-11-01 58.5
2011-12-01 58.6
2012-01-01 58.5
2012-02-01 58.6
2012-03-01 58.5
2012-04-01 58.5
2012-05-01 58.6
2012-06-01 58.6
2012-07-01 58.5
2012-08-01 58.4
2012-09-01 58.7
2012-10-01 58.7
2012-11-01 58.7
2012-12-01 58.6
2013-01-01 58.6
2013-02-01 58.6

So is there anyone out there that still wants to insist that the employment picture in the United States is getting significantly better?

Anyone that wants to claim that “unemployment is going down” should at least wait until the unemployment-population ratio gets back up to 59 percent.  Otherwise they just look foolish.

Yes, the Dow is at an all-time high right now.  But a bubble is always the biggest right before it bursts.

Most Americans understand that the Dow has been pumped up with all of the funny money that the Fed has been printing.  Most Americans understand that the stock market really does not accurately reflect the health of the U.S. economy as a whole.

Just consider these numbers…

-The number of homeless people sleeping in homeless shelters in New York City has increased by 19 percent over the past year.

-The number of Americans on food stamps has risen from 32 million to 47 million while Barack Obama has been in the White House.

-According to the U.S. Census Bureau, more than 146 million Americans are either “poor” or “low income” at this point.

-Median household income in the United States has fallen for four consecutive years.

No, the truth is that everything is most definitely not fine.

If everything is fine, then why did the Federal Reserve inject another 100 billion dollars into foreign banks during the last full week of February?

The U.S. government and the Federal Reserve are desperately trying to prop up the entire global economy.  Unfortunately, the global financial system has been built on a foundation of sand and the tide is coming in.

Back in 2008, a derivatives crisis was one of the primary causes of the worst financial panic since the Great Depression.

So did we learn our lesson?

No, the boys on Wall Street are back at it again as a recent article by Jim Armitage described…

Historically, stock markets, being driven by humans, have tended to have a similar length memory of catastrophes, before making the same dumb mistakes again.

But it hasn’t even been five years since derivatives (on that occasion based on daft mortgages) blew up the world, and yet these exotic creatures have already returned. With a vengeance.

Research from Thomson Reuters declared that banks were creating more derivatives known as asset-backed securities than at any time since before the Lehman Brothers crash. Of those, 22 percent were made up of – and forgive me the alphabet soup here – CDOs and CLOs. The very type of derivatives that exploded last time. At this stage last year, only 6 percent fell into those categories.

In other words, banks are creating more of the riskiest types of the riskiest products.

At some point, we will have another derivatives crisis even worse than the last one.

When that happens, financial markets all over the globe will crash, economic activity will grind to a standstill and unemployment will go skyrocketing once again.

But as you saw above, we have never even come close to recovering from the last crisis.

So you can believe the mind-numbing propaganda that the mainstream media is trying to feed you if you want.  Unfortunately, the reality of the matter is that we have not recovered from the last major economic crisis, and another one is rapidly approaching.

I hope that you are getting ready.

The Federal Reserve Is Systematically Destroying Social Security And The Retirement Plans Of Millions Of Americans

Last week the mainstream media hailed QE3 as the “quick fix” that the U.S. economy desperately needs, but the truth is that the policies that the Federal Reserve is pursuing are going to be absolutely devastating for our senior citizens.  By keeping interest rates at exceptionally low levels, the Federal Reserve is absolutely crushing savers and is systematically destroying Social Security.  Meanwhile, the inflation that QE3 will cause is going to be absolutely crippling for the millions upon millions of retired Americans that are on a fixed income.  Sadly, most elderly Americans have no idea what the Federal Reserve is doing to their financial futures.  Most Americans that are approaching retirement age have not adequately saved for retirement, and the Social Security system that they are depending on is going to completely and totally collapse in the coming years.  Right now, approximately 56 million Americans are collecting Social Security benefits.  By 2035, that number is projected to grow to a whopping 91 million.  By law, the Social Security trust fund must be invested in U.S. government securities.  But thanks to the low interest rate policies of the Federal Reserve, the average interest rate on those securities just keeps dropping and dropping.  The trustees of the Social Security system had projected that the Social Security trust fund would be completely gone by 2033, but because of the Fed policy of keeping interest rates exceptionally low for the foreseeable future it is now being projected by some analysts that Social Security will be bankrupt by 2023.  Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.  Yes, you read that correctly.  The collapse of Social Security is inevitable, and the foolish policies of the Federal Reserve are going to make that collapse happen much more rapidly.

The only way that the Social Security system is going to be able to stay solvent is for the Social Security trust fund to earn a healthy level of interest.

By law, all money deposited in the Social Security trust fund must be invested in U.S. government securities.  The following is from the official website of the Social Security Administration….

By law, income to the trust funds must be invested, on a daily basis, in securities guaranteed as to both principal and interest by the Federal government. All securities held by the trust funds are “special issues” of the United States Treasury. Such securities are available only to the trust funds.

In the past, the trust funds have held marketable Treasury securities, which are available to the general public. Unlike marketable securities, special issues can be redeemed at any time at face value. Marketable securities are subject to the forces of the open market and may suffer a loss, or enjoy a gain, if sold before maturity. Investment in special issues gives the trust funds the same flexibility as holding cash.

So in order for the Social Security Ponzi scheme to work, those investments in government securities need to produce healthy returns.

Unfortunately, the ultra-low interest rate policy of the Federal Reserve is making this impossible.

The average rate of interest earned by the Social Security trust fund has declined from 6.1 percent in January 2003 to 3.9 percent today, and it is going to continue to go even lower as long as the Fed continues to keep interest rates super low.

A recent article by Bruce Krasting detailed how this works.  Just check out the following example….

$135 billion of old bonds matured this year. This money was rolled over into new bonds with a yield of only 1.375%. The average yield on the maturing securities was 5.64%. The drop in yield on the new securities lowers SSA’s income by $5.7B annually. Over the fifteen year term of the investments, that comes to a lumpy $86 billion.

So what happens when the Social Security trust fund runs dry?

As Bruce Krasting also noted, all Social Security payments would immediately be cut by 25 percent…..

Anyone who is 55 or older should be worried about this. Based on current law, all SS benefit payments must be cut by (approximately) 25% when the TF is exhausted. This will affect 72 million people. The economic consequences will be severe.

In other words, it would be a complete and total nightmare.

Sadly, the truth is that the Social Security trust fund might not even make it into the next decade.  Most Social Security trust fund projections assume that there will be no recessions and that there will be a very healthy rate of growth for the U.S. economy over the next decade.

So what happens if we have another major recession or worse?

And most Americans know that something is up with Social Security.  According to a Gallup survey, 67 percent of all Americans believe that there will be a Social Security crisis within 10 years.

Part of the problem is that there are way too many people retiring and not nearly enough workers to support them.

Back in 1950, each retiree’s Social Security benefit was paid for by 16 U.S. workers.  But now things are much different.  According to new data from the U.S. Bureau of Labor Statistics, there are now only 1.75 full-time private sector workers for each person that is receiving Social Security benefits in the United States.

And remember, the number of Americans drawing on Social Security will increase by another 35 million by the year 2035.

Another factor that is rapidly becoming a major problem is the growth of the Social Security disability program.

Since 2008, 3.6 million more Americans have been added to the rolls of the Social Security disability insurance program.

Today, more than 8.7 million Americans are collecting Social Security disability payments.

So how does this compare to the past?

Back in August 1967, there were approximately 65 workers for each American that was collecting Social Security disability payments.

Today, there are only 16.2 workers for each American that is collecting Social Security disability payments.

The Social Security Ponzi scheme is rapidly approaching a crisis point.

Sadly, the Federal Reserve has made it incredibly difficult to save for your own retirement.

Millions upon millions of Baby Boomers that diligently saved money for retirement are finding that their savings accounts are paying out next to nothing thanks to the ultra-low interest rate policies of the Federal Reserve.

The following is one example of how the low interest rate policies of the Fed have completely devastated the retirement plans of many elderly Americans….

You can understand the impact of the invisible tax on the elderly by watching the decline of interest income from $50,000 invested in a five-year Treasury obligation. As recently as 2000, this would have yielded about 6.15 percent and an interest income of $3,075 a year. Now the same obligation is yielding 0.7 percent and an interest income of $350 a year. This is the lowest yield on this maturity of Treasury debt since the Federal Reserve started keeping an index of the yields in 1953.

But it’s more than a low interest rate. It’s an income decline of nearly 89 percent in just 12 years.

And after you account for inflation, those that put money into savings accounts today are actually losing money.

Of course most Americans have not saved up much money for retirement anyway.  According to the Employee Benefit Research Institute, 46 percent of all American workers have less than $10,000 saved for retirement, and 29 percent of all American workers have less than $1,000 saved for retirement.

Overall, a study conducted by Boston College’s Center for Retirement Research discovered that American workers are $6.6 trillion short of what they need to retire comfortably.

So needless to say, we have a major problem.

Baby Boomers are just starting to retire and the Social Security system is still solvent at the moment, and yet the number of elderly Americans that are experiencing financial problems is already soaring.

For example, between 1991 and 2007 the number of Americans between the ages of 65 and 74 that filed for bankruptcy rose by a staggering 178 percent.

Also, at this point one out of every six elderly Americans is already living below the federal poverty line.

So how bad are things going to be when Social Security collapses?

That is frightening to think about.

In the short-term, millions upon millions of retired Americans that are living on fixed incomes are going to be absolutely crushed by the inflation that QE3 is going to cause.

Just like we saw with QE1 and QE2, a lot of the money from QE3 is going to end up in agricultural commodities and oil.  That means that retirees (and all the rest of us) are going to end up paying more for food at the supermarket and gasoline at the pump.

But those on fixed incomes are not going to see a corresponding increase in their incomes.  That means that their standards of living will go down.

Things are tough for retirees right now, but they are going to get a lot tougher.

Right now, there are somewhere around 40 million senior citizens.  By 2050 that number is projected to increase to 89 million.

So how will our society cope with more than twice as many senior citizens?

Sadly, we will likely never get to find out.

The truth is that our system is almost certainly going to totally collapse long before then.

We are rapidly approaching a financial crisis unlike anything we have ever seen before in U.S. history, and the foolish policies of the Federal Reserve just keep making things even worse.

QE3: Helicopter Ben Bernanke Unleashes An All-Out Attack On The U.S. Dollar

You can’t accuse Federal Reserve Chairman Ben Bernanke of not living up to his nickname.  Back in 2002, Bernanke delivered a speech entitled “Deflation: Making Sure ‘It’ Doesn’t Happen Here” in which he referenced a statement by economist Milton Friedman about fighting deflation by dropping money from a helicopter.  Well, it might be time for a new nickname for Bernanke because what he did today was a lot more than drop money from a helicopter.  Today the Federal Reserve announced that QE3 will begin on Friday, but it is going to be much different from QE1 and QE2.  Both of those rounds of quantitative easing were of limited duration.  This time, the quantitative easing is going to be open-ended.  The Fed is going to buy 40 billion dollars worth of mortgage-backed securities per month until they have decided that the economy is in good enough shape to stop.  For those that get confused by terms like “quantitative easing” and “mortgage-backed securities”, what the Federal Reserve is essentially saying is this: “We’re going to print a bunch of money and buy stuff for as long as we feel it is necessary.”  In addition, the Federal Reserve has promised to keep interest rates at ultra-low levels all the way through mid-2015.  The course that the Federal Reserve has set us on is utter insanity.  Ben Bernanke can rain money down on us all he wants, but it is not going to do much at all to help the real economy.  However, it will definitely hasten the destruction of the U.S. dollar.

And the Federal Reserve is apparently very eager to get QE3 going.  Purchases of mortgage-backed securities are going to start on Friday.

In the coming months, hundreds of billions of dollars that the Federal Reserve has zapped into existence out of nothing will be injected into our financial system.

So what will happen to all of this new money?

If banks and financial institutions use that money to make loans then it could have somewhat of a positive impact on the economy in the short-term.

However, the truth is that it isn’t as if banks are hurting for cash to loan out.  In fact, right now banks are already sitting on $1.6 trillion in excess reserves.  Just like with the first two rounds of quantitative easing, a lot of the money from QE3 will likely end up being put on the shelf.

But the stock market loved the news because they know that the previous two rounds of quantitative easing have been great for the financial markets.  On Thursday, the stock market soared to levels not seen since December 2007.

There is much rejoicing on Wall Street right now.

And this stock market bounce is great for Bernanke’s good buddy Barack Obama.

Obama nominated Bernanke to a second term as Fed Chairman, and this might be Bernanke’s way of paying him back.

But of course the Fed is supposed to be “above politics” so that would never happen, right?

The Federal Reserve essentially “crossed the Rubicon” today.  No longer will quantitative easing be considered an “emergency measure”.  Rather, it will now be considered just another “tool” that the Fed uses in the normal course of business.

Considering how vulnerable the U.S. dollar already is, announcing an “open-ended” round of quantitative easing is utter foolishness.  According to the Fed, when you add the 40 billion dollars of new mortgage-backed security purchases per month to all of the other “easing” measures the Fed is continuing to do, the grand total is going to come to about 85 billion dollars a month.  The following is from the statement that the Fed released earlier today….

To support a stronger economic recovery and to help ensure that inflation, over time, is at the rate most consistent with its dual mandate, the Committee agreed today to increase policy accommodation by purchasing additional agency mortgage-backed securities at a pace of $40 billion per month. The Committee also will continue through the end of the year its program to extend the average maturity of its holdings of securities as announced in June, and it is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities. These actions, which together will increase the Committee’s holdings of longer-term securities by about $85 billion each month through the end of the year, should put downward pressure on longer-term interest rates, support mortgage markets, and help to make broader financial conditions more accommodative.

The Committee will closely monitor incoming information on economic and financial developments in coming months. If the outlook for the labor market does not improve substantially, the Committee will continue its purchases of agency mortgage-backed securities, undertake additional asset purchases, and employ its other policy tools as appropriate until such improvement is achieved in a context of price stability. In determining the size, pace, and composition of its asset purchases, the Committee will, as always, take appropriate account of the likely efficacy and costs of such purchases.

So what does all of this mean?

I really like how one analyst put it when he described this announcement as a “I’m gonna ease till your eyes bleed kinda statement“.

The Fed also promised to keep interest rates at “exceptionally low levels” until mid-2015….

To support continued progress toward maximum employment and price stability, the Committee expects that a highly accommodative stance of monetary policy will remain appropriate for a considerable time after the economic recovery strengthens. In particular, the Committee also decided today to keep the target range for the federal funds rate at 0 to 1/4 percent and currently anticipates that exceptionally low levels for the federal funds rate are likely to be warranted at least through mid-2015.

It seems that whenever the U.S. economy gets into trouble, Bernanke and his friends at the Fed only have one prescription and it goes something like this….

“Print more money and promise to keep interest rates near zero even longer.”

Of course a lot of Republicans are quite disturbed that QE3 was announced with just a couple of months remaining in a very heated election battle.

Even big news organizations such as CNBC are commenting on this….

Though the Fed is ostensibly politically independent, the decision comes at a ticklish time with the presidential election less than two months away.

And without a doubt the mainstream media will be proclaiming this to be “good news” for the economy in the short-term.

But is QE3 really going to help the average person on the street?

Well, first let’s take a look at employment.  We are told that one of the primary reasons for QE3 is jobs.

But did QE1 and QE2 create jobs?

The answer is clearly no.

As you can see from the chart below, the percentage of working age Americans with a job fell dramatically during the last recession and has not bounced back since that time despite all of the quantitative easing that has been done already….

So why try the same thing again when it did not work the first two times?

But what more quantitative easing is likely to do is to pump up stock market values because a lot of the money from QE3 is going to end up being put into stocks and other investments.

This is going to help the wealthy get even wealthier, and it is going to make the “wealth gap” between the rich and the poor even larger in America.

QE3 is also probably going to cause commodity prices to rise just like QE1 and QE2 did.

That means that you will be paying more for gasoline, food and other basic necessities.

So there may not be more jobs, but at least you will get the privilege of paying more for things.

The inflation that QE3 will cause will be particularly cruel for those on fixed incomes such as retirees.

None of the extra money from QE3 is going to go into their pockets, but they will have to pay more to heat their homes and fill up their shopping carts.

And the “exceptionally low interest rate” policy of the Federal Reserve is absolutely devastating for those that have saved for retirement and that are relying on interest income for their living expenses.

In short, quantitative easing is very good for the wealthy and it is very bad for the average man and woman on the street.

But what else would you expect from the Federal Reserve?

It is imperative that we educate the American people about the Federal Reserve and about how they are destroying our economy.  For much more on this, please see my previous article entitled “10 Things That Every American Should Know About The Federal Reserve“.

Perhaps the biggest danger from QE3 is that it could greatly hasten the day when the U.S. dollar ceases to be the reserve currency of the world.

The rest of the world is not stupid.  They see that the Federal Reserve is now firing up the printing presses whenever they feel like it.  They can see the games that we are playing with our currency.

Why should the rest of the world continue to use the U.S. dollar to trade with one another when the United States is constantly debasing it and playing games with its value?

As I wrote about the other day, China and Russia have been calling for a new reserve currency for the world for several years.  They have been leading the charge to conduct international trade in currencies other than the U.S. dollar, and I have documented many of the major international agreements to move away from the U.S. dollar that have been made in the last couple of years.

The status of the U.S. dollar in the world has already been steadily slipping, and now Helicopter Ben Bernanke pulls this kind of nonsense.

We are handing the rest of the world an excuse to abandon the U.S. dollar on a silver platter.

And when the rest of the globe rejects the U.S. dollar as a reserve currency, the dollar will crash, the cost of living will increase dramatically, our standard of living will go way down and we will never fully recover from it.

So if you think that things are “bad” now, just wait until that happens.

The U.S. dollar is one of the best things that the U.S. economy still has going for it, and Helicopter Ben Bernanke is doing his best to absolutely destroy that.

What is your opinion of QE3?  Please feel free to post a comment with your thoughts below….

11 International Agreements That Are Nails In The Coffin Of The Petrodollar

Is the petrodollar dead?  Well, not yet, but the nails are being hammered into the coffin even as you read this.  For decades, most of the nations of the world have used the U.S. dollar to buy oil and to trade with each other.  In essence, the U.S. dollar has been acting as a true global currency.  Virtually every country on the face of the earth has needed big piles of U.S. dollars for international trade.  This has ensured a huge demand for U.S. dollars and U.S. government debt.  This demand for dollars has kept prices and interest rates low, and it has given the U.S. government an incredible amount of power and leverage around the globe.  Right now, U.S. dollars make up more than 60 percent of all foreign currency reserves in the world.  But times are changing.  Over the past couple of years there has been a whole bunch of international agreements that have made the U.S. dollar less important in international trade.  The mainstream media in the United States has been strangely quiet about all of these agreements, but the truth is that they are setting the stage for a fundamental shift in the way that trade is conducted around the globe.  When the petrodollar dies, it is going to have an absolutely devastating impact on the U.S. economy.  Sadly, most Americans are totally clueless regarding what is about to happen to the dollar.

One of the reasons the Federal Reserve has been able to get away with flooding the financial system with U.S. dollars is because the rest of the world has been soaking a lot of those dollars up.  The rest of the world has needed giant piles of dollars to trade with, but what is going to happen when they don’t need dollars anymore?

Could we see a tsunami of inflation as demand for the dollar plummets like a rock?

The power of the U.S. dollar has been one of the few things holding up our economy.  Once that leg gets kicked out from under us we are going to be in a whole lot of trouble.

The following are 11 international agreements that are nails in the coffin of the petrodollar….

#1 China And Russia

China and Russia have decided to start using their own currencies when trading with each other.  The following is from a China Daily article about this important agreement….

China and Russia have decided to renounce the US dollar and resort to using their own currencies for bilateral trade, Premier Wen Jiabao and his Russian counterpart Vladimir Putin announced late on Tuesday.

Chinese experts said the move reflected closer relations between Beijing and Moscow and is not aimed at challenging the dollar, but to protect their domestic economies.

“About trade settlement, we have decided to use our own currencies,” Putin said at a joint news conference with Wen in St. Petersburg.

The two countries were accustomed to using other currencies, especially the dollar, for bilateral trade. Since the financial crisis, however, high-ranking officials on both sides began to explore other possibilities.

#2 China And Brazil

Did you know that Brazil conducts more trade with China than with anyone else?

The largest economy in South America has just agreed to a huge currency swap deal with the largest economy in Asia.  The following is from a recent BBC article….

China and Brazil have agreed a currency swap deal in a bid to safeguard against any global financial crisis and strengthen their trade ties.

It will allow their respective central banks to exchange local currencies worth up to 60bn reais or 190bn yuan ($30bn; £19bn).

The amount can be used to shore up reserves in times of crisis or put towards boosting bilateral trade.

#3 China And Australia

Did you know that Australia conducts more trade with China than with anyone else?

Australia also recently agreed to a huge currency swap deal with China.  The following is from a recent Financial Express article….

The central banks of China and Australia signed a A$30 billion ($31.2 billion) currency-swap agreement to ensure the availability of capital between the trading partners, the Reserve Bank of Australia said.

“The main purposes of the swap agreement are to support trade and investment between Australia and China, particularly in local-currency terms, and to strengthen bilateral financial cooperation,” the RBA said in a statement on its website. “The agreement reflects the increasing opportunities available to settle trade between the two countries in Chinese renminbi and to make RMB-denominated investments.”

China has been expanding currency-swap accords as it promotes the international use of the yuan, and the accord with Australia follows similar deals with nations including South Korea, Turkey and Kazakhstan. China is Australia’s biggest trading partner and accounts for about a quarter of the nation’s merchandise sales abroad.

#4 China And Japan

The second and third largest economies on the entire planet have decided that they should start moving toward using their own currencies when trading with each other.  This agreement was incredibly important but it was almost totally ignored by the U.S. media.

According to Bloomberg, it is anticipated that this agreement will strengthen ties between these two Asian giants….

Japan and China will promote direct trading of the yen and yuan without using dollars and will encourage the development of a market for companies involved in the exchanges, the Japanese government said.

Japan will also apply to buy Chinese bonds next year, allowing the investment of renminbi that leaves China during the transactions, the Japanese government said in a statement after a meeting between Prime Minister Yoshihiko Noda and Chinese Premier Wen Jiabao in Beijing yesterday. Encouraging direct yen- yuan settlement should reduce currency risks and trading costs, the Japanese and Chinese governments said.

China is Japan’s biggest trading partner with 26.5 trillion yen ($340 billion) in two-way transactions last year, from 9.2 trillion yen a decade earlier.

#5 India And Japan

It is not just China making these kinds of currency agreements.  According to Reuters, India and Japan have also agreed to a very large currency swap deal….

India and Japan have agreed to a $15 billion currency swap line, Japan’s Prime Minister Yoshihiko Noda said on Wednesday, in a positive move for the troubled Indian rupee, Asia’s worst-performing currency this year.

#6 “Junk For Oil”: How India And China Are Buying Oil From Iran

Iran is still selling lots of oil.  They just aren’t exchanging that oil for U.S. dollars as much these days.

So how is Iran selling their oil without using dollars?

A Bloomberg article recently detailed what countries such as China and India are exchanging for Iranian oil….

Iran and its leading oil buyers, China and India, are finding ways to skirt U.S. and European Union financial sanctions on the Islamic republic by agreeing to trade oil for local currencies and goods including wheat, soybean meal and consumer products.

India, the second-biggest importer of Iran’s oil, has set up a rupee account at a state-owned bank to settle as much as much as 45 percent of its bill, according to Indian officials. China, Iran’s largest oil customer, already settles some of its oil debts through barter, Mahmoud Bahmani, Iran’s central bank governor, said Feb. 28. Iran also has sought to trade oil for wheat from Pakistan and Russia, according to media reports from the two countries.

#7 Iran And Russia

According to Bloomberg, Iran and Russia have decided to discard the U.S. dollar and use their own currencies when trading with each other….

Iran and Russia replaced the U.S. dollar with their national currencies in bilateral trade, Iran’s state-run Fars news agency reported, citing Seyed Reza Sajjadi, the Iranian ambassador in Moscow.

The proposal to switch to the ruble and the rial was raised by Russian President Dmitry Medvedev at a meeting with his Iranian counterpart, Mahmoud Ahmadinejad, in Astana, Kazakhstan, of the Shanghai Cooperation Organization, the ambassador said.

#8 China And Chile

China and Chile recently signed a new agreement that will dramatically expand trade between the two nations and that is also likely to lead to significant currency swaps between the two countries….

The following is from a recent report that described this new agreement between China and Chile….

Wen called on the two nations to expand trade in goods, promote trade in services and mutual investment, and double bilateral trade in three years.

The Chinese leader also said the two countries should enhance cooperation in mining, expand farm product trade, and promote cooperation in farm product production and processing and agricultural technology.

China would like to be actively engaged in Chile’s infrastructure construction and work with Chile to promote the development of transportation networks in Latin America, said Wen.

Meanwhile, Wen suggested that the two sides launch currency swaps and expand settlement in China’s renminbi.

#9 China And The United Arab Emirates

According to CNN, China and the United Arab Emirates recently agreed to a very large currency swap deal….

In January, Chinese Premier Wen Jiabao visited the United Arab Emirates and signed a $5.5 billion currency swap deal to boost trade and investments between the two countries.

#10 China And Africa

Did you know that China is now Africa’s biggest trading partner?

For many years the U.S. dollar was dominant in Africa, but now that is changing.  A report from Africa’s largest bank, Standard Bank, says the following….

“We expect at least $100 billion (about R768 billion) in Sino-African trade – more than the total bilateral trade between China and Africa in 2010 – to be settled in the renminbi by 2015.”

#11 Brazil, Russia, India, China And South Africa

The BRICS (Brazil, Russia, India, China and South Africa) continue to become a larger factor in the global economy.

A recent agreement between those nations sets the stage for them to increasingly use their own national currencies when trading with each other rather than the U.S. dollar.  The following is from a news source in India….

The five major emerging economies of BRICS — Brazil, Russia, India, China and South Africa — are set to inject greater economic momentum into their grouping by signing two pacts for promoting intra-BRICS trade at the fourth summit of their leaders here Thursday.

The two agreements that will enable credit facility in local currency for businesses of BRICS countries will be signed in the presence of the leaders of the five countries, Sudhir Vyas, secretary (economic relations) in the external affairs ministry, told reporters here.

The pacts are expected to scale up intra-BRICS trade which has been growing at the rate of 28 percent over the last few years, but at $230 billion, remains much below the potential of the five economic powerhouses.

So what does all of this mean?

It means that the days of the U.S. dollar being the de facto reserve currency of the world are numbered.

So why is this important?

In a previous article, I quoted an outstanding article by Marin Katusa that detailed many of the important benefits that the petrodollar system has had for the U.S. economy….

The “petrodollar” system was a brilliant political and economic move. It forced the world’s oil money to flow through the US Federal Reserve, creating ever-growing international demand for both US dollars and US debt, while essentially letting the US pretty much own the world’s oil for free, since oil’s value is denominated in a currency that America controls and prints. The petrodollar system spread beyond oil: the majority of international trade is done in US dollars. That means that from Russia to China, Brazil to South Korea, every country aims to maximize the US-dollar surplus garnered from its export trade to buy oil.

The US has reaped many rewards. As oil usage increased in the 1980s, demand for the US dollar rose with it, lifting the US economy to new heights. But even without economic success at home the US dollar would have soared, because the petrodollar system created consistent international demand for US dollars, which in turn gained in value. A strong US dollar allowed Americans to buy imported goods at a massive discount – the petrodollar system essentially creating a subsidy for US consumers at the expense of the rest of the world. Here, finally, the US hit on a downside: The availability of cheap imports hit the US manufacturing industry hard, and the disappearance of manufacturing jobs remains one of the biggest challenges in resurrecting the US economy today.

So what happens when the petrodollar dies?

The following are some of the things we are likely to see….

-Oil will cost a lot more.

-Everything will cost a lot more.

-There will be a lot less foreign demand for U.S. government debt.

-Interest rates on U.S. government debt will rise.

-Interest rates on just about everything in the U.S. economy will rise.

And that is just for starters.

As I wrote about earlier today, the Federal Reserve is not going to save us.  Ben Bernanke is not somehow going to pull a rabbit out of a hat that will magically make everything okay.  Fundamental changes to the global financial system are happening right now that are impossible for Bernanke to stop.

We should have never gone into so much debt.  Up until now we have gotten away with it, but when demand for U.S. dollars and U.S. debt dries up we are going to experience a massive amount of pain.

Keep your eyes and ears open for more news stories like the ones referenced above.  The end of the petrodollar is going to be a very significant landmark on the road toward the total collapse of the U.S. economy.

So what do you think the fate of the U.S. dollar is going to be in the years ahead?

Please feel free to post a comment with your thoughts below….

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