The numbers that you are about to see are likely to shock you. They prove that the global financial Ponzi scheme is far more extensive than most people would ever dare to imagine. As you will see below, the total amount of debt in the world is now more than three times greater than global GDP. In other words, you could take every single good and service produced on the entire planet this year, next year and the year after that and it still would not be enough to pay off all the debt. But even that number pales in comparison to the exposure that big global banks have to derivatives contracts. It is hard to put into words how reckless they have been. At the low end of the estimates, the total exposure that global banks have to derivatives contracts is 710 trillion dollars. That is an amount of money that is almost unimaginable. And the reality of the matter is that there is really not all that much actual “money” in circulation today. In fact, as you will read about below, there is only a little bit more than a trillion dollars of U.S. currency that you can actually hold in your hands in existence. If we all went out and tried to close our bank accounts and investment portfolios all at once, that would create a major league crisis. The truth is that our financial system is little more than a giant pyramid scheme that is based on debt and paper promises. It is literally a miracle that it has survived for so long without collapsing already.
When Americans think about the financial crisis that we are facing, the largest number that they usually can think of is the size of the U.S. national debt. And at over 17 trillion dollars, it truly is massive. But it is actually the 2nd-smallest number on the list below. The following are 12 numbers about the global financial Ponzi scheme that should be burned into your brain…
-$1,280,000,000,000 – Most people are really surprised when they hear this number. Right now, there is only 1.28 trillion dollars worth of U.S. currency floating around out there.
-$17,555,165,805,212.27 – This is the size of the U.S. national debt. It has grown by more than 10 trillion dollars over the past ten years.
-$32,000,000,000,000 – This is the total amount of money that the global elite have stashed in offshore banks (that we know about).
-$48,611,684,000,000 – This is the total exposure that Goldman Sachs has to derivatives contracts.
-$59,398,590,000,000 – This is the total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system. 40 years ago, this number was just a little bit above 2 trillion dollars.
-$70,088,625,000,000 – This is the total exposure that JPMorgan Chase has to derivatives contracts.
-$71,830,000,000,000 – This is the approximate size of the GDP of the entire world.
-$75,000,000,000,000 – This is approximately the total exposure that German banking giant Deutsche Bank has to derivatives contracts.
-$100,000,000,000,000 – This is the total amount of government debt in the entire world. This amount has grown by $30 trillion just since mid-2007.
-$223,300,000,000,000 – This is the approximate size of the total amount of debt in the entire world.
-$236,637,271,000,000 – According to the U.S. government, this is the total exposure that the top 25 banks in the United States have to derivatives contracts. But those banks only have total assets of about 9.4 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 25 to 1.
-$710,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives contracts generally fall within this range. At the high end of the range, the ratio of derivatives exposure to global GDP is about 21 to 1.
Most people tend to assume that the “authorities” have fixed whatever caused the financial world to almost end back in 2008, but that is not the case at all.
In fact, the total amount of government debt around the globe has grown by about 40 percent since then, and the “too big to fail banks” have collectively gotten 37 percent larger since then.
Our “authorities” didn’t fix anything. All they did was reinflate the bubble and kick the can down the road for a little while.
I don’t know how anyone can take an honest look at the numbers and not come to the conclusion that this is completely and totally unsustainable.
How much debt can the global financial system take before it utterly collapses?
How recklessly can the big banks behave before the house of cards that they have constructed implodes underneath them?
For the moment, everything seems fine. Stock markets around the world have been setting record highs and credit is flowing like wine.
But at some point a day of reckoning is coming, and when it arrives it is going to be the most painful financial crisis the world has ever seen.
If you plan on getting ready before it strikes, now is the time to do so.
The unemployment rate in the eurozone is higher than it has ever been before. This week we learned that eurozone unemployment came in at an all-time high of 12.2 percent for September. Back in January 2012, it was sitting at just 10.4 percent. So anyone that believes that “things are getting better” in Europe is just being delusional. In fact, the economic depression in Europe just keeps getting deeper. The funny thing is that the mainstream media will barely call what is going on in Europe a “recession” even though the unemployment rates in both Spain and Greece are now much higher than anything that the United States ever experienced during the “Great Depression” of the 1930s. There haven’t been as many headlines about the financial crisis in Europe lately because the ECB has been papering over the debt problems of the periphery (at least for the moment), but the economic conditions on the ground for average Europeans just continue to get even worse. Later on in this article, you will read about a 25-year-old Spanish man with three college degrees that moved to London in a desperate search for a job who is now cleaning up poop for a living. The economic collapse of Europe continues to march on, and there is no end in sight.
All you have to do is look at the latest unemployment numbers to realize that things are getting worse in Europe.
In Italy, the unemployment rate is up to 12.5 percent.
In January 2012, less than two years ago, it was sitting at just 8.9 percent.
In Greece, the unemployment rate is up to an astounding 27.6 percent.
In January 2012, it was sitting at just 21.4 percent.
In Spain, the unemployment rate is up to 26.6 percent.
In January 2012, it was sitting at just 22.8 percent, and all the way back in January 2008 it was just 8.6 percent.
The youth unemployment statistics in the eurozone are even more horrifying…
Unemployment among the under-25s rose by 22,000 in September to 3,548,000 – nudging up youth jobless rate to 24.1%. In France, the youth jobless rate jumped from 25.6% to 26.1%, while in Italy it increased from 40.2% to 40.4%.
But as bad as those numbers are, they are nothing compared to what is going on in Spain and Greece. In Spain, the youth unemployment rate is up to 56.5 percent, and in Greece the youth unemployment rate is up to 57.3 percent.
And of course unemployment is not the only problem that the European economy is dealing with right now. The following are some more facts about the European economy that show that the economic depression in Europe just keeps getting deeper…
-European car sales are on pace to hit a 23 year low in 2013.
-The percentage of “bad loans” in Spain has soared to a new all-time record high.
-The number of mortgage applications in Spain has fallen 90 percent since the peak of the market.
-Citigroup is projecting that the unemployment rate in Greece will reach 32 percent in 2015.
-Over the last several years, Italy has experienced the biggest collapse in GDP growth that it has ever seen. Overall, the GDP of Italy has contracted by about 8 percent since 2008.
-The number of unemployed workers in Cyprus is now five times higher than it was before the financial crisis of 2008.
-It is being projected that Spain’s debt to GDP ratio will rise to nearly 100 percent by the end of next year.
-The debt to GDP ratio of Portugal is already up to 123 percent.
-The debt to GDP ratio of Italy is already up to 127 percent.
-Even though Greece has implemented a whole host of “austerity measures”, the debt to GDP ratio of Greece is now up to 156 percent.
But what these numbers cannot really communicate is the tremendous amount of pain and despair that millions upon millions of Europeans are experiencing right now.
For example, consider the story of Benjamin Serra Bosch, a 25-year-old Spanish man that moved to London in a desperate search for a job. He has three college degrees, including a Master’s Degree from the IEBS Business School in Barcelona. The following is a rough translation of a message that he recently posted on Facebook…
My name is Benjamín Serra, I have two bachelor degrees and a master’s degree, and I clean toilets.
No, it is not a joke. I do it to pay the rent for my room in London.
I’ve been working in a famous chain of cafes in the United Kingdom since May, and for the first time today, after 5 months working there, I see it clearly. I have been cleaning toilets. My thought was: “I received distinction in my two degrees and I clean other peoples’ poop in a country that isn’t my own.” Well, I also make coffee, clean the tables and wash cups.
And I am not ashamed to do so. Cleaning is a very decent job. What embarrasses me is having to do so because no one has given me an opportunity in Spain. Like me, there are many Spaniards, especially in London. “You are a plague,” I was told once here. And let’s not kid ourselves. We are not young people on an adventure to learn the language and have new experiences. We are immigrants.
I’ve always been very proud, I am not going to deny. Those who know me, you know. And I have to bust out a smile at customers who look over my shoulder as I am simply a “barista” (as they call it here). Some are so outrageous that it makes me want to pull out my University and master degrees and put them in their face. But it would not really do anything. It appears that those titles now only serve to clean the poop that I clean from the toilets in the cafe. A pity.
I thought that it deserved something better after putting so much effort in my academic life. It seems that I was wrong.
As economic conditions continue to decline all over Europe, anger and frustration with the “European experiment” continue to grow. UKIP’s Nigel Farage expressed these sentiments very eloquently during a speech on the 23rd of October when he stated that “what we are saying, large numbers of us from every single EU member state is: we don’t want that flag, we don’t want the anthem that you all stood so ram-rod straight for yesterday, we don’t want EU passports, we don’t want political union.”
Unfortunately, the elite of Europe are so obsessed with their little experiment that the only “solutions” to these economic problems that they are even willing to consider involve even more European integration.
And Americans certainly should not be looking down their noses at what is happening in Europe.
What is going on in Italy, France, Spain and Greece will be coming here soon enough. In fact, even during the midst of this so-called “economic recovery”, poverty continues to absolutely explode in the United States.
Economic conditions in both the United States and Europe have never even gotten close to where they were prior to 2008, and now the next major wave of the economic collapse is rapidly approaching.
This is just the beginning. Things are going to get much worse in the years ahead.
How much is 1,000,000,000,000,000 yen worth? Well, a quadrillion yen is worth approximately 10.5 trillion dollars. It is an amount of money that is larger than the “the economies of Germany, France and the U.K. combined“. It is such an astounding amount of debt that it is hard to even get your mind around it. The government debt to GDP ratio in Japan will reach 247 percent this year, and the Japanese currently spend about 50 percent of all central government tax revenue on debt service. Realistically, there are only two ways out of this overwhelming debt trap for the Japanese. Either they default or they try to inflate the debt away. At this point, the Japanese have chosen to try to inflate the debt away. They have initiated the greatest quantitative easing experiment that a major industrialized nation has attempted since the days of the Weimar Republic. Over the next two years, the Bank of Japan plans to zap 60 trillion yen into existence out of thin air and use it to buy government bonds. By the time this program is over, the monetary base in Japan will have approximately doubled. But authorities in Japan are desperate. They know that the Japanese debt bomb could set off global panic at any time, and they are trying to find a way out that will not cause too much pain.
Unfortunately, the only way that this bizarre quantitative easing program will work is if investors in Japanese bonds act very, very irrationally. You see, the only way that Japan has been able to pile up this much debt in the first place is because they have been able to borrow gigantic piles of money at super low interest rates.
Right now, the yield on 10 year Japanese bonds is sitting at an absurdly low 0.76%. But even with such ridiculously low interest rates, the central government of Japan is still spending about half of all tax revenue on debt service.
If interest rates go up, the game is over.
But now that the Japanese government has announced that it plans to double the monetary base, it would be extremely irrational for investors not to demand higher rates on Japanese government debt. After all, why would you want to loan money to the Japanese government for less than one percent a year when the purchasing power of your money could potentially be halved over the next two years?
Amazingly, this is exactly what the Japanese government is counting on. They are counting on being able to wildly print up money and monetize debt, but also keep yields on Japanese bonds at insanely low levels at the same time.
For the moment, it is actually working. Investors in Japanese bonds are behaving very, very irrationally.
But if that changes at some point, we could potentially be looking at the greatest Asian economic crisis of all time.
And there are some very sharp minds out there that believe that is exactly what is going to happen.
For example, the founder of Hayman Capital Management, Kyle Bass, has been sounding the alarm about Japan for a long time. He correctly predicted the subprime mortgage meltdown, and in the process he made hundreds of millions of dollars for his clients. Now he believes that the next major crash is going to be in Japan.
According to Bass, the bond bubble in Japan is so large that once it begins to implode fear is going to start spreading like wildfire…
Remember, Japanese banks in general have 900% of their tangible assets invested in JGBs that are the most negatively convex instrument you can put into a portfolio. Assume for instance that a bank holds a 10 year bond yielding 80 basis points. A 100 basis point move will cost the JGB investor about 10 years of expected interest payments.
Think about the psychology of all the players and financial implications if rates do move 100 basis points. Think about the solvency of a nation which currently spends 50% of its central government tax revenues on debt service, half of which earns the lowest yields of any country in the world.
You can’t look at this as a simple question. You need to think about this as a multivariate equation. You have to think about the incentives and the fears of all the participants. And you need to think about the fiscal sustainability of the government.
If rates even rise by a full percentage point, it could start a stampede toward the exits that nobody in the entire world would be able to control…
I ran a survey of 1,009 Japanese investors where we asked: “If rates were to move up 100 basis points, would that engender more confidence and make you want to buy more JGBs?” or, “Would you take your money elsewhere, even if it were hamstringing your government’s ability to operate?” 8 – 9% of respondents that said that they would buy more bonds and almost 80% said they would run, not walk the other way.
For much more on this, you can watch a video of Kyle Bass discussing why Japan is doomed right here.
And of course Japan is not the only “debt bomb” that could potentially go off over in Asia. As I mentioned in another article, the major problem over in China is the level of private debt…
In China, the big problem is the absolutely stunning growth of private domestic debt. According to a recent World Bank report, the total amount of credit in China has risen from 9 trillion dollars in 2008 to 23 trillion dollars today.
That increase is roughly equivalent to the entire U.S. commercial banking system.
There is simply way, way too much debt in our world today. Never before has there been so much red ink all over the planet at the same time.
Many in the mainstream media insist that this party can go on indefinitely.
But that is what they said about the housing bubble too.
Sadly, the truth is that every financial bubble eventually bursts, and this global debt bubble will be no exception.
I hope that you are getting prepared while you still can.
If the economy is improving, then why aren’t things getting better for most average Americans? They tell us that the unemployment rate is going down, but the percentage of Americans that are actually working is exactly the same it was three years ago. They tell us that American families are in better financial shape now, but real disposable income is falling rapidly. They tell us that inflation is low, but every time we go shopping at the grocery store the prices just seem to keep going up. They tell us that the economic crisis is over, and yet poverty and government dependence continue to explode to unprecedented heights. There seems to be a disconnect between what the government and the media are telling us and what is actually true. With each passing day the debt of the federal government grows larger, the financial world become even more unstable and more American families fall out of the middle class. The same long-term economic trends that have been eating away at our economy like cancer for decades continue to ruthlessly attack the foundations of our economic system. We are rapidly speeding toward an economic cataclysm, and yet the government and most of the media make it sound like happy days are here again. The American people deserve better than this. The American people deserve the truth. The following are 36 hard questions about the U.S. economy that the mainstream media should be asking…
#1 If the percentage of working age Americans that have a job is exactly the same as it was three years ago, then why is the government telling us that the “unemployment rate” has gone down significantly during that time?
#2 Why are some U.S. companies allowed to exploit disabled workers by paying them as little as 22 cents an hour?
#3 Why are some private prisons allowed to pay their prisoners just a dollar a day to do jobs that other Americans could be doing?
#4 Why is real disposable income in the United States falling at the fastest rate that we have seen since 2008?
#5 Why do 53 percent of all American workers make less than $30,000 a year?
#6 Why are wages as a percentage of GDP at an all-time low?
#7 Why are 76 percent of all Americans living paycheck to paycheck?
#8 Why are so many large corporations issuing negative earnings guidance for this quarter? Does this indicate that the economy is about to experience a significant downturn?
#9 Why is job growth at small businesses at about half the level it was at when the year started?
#10 Why are central banks selling off record amounts of U.S. debt right now?
#11 Why did U.S. mortgage bonds just suffer their biggest quarterly decline in nearly 20 years?
#12 Why did we just witness the largest weekly increase in mortgage rates in 26 years?
#13 Why has the number of mortgage applications fallen by 29 percent over the last eight weeks?
#14 Why has the number of mortgage applications fallen to the lowest level in 19 months?
#15 If the U.S. economy is recovering, why is the mortgage delinquency rate in the United States still nearly 10 percent?
#16 Why did the student loan delinquency rate in the United States just hit a brand new all-time high?
#17 Why is the sale of hundreds of millions of dollars of municipal bonds being postponed?
#18 What are the central banks of the world going to do when the 441 trillion dollar interest rate derivatives bubble starts to burst?
#19 Why is Barack Obama secretly negotiating a new international free trade agreement that will impose very strict Internet copyright rules on all of us, ban all “Buy American” laws, give Wall Street banks much more freedom to trade risky derivatives and force even more domestic manufacturing offshore?
#20 Why don’t our politicians seem to care that the United States has run a trade deficit of more than 8 trillion dollars with the rest of the world since 1975?
#21 Why doesn’t the mainstream media talk about how rapidly the U.S. economy is declining relative to the rest of the planet? According to the World Bank, U.S. GDP accounted for 31.8 percent of all global economic activity in 2001. That number dropped to 21.6 percent in 2011.
#22 Why is the percentage of self-employed Americans at a record low?
#23 What are we going to do if dust bowl conditions continue to return to the western half of the United States? If the drought continues to get even worse, what will that do to our agriculture?
#24 Why is the IRS spending thousands of taxpayer dollars on kazoos, stove top hats, bathtub toy boats and plush animals?
#25 Why did the NIH spend $253,800 “to study ways to educate Boston’s male prostitutes on safe-sex practices”?
#26 Why do some of the largest charities in America spend less than 5 percent of the money that they bring in on actual charitable work?
#27 Now that EU finance ministers have approved a plan that will allow Cyprus-style wealth confiscation as part of all future bank bailouts in Europe, is it only a matter of time before we see something similar in the United States?
#28 Why does approximately one out of every three children in the United States live in a home without a father?
#29 Why are more than a million public school students in the United States homeless?
#30 Why are so many cities all over the United States passing laws that make it illegal to feed the homeless?
#31 Why is government dependence in the U.S. at an all-time high if the economy is getting better? Back in 1960, the ratio of social welfare benefits to salaries and wages was approximately 10 percent. In the year 2000, the ratio of social welfare benefits to salaries and wages was approximately 21 percent. Today, the ratio of social welfare benefits to salaries and wages is approximately 35 percent.
#32 Why does the number of Americans on food stamps exceed the entire population of the nation of Spain?
#33 The number of Americans on food stamps has grown from 32 million to 47 million while Barack Obama has been occupying the White House. So why is Obama paying recruiters to go out and get even more Americans to join the program?
#34 Today, there are 56 million Americans collecting Social Security benefits. In 2035, there will be 91 million Americans collecting Social Security benefits. Where in the world will we get the money for that?
#35 Why has the value of the U.S. dollar fallen by over 95 percent since the Federal Reserve was created back in 1913?
#36 Why has the size of the U.S. national debt gotten more than 5000 times larger since the Federal Reserve was created back in 1913?
If Barack Obama can “solve” the debt ceiling crisis by printing up some trillion dollar coins, then why does the federal government need our money? As another debt ceiling showdown approaches, many in the liberal media are suggesting that if Congress does not raise the debt ceiling that Obama should just have the U.S. Treasury create a trillion dollar platinum coin and use it to pay our bills. It sounds crazy, but many notable voices (including Paul Krugman of the New York Times) are supporting this idea. But if the federal government has had the power to create trillion dollar coins out of thin air all this time, then why do we have to pay taxes? Not only that, why do we have a national debt? If the federal government can just create money whenever it wants, then why does the federal government ever have to borrow it from others? The U.S. Constitution actually grants Congress the power to “coin money”, so why is the Federal Reserve doing it? Those are some very important questions. Most Americans don’t even realize that the U.S. government never actually needed to borrow a single penny from anyone else. The U.S. Congress has the authority to create debt-free money whenever it wants to. Conceivably, the entire federal government could be funded without ever borrowing a single dollar and without ever receiving a single dollar from any of us in taxes. Just imagine that – a nation without a single penny of national debt, no income tax and no IRS. What a wonderful world that would be. Of course there would be other potential dangers under such a system (such as runaway inflation), and those dangers would have to be addressed. But the truth is that we don’t have to have an income tax or 16 trillion dollars of government debt. We only have those things because we have chosen to have those things.
Sometimes, a crisis can illuminate options that most people had not considered previously. As another debt ceiling crisis draws closer, many are looking for ways for the U.S. government to be able to continue to pay its bills if Congress does not authorize an increase in the debt ceiling.
If a debt ceiling agreement is not worked out, the U.S. government will soon only be able to pay about half the bills that are coming due after interest payments on the national debt (which will almost certainly be prioritized) are made.
That is why a lot of people on the left are pushing the “trillion dollar coin” alternative. So how would this work exactly? The mechanics were recently explained by Jim Pethokoukis on his American Enterprise Institute blog…
There are limits on how much paper money the U.S. can circulate and rules that govern coinage on gold, silver, and copper. BUT, the Treasury has broad discretion on coins made from platinum. The theory goes that the U.S. Mint would create a handful of trillion dollar (or more) platinum coins. The President would then order the coins deposited at the Fed, who would then put the coin(s) in the Treasury who now can pay all their bills and a default is removed from the equation. The effects on the currency market and inflation are unclear, to say the least.
In my opinion, if anyone in the federal government is going to be creating money out of thin air, it should be the U.S. Congress. After all, according to Article I, Section 8 of the U.S. Constitution, it is the U.S. Congress that has been granted the authority to “coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures”.
But those that are pushing Obama to create a “trillion dollar coin” point to a law that Congress passed that allows the U.S. Treasury to mint platinum coins. The following is from a recent CNN article…
Normally, the Federal Reserve is charged with issuing currency. But U.S. law, specifically 31 USC § 5112, also grants Treasury permission to “mint and issue platinum bullion coins and proof platinum coins.”
This section of law was meant to allow for the printing of commemorative coins and the like. But the Treasury Secretary has the authority to mint these coins in any denomination he or she sees fit.
But it wouldn’t quite be that easy. According to a recent ABC News article, some elements of the coin design would have to be determined by legislation…
The more difficult part comes sometime after the decision is made to coin the platinum and before the Mint gets to work in sculpting the pieces.
At that point, the American people must decide whose face will adorn the trillion dollar trinket. The process to determine the “specs” of the coin, U.S. Mint Public Affairs Specialist Genevieve Billia warns, must be “determined by legislation,” creating the potential for another congressional impasse.
So we would likely end up back at square one.
But if printing up a “trillion dollar coin” does not work out, Paul Krugman of the New York Times has come up with another option…
Don’t like the platinum coin option? Here’s a functionally equivalent alternative: have the Treasury sell pieces of paper labeled “moral obligation coupons”, which declare the intention of the government to redeem these coupons at face value in one year.
It should be clearly stated on the coupons that the government has no, repeat no, legal obligation to pay anything at all; you see, they’re not debt, and therefore don’t count against the debt limit. But that shouldn’t keep them from having substantial market value.
Of course there is a very, very low probability that any of these wild ideas will ever be tried, but this debate has raised some very interesting points.
The truth is that we do not have to have a system where more money is only created when more debt is created. We could have a system where the federal government directly creates debt-free money that is spent directly into circulation by the federal government.
In fact, this has happened before.
As I have written about previously, during the presidency of JFK a limited number of debt-free United States Notes were issued by the U.S. Treasury and spent by the U.S. government directly into circulation without any new debt being created. In fact, each bill said “United States Note” right at the top.
Unfortunately, after JFK’s presidency no more debt-free United States Notes were ever issued.
But even before JFK, there were times when debt-free United States Notes were being used. According to Wikipedia, United States Notes were first used during the Civil War….
They were originally issued directly into circulation by the U.S. Treasury to pay expenses incurred by the Union during the American Civil War. Over the next century, the legislation governing these notes was modified many times and numerous versions have been issued by the Treasury.
So why are we using debt-based Federal Reserve Notes today instead of debt-free United States Notes?
If the Federal Reserve did not exist and the U.S. government directly created money instead of borrowing it, it is conceivable that we could have a national debt of $0.00 today instead of $16,432,707,263,449.56.
Which option do you think our children and our grandchildren will wish that we had opted for?
In a system where the government directly created money, it is also conceivable that we could completely do away with the income tax and the IRS completely. The U.S. once prospered greatly without an income tax, and it could do so again.
And the truth is that our system of taxation is broken beyond repair. If you doubt this, just read this article.
So what would the downside be to such a system? Well, of course rampant inflation would be a huge danger. Allowing Congress to print up money whenever they wanted to would be playing with fire. That is why it would be imperative for there to be a hard cap on what the federal government could spend. For example, you could set the cap on spending by the federal government at 20 percent of GDP. That way we would hopefully never end up looking like the Weimar Republic.
And the current federal debt could be paid down a little at a time using newly created debt-free currency. This would have to be done slowly to keep inflation under control, but it could be done.
Of course if you wanted to continue to fund the federal government through taxation, there are other options that would still allow you to do away with the income tax. For example, one of the ways that our founders intended for the federal government to be funded was through tariffs, and we could definitely raise a lot of money that way. Plus, that would have the added benefit of making American companies much more competitive again and it would reduce the flow of American jobs out of the country.
So am I in favor of having Barack Obama create a trillion dollar coin to get around the debt ceiling crisis?
Most definitely not. If it does not violate the letter of the Constitution (which I believe it does), it sure does violate the spirit of it.
But if the U.S. Congress decided to shut down the Federal Reserve and the IRS and they decided to abolish the income tax, and instead they started directly issuing debt-free currency directly into circulation, that is something I would very much be in favor of.
Yes, that system would not be perfect either, but it would be far more preferable to what we have today.
So what do you think? Should we keep our current system of debt-based money, or would a system of debt-free money be better?
Please feel free to post a comment with your opinion below…
The fiscal cliff deal contains more bad news than it does good news. Yes, the tax increases on the middle class could have been much worse, and we should be thankful that Congress at least did something for the middle class. Unfortunately, they didn’t do enough. Every American worker is going to pay higher taxes next year as a result of this deal. The fiscal cliff deal represents the biggest tax increase in 20 years, and it is also projected to increase the U.S. national debt by an additional 4 trillion dollars over the next decade. In the final analysis, U.S. government finances are still wildly out of control and we are all going to be paying higher taxes. Not a whole lot to be excited about, and nothing has really been fixed for the long-term. Our politicians have kicked the can down the road once again, but someday they will run out of road and all of this debt will absolutely crush us. And of course a lot of our politicians didn’t even really know what they were voting for. The fiscal cliff bill was more than 150 pages long, and our Senators got the bill into their hands just 3 minutes before they voted on it. So none of them actually read the bill. But that is the way things work in America today. The blind are leading the blind and everyone is mindlessly hoping that everything will turn out okay somehow.
For a few moments, let’s take a closer look at the fiscal cliff deal. There are some good things in there, there are some bad things in there, and there are some things about the deal that are downright ugly.
-One of the best things about the fiscal cliff deal is that income tax rates did not rise on the poor and the middle class. This is great news for millions of families that are struggling to make ends meet each month. A significant rise in income tax rates would have been crippling.
-The Alternative Minimum Tax will now be permanently adjusted for inflation. This is something that I had screamed about in previous articles. If an AMT fix had not been passed, approximately 28 million households would have been hammered with the Alternative Minimum Tax on their 2012 earnings.
-Millions of unemployed workers will continue to receive extended federal unemployment benefits. We probably cannot really afford to keep doing this, but at least now there won’t be millions of unemployed workers that suddenly have their only source of income shut off. The next trick will be to find jobs for all of those workers. Unfortunately, millions of our jobs continue to be shipped to the other side of the world.
-Payroll taxes are going up for every American worker. The fiscal cliff deal allows the 2 percent payroll tax cut to expire, and so now the average U.S. household bringing in about $50,000 a year will pay approximately $1,000 more per year in payroll taxes. As a result, it is being projected that U.S. consumers will have $115 billion less in disposable income to spend in 2013. Happy New Year American workers!
-The fiscal cliff deal did nothing about the new Obamacare taxes that went into effect on January 1st. Many of these taxes will hurt the middle class. To see an example of a receipt where a consumer was charged the new “medical excise tax” in Obamacare, just check out this article.
-The carried-interest deduction loophole remains intact, so incredibly wealthy hedge fund managers will continue to get away with paying very little in taxes. If the rest of us are being taxed into oblivion, then they should share in the pain with the rest of us. Of course I personally believe that the income tax should be abolished entirely, but none of our politicians seem interested in that idea at all.
-Income tax rates will increase for high earners. This will hurt a lot of small businesses. Many small businesses that earn more than $400,000 a year will now be faced with making some really tough choices. Some may have to lay off workers. The top rate will now be 39.6 percent, but when other federal and state taxes are factored in, many small businesses will now be paying a top marginal rate of well over 50 percent. That is absolutely obscene.
-A compromise was reached on the estate tax. The exemption was scheduled to fall to just $1 million and the rate was scheduled to go up to 55 percent, and fortunately Congress decided to do something about that. As I have written about previously, that would have been a disaster for many small businesses and family farms. As a result of the fiscal cliff deal, the estate tax will only rise from 35 percent to 40 percent. The exemption for individuals will be about 5 million dollars and for couples it will be about 10 million dollars, and those figures will now be indexed for inflation. A tax increase is never a good thing, but if Congress had done nothing things would have been far worse.
-The fiscal cliff deal contains a lot of pork. In particular, it contains provisions that extend specific tax breaks related to Puerto Rican rum, electric motorcycles, biodiesel and renewable diesel fuel, the film and television business, and motorsports entertainment complexes.
According to the Congressional Budget Office, as a result of this deal the U.S. national debt will be about $4 trillion higher a decade from now than it would have been if Congress had done nothing.
The deficit for fiscal year 2013 alone will be about $330 billion higher than it would have been if Congress had done nothing.
So this deal has made our debt problems even worse.
Right now, the U.S. has a debt to GDP ratio of about 103 percent. We are already well into the “danger zone”, yet most Americans still don’t seem very concerned about all of this debt.
The fiscal cliff deal contained hardly any spending cuts at all. In fact, there was a 41 to 1 ratio of tax increases to spending cuts in the deal. The Democrats definitely won this round. But of course they had most of the leverage. If Congress had done nothing, the middle class would have been absolutely devastated by all of the tax increases, and the Republicans were desperate to prevent that.
But now that the battle over taxes is done, the leverage is going to shift over to the Republicans for the next big fight.
The battle over the debt ceiling is next. If Congress does not act, the U.S. government will soon not be able to borrow any additional money. This battle will be one of the stories that dominates the headlines over the next few months.
If the Republicans want to do something serious about spending, now is their chance. The battle over tax rates is already over, and there is no election in November. The Republicans could conceivably say “NO” to a debt ceiling increase if they want to. If that happened, the federal government would only be able to spend the money that it already has. It would not be able to borrow more. That would mean that we would have to start living within our means.
What a novel concept.
Of course there is no reason to believe that the Republicans in the House will suddenly grow a spine. They have folded every other time that the debt ceiling has come up. It will probably be the same again in 2013.
And Barack Obama is already saying that there will be “no negotiations” over the debt ceiling this time. He expects the Republicans to raise the debt ceiling for him without getting anything in return…
“I will not have another debate with this Congress over whether they will pay the bills they’ve already racked up.”
But the U.S. government cannot spend a single penny or borrow a single penny without the approval of the U.S. House of Representatives.
If the Republicans in the House want to ever get serious about government spending, the upcoming battle over the debt ceiling is a golden opportunity.
They could stop the Obama administration from piling up crazy amounts of debt if they want to. All they need is the courage to take a stand.
During the first four years of the Obama administration, the U.S. government accumulated about as much debt as it did from the time that George Washington took office to the time that George W. Bush took office.
The Republicans have had control of the House for about half of that time. That means that they have been willing accomplices.
So will they take a stand?
That is very doubtful. Over the past few years they have exhibited the intestinal fortitude of a frightened chicken. They will probably huff and puff a little bit, but in the end they will probably give in to Obama once again.
But what we are doing to our children and our grandchildren is so immoral that it is hard to describe. We are stealing more than 100 million dollars from them every single hour of every single day, and we plan on leaving them with the biggest pile of debt the world has ever seen. We should be absolutely ashamed of ourselves.
Why can’t we just spend the money that we have?
What would be so wrong with that?
Unfortunately, that would mean such a painful downward adjustment in our standard of living that most Americans would freak out. We are addicted to debt-fueled prosperity, and so we can’t stop stealing from future generations. We need their money to feed our addiction.
In the end, this gigantic mountain of debt is absolutely going to destroy everything that our forefathers built for us. There have been some people that have been warning about this for decades, but the American people did not listen.
Soon enough, we will all pay the price for this foolishness.