Debt and Delusions – Part One

This article was written for Miles Franklin by Gary Christenson.

Quick summary: U.S. debt, spending and deficits are out of control. Thinking otherwise is delusional. The “runaway train” of debt creation will end tragically. Protect your assets from a mathematically assured disaster while you can. Buy and hold silver, gold and platinum.

The national debt of western nations plus Japan is a travesty that threatens national insolvency, a crashing financial system, and social stability!

WHY?

Governments spend more than they extract from their citizens. They borrow the shortfall, a virtual mortgage on the earnings of future generations. This is bad policy, delusional and self-destructive.

From Thomas Jefferson:

“I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”

From Herbert Hoover (President 1929 – 1933)

“Blessed are the young, for they shall inherit the national debt.”

Official U.S. government national debt (many other countries are no better) is the debt owed “on the books.” Unfunded liabilities, such as Social Security payments, Medicare, military pensions and upcoming student loan defaults are NOT included. The reality is far worse than indicated by the official national debt.

Plot 50 years of official national debt on a log scale. The trend is unmistakable. National debt has increased exponentially 8% – 9% per year. National debt doubles every eight to nine years.

Official national debt exceeds $21 trillion. Unfunded liabilities are $100 to $230 trillion, depending on who is counting.

BUT SURELY CONGRESS WILL ADDRESS THIS PROBLEM – RIGHT?

 

  1. Name three reasons this 50 year exponential trend will reverse.
  2. Name three congresspersons who want to reduce total spending.
  3. Name three congresspersons who believe in a balanced budget.
  4. Name one president who reduced spending or debt.
  5. Name one “three-letter” agency volunteering to reduce their budget so the nation will be more fiscally responsible.
  6. Name one defense contractor who wants to reduce their government contracts.

Give up? 0 for 12 is a strong sign that spending, debt, and deficits will increase until a reset occurs.

BUT SURELY OUR CONGRESS AND ADMINISTRATION ARE REDUCING THE DEFICITS EVEN IF THEY DON’T HAVE TOTAL DEBT UNDER CONTROL—RIGHT?

Well, no! The “debt ceiling” is a joke used for political purposes. Neither party wants to reduce spending or manage the nation’s resources.

Plot the deficits (national debt increases) year-by-year on a log scale. Some annual increases were larger than others due to wars, spending stimulus, extraordinary graft, and debt ceiling freezes, but the 50 year trend is clear—larger deficits. Since 1971 the exponential trend shows annual deficits increased on average per year.

(The reported “political deficit” includes only the items that congress wants to count.)

YES, THIS IS A PROBLEM. HOW DO WE FIX IT?

 

Doug Casey’s list follows. I discussed this topic here.

“In an ideal world there would be some radical changes. The best thing for the US in the (famous) long run is to go “cold turkey.” To abolish the Federal Reserve, fire its thousands of employees with their worthless PhDs. Return to 100% reserve banking with a strict separation of demand and time deposits. Depoliticize money by using gold, not Federal Reserve Notes. And default on the national debt, which is rewarding crony capitalists, and will turn future generations of Americans into serfs. And massively deregulate. And abolish the income tax, while cutting spending 90%. Etc. Etc.

The chances of that happening are exactly zero.”

Our financial system will not change until it collapses or resets, so we must adapt to its insanity.

It is a 5-D problem

  • Debt has risen more than 8.5% per year, not counting unfunded liabilities. A 100+ year trend is unlikely to change.
  • Deficits: The annual increase in the revenue shortfall has grown 14% per year since 1971, when President Nixon “closed the gold window” and let the dollar’s purchasing power collapse.
  • Devaluation of the dollar occurs when the government and central bank create fiat dollars more rapidly than the economy grows. Have prices for steak, oatmeal, beer, cigarettes, new cars, prescription drugs, and political payoffs increased in the past 47 years? Yes, prices are far higher than when President Nixon separated the dollar from gold.
  • Demographics: Baby boomers retire every day. Social Security payments and Medicare costs for them are skyrocketing. Expect larger budget deficits for many years.
  • Difficult to correct:
  1. Both Republicans and Democrats spend more money on pet projects and paybacks to donors.
  2. The military wants more weapons systems.
  3. Medicare costs are out of control and rising.
  4. The U.S. government guarantees student loans. The national debt will increase as those loans default.
  5. Congress passed a tax cut and spending increases which will boost the national debt.
  6. The coming recession will lower tax revenues and increase other payouts.
  7. Interest payments on $21 trillion of debt increase as rates rise.
  8. The above will expand deficits and the national debt.
  9. The U.S. government and the Federal Reserve have “painted themselves into a corner” with only difficult or next-to-impossible choices remaining, regardless of “happy talk.”

Politicians, presidents and central bankers will not admit they have mismanaged the government, devalued the dollar and created unpayable debt. Regardless, the problem is real, escalating every year and unsolvable. Few in government will discuss it.

In 1971 the price of gold was $42 per ounce. Today $1,330. The national debt in 1971 was $0.4 trillion. Today over $21 trillion. Examine this graph of national debt, the debt ceiling, and gold prices. Gold prices rise along with debt. Expect much higher gold prices as the “debt bomb” detonates.

CONCLUSIONS:

  • Official national debt and annual deficits rise exponentially.
  • There are few reasons to expect deficits to decline.
  • There are many reasons to expect deficits to climb much higher.
  • The dollar will devalue as debt and deficits rise.
  • Gold and silver prices will rise as the dollar devalues. Their rally will spike higher as people realize the magnitude of the debt problem.

Buy gold and silver from Miles Franklin or WhyNotGold.

Or you can trust politicians and central bankers to manage expenditures, budgets, and the value of the dollar.

Gary Christenson

One thought on “Debt and Delusions – Part One

  1. This may be peak debt. Debt may actually start contracting. The Fed fired a small shot (heard round the globe) when it retired debt. The effect was minimal globally, but reduced global trade and commerce will allow the US to manage its debt reduction UNILATERALLY. That is important. Why the price of gold hasn’t followed is a question, which must mean, that gold prices are now leading the downturn in new debt. While it may be bullish for gold, as it restores the value of wealth and collateral to its historic place in economics, it may lead to further downside as debt implodes, and gold emerges from the ashes as the one valid measure against which money is held.


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