I do not pretend to be an economist, but when you're in a hurricane, you don't have to be a weather man to know which way the wind blows. Am I the only one in the room that thinks there is a very real possibility of collapse of the US dollar? We have been existing on past earned capital for a long time and time has run out.
In 2008, the Democrats were swept into power because Bush and the Republican Congress spent too much money and ran up the deficit, which they did. Since that time (January 09 though December 10) the Democrats have increased our federal Government by 25% and with it, the annual deficit four fold. This year’s deficit, the difference between what is brought in and what is spent, is projected at 1.6 trillion dollars. That’s 1,600 billion dollars of red ink in one year.
The Case Shiller Real Estate Index last quarter showed real estate values fell across the entire country except one place, Washington, DC. In other words, while the private economy in the entire country is in free fall, the Federal Government is in such a huge expansion, pigging out at the public trough, expanding federal employees, government contracters and and lobbyists, that it has actually creating a mini real estate boom in Washington. That is how the Democrats, "never let a crisis go to waste."
In order to raise the money to pay this staggering deficit, the government has been selling bonds at an alarming rate. In 2009, Fed Chairman, Ben Bernanke, testified under oath before Congress that the Fed would never “monetize the debt” which means "print money" to finance the deficit. Unfortunately, the deficit has become too big to cover with bond sales; so the government has had to resort to the last and most extreme option: printing money. In fact the Fed has been doing just that since last year; and, now the Fed’s purchases of government bonds with newly printed money accounts for 70% of government bond sales. This means that the government can not sell its bonds and is essentially simply printing money to stay afloat. Democrats claim this invented money creates jobs and will kick start the economy. That hasn't happened, inflation has.
In order to keep the inevitable results of this reckless policy from public awareness, the government has resorted to changing the yard stick of how to measure the economy. By the method used in the 1980's, the CPI is increasing at a rate of 10%, not the 2% being reported. Measured by the yardstick used in the 1930’s, unemployment is now at 20% not the 8.9% reported, and so on.(see: http://www.shadowstats.com/)
We have been able to get away with this slight of hand because the dollar is the world’s standard or "reserve" currency. The dollar is rapidly losing its favored status and, without change, a collapse is inevitable. The biggest bond mutual fund in the world, PIMCO, has quit buying US Treasury bonds and has dumped all of its holdings of US bonds. Our creditor nations have already stopped buying US bonds. When they decide to sell the huge cache of bonds they hold, and world financial markets choose to no longer make transactions in US dollars, the jig will be up. The buying power of the dollar will cataclysmicly tumble. Savings will lose value and the cost of commodities will sore well beyond what we see now. The dollars we have will be unable to purchase what we have always taken for granted, bountiful basic consumer commodities at a cheap price. The average Americans’ standard of living could plummet virtually overnight.
Because the Democrats broke the promise they made to stop the spending and instead embarked on a new and ever more irrational and reckless spending spree, they were swept out of the house and the Republicans were given a huge majority in 2011. But, this is only one arm of government. The Democrats still control the Senate and the Presidency. The 38 billion in "cuts" recently approved after weeks of wrangling, was nothing more than a tiny reduction from the dream budget Obama had submitted, but the Democrats never voted on in 2010. (They refused to vote on this massive porker when they had absolute power, not wanting to do so without someone to blame).
Republicans will use the debt ceiling extension coming up in May to get more concessions. But the Wall Street Journal has reported that bankers have privately told the GOP leaders that, if they actually push it to a shut down, debt markets could be destabilized, i.e., US bond sales could cease triggering a crisis in the already shaky dollar. In addition, this may trigger the major holders of outstanding debt, the Chinese and the Japanese, to dump US bonds. China has already become a net seller of US bonds (it holds over one trillion in bonds). Japan is still a buyer , but the earthquake disaster and a US government shut down could make them a net seller. The dumping of bonds will cause anyone holding dollars to sell which in turn will cause the dollar, which is on thin ice, to crash in value.
A quick compromise by the Democrats and Republicans to get the government going again, which will include minimal cuts, will be too late to stop the world wide stampede out of the dollar. The lack of bond buyers will cause the fed to have to print that many more dollars, exacerbating the situation. Making matters worse, the Democrats will blame the Republicans' tight money policy and they will increase spending. A hyperinflationary spiral will ensue and your wealth will go with it. Food riots and general unrest could occur prompting the government to impose emergency draconian measures including marshal law and a government take over of banking and huge sectors of industry.
If this happens, the United States could go from the world's leading Democracy and economic power to a socialist regime with a low standard of living. Huge swaths of power will be ceded to an allegedly necessary central world banking and regulatory body in the name of economic stablility. The one world socialist dream of those currently in power in the Whitehouse and behind them will be fulfilled. George Soros, the person most influential in this government, is on record saying that the US has too much world power and is the only country standing in the way of one world government. He specializes in crashing currencies. There is a very real possibility of Soros accomplishing his goal regarding the Ameican dollar in the near future.
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