There exists in the Congress, in the Obama administration, in the media and on Wall Street, a national belief that America can print paper money and grow its economy as its route map out of debt. With annual GDP growth expectations of 2% to 3% over the next several years, this is a completely false hope!
So write Christopher Funston & Ian A. Gordon (LongwaveGroup.com) in an article* originally entitled Desperate Acts to Retain the Paper Monetary System going on to say:
Within the current global economic environment, central bankers – of the world’s developed economies and those of emerging markets alike – remain obsessed with the struggle to incorporate monetary policies which will engender renewed gross domestic product (GDP) growth in their respective economies. These central bankers have been led by the example of the U.S. Federal Reserve, whose implementation of a multi-year quantitative easing program, i.e. the $4.5 trillion (U.S.) purchase of U.S Treasurys and mortgage-backed securities, has been coupled with the maintenance of historically low administered interest rates; such as the present 0% – 0.25% range for the Federal Funds Rate.
Complicating the global GDP growth challenge has been the persistent increase in the debt levels of many sovereign credits, once again led by the United States, whose national debt level now exceeds $18 trillion (U.S.) – that’s $18,000,000,000,000 (U.S.).
The Folly of Elastic Money
In his book Paper Money Collapse, author Detlev Schlichter recounts how the recent financial crisis has exposed the instability of the global financial system. While there is always plenty of talk of reform, only a few economists are yet willing to consider that the root cause is the limitless supply of paper money.
All paper money systems have either collapsed in chaos, or society has returned to commodity money – usually based on gold – before a total currency disaster occurred. Such controversial conclusions clash with today’s general consensus that elastic state money is superior to inflexible commodity money. Moreover, the majority of economists believe that expanding the money supply is harmless or even beneficial as long as the inflation rate remains low. A great many people working in the financial markets, in the media and in monetary policy positions are unwilling to appreciate the underlying problems with elastic money and the danger it presents.
The U.S. Dollar’s 70-Year Dominance Is Coming to an End
In a recent Daily Telegraph article, journalist Liam Halligan wrote: Seventy years ago the Bretton Woods agreement marked the moment the dollar’s unquestionable supremacy was secured. Since then, global commerce has been conducted largely in dollars and leading economies have held the greenback as their primary reserve currency. The same system remains intact today, with the lion’s share of commercial settlements worldwide still clearing the U.S. banking system; even if the parties involved have nothing to do with the United States. Meanwhile, the dollar’s hegemony continues to be cemented by the operations of the International Monetary Fund (IMF) and the World Bank. Founded at Bretton Woods, they are both Washington-based and controlled by America. The advantages this system bestows upon the United States are enormous. Reserve currency status generates huge demand for dollars from governments and companies around the world, as they are needed for reserves and trade. This has permitted successive American administrations to spend far more than is raised in taxes and export revenues, year-in and year-out. [As such,] America doesn’t worry about balance of payments crises, since it can pay for imports in dollars the Federal Reserve can just print. Indeed, Washington keeps spending willy-nilly as the world buys ever more Treasurys on the strength of regulatory imperative and the vast size of the U.S. debt market.
A Nation in the Red
In his book of the above title published earlier this year and which focuses on the U.S. government debt crisis, author Murray Holland concludes: Our government debt is rising every day. Our population is shifting as more people retire and fewer are able to find work. Our social programs, including the Affordable Care Act (Obamacare), are not only adding to our financial burden, but are also hindering our domestic economic growth.
The United States is in very deep financial trouble.
- Firstly, the concept of repaying $18 trillion (U.S.) in debt is not even a remote possibility over the next 100 years even if the government produced small surpluses.
- Then, because the country is recording such large deficits, the national debt is increasing and getting worse, indeed much worse.
- In addition, the government has approximately $70 trillion (U.S.) in unfunded liabilities which must be resolved. This means it needs to either decrease the benefits – primarily under Medicare and Social Security – or to increase taxes, or both.
- Pray that the market for the national debt remains open so the United States can keep borrowing to repay the money it previously borrowed and then, the government will have to re-borrow to repay the money it just borrowed.
- There is no chance the bond market will not change its demeanor over the next 100 years. It will certainly experience periods of higher interest rates and bond yield levels. It will also witness times of lack of demand for Treasurys, due to economic pressures and geopolitical events around the world.
- Even under the Obama administration budget deficit trend, interest expense for outstanding Treasury issues will exceed $1 trillion (U.S.) a year by 2022.
- The scenario of worse-than-projected tax receipts for the government, along with considerably higher than disclosed liabilities, is a recipe for disaster for the United States.
If you are not terrified at the thought of the collapse of the United States, you should be. Almost everyone in the world will be negatively affected, particularly the poor…
The above post is presented compliments of www.munKNEE.com and may have been edited ([ ]), abridged (…) and/or reformatted (some sub-titles and bold/italics emphases) for the sake of clarity and brevity to ensure a fast and easy read. The author’s views and conclusions are unaltered and no personal comments have been included to maintain the integrity of the original article. Please note that this paragraph must be included in any article re-posting to avoid copyright infringement.
*http://www.longwavegroup.com/publications/economic_winter/2014/_pdf/Economic_Winter_V63_I1_Paper_Monetary_System.pdf (Copyright © Longwave Group 2014. All Rights Reserved.)
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