Colossal Government Debt, Prepare for Inflation

compounding-government-debt-interest-will-lead-to-inflation
Rather than accepting at face value the many mixed, and often revised messages from government economic reports and reporting, and rather than attempting to decipher the often twisted curves and angles of deliberate main stream interpretation and commentary on the state of the economy, we should instead try and not become a victim of paralysis-of-analysis, and use our own common sense and logical reasoning abilities to self-check the state and direction of the economic situation that we are in.

A simple view of the U.S. economic situation

On a cash basis, the U.S. federal government has a national debt of $14 trillion.

The annual U.S. budget deficit is $1.3 trillion.

The Bureau of Labor Statistics data states that the U.S. work force amounts to 138 million people.

It would take more than $100,000 from each working person to bring the cash portion of the government ‘business’ back to neutral.

Adding in unfunded liabilities including social security, medicare, and prescription drugs, the total liability becomes $126 trillion.

It would take more than $900,000 from each working person to bring all government spending, liabilities, and debt back to neutral.

Putting it in perspective

How many in the American work force have $100,000 lying around to give the federal government, let alone $900,000?

It is obvious isn’t it, that this will never happen? It is simply not possible.

As the interest on the national debt continues to compound, how then will the U.S. ever be able to recover from this looming financial Armageddon?

There really only is one way, a lesser of evils, that is through inflation rather than eventual default or bankruptcy.


Inflation is a devaluing of currency.

It is logical to imagine that the government could determine the maximum dollar amount (in present value) that they would would dare to tax it’s citizenry to bail itself out of it’s mess. Once that value is determined, they could proceed to devalue the dollar to the point until ‘that amount’ is reached to break even with the current debt obligations, or somewhere close.

In other words, let’s say that instead of forcing American workers to fork over $100, 000 each, in order to just pay off the cash portion of the U.S. debt, they instead will determine an amount that they believe could successfully be squeezed from each worker, let’s say for example $20,000 (today’s value). They will figure that this, along with some spending cuts and a certain amount of ongoing debt load, will be enough to remain solvent with average or good financial ratings.

How they will do it

Well, for that $20,000 to effectively pay off $100,000 of debt (money already spent at today’s dollar value), the $20,000 would need to be inflated to $100,000, or 5 times it’s current value at some point in the future. Another way of saying this is they would need to devalue today’s dollar to 20 cents. That would, in effect, reduce the $100,000 debt (today’s value) to $20,000 (tomorrow’s deflated value).

This is how they will do it. There is no other way. The amount they choose to devalue the dollar will be determined by a complex set of formulas that will determine their most optimum and maximized outcome based on many things from global political agendas to agendas in America itself, all the while trying not to tip the apple cart.

How fast will it happen

Although they could do it overnight (it has been done this way before), the devalue (inflation) process will unfold as quickly as is necessary, which itself may be pretty quick and shocking for many.

Today’s rapid deficit spending and compounding interest is quickly catching up with us. As many people know, the shape of the compound curve reaches a point of exponential growth, and since we are on the wrong side of that curve, that is, debt, it will rapidly bury us for good unless drastic measures are put in place.

Despite the fact that America’s creditors (China, and others) will be badly burned by dollar inflation, the charade is nearly up, and the ending cannot be delayed for that much longer.

Prepare

As inflation ramps up, prices and values of assets will rise, which will at first seem like a good thing to many, but as it really takes hold, it will become a very bad thing as your old dollars will not keep up pace with new prices.

If one believes this simple evaluation to be reasonable, then a reasonable thing to do would be to become better prepared for it, position yourself as you must, and buy certain assets now, before it takes more dollars to by them later.



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One Response


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  1. GoneWithTheWind February 5, 2011 2:10 PM
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