While incompetent and corrupt politics continues to announce a huge divide between sides, the real truth is that Americans have been deceived. The last election proved how little difference exists between moderates on either side, and that is what politics in the United States plays to. Despite the rhetoric in debt crisis debate, there are few meaningful differences in the plans that are being voted on.
Both bills have been estimated to reduce the national budget deficit by around $900 billion over the next 10 years, which is small change in a nation that is overspending by 50%. $750 billion is linked to actual decisions to cut spending. The remaining savings are another accounting gimmick, a projected reduction in interest payments on the national debt because of the proposed budget cuts. $70 billion of the “huge savings” will be applied to 2012 and 2013. As usual, deciding to do anything meaningful always points off somewhere in the distant future. $70 billion is small potatoes for a large economy that continually overspends by increasing margins.
The real issue resides in the fact that the nation has an unstable fiat currency that has been losing its purchasing power for decades. Today, the well is virtually dry, which could easily result in the collapse of the dollar as international currency. This makes the reality of planning ahead a mere mental exercise instead of meaningful in any way. What is worse is that all this fancy accounting is dependent on an unrealistic gross national product of 4.86%. As a result, this budgeting is an exercise in smoke and mirrors.
If you live in the United States, you’ve probably heard the grim news. National GDP growth for the first quarter of 2011 was just revised down yesterday by 81% from 1.91% to 0.36%. Never mind that 1.91% is paltry growth anyway. Second quarter estimates for the nation look even worse as the Federal Reserve prints more fiat dollars than ever before. Printing greenbacks doesn’t create economic growth or employment.
As the Federal Government wriggles in credit agony, the Treasury had $51.6 billion available for discretionary spending. The U.S. Treasury expects to bring in $172.4 billion from August 3rd through August 31st in tax receipts, while being scheduled to pay out $306.7 billion. This means a projected deficit of $134.3 billion. The Federal Government is scheduled to make its interest payment of $30 billion on the national debt on August 15th. They are now on track to spend a record $514.5 billion this year on interest payments alone. The nation faces an increase of the interest rate because of a likelihood of a credit downgrade, which would destroy any deficit reductions proposed by national politicians.
The Treasury has been able to pay bills in recent weeks by using accounting gimmicks, but that has come to an end in a few days. The Federal Government is in a real pickle without more fiat money printed by the Federal Reserve. Prioritizing incoming tax receipts of an expected $174.2 billion is essential, which will include the $30 billion interest payment on August 15th to avoid default.
The immediate obligations to the populace in August are $49.2 billion in Social Security, $50 billion in Medicare and Medicaid, topped by $12.8 billion in unemployment benefits. $23 billion of $49.2 billion in Social Security payments are due to be paid on August 3rd. $59 billion in treasury bills are due on August 4th to pay back investors. This says nothing of $31.7 billion in defense payments to pay soldiers and the like.
As a U.S. debt default and credit shortage looms, investors continue (so far) to invest in Treasury Bonds as a safe haven, which would be worthless in the event of a national default. All of this assumes, of course, that they don’t rewrite all the rules because of the need to save the international economy. I’m surprised that they haven’t already taken over the ‘renegade’ credit agencies in the name of national security so that the world can continue to ride the dollar bubble.
After all the politics, interest rates are likely to be propelled rapidly upward, resulting in obvious hyperinflation that cannot be quietly manipulated or explained away. The world is flooded with American greenbacks, thanks in no small part to the uninspired management of Ben Bernanke and the Federal Reserve. As a result, the Federal Reserve is likely to be the only buyer for U.S. debt. How long will that last as it is?