UNDERSTANDING AMERICA'S
FINANCIAL CRISES
PART 1
By
Michael S. Coffman, Ph.D. and Kristie Pelletier
May 7, 2011
NewsWithViews.com
Economics for Dummies 101
We are on the verge of a major economic catastrophe. It’s not a matter of if, but when it will come; and just how bad will it be. It’s about time you learned the truth. Your future depends on it.
[Author’s note: America is in the mess it is in because most American’s eye’s glaze over when trying to understand the complexity of economics. Because of that, we have allowed our economic system to become incredibly corrupted by those who profit politically or financially from our ignorance. Hence, we have broken our research into four parts, starting with an easy-to-read overview of what has happened to make the whole thing more comprehendible in Parts 1 & 2. By the time you get to Part III and IV you will learn of the century-old agenda to deliberately create this kind of crisis as a means of creating a world government.]
Washington has been up to mischief and we haven’t been paying attention. Most of us just work and pay our taxes. Then we work more to pay the increases in taxes that inevitably come. That is why we are in the state we are in. At the beginning of 2008 most of us said “Fannie and Freddie who? Do I know them?”
America got a wakeup call three years ago. We cannot afford to go back to sleep. It doesn’t take a degree in economics to see that. All it takes is the ability to read, and listen to what is being said. We are witnessing major economic history in the making globally and right here at home.
For the vast majority of us, our eyes glaze over with the complexities of it all; Budget, Deficit, Debt, Credit Ratings, Unfunded Liabilities, T-bills, Notes, The Fed, and the IMF. So many words, philosophies, and methods are bandied about with regard to finances that it can become very difficult to sort it all out. Yet, America is on the brink of utter financial catastrophe and we must take the time to understand what is happening, who is doing it, and how we can fix it. We won’t get a second chance.
First, we need to define some key terms you’ll hear used in the news. If you already know them, good for you. You’re ahead of most Americans. You might want to skip ahead to Part III. A very simplified definition for Budget is a plan for spending money for a specific time frame. Deficit is the gap that occurs between the budget, or plan for spending, and the actual income received during that time frame. Debt basically consists of the accumulation of deficits over time.
Inflation is the increase in the cost of goods and services. You already know that. However, inflation is normally caused by an increase in the supply of money which in turn devalues the dollar; i.e. the value of each dollar falls. Real inflation has been 20 percent the past ten years. That means that the dollar is only worth $.80 today compared to ten years ago. Looking at historical inflation, what cost $1 in 1950 would cost $9 today. Conversely, what costs $1 today would only cost $0.11 in 1950.
There is no good definition for hyperinflation. It occurs when inflation goes out of control and reaches very high levels; say greater than 25 percent/year. An example is the Weimar Republic (Germany) following World War I. The harsh reparation payments imposed on Germany following the war, in combination with promised increased wages, reduced hours, expanded education and a slew of new social programs (sound familiar?) created the conditions for hyperinflation.
In 1919 the German mark was worth about 3 marks per dollar. In 1921 the German mark had slid to 75 marks per U.S. dollar. By 1922 it was worth 400 marks to the dollar and in 1923 it plunged to 7000 marks per dollar. As bad as that was, it was the “good ‘ol days.” By November of 1923 it took about 4 billion marks per dollar.[1]
Got it? Sure, you say. It’s clear as mud. Ponder on it because it is about to destroy you. In fact, there are many in the world and in our government who hope you never figure it out because they are robbing you blind and blaming your misery on the rich.
Now, the very small percentage of our population who truly understands the intricacies of the global economy will see these simple definitions as Economics for Dummies 101. They will groan and find something else to read. Start with Part III. But if you are the average American who has simply been working and paying your taxes without taking the time and effort it requires to understand and then change what is happening in Washington, you many want to keep reading.
We are in for an economic tsunami unlike anything we have ever experienced in this country before. As the government continues to spend astronomical amounts of money it doesn’t have, purportedly to fix the gargantuan financial crisis the nation faces, they have to finance these expenditures by borrowing money. To do this, the government sells Treasury Securities in four forms; Treasury bills, Treasury notes, Treasury bonds, and Treasury Inflation Protected Securities (TIPS). These all have varying lengths of time to maturity and levels of interest paid to the holder.
Historically, budget deficits have been relatively small and the national debt has grown slowly. For decades the deficits and borrowing was constrained by the fact America was on the gold standard. However, when President Nixon took the United States off of the gold standard in the 1970s, politicians saw a bonanza and deficits increased dramatically. When our deficits increased, so did our national debt. There was a brief reprieve in the 1990s to the growing debt as a Republican Congress and President Clinton brought deficits down. However, following 911 and the initiation of the War on Terror, deficits skyrocketed.
Here’s where most people’s eyes glaze over. Force your eyes to focus and your mind to be engaged for a few more moments. The spending policies of Presidents G.W. Bush and Obama have more than doubled the U.S. national debt from $5.7 trillion in 2000 to $14.3 trillion in mid-2011. The deficit is projected to be a whopping $1.65 trillion for 2011 alone. Interest on the National Debt is expected to top $430 billion for 2011.
Advertisement
Today,
the debt has
risen to an incomprehensible $14.29 trillion dollars. Your share of
it is $46,030. Your spouse and child also owe $46,030 each. For a family
of four it’s $184,000. Uncle Sam will demand you, your children
and your children’s children repay the debt they created. The
interest alone is $4 billion a day or $2.8 million per minute!
But that’s not the worst of it. Social Security, Medicare and
Prescription Drug unfunded liabilities total $113.6 trillion! Liabilities
include those legal debts that must be paid in the future. Unfunded
liabilities are legal debts in which promised payments are not
budgeted and exceed all defined ability to pay them. The U.S. unfunded
liabilities equal one
million dollars per taxpayer! That money has to be somehow
raised in future undefined revenues. It is the single biggest problem
we are facing as a nation.
There’s more. State unfunded liabilities for public sector pension plans could reach $3 trillion. Unlike the federal government, these states can’t print more money. They must balance the books or go bankrupt.
But wait, it gets much worse. In the two and a half years he has been in office, President Obama has racked up a deficit that nearly equals the combined debt created by all the presidents up to G.W. Bush. His initial 2012 budget continued piling up debt at rates that will double the debt to $26 trillion in 10 years.
Are you ready to pull your hair out? You should be. But there is still more. Along with this incomprehensible debt, the Federal Reserve (Fed) is printing money out of thin air. It’s called Quantitative Easing 1 and 2 (QE1 & QE2). The U.S. dollar is deliberately being made worthless. High inflation, perhaps even hyperinflation, is inevitable unless drastic actions are taken now. Four years ago economist and business consultant John Williams estimated hyperinflation and the total collapse of the dollar was likely by 2018. However, two and a half years of Obama’s reckless spending along with QE1 and QE2 have pushed that estimate to 2012, or even earlier.
Inflation is already happening. Food and energy prices are soaring. At least part of the soaring gasoline prices is due to the devaluation of the dollar so it takes more dollars to buy a gallon of foreign oil. Yet, the Obama administration is telling Americans the debt is manageable and there is no inflation.
Incredibly,
the government now leaves food and commodities (like gas) out of its
inflation calculation, drastically lowering reported inflation. By doing
so, it gives a completely false 
picture
of inflation that has real world consequences. Because reported inflation
is half of what it actually is, increases in Social Security (SS) cost
of living adjustments have also been cut in half. Likewise, SS recipients
should have received large increases in benefits the past two years.
Instead, they received no increase at all. In the same way, those things
that hit you in the pocketbook are also left out of the inflation
index. You see prices skyrocket every time you go to the supermarket
or gas station, but are told inflation is only 2.5 percent. The reason
it doesn’t compute is that the government is inflating its way
out of its debt and not telling you! If inflation was calculated as
it was before 1980, it would be over 10 percent!
When the numbers start to get that big and complicated something just switches off in the mind of the average person, and it feels kind of like we are dealing with fake money, like a monopoly game. That is exactly what Congress is doing. They are running our country’s finances like they think it is a game of monopoly and they are working with “play” money. The numbers aren’t really real and they don’t really mean anything. It’s not their money anyway so they don’t really care. They are right about one thing, it isn’t their money. It’s ours, our children’s, their children’s, their children’s...
Take a deep breath and let’s break down the numbers to something perhaps more understandable. Take just the $4 trillion owed to foreign nations; that’s $4,706,310,000,000. We are still a young nation, 235 years old. Let’s use that number to break it down. The resulting number is 20,026,851,064. That’s still over 20 billion per year, every year for 235 years. That number is still too big to really wrap your mind around. How about almost 55 million a day, every day, since the Declaration of Independence; Still pretty big; it is over 2.2 Million dollars every hour since John Hancock, signed, well, his John Hancock. The total debt is rapidly approaching FOUR times that amount.
Congress develops its budgets with PLANNED deficits. They actually plan to spend more than they have coming in. Why not? It’s just monopoly money to them and there is so much need they want to fix (including lining their own pockets for many). The deficits planned for this year and next are 1.6 and 1.5 trillion dollars respectively. All of that will pile onto our debt.
The United States government has a legislated debt ceiling, a maximum amount that it is allowed to owe. That number is currently at $14.294 trillion, the nation’s actual debt is rapidly approaching that amount. More than half of that has accumulated in the last decade. There will be a concerted effort in the next several weeks to raise that debt limit. President Obama is leading the charge demanding a hike in the limit with no strings attached. On April 15 he declared, “We will raise the debt limit. We always have. We will do it again.”
As usual, Obama is talking out of both sides of his mouth. The last stand-alone vote on raising the debt limit on which President Obama voted as a Senator was in 2006. Then Senator Obama voted against raising the debt ceiling, saying,
The fact that we are here today to debate raising America's debt limit is a sign of leadership failure. It is a sign that the U.S. Government can't pay its own bills... Increasing America's debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren... I therefore intend to oppose the effort to increase America's debt limit.
In this same diatribe, he rails against big indebtedness run up by President Bush all the while President Obama himself presides over an increase that added almost as much to the National Debt in his first 19 months than all of the presidents from Washington to Reagan combined. Obama’s criticism of Bush was right, the debt did rise exponentially under President Bush starting at $5.727 trillion and ending with $10.6 trillion in 8 years. The U.S. Treasury Department reported in October, only a year and nine months after he was inaugurated, Obama himself had already added over 3 trillion dollars to the National Debt.
The party a candidate belongs to isn’t nearly as important as the beliefs and actions of that candidate. We need to elect people who will stop mortgaging our futures.
Unsustainable is just not a strong enough word to describe the economic situation we are facing. Disaster is a better word. While the debt continues to soar upwards, Washington likes to make a lot of noise about reducing deficits, while doing nothing of any real substance to actually solve the problem. For the two weeks Congress was at each other’s throats to come up with a measly $38.5 billion cut, $85 billion in deficits were added to our national debt!!! The cuts are a farce. In March alone, deficit spending was $188 billion. That’s $6 billion a day! The total for 2011 is already at $829.4 billion (6 months’ worth). At this rate, the total for 2011 could hit $1.66 trillion.
Even with the optimistic prognosticators claiming that the current recession will end soon, the Obama Administration forecasts federal deficits that average more than $1 trillion annually for the next ten years, amounting to 7 percent of Gross Domestic Product (GDP).[3] America’s GDP in April 2011 is $14.6 trillion. In other words, we owe in debt almost as much as we produce each year. The debt crisis is worsening so fast that economists have trouble keeping up with it. It is now forecast that the debt will exceed the GDP of the U.S. this year! Just last year economists thought it wouldn’t happen until 2020!
In concluding Part 1 of this series on the economy, it is obvious America is in deep trouble, regardless of what the Obama administration or media claim. In Part II the global implications will be explored and what it means to America. Part III the effort to find solutions is actually politics as usual—demagoguery. Part IV will define who is ruining our economy and why they are doing it. In conclusion, there is growing concern that we might see hyperinflation. A real-world example of what this would mean occurred in the Weimar Republic discussed earlier in this article.
| Subscribe to the NewsWithViews Daily News Alerts! |
This is what happened to one family;
Karl Bonhoeffer, the father of Dietrich Bonhoeffer, the humble Christian pastor who stood up to Hitler and died by firing squad for it, had a life insurance policy that paid 100,000 marks at maturity; about $1.2 million in today’s dollars. He faithfully paid his premiums for 50 years. When the policy matured towards the end of 1923and Bonhoeffer cashed it in, the 100,000 marks could buy a bottle of wine and strawberries. By the time he received the money, it would only buy the strawberries.[2]
If we don’t stop the insanity in Washington, this could be our future. It doesn’t have to be. Every American has a responsibility to tell their Representative and Senators in Washington to make deep and meaningful cuts to the 2012 budget. If your Representative or Senator does not make those cuts, he or she must not be reelected in 2012 if they are up for reelection.
Click here for part -----> 1, 2, 3,
Footnotes:
1.
Eric Metaxas. Bonhoeffer, Pastor Martyr, Prophet, Spy. (Thomas Nelson,
New York) 2010. Pp. 43-44.
2.
Ibid. p 44.
3.
The GDP is the total market value of all final goods and services produced
in a country in a given year, equal to total consumer, investment and
government spending, plus the value of exports, minus the value of imports.
It might be easier to understand the GDP as the total net value of all
economic activity in a country. The Per Capita GDP is the GDP divided
by the population of a nation. It is a very powerful tool to compare
year to year and nation to nation.
Michael Coffman. Rescuing a Broken America, (Morgan James Publishing, New York), 2010. P 67
� 2011 Michael Coffman - All Rights Reserved
Share
This Article
