Mommy goes broke

Posted by Chris on November 23rd, 2008 filed in General, Politics, WTF

First they bailed out the banks. I needed a loan, so I didn’t speak up. Then they bailed out the car makers. I wanted a new car cheap so I didn’t say anything. Then they bailed out the mortgages. I knew people losing their houses and may lose mine so I stayed silent. Then they bailed out healthcare. After that the government run healthcare killed us all so no one could speak out.

Depending on who you ask, future liabilities of our country are between 53 to 60 trillion dollars. That makes the current debt about 120k per family in the U.S. Think about that: 120k per family! Are you serious? It has to stop. But it won’t. There are too many whiners and too many hands out.

I was listening to Martin Hennecke who was on CNBC. He mentioned some very interesting things. First he talked about what S&P Silverman bond ratings chairman John Chambers said 2 months ago. All this spending and debt is putting pressure on the US bond triple A rating. They are heading to junk bond status by 2023. Folks, that’s only 15 years away. That was BEFORE the bailout. Now add the bailout from the bank crisis and it’s being accelerated. None of this includes the up coming Obama spending spree. This isn’t some wild global warming junk science. This is a well researched area. S&P is well respected and typically a very optimistic outfit. They are not doom and gloom. They aren’t trying to scare you into giving them money. This prediction will do just the opposite for them. It will make people trust investing in the US even less. That will mean less money to them. But the fact that an optimistic group says BEFORE the crisis fever hit us that we have 15 years until our national bonds hit JUNK status, that means you have to be very careful. If you decide to invest in the 30 year US treasury bonds, just remember that S&P is saying that they could be in default in 15 years. Maybe that’s not a good investment.

So what does Martin Hennecke recommend? Get out of debt. Payoff everything even the mortgages. Invest in precious metals and in countries that have a healthy currency and a stable economy like China.

So, get out of debt. Stop spending money you don’t have on things that you don’t need. Where’s the fun in that? Gimme gimme gimme! Does anyone think that anyone could get elected on that? I promise I won’t deficit spend because I won’t give you ANY free money. You need to watch what you do because you have a limited budget and so do we so if you screw your chance up you are on your own. You will all pay a standard tax rate. It will support the defense of the country, the infrastructure and debt and that’s it. Any excess will pay off debt additional debt. You keep the rest but you are ON YOUR OWN. Start saving. Maybe that candidate will get 5% of the vote. Maybe.

Hennecke and S&P aren’t the only ones sounding the alarm. The Federal Reserve of St. Louis published a research paper asking “is the us bankrupt?“. They argue that it isn’t but if we don’t CUT BACK instead of adding spending, it soon will be.

The typical trend is as follows: Government heads toward uncontrollable debt (check, thanks W and the republican congress). They then start printing money like crazy (check, thanks again W and the republican congress). This crashes the currency (happening now). Inflation accelerates to hyper inflation (coming soon) and that blows the whole thing. Eventually the government defaults and goes bankrupt. A new currency is created and the rebuilding is attempted.

Stop thinking of your dollar as actual currency and think of it as a stock. The value of the company is reflected on the value of the stock. When one company buys another, they will often use a stock swap as the purchasing object. They value the stock to be purchased and then do the exchange. A strong company has a higher value. A weaker one like Wachovia, well, not so much. The same with the U.S. dollar. Take a look at any paper dollar in your wallet or purse. You may think you have a dollar, but you don’t. You have a federal reserve note for the amount on the front. It’s not the same thing. A strong dollar buys you more stuff. A weaker one, not so much.

If you take your dollar to the government and demand to exchange it, they will give you coin. Neither the coin nor the dollar is backed by anything except the “full faith and credit” of the U.S. Therein lies the problem. The ability to collect taxes and pay the debts are what backs it up. When that debt goes so far beyond what can be collected, the backing of the “full faith and credit” vaporizes. We’re not special. Our dollar is valued on the open market like everyone else. We are subject to the same “rules of finance” that the rest of the world is. It’s not too unlike the same rules that govern us. Spend too much and have too much debt and you’re too great a risk. No one will back you. When you auction your bonds, the traders will walk away.

You can see that in Europe where countries like France, Germany, Austria, Spain and Belgium cancelled bond auctions because of lack of interest. They were not getting what they hoped and needed from them. Investors are demanding much higher rates due to the risk.

Where we are heading, Europe is already there. Where Europe is heading, we don’t want to be anywhere near. We need a leader. Someone who can stand up and force the issue and bring our spending back to sanity. I don’t see that leader right now. I fear he or she may arrive too late. For our sake and our kids sake, pray that leader shows up soon.