Tuesday, August 25, 2009

Will Reality Eventually Set In?

I wasn't surprised to see this headline, but it turned my stomach nonetheless.


Yep, the White House is predicting a $9 Trillion (with a capital T) deficit over the next 10 years. That's in addition to all of the other money that we owe and doesn't include all of those nasty unfunded deficits for Social Security and Medicare that we have conveniently swept under the rug. Big deal you say? We've always had a big debt and we seem to have come out of it ok this far. Well, dear reader, there comes a point where we've finally bitten off more than we can chew.

Here is the problem: we have to continue borrowing from other sources to fund these deficits. So far, big exporters to the United States - China, Japan, and Saudi Arabia among others - are lending us back the dollars that we have paid them for their sundry goods. Its an interesting dynamic. They fund Uncle Sam, who pays federal employees, defense contractors, farmers, welfare moms, and this list stretches out from here to Nancy Pelosi's private jet. These folks buy gas, electronics, clothes, cars, etc., and hand the cash back to the guys who lent it to us to start with and the circle continues. Pretty neat system, eh? Yeah, neat until China decides that enough is enough and quits lending to us and crashes our economy. Of course, they probably could never do it because it would crash their main export market, but they could always threaten to and use it as leverage against us in other matters. Why do you think the government is propping up all of those mortgage backed securities out there. Yup, cuz lots of them are held by the Chinese and they also hold a huge chunk of our national debt too so its wise not to piss 'em off too badly.

So what are we supposed to do with all of this debt that we can never pay back? The answer is....monetize it!!! Yep, those printing presses at Treasury are going to be working overtime to print up more paper money to pay that debt off. When this happens, the value of the dollar will plummet against the world's currencies and we will effectively be The United States of Banana Republic. All of our creditors will take it in the a$$ because their loans to us will devalue to nickels on the dollar. I thought about the US being too big to fail. In a sense, if we crash, we bring everyone down with us. Its like a big game of chicken where we have them by the short hairs and they have us in the ol' genital cuff. But the more I thought about it, I realized that the situation is far more dangerous than that. Those guys know that monetization is the only end game possible if we don't get our house in order and they are going to start parking all of those dollars somewhere where they are backed by hard assets - not flimsy paper.

Remember a few years ago when the Japanese were making headlines buying up trophy real estate and golf courses in the US? The dern fools overpaid for everything and their investments went belly up in a lot of cases and they were left with nothing more than Michael Crichton's "Rising Sun" novel and subsequent movie (with Tia Carrere - rrrowr!) for their trouble. Take it from me, the Chinese are not so foolhardy with their cash. And neither will be the Japanese next time around. They will buy on the cheap. What will they buy with all of their cash? Property? Yes. Equity stakes in US companies? Absolutely. Defense contractors, technology companies, and research labs? Yup. Oil and other natural resources? For certain. Heaven forbid...lawyers...lobbyists...congressmen...and...dare we say it...baseball players??? Yeah, the imagination runs wild. Those dirty imperialists!

So when Congress and the President casually talk about these crazy deficits blowing up like they are nothing too important, and continue to flood us with stupid legislation and pork barrel projects, I can only shake my head and wonder when this house of cards will come tumbling down. All those free goodies and neat social programs that we are borrowing money to pay for. Those will be up in smoke. Our tax bills will be up too - just without the smoke. Is it too late to vote them all out and put some sensible people in charge? I don't know.

Geez, I just reread this rambling and I have become a certified nutcase. Oooooh, I need some insurance reform to cover all of the psychiatric care that is in my future - Citizen Zane

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