A Tipping Point Is Nearing
We are facing a tipping point. There will soon be a crisis affecting US citizens beyond any experienced since the Great Depression. And it may happen within the year.
By Jeff T. Allen at American Thinker
This past week three awful developments put a dagger into the hope for a growth-led recovery, which held promise of possibly averting a debt and currency implosion crushing the American economy.
The first was a little-noticed, but tragic, series of events in the newly elected House of Representatives.
They may deliver cuts 1.3% of total spending that is itself approximately 90% greater than collected taxes. Let’s mark this spending reduction effort as an epic fail, at a time when epic success is almost required for survival.
This year’s benchmark revisions showed two alarming things: a decline from previously reported employment in December 2010 of nearly 500,000 jobs, and a reduction in the workforce of a similar amount.
In context, a 3.7% yield does not appear high by historical standards. In our current predicament, however, it is heading toward Armageddon.
Can our creditors give the U.S. a nod on $2 trillion of new debt each year without any plan to fix it? Remember, there is plenty of past experience with U.S. debt yielding 7-8%, a potential expenditure on our current debt of nearly 100% of tax receipts to pay interest alone should yields go there.
The CBO released a report disclosing that the net cash flow for the Social Security trust fund — excluding interest received from the book entry bonds it holds in U.S. debt — will be negative $56 billion in 2011, and for every year hence even more so. This is the train wreck that was supposed to happen in 2020. It is upon us now.
When the world begins to recognize that there is no fix for America’s borrowings, a fast and brutal exodus from our currency and bonds can send us a shock in mere weeks or months.
Unlike the Great Depression, however, we will enter such a shock in a weakened state, with few producers among us and record mountains of debt.
May we all be spared the worst, but I offer no such prayers for those responsible. The harm that comes will be swifter, and more severe, than most of them thought possible.
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