Another Cliff and a Trillion Dollar Coin!
Another Cliff and a Trillion Dollar Coin!
Just like an old roadrunner cartoon where Wile E Coyote is falling off of one cliff after another, the American economy is up for another cliff. We are reaching the debt limit and will be having another debt ceiling debate. The last debt ceiling debate bought us a credit downgrade both because of the bickering that took us to the edge of the limit as well as the fact that we had reached the limit and needed to have the limit extended. The credit downgrade, if your remember, triggered a sharp sell off in equities. Ironically, investors flocked to US Treasuries, the very debt instrument that had just been downgraded.
I have learned not to try to predict what will happen, because the fact that people poured into the asset that had triggered the sell off means that all common sense had left the party. Who knows what will happen in the coming debate or in the fallout of potential downgrades? The only thing we know for sure is an addict will continue in his behavior until he hits rock bottom. The US Government is an addict. It is addicted to spending which necessitates it being addicted to borrowing, taxing and debasing the currency to its own demise. Most all of us have had some experience, either personal or someone we know who has struggled with addiction. If we know anything from our experience, it is that it has to get worse before it can get better. The behavior won’t change until the pain outweighs the high. Sooner or later, the pain of the irresponsible policies of our government will far outweigh the high. The day of reckoning is coming. You better be ready.
The latest chatter is that the Treasury would mint a $1 trillion dollar coin to avoid another debt ceiling debate between the Democrats and the Republicans. Just as the Treasury creates money to purchase $40 billion a month to purchase MBS’s and $45 billion a month to purchase US bonds, they would just create the $1 trillion need to facilitate the continued spending. Think of it as QE 5. What a great plan! This will debase the currency at an even faster rate. Current M2 money supply estimates say the total money supply is near $10 trillion. To instantaneously create another $1 trillion would devalue all the per-existing currency by exactly 10%. How is that for a flat tax? Rich or poor, the value of your dollar would be instantly cut to $.90 cents. Of course that is on top of QE 3 and QE 4 which are already debasing the currency by $1.02 trillion annually. By the most rudimentary definition of inflation, Your dollar today would be worth less than $.80 cents by New Year’s Eve 2013.
I believe all of these are the last desperate attempts to hold things together just a little longer. Any slack jawed moron can see this is unsustainable. The only thing left to speculate is the severity of the collapse. As I have said before, I am not a financial adviser and I don’t make specific recommendations on these posts. For myself, I am purchasing gold and silver whenever I see dips in the prices. It looks like the desperation is hitting new highs and our country can’t keep this behavior up.
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