We have taken down the movie as we learned it may have been uploaded without permission. We are sorry for any inconvenience. We do have a new movie available called Crude Awakening that deals with the threat of increasing energy prices. You canview it by clicking to our new post “Peak Oil- Threat Assessment”.
I hear a lot from fellow Ron Paul supporters on prepper and survivalist forums who think there is no difference between Romney and Obama. I hope this film can open their eyes. Romney may have many flaws. I am certainly no fan, but I think you will agree that Obama for four more years will be much more detrimental. Here is the full movie.
The Movie covers much of Barack Hussein Obama’s life including his childhood and the influence or lack thereof from his father. It speaks about how Barack Obama has been an ill fit into American history.
The movie draws attention to the fact that The President has turned his back on Israel and Britain, two of our closest allies. He has blocked the Keystone pipeline that would have brought jobs and greater energy independence from the middle east.
He has slashed America’s nuclear arsenal while ignoring Iran’s build up. We speak a lot on Prepper Recon.com about non-intervention in foreign entanglements, but Iran is a terrorist state. To allow them to have nuclear capabilities is to allow terrorists to have them as well. This falls under our government’s constitutional duty to defend our borders.
The movie tells us about Frank Marshal Davis who was a mentor to Obama. Davis wrote for a communist publication called the Chicago Star. He later spewed anti-American sentiment in the Honolulu Record. Davis was considered a communist threat and was placed on a watch list by the FBI. The movie lists Obama’s other associates like Weather Underground terrorist, Bill Ayers who was responsible for bombs in the Pentagon, US Capital, and a New York Police Department. Other associates include Edward Said, a radical socialist professor at Columbia University. We also can’t forget about the radical Reverend Jeremiah Wright who married Barack and Michelle Obama.
The film also reminds us of the economic time bomb of Obama Care. This law will destroy small businesses all over America. In 2014, the requirement goes into effect for businesses of 50 or more employees to provide healthcare.
Grab some popcorn or a barf bag and enjoy the show.
X Events, the Collapse of Everything is the new book by John Casti. It makes for some great bed time reading to give you that warm fuzzy feeling inside. I am sure you could guess that from the title! The author looks at several possibilities that could bring on different levels of collapse. The theme that runs throughout the book is the problem of complexity. He points out that as systems become more and more complex, they require more complex means of managing those systems. As the systems grow, be they financial systems, supply systems or information systems, they become complex beyond anyone’s ability to fully understand them. When this happens, collapse is inevitable.
A great example of this was the 2008 Mortgage Backed Securities debacle. Mortgages were bundled up into packages, then the packages were split up into Collateralized Debt Obligations or CDO’s. These CDO’s were sold in tranches of risk levels that payed different interest rates. As complex as it is, you may be thinking “someone came up with the idea, so they must have understood it”. They did understand it. The problem begins with the ability for the regulators to understand it. The problem extends to the buyers of the CDO’s and the record keeping as it failed to keep up with who actually owned what mortgage. When the subprime mortgages finally defaulted, no one knew who owned the property as the mortgage had been diced up, sold, repackaged and resold so many times.
As X Events points out, this level of complexity runs throughout our society. The inability to understand it by those tasked with monitoring the systems creates instability. Complexity of this magnitude exists in information systems such as the internet and is beginning to show up in our food supply lines.
X Events also points out the fact that while any given catastrophic event may have a very low probability of occurring, the aggregate probability of one event happening is much higher. Perhaps an EMP attack has a low probability of occurring, as would a global pandemic, or worldwide famine. However the probability of one of those events occurring is much higher. In actuality, Black Swan events (rare events) in aggregate actually become White Swan events (very common events).
X Events explores in detail what could cause and how we might react to, the failure of the internet, the breakdown of the food supply system, an EMP attack or solar EMP, global pandemic, drying up of oil supplies, collapse of financial markets, and several other X events.
The book is available on Amazon.com and can be ordered directly by clicking the link on the top right column of this page. It is a great read.
Financial Collapse – Threat Assessment Part 2: Global Banking System Meltdown
In Financial Collapse Part 1, we wrote about the possibilities of a financial collapse initiated by the consequences of our $16 trillion national debt. As if it were not enough, it is not the only threat facing us with the possibility of triggering a financial collapse.
In my opinion, the problem lies at the very heart of the structure of our modern banking system. When I first took Macroeconomics several years ago, I felt a sudden sense of panic as I learned about the fractional reserve banking system. Had the information not come from a college textbook, I would have likely dismissed the entire reading as conspiracy theory. Until that point in time, I never gave it much thought, I assumed any given dollar could only occupy one space at a given time. That is not exactly the case. Under the fractional reserve system, a bank needs only to retain a percentage of the deposits it takes in.
For an example, let’s say the reserve requirement is 10%. Now let’s say you take $100 and deposit it in the bank. They keep $10 or %10 on deposit and lend out $90 to Bill. Bill buys a new bike from Tom who deposits this same $90 in the same bank. They now keep 10% which is $9 and lends out $81 to Steve who buys an apple cart from Sue. Sue deposits the money into the same bank who again keeps 10% in reserve, $8.10 and lends out $72.90. This goes on and on until the initial $100 has created nearly $900. With the $100 that still belongs to you in your account, that’s $1,000 from $100. But wait that’s not all folks. Do you think Bill and Steve borrowed that money interest free? Not on your life. If those loans were via credit cards, Bill, Steve and the other borrowers are paying around 20% interest. 20% of $900 is $180 in addition to the $1,000. Now we have $1,180 from our original $100.
The alchemist of the 17th century had it all wrong trying to make gold out of lead. They should have been using paper. Not only do we create great amounts of wealth through this process, we also create increasing amounts of debt as interest is added to the principle of each additional loan. The problem is that there is more debt than there are dollars created to repay the debt. In our original example, after all the principle is repaid, and you have withdrawn your $100 dollars, there is still the issue of the $180 in interest outstanding. In a simplified economy where the only money that exists is the $100 and the subsequent wealth created by the fractional reserve banking system, the $180 ends up as a deficit that can not be repaid as there is no money in existence to repay it. Well, you may say, we live in a much more complex economy, we will get the $180 in interest due from another source. Regardless of the complexity , which is part of the problem, not a solution, there is still more debt than dollars to repay.
We have been getting away with this for centuries. It is a fundamentally flawed system that is reliant on ever increasing amounts of debt to sustain itself. Presently, the total global base money supply, also known as M-O is around $8.5 trillion dollars. M-O or base money is all of the money in circulation and all the money on deposits at banks. Total global bank assets, also known as loans are near $100 trillion. This $100 trillion is wealth magically created from the $8.5 trillion. It is also earning interest and by nature, creating more debt every day. To create $100 trillion from $8.5 trillion means the banking system is leveraged 12 to 1. This is highly leveraged and increasing overall volatility by the minute. What we have developed is an amazingly tall house of cards. The wealth created is not real.
What could possibly go wrong with this system? We already have that answer. We got it here in America in 1929. In a fractional reserve banking system, credit expansion is always followed by credit contraction. We know how bad it was in the great depression, what we don’t know is how bad it will be with a $91.5 trillion ($100 tr – $8.5 tr) credit contraction.
That can’t happen again. We have the FDIC. That’s right, they have safely managed to sock away $13.6 billion. US base money is approximately $1.7 trillion and total US bank assets (loans ) are around $20 trillion. So, if there is a bank run, they have the first .068% of it totally covered. I know I’ll sleep better tonight. Thanks FDIC! It is like trying to put out a forest fire with a squirt gun.
The $13.6 billion in the FDIC insurance fund is just there to make you feel safer. It is sort of like a 6 year old who feels quite well defended against any would be intruder as long as he has his trusty Red Rider BB gun. If there ever is an intruder, his confidence will fail rather quickly. In the same way, someday a market crisis will invade our happy illusion and confidence in the FDIC will fail. We will experience bank runs like we have seen recently in Spain and Greece. We will see lines at the banks around the block like we saw in the depression. The FDIC will have no choice but to declare a bank holiday, which has nothing to do with eggnog or turkey dinners.
If we experience this type of banking collapse, the only money you will have access to will be what you had before the bank holiday. Most likely, credit cards will not be accepted during this time. We recommend keeping a minimum of one month total expenses in cash in a secure location in your home. You can read our detailed 7 Step Preparedness Plan to better prepare yourself for the coming storm. To learn more about fractional reserve banking and our debt based monetary system, watch Money as Debt.
Happy Prepping!
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NDAA or The National Defense Authorization Act is presented to congress every year to approve budgets and general business. The NDAA for fiscal year 2012 was enacted last December 31. This particular year’s NDAA contained a provision for the indefinite detention of any one suspected of terrorism. That provision of the NDAA was halted by a federal judge through an injunction last May. Federal Judge Katherine Forrest made the injunction permanent last week. The injunction against that portion of the law was appealed by the Department of Justice. On Monday September 17th, 2012, Judge Raymond Lohier of the Court of Appeals for the Second Circuit granted an emergency stay on the injunction. As it now stands, the government has in its power to detain anyone they deem to be “associated forces that are engaged in hostilities against the United States or its coalition partners”.
Here is a brief excerpt from the law:
SEC. 1021. AFFIRMATION OF AUTHORITY OF THE ARMED FORCES OF
THE UNITED STATES TO DETAIN COVERED PERSONS
PURSUANT TO THE AUTHORIZATION FOR USE OF MILITARY
FORCE.
(a) IN GENERAL.—Congress affirms that the authority of the
President to use all necessary and appropriate force pursuant to
the Authorization for Use of Military Force (Public Law 107–40;
50 U.S.C. 1541 note) includes the authority for the Armed Forces
of the United States to detain covered persons (as defined in subsection
(b)) pending disposition under the law of war.
(b) COVERED PERSONS.—A covered person under this section
is any person as follows:
(1) A person who planned, authorized, committed, or aided
the terrorist attacks that occurred on September 11, 2001,
or harbored those responsible for those attacks.
(2) A person who was a part of or substantially supported
al-Qaeda, the Taliban, or associated forces that are engaged
in hostilities against the United States or its coalition partners, including any person who has committed a belligerent act or
has directly supported such hostilities in aid of such enemy
forces.
The entire NDAA lawcan be viewed here and you can read Subtitle D, Section 1021 by scrolling to page 265.
That is just fine and dandy as long as we are talking about the Taliban and al-Qaeda. I am sure we all would like our government to have the tools it needs to keep us safe. The problem arises in making compromises to the constitution. The 4th amendment protects us from unwarranted search and seizure. We cannot be harassed or imprisoned without probable cause. Another problem arises when the administration that presently holds power disagrees with your particular views. We all remember the president’s statement about his opposition who “cling to their guns and religion”. The freedom of religion is our first right in the bill of rights and the right to bear arms is the second. These two foundational rights are regarded as being faults by our current leader.
I have a vivid recollection of the DHS report from 2009 that labeled those concerned about US national sovereignty, abortion, and the second amendment as being domestic terrorist threats. It is this type of rhetoric that causes me to be concerned when I read the third from the last line in the except that vaguely states “including any person who has committed a belligerent act“. We must be very careful about extending ever increasing power to a government that views those who would agree with the Constitution as “threats”.
While all the major media outlets have been prudent to cover which members of Britain’s royal family were missing which articles of clothing over the few weeks, nothing has been said about such an important topic. CNN nor FOX have said anything about the FY 2012 NDAA. I can’t speak for MSNBC as it is a brand of political propaganda that I cannot stomach in any amount.
Here is my final point. This law passed through a Democratic President, Democrat controlled Senate and a Republican controlled House. If you are concerned about it, you need to write some e-mails. Here are the list of contacts for the US Senate and the US House of Representatives.
Part of our mission at Prepper Recon.com is to conduct reconnaissance on the web and other information outlets to bring you the best intelligence around. Today’s post is an interview with one of the most respected preppers in America. In this recent commercial free interview on Coast 2 Coast, James Rawles talks about the economy and many other issues.
James Rawles is a former army intelligence officer as well as an author. He has written How to Survive The End of The World as We Know It, which is exactly what it sounds like. He has also written 3 fiction books on the coming collapse; Patriots, Survivors and his latest, Founders, which will be released on September 25th. James Rawles is also the creator of Survival Blog.com.
James Rawles has had a lot of influence on me and his views are very close to those of Prepper Recon.com. In this interview he speaks about the threats we are facing from our towering debt and steadily falling dollar. He also discusses the likelihood of food riots associated with a financial collapse or disruption of the SNAP program. SNAP is the electronically managed federal food stamp program and is vulnerable to EMP or disturbances within the internet.
James Rawles recommends reducing debt, building long term food storage and focusing on backup water supply systems in case of service outages. In the questions and answers portion of the show, James talks about the types of things people might look for in a barter economy. He recommends precious metals, such as gold ans silver coins. He also recommends ammunition as a batter item and things like kerosene and 2 cycle oil.
We have links to 2 of James Wesley Rawles books from Amazon on the right side bar of this page, including Founders, which can be pre-ordered if you like. If you are new to prepping of new to Prepper Recon.com, please read our 7 Step Preparedness Plan to get ready for the tough times ahead.
EMP is an electromagnetic pulse. It is a strong burst of energy that emanates when a nuclear weapon is detonated. When such a weapon is detonated at a high altitude, the EMP is spread out over the line of sight. If a strong enough warhead were detonated over Kansas at an altitude of 450km, the effects would span the entire continental US. All critical infrastructure such as electrical grids would be disabled. All cars with computers would be disabled. All credit card machines, computers, cell phones and radios would be disabled. There would be little to no radiological effects from the blast, but the effects of the EMP would be devastating to society.
Most grocery stores will be closed as they have no means to collect cash without the use of their registers. Some small convenient stores may be accepting cash, but unless you had cash before the event you would not be able to access your funds from the bank. By the second day, it would become obvious that something is seriously wrong and people would be looting stores.
Some preppers have anticipated such an event and built Faraday cages to protect their electronics. A Faraday cage is simply a metal box that absorbs the electronic pulse from the EMP. As long as the electronic devices are not touching the sides of the cage, they shouldn’t be harmed by the EMP. Electronics could be insulated within the cage with Styrofoam or thick cardboard. Putting a shortwave radio in a gun safe or metal ammo box insulated my non metallic material should protect it from the blast. A shortwave radio would allow you to hear reports from other parts of the globe and possibly even Ham operators who had their equipment shielded from the EMP. The video tells us what a real threat this is. It is only prudent to be marginally prepared for such an event.
Revolution on NBC begins September 17th at 9 pm. The story is about an EMP that has taken down the grids and the survivors struggle to rebuild society. It is very entertaining and will provide opportunities to discuss the threat of EMP with your family and friends. We have a link to the First Episode of Revolution right here on Prepper Recon.com just in case you can’t wait to watch it.
On Thursday, Ben Bernanke announced that the Fed would buy mortgage backed securities at a rate of $40 billion a month. He also stated that the monetary policy would continue indefinitely until the labor markets improved. In past rounds of stimulus, the Fed has stated how much and for how long they intended to continue quantitative easing maneuvers. By putting the economy on a constant QE drip of $40 billion rather than the large one time purchases, they hope to smooth out the market’s highs and lows associated with previous QE. The targeted effect will be more of a daily methadone clinic rather than a weekend heroin binge.
“We will print to infinity and beyond!”
This new open ended round of asset purchasing eliminates the need for QE 4 as QE3 can go on until doomsday, which may hasten its coming. Gold and Silver shot up as they have been doing since Mario Drahgi’s announcement of unlimited QE on the European front. We now have the 2 largest central banks on the planet committed to printing money until they run out of ink. Fortunately for them, as the money is just created into existence by a key stroke on the computer, they are not actually limited by the amount of ink or paper.
The $40 billion monthly purchases of MBSs together with the additional asset purchases made with the interest payments collected by the Fed will total half a trillion dollars per year. This is new money injected into our economy. This creates inflation as more dollars are available to buy the same amount of goods and services. It is also a disincentive to saving. It encourages people to spend their money now rather than let it sit around and loose its value. If I have $10, I may be able to buy 2 pizzas today or if I wait until next year, I may only be able to buy 1 pizza with the $10.
The Fed also disincentives saving by keeping interest rate low. People see no reason to save when they can not earn interest on their savings. The hope is that you will go out and spend the country back to prosperity. Consumer spending makes up 70% of GDP. Without it, the economy crumbles.
It is a flawed system. One that requires an ever increasing amount of debt. One that requires an ever increasing amount of money to service the debt that has outstripped the previous money supply. I know I sound like a broken record at times, but this is the fundamental reason that you need to prepare. As we print more money, we devalue the dollar. This creates more instability in the bond market as lenders see they are repaid with dollars worth less than the ones they lent out. When no one will buy US bonds, except the Fed, they will be forced to buy all new debt and print money to pay off maturing bonds. This will cause hyperinflation on a super nova level and our monetary system will collapse. When we have no more medium of exchange, we will learn how thin the veneer of society is.
If you are new to the site or just have not gotten around to it yet, please read The Prepper Recon 7 Step Preparedness Plan. Do what you can now to prepare for the coming storm.
In our 9/11 post, I mentioned a quote by Thomas Jefferson. He said “Peace, commerce and honest friendship with all nations- entangling alliances with none.” We spoke about the adverse effects of our foreign entanglements. The news headlines have been filled with more examples of why we should have “entangling alliances with none”. On Tuesday night and Wednesday morning we saw news reports from around the world of protests against America.
Followers of Islam were enraged over a film called “Innocence of Muslims” that ridiculed their prophet Mohamed. On September 11th, they directed their anger at the entire US and our embassies rather than the one person who made the film. If you some how feel responsible for offending them even though you have never seen the film, don’t worry, Obama was quick to issue a formal apology. If you don’t know what you did wrong and don’t understand why we are apologizing to these murderers, join the crowd.
My God constantly has his name used as a curse word on prime time television, yet I hear no apologies from our great leader. South Park on Comedy Central portrays Jesus as a wimpy, some what effeminate, powerless human who does a day time talk show like Dr Phil, and there are no explanations from the White House. I guess the squeaky wheel gets the greesin’.
Libyan protesters attacked the US Embassy in Benghazi on Tuesday and killed the US ambassador to Libya, Chris Stevens, as well as three of his staff. I know the following picture is disturbing, but it is important for the American people to see the return on their investment.
US Ambassador Chris Stevens was murdered at the US Embassy in Libya. AFP/Getty Images
Here is our first dividend payment on the $1,000,000,000.00 plus investment we made in funding Libya’s freedom. Read the itemized expenses for $600 million spent in the first week of the Libyan no-fly zone in this ABC News article. Similar protest occurred in Egypt where our embassy was also attacked.
Like kind investments often provide similar returns. It is only human to want to help those we see suffering in Syria at the hands of a tyrant. I suspect that we are supplying them with weapons as I seldom see footage on the news of the rebels without AK 47s and RPGs. They seem well armed for people having trouble feeding themselves. My concern is we will kill a monster that we are able to reason with and replace it with one that we are not.
The weapons used to assault the US Embassy in Libya could have been provided by US operatives. We know we provided the weapons and training to the Afghan Mujahideen in their conflict with Russia during the 1980’s. Our intentions were great as we wanted to cease the spread of communism. However, we have just passed the 11th adversary of an unintended consequence from that involvement. We are still dealing with the unintended consequence from that involvement as we fight against the offspring of the very militants we helped to arm and train. The threat of soviet brand communism has long since past but our soldiers are killed or wounded everyday in Afghanistan.
Keep your eyes open. As I said in our last post, we have missed the chance to elect a leader who is willing to use our military might in a constitutional manner. This election cycle is just going to be about defeating Obama Care so we can salvage some remnant of an economy. If you haven’t read it, pick up a copy of The Revolution, by Ron Paul. Dr Paul is retiring this year but his ideas will not. I don’t agree 100% with everything he says, but he has laid out a much better path for our country than the status quo. After you read it, pass it on. This is how ideas are spread.
11 years ago our country was thrown into a state of disbelief as we tried to process the images that we witnessed on our television screens. Many of our fellow citizens lost their lives that day. Many more lost loved ones who would never return home. Each and everyone of us lost our false sense of security. Our country came to a screeching halt. The stock market stopped trading. Airports were shut down for days. It was truly the end of the world as we knew it.
In the days and weeks following 9/11, American returned to God and church attendance soared. We quickly adapted to our new normal. Folks gradually lost their perceived need for an Almighty Being to protect them. America soon returned to her routine and was free to go back to her objects of worship from before. Sunday once again meant going to the lake, watching the game and cooking out. Maybe God will use a little louder alarm clock next time and America won’t be so quick to roll over and hit “snooze”.
We are still suffering today. Every time we get on a plane, we are reminded of the tragedy as we now must go through ever more invasive security screenings. Every citizen is now treated as a potential enemy. In the name of safety, we have willingly given up our 4th amendment rights. Thomas Jefferson said ” I prefer dangerous freedom over peaceful slavery.” I wonder if he would still recognize the America for which he and so many others risked all to form.
In his first inaugural address, Thomas Jefferson said “Peace, commerce and honest friendship with all nations- entangling alliances with none.” How disappointed he would be with our foreign policies. These foreign entanglements have cost us much in blood and treasure in the 11 years since 9/11. I understand and agree with the need to vindicate those who lost their lives in 9/11. What I do not agree with is the nation building efforts that accompany our present concept of war. War used to be a process of dealing with a country who had brought some grievous crime upon our nation. Now it has become an opportunity to buy friendship from our sworn enemies. An opportunity to force democracy upon a people who have little interest in it and no appreciation for it. And why should they look up to us? Are we the shining moral example to the world that we think we are? One of our biggest exports to the rest of the world is pornography. Our national divorce rate is 46%, second only to Sweden at 55%. Our mainstream film industry glorifies adultery, drugs and violence. We use the name of our God as swear word on regular prime time television and we consume as much drugs as the Taliban can produce.Why should they want to be more like us?
America borrows money she can never repay from one enemy (like China). We use that money to take to other enemies (like Pakistan and Afghanistan) and build roads, bridges, schools and hospitals while ours are crumbling to the ground. I am not naive. I realize the need for stability in those regions to maintain cheap oil prices. But if that is the reason, shouldn’t we be a little more transparent as to what it is all about? The price tag for our “cheap” oil is estimated to reach $4 trillion dollars and will have claimed more than 250,000 lives. These numbers do not take into account for lost limbs, broken homes, drug addictions and PTSD cases for our soldiers.
I hate to enumerate problems without giving a solution. So what can we do? We can pray. We can ask God to guide us back to being an America that He can bless. We can pray for the safety and protection of our troops that are still serving. Pray for comfort for the wives, children and mothers of those troops who have sacrificed everything.
We have missed the opportunity to elect a leader that can lead us out of our destructive behavior this time around, but I still encourage people to pick up a copy of Ron Paul’s TheRevolution. Read it and pass it on. This election is about defusing the economic time bomb known as Obama Care. It is the only thing that matters in this election. As the law stands, in 2014 small business of 50 or more employees will be forced to provide health care for all workers, many will chose to lay off workers to get beneath the 50 employee threshold. Hiring will freeze and the unemployment rate will skyrocket. We will enter a depression that will dwarf the one we had in the 1930’s.
If we can make the right choice this November,we can possibly tread water for the next 4 years. Perhaps in 2016 someone like Rand Paul will pick up the torch of his father and run to restore America. Perhaps it will be someone who can restore our liberty and restore sound fiscal responsibility. Pray that God will provide a great leader and that the American people will wake up and elect such a person. Don’t loose hope.
Financial Collapse – Threat Assessment Part 1: US Debt
I believe financial collapse is the most probable of all the potential threats that could trigger TEOTWAWKI ( The End Of The World As We Know It). Many knowledgeable people speculate that this is a real possibility for our country. They include former Army Intelligence Officer James Rawles, Economist Jerry Robinson, CEO of Euro Pacific Capital Peter Schiff, Author of Rich Dad Poor Dad Robert Kiyosaki, and Governor of Indiana Mitch Daniels. This list could go on and on. Why are all of these people so concerned about our economy? There is not one thing that threatens the demise of our financial system, rather it is a myriad of issues that together create the environment for the perfect storm. In this series of posts I will present my case and give you a short list of what you can do to get prepared.
Financial Collapse- Threat 1
Most economists agree the number one threat that could initiate a financial collapse is the public debt. The US national debt has just past $16,000,000,000,000.00. Even though that is a lot of zeros, you can’t fully grasp the amount of money that is without a visualization.
Those are pallets of $100 bills (thanks to demonocracy.infofor the graphics). Our countries GDP was just over 15 trillion last year according to the IMF. That means our national debt is 108% of the value of all the goods and services produced in America. Argentina’s debt was approximately 50% of GDP in 2001 when they experienced a financial collapse. Their total debt was roughly 100 billion dollars, spending at the pace of $3.88 billion a day, we spend that much in less than a month.
How is this a problem? In the same way that credit score agencies look at your debt levels to evaluate your credit score, ratings agencies have a similar process for countries. When your ability to pay your debts become questionable, your interest rates go up on everything from car loans to credit card rates. Last year, we had a debate about the debt ceiling. During that time, our countries credit rating went from AAA to AA. I would say AA is quite generous, I would also say it will be short lived. We are now approaching the new debt ceiling of $16.394 Trillion and will be having the same conversation that cost us our rating last time around.
Why are Treasury rates so low? Rates on 30 year treasuries are currently around 3%, that is extremely low. Much of that can be accredited to fear in global financial markets. US Treasuries, rightly or wrongly , are still considered the safest place to preserve one’s capital. With the chaos in the Euro Zone, the US dollar has the appearance of the prettiest ugly girl at the dance. Buyers of US debt also know that we will always be able to repay our debts because of our ability to print money. If the Treasury runs dry , the Fed can step in and fire up the press. We have done this in recent years through Quantitative Easing or QE. When there are too few buyers of US debt, the Federal Reserve, which is not a federal agency nor do they possess any reserves, can purchase the debt through creating money to be used to buy debt from the US Treasury or other holders of US debt.
Why can’t we keep up this scheme? With each new round of QE, more US dollars magically come into existence to compete for goods and services that are not entering the economy quite so magically. Therefore, we have more dollars to exchange for the same amount of goods and services. Here is a simple illustration. Let us suppose we have an economy with nothing but 10 cheeseburgers and $10. Assuming all the cheeseburgers are for sale and no one is interested in saving money since there is nothing else in the economy to buy, each burger is worth $1. Now, the Fed steps in and prints 10 more dollars. We now have $20 and 10 burgers. Each burger is now worth $2. The burgers have no more ability to satisfy you than they did at $1, so they are not worth more. It is the dollar that is worth less. This is inflation. It works in favor of the government as the borrowed dollars that will buy 1 cheeseburger are paid back with dollars that will only buy half of a cheeseburger. They pay back with devalued dollars. This is also a tax on savers as the money you save today will be worth less tomorrow. It is also a tax on purchasers of US debt. As the inflation rises, so will interest rates as bond holders will not settle for an investment that loses money.
If the 30 year Treasury Bond pays 3% and inflation is 6% (see shadowstats, not the CPI), you are losing 3%. The bond market will not put up with this for long. At some point, rates will rise above 6%, let’s say 7%, the ever so magnanimous bond market will settle with a 1% profit after inflation. At our current debt ceiling level of $16.394 trillion we will be paying $1.15 trillion dollars per year in interest alone. Total federal revenue is $2.73 trillion. 42% of our total revenue will be consumed by interest.
At this point it becomes obvious that we will never be able to pay our debts. No one will buy our bonds, and the Fed is unable to print money at a pace that will sustain government spending. To do so would create hyperinflation such as was experienced by the Weimar Republic in the post WWI era. To devalue their war debts, The Weimar Republic printed money at record rates and devalued their currency to the point that people used the currency for firewood. There is a story of a woman taking a wheelbarrow full of money to buy a loaf of bread. When she arrived at the store, she left the money outside while she went in to get the bread. When she returned, the money was still there but someone had stolen the wheelbarrow!
Financial collapse becomes a certainty at this point. Our economy will seize up. Massive cuts will be enacted to all sectors of government spending. Entitlement programs will be slashed. The recipients, many of whom are in true need of the government assistance will go without while many others who have been trained to milk the system for generations will riot as they feel cheated because they can’t get what the government owes them. The blood in the streets will be up to your ankles.
This dramatization by Damon Vickers gives his view of how this could play out in a timeline presentation. It is about 9 minutes long.
What can I do now to get ready for this? Cut all unnecessary spending, stock up your pantry and diversify your savings into dollars, silver , and gold. Remember this is only one possible outcome. The complexities in financial markets can produce unpredictable outcomes. We may just as well experience a depression type environment where cash is king depending on the steps taken by the Federal Reserve. I have written a very comprehensive 7 Step Preparedness Plan that will help you prepare for whatever. Please read it and take action now to prepare for the coming storm.
