Beyond the Cusp

January 22, 2013

When Will the United States Budget Crash?

The dirty little secret in the halls of Congress and the spacious rooms of the White House is that the United States budget has already gone over the theoretical fiscal cliff and all are simply waiting for the crash that is coming when it hits the rocks at the bottom. All the fuss over whether or not a budget is made and how many billions of dollars they can save by raising funding of departments by less than they theoretically might have raised them had the economy and everything else been robust is all noise without substance. The honest truth is the United States spending problem went critical during the first term of President George W. Bush and was simply piling on more debt in his second term. The unbelievable spending which occurred during President Barack Obama’s first term in the White House only served to speed the train towards the end of the tracks and the great dive into the canyon beyond. Even if President Obama had simply continued with the increases as the government suffered under President George W. Bush we would be facing the same problem. All the unparalleled spending which President Barack Obama has done has simply increased the train’s speed so that we will crash a little further out into the canyons and hit the bottom simply going somewhat faster. So, the important questions that need to be asked are first, when will we hit the end of the tracks; second, what will be some of the early signs that all is lost; third, what will be the sign that the end is nigh; and fourth, what can we do to avoid total ruin; and lastly, what will happen to the world when the collapse comes?

Let us take each question in turn. The first is when will we hit the end of the tracks? Technically speaking, we have already hit the end of solid ground and the tracks we are running on are suspended over the canyon with only air between the train and the long drop. As for what is keeping us suspended in the air, mostly forward momentum, heavy rust on the tracks, and we are in that position the coyote gets when he goes off the cliff chasing the roadrunner and he waves as he pauses suspended in midair just before the perilous drop to a puff of desert sand or splash of water when he hits the bottom. What is keeping us up is a false situation where interest rates are being unnaturally held low and money is being invented electronically just in time to avoid defaults. There is nothing right now between the United States and most of the nations of the European Union and the final crash of their collective economies. The difference between the United State and Greece is one of degree and not one of inevitable ends.

Second, what will be some of the early signs that all is lost? The very first signs will be those countries that have a salvageable economy and comparatively sound fiscal policies will begin to place distance between themselves and the countries that are doomed to fail. Their initial move will be to remove any assets they have in the countries they are concerned and hold doubts of their fiscal futures and then they will attempt to call in any debts and get whatever payments they are able before the economy of the failing countries completely collapse and their currency worthless. If any of these nations are partnered in the European Union and are using the Euro as their currency, they will begin to print their original currency notes and coins and keep them in preparation for exchanging their currency for the Euros upon its failure for their citizens and only their citizens. Another step the healthier countries are likely to take somewhat further in front of the coming problems is to cash in any currencies of countries with suspect fiscal situations for Gold or in payment for commodities and solid assets such as lumber, gold, silver, other building materials and anything that will retain its value. There might even be a selling off of any realestate holding of the presumed stricken nations. You would see actions like that of Germany recently where they demanded their gold held in two foreign countries be returned with all possible haste. The two countries from which Germany demanded their gold be returned were France and the United States. This move would make one conclude that Germany has suspicions about the continued value of the Euro and the American dollar.

Third, what will be the sign that the end is nigh? This sign is actually rather strange as most will interpret this as the end of the difficulties, but it will be a temporary reprieve unless handled with great finesse and care. The end will actually be signaled by an improvement in the economy with rising employment and the appearance that things are finally going to improve. When this begins the leadership and those who monitor and adjust the controls of the economy and such things as the money supply and interest rates will immediately need to address the fourth question, namely what can we do to avoid total ruin? When the economy begins to pick up steam there is going to have to be mechanisms utilized to draw back much of the monies which were used to finance government spending during the lean periods. All the monies which were almost magically invented by raising the debt ceiling or printing and selling bonds to the Federal Reserve who bought them with electronically produced monies which in a more difficult time would have actually needed to be printed but in the electronic age we simply invent it on the ledgers and then spend it. It actually works in exactly the same manner as actually printing the bills and placing them into circulation. Currently, the vast amount of electronically injected monies put into circulation through the Federal Reserve buying new government equities with this new money is largely sitting in financial institutions not being lent or utilized on any real manner. Money lacking what is called velocity does not cause inflation or have much of an effect on the economy. Eventually, when the economy starts to pick up steam there will be more of a demand to take out loans to meet the rising demand for goods and services. Once the money begins to be lent and spent, then it has velocity and as there is a much greater amount of money available than existed when we entered the downturn in the economy, it has a deleterious effect on prices. As per the laws of supply and demand, having an oversupply of money drives up prices. That in turn will drive up the demand for higher wages which are possible due to the inflated money supply. This could potentially start a rapid spiral which is referred to as hyper-inflation which is what drove the Weimar Republic into insolvency which led to the rise of the Nazis who promised to repair the monetary insolvency caused by the hyper-inflation. In order to control the inflation and keep it from driving the economy into a ravenous feeding beast with prices raising almost hourly the people responsible for fiscal policies need to draw as much of the invented monies back out of the economy as quickly as they can without upsetting the recovery. The two most utilized methods are either to increase taxes or to increase interest rates. This is where the problem comes in for any country which has significant debt; they cannot survive rising interest rates. This is the position the United States has reached along with numerous European Union members. If your interest payments are $500,000,000.00 when the interest rate is a very low rate between 1% and 3%, you are fine and can manage your debt as long as the interest rates remain at that level. But when the economy picks up steam and the excess monies begin to have velocity, you likely will have to raise interest rates in order to prevent runaway inflation, especially the huge amount that has been produced by many Western countries. When that interest rate climbs to 5% to 8% your interest payment rapidly increases to upwards of over one-trillion dollars. Should the interest rate triple or worse, get many multiples higher, then the interest on the debt reaches the point where it becomes un-payable and your economy collapses. That is what is approaching if things are not handled very delicately and with great finesse. Does anybody have faith that the politicians in their state, county, city or country have the wherewithal to handle anything deftly and with finesse grounded in reason, logic, and self-control? Neither do I.

Lastly, what will happen to the world when the collapse comes? Well, for examples of what the end looks like, all we need do is look back at history for similar events. There was the depression of the 1930s which followed the free-running economic over-inflated 1920s which pushed at least Germany beyond solvency and into a case of hyper-inflation which was one of the main triggers for World War II. Shaving the currency led to the failure of the Roman coins which brought on an extended period of failed economy in much of Europe. There have been numerous civil wars triggered by the financial collapse of the currency and thus the economy of numerous countries and societies. The most usual result of financial collapses is either war or governmental collapse into chaos and anarchy resulting in violent lawlessness. Whatever comes after hyper-inflation, it will be very unpleasant and many will die from malnutrition or disease. The only consolation I can offer is that it is very possible if this next economic challenge can be managed and the other side is reached, it will be because of a transformation coming to much of the world’s societies which will relatively quickly even reach and liberate everybody on the planet. There is a distinct possibility that a new age is coming in the near future which will be a revolution that will make the industrial revolution look like a small tick upward in the development of mankind and our societies. All that will be required is sufficient bravery from sufficient numbers of communities and those who will initially control the mechanisms initially that will bring on this new age to allow it to attain its highest of possibilities and capabilities. There is great hope.

Beyond the Cusp

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November 6, 2012

Let’s Not Talk American Elections

Instead, how about a wish list for after the elections and Inauguration Day as to things we would like to see from the next Congress and the Administration. There must be a list of things we would like to see that would be a pleasant change or new innovation over the current state of affairs or recent history. I, for one, would really think it would be rather nice for the United States Congress to pass a budget through both houses, especially with some encouragement and pressures from the Presidency. Then it would be an even greater surprise to have such a budget signed and actually be stuck with and spending to stay within the given limits. See, isn’t this fun. There surely have to be tons of other things we can add to the list and if I miss anything you might be wanting, then please add it in a comment. And now for a few more items we were able to put together.

 

It would be nice to have the United States be a leader in the world again, but not any of this leading from behind or being the cowboy on his high horse brandishing guns. Rather could we please have the United States lead by example, showing the world good management of government power and spending. Further responsible actions by the United States could include rewarding those who contribute to world peace, harmony and practice human rights while withdrawing trade and other economic interactions with those countries who act with malice and belligerence with their neighbors; spread terror and threats throughout their regions; deny their citizens their human rights, dignity, and pursuit of freedom and prosperity free of governmental interference with all laws established in an effort towards equal treatment for all and respect for all religions, races, genders and private proclivities.

 

It would be a difficult and daunting journey but worth the efforts to restore feelings of brotherhood and wellbeing between the different political factions within the United States and finally dismiss the tensions and distrust which have been the defining emotions of the 21st Century thus far. There has been way too much animosity which definitely was evident from the number of commentators and spokespeople who often raged with flaming passions spiting fire and insult with every breath. It was evident even in the manner in which the news often was tainted more with high handed use of attitudes in place of simple facts. Hopefully we can soon watch the news expecting truthful information instead of the politicized propaganda that has been passed for news in the race to the elections. May we soon return to having one country where differences are discussed and not bandied as cries and hostilities. Basically, can we have a grace period replete with calm and pleasantries for a change.

 

Perhaps desiring the world, or even just the United States to turn from the bundle of puzzling inconsistencies and weird, unpredictable unknowns ruling our lives transforming into something that makes sense and offer an obvious and clear path forward is asking far too much, but if we don’t at least request we will never acquire such a world. May the voices of the least among us no longer be lost in the cacophonous din and instead ring clearly and be answered. If we could just have the actions of our leaders have a calming effect and the government at all levels no longer inflict calamity upon our lives. And lastly, can those who speak for us and to us speak plainly and no longer couch hidden meanings and speak in circles obscuring true intentions within doubletalk and newspeak. Plain, straight talk with sincerity and heartfelt compassions steeped in truth become the language of government such that they deal in a straightforward manner full of honesty and good tidings. Think of the joyousness and benefits which could be a new normalcy if we could just have a nation that lives up to the founding Principles of the United States.

 

Beyond the Cusp

 

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