Government Shutdown: The Next Step In The Collapse Of The Dollar?

Tyler Durden's picture


Submitted by Brandon Smith of Alt-Market blog,

There is a considerable amount of debate in alternative economic circles as to whether a federal government shutdown would be a “good thing” or a “bad thing”.  Frankly, even I am partially conflicted.  I love to read mainstream news stories about how a shutdown in the capital would be “horrible” because Barack Obama might have to reduce the White House cleaning staff and wash his own laundry:

It's about time that sellout bastard did something to clean up his own act.  I also love the idea of the federal government out of the picture and removed from the U.S. dynamic.  Americans need to learn again how to live without the nanny state, even if only for a few weeks, and what better way than to go cold turkey.  I can hear the tortured sobs of the socialists now, crying for their SNAP cards and low grade government healthcare.  It's like...beautiful music...

That said, as much as centralized government needs to be erased from the face of the planet, there are, indeed, consequences that must be dealt with.  It is foolish to believe otherwise.  No social system, and I mean NO SOCIAL SYSTEM, changes without pain to the population.  I am not among those that cheer a federal shutdown, because I understand that the only people to ultimately feel suffering will be average citizens, not the establishment itself.  The sheeple may be ignorant and blind, but no one deserves the kind of unmitigated hellfire that could rain down upon our country if a shutdown continues for an extended period of time.  Call me a humanitarian...

As I write this, mainstream media projections estimate a 90% chance of government shutdown by midnight on September 30th.  Though technically, government funds will not run out until October 17th:

We have dealt with this kind of talk before over the past few years, and it's interesting to see the kind of cynicism that has developed over the idea of a shutdown event.  After all, the last time a government shutdown occurred was at the end of 1995, lasting only a couple of weeks into 1996.  The GOP has folded so many times over the U.S. budget and debt ceiling that most of the public expects they will obviously do it again.  It is certainly possible that the Republicans will roll over, however, I am not so sure of that this time around.  Why?  Not because Obamacare is on the table.  Obamacare is just a distraction.  No, I'm far more interested in the circumstances surrounding the U.S. dollar. 

Obamacare is designed to fail.  Anyone with any financial or mathematical sense could look at the real national debt and deficit projections of the U.S. and understand that there is no money and never will be enough money to fund universal healthcare.  The GOP could simply let the program take effect, sit back, and watch it crash and burn over the next three to five years.  This would entail, though, watching the whole of our economy crash and burn with it. 

What we have developing in front of us is the recipe for a new false paradigm.  Already, the MSM is discussing the possibility of debt default and who will be responsible under such circumstances.  Not surprisingly “Tea Party” conservatives have been named the primary culprits if a shutdown goes south; even former Democratic president Bill Clinton is getting in on the blame game:

All the bickering over Obamacare is fascinating, I'm sure, but lets set the Affordable Care Act aside for a moment and look at the bigger and more important picture.  The private Federal Reserve Bank has just announced to much surprise a complete reversal on its suggested QE “taper” measures, resulting in a shocked and confused marketplace.  If the U.S. fiscal system is stable and sound, as the Fed has been suggesting for the past year, then why continue stimulus measures at all?  Could it be that most if not all positive economic numbers released by the Fed and the Labor Department are actually fake, and that investors have been duped into assuming overall growth when America is actually in an accelerated decline?   Wouldn't that be a high speed excrement storm straight out of left field!

The first day rally over the Fed announcement faded quickly, resulting in a slow bleed of the Dow ever since.  The magic of Fed stimulus is wearing off, and the investment world is not happy.  If I were a member of the Federal Reserve Bank, I suppose I would appreciate a large scale distraction designed to take attention away from me and my elitist club-mates as the primary culprits behind the greatest currency implosion in the history of the world.

Sadly, a government shutdown is sizable threat to the American financial system, and few people seem to get it.  Perhaps because the expectation is that any shutdown would only be a short term concern.  And, this assumption might be correct.  But, if a shutdown takes place, and, if “gridlock” continues for an extended period of time, I have little doubt that the U.S economy will experience renewed crisis.  Here's why:

Exponential Debt

Obamacare only tops a long list of already existing “unfunded liabilities” (otherwise known as entitlement programs).  These programs are not counted in the government's official calculations of national debt or deficit spending, but they cost taxpayers money all the same.  True deficit costs and national debt costs expand every year without fail.  If the debt ceiling does not rise in accordance with this exponential debt, a default is inevitable.  No amount of increased taxes could ever fill the black hole already created by negative government spending. 

A long term government shutdown will eventually require cuts in entitlements, if not a total overhaul of certain aid programs.  Imagine an end to all disability payments, including veterans disability payments.  Imagine federal employee pensions put on hold for an undesignated period of time.  Imagine food stamps placed on hiatus for 50 million people.  Imagine how many states now rely on federal funding just to keep municipalities from bankruptcy.  Get the picture now? 

End Of Foreign Faith In U.S. Treasuries

In a disgusting display of propaganda, media outlet Reuters has released an article claiming that, default or not, Asian investors and central banks are “hostage” to U.S. debt:

Their argument essentially revolves around the lie that Asian investors believe an American default to be “unthinkable”.  Surely, the unnamed Japanese investment source they cite as an “insider” truly represents the whole of Asia.   

The reality is, the Asians (the Chinese in particular) have been preparing for a calamity in the U.S. Treasury market for years.

Most foreign investors in U.S. Treasuries have converted their long term bond holdings to short term bond holdings; meaning, they are ready to liquidate their bonds at a moment's notice.  Overall purchase levels of treasuries are either static, or falling depending on the nation involved.

China has been internationalizing its currency, the Yuan, since 2005.  China has opened Yuan “clearing houses in multiple countries to allow faster convertibility of the Yuan, quietly supplanting the dollar as the world reserve currency.  These clearing houses now exist in London, Hong Kong, Singapore, Taiwan, and Kenya.  The Federal Reserve and international banks like JP Morgan are heavily involved in the internationalization of the Yuan.

The assertion that Asia is somehow hostage to U.S. debt is a lie beyond all proportions.  In truth, the U.S. economy is actually hostage to Asian holdings of U.S. debt.  A call for a dump of U.S. treasury bonds by China, for example, in the face of a U.S. default, would immediately result in a global chain reaction ending in the destruction of the dollar as the world reserve currency.  This is not speculation, this is mathematical fact.  China is not going to sit back and do nothing while their investment in U.S. debt quickly disintegrates.  Why would they take the chance when they could could just sell, sell, sell!

The very idea that Reuters is attempting to twist the fundamentals surrounding a default event leads me to believe a default event may be preordained. 

What Will Be Defunded?

Non-essential personnel (which apparently includes Obama's maids), will be the first to receive a pink slip from the federal government.  Extra Pentagon staff, EPA staff, FDA staff, IRS staff, etc will all be cut.  Good riddance.  But what will follow will not be so pleasant. 

If a shutdown stretches for months, expect cuts in all support programs and entitlements.  Veterans disability checks, social security, Medicare, employee pensions, even the Postal Service is likely to undergo defunding.  National Parks, and schools that receive federal aid will discover immediate cash-loss.  In fact, any state or city that relies on federal funds should plan for the possibility that those funds will disappear. 

Military cuts would be at the bottom of the list, but I would not discount the chance of that either.

It cannot be denied; an enormous subsection of the American public is dependent on federal money.  If that money dries up, chaos will ensue.  I don't like it, but it is a concern.

Controlled Reaction

A long term shutdown will be catastrophe no matter how you slice it.  Foreign creditors will react harshly.  The bond market will see a haircut not unlike that given to investors in Greek treasuries.  Austerity will become an American way of life.  The only mitigating factor will be the Federal Reserve, which I believe may institute “extraordinary measures” without congressional consent in order to continue feeding stimulus into government regardless of whether the debt ceiling is raised or not.  Given enough desperation, the American public might even applaud such an action and praise the Fed as “heroic”.

In this situation, the U.S. would be facing a Weimar-style currency collapse, rather than a debt default.  But in either scenario, the dollar is the final target.  

Unfortunately, too many economic analysts presume that the only threat to the dollar's value is hyperinflation (these are the same people that quote the Fed's crooked CPI numbers).  But the dollar is just as vulnerable to a debt default and loss of reserve status.  Devaluation seems to be inevitable regardless of the outcome of the funding debate. 

The Republicans could still surrender, and even if they don't, real damages will not be felt until after October 17th.  This is plenty of time to manipulate the public into demanding more spending even when more spending is not in our best interests in the long term.  Our greatest concern, though, should be whether or not the establishment is ready to pull the plug on the dollar altogether, using the debt ceiling crisis as cover in order to distract away from the involvement of international banks in the overall problem.  There is no doubt given the facts at hand that America is on the edge of a terrible pyre.  Is this the event that will finally trigger collapse?  We'll know more in a week...

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Mon, 09/30/2013 - 18:42 | 4007366 ITrustMyGut
ITrustMyGut's picture

the "perfect storm" convergence of shut down, debt ceiling, etc.... does have a statiscal chance as being a real catalyst... for MAJOR changes...who knows.. Im torn.. i want t to burn down, but.. shit..Im not really preparred for that either.. this could be the cause for all the DHS ammo purchases etc...

Mon, 09/30/2013 - 18:47 | 4007381 Fish Gone Bad
Fish Gone Bad's picture

I am just soooooo tired of the US government borrowing money to pay people's salaries.  Apparently they are either paid too much, or we just can't afford them.  Either way, this mess has got to go.

Mon, 09/30/2013 - 18:53 | 4007394 NOTaREALmerican
NOTaREALmerican's picture

Re:  I am just soooooo tired of the US government borrowing money to pay people's salaries

Salaries?    It's all for salaries?   All the loot going to: Big-Ag, Big-MIC, Big-Road, Big-Water, Big-Airport, Big-Energy, Big-Ed, Big-House, Big-Fin, Big-OldFart, Big-OldFartHealthcare, Big-AntiDrug, & Big-PoliceState is for salaries?

The Fed's give (aka spend) 2 trillion bucks on "things" every year.      How much is "salaries"?

Mon, 09/30/2013 - 19:02 | 4007426 Enslavethechild...
EnslavethechildrenforBen's picture

Does anyone really believe that the counterfeiters are going to stop counterfeiting?

Mon, 09/30/2013 - 19:08 | 4007443 Pool Shark
Pool Shark's picture



We don't need this government.

This government needs us.

Time to go Galt...


Mon, 09/30/2013 - 19:33 | 4007532 Never One Roach
Never One Roach's picture

Thousands of people lined up for their free health care enrollemnt  in California today, says TV MSM news.

Glad it's free, or I'd get worried I'd have to pay for my health care as well as all those thousands also.

Mon, 09/30/2013 - 19:40 | 4007561 DosZap
DosZap's picture

Thousands of people lined up for their free health care enrollemnt in California today, says TV MSM news.

Glad it's free, or I'd get worried I'd have to pay for my health care as well as all those thousands also.


FREE?, lol, wait till they find out JUST the enrollment process WAS free, the actual care costs you big time.Unless you are really PO'.

Mon, 09/30/2013 - 19:43 | 4007566 The Alarmist
The Alarmist's picture

If it wan't free, you probably could not afford it.


All glories to BHO, saviour of the western world.

Mon, 09/30/2013 - 19:47 | 4007595 espirit
espirit's picture

Lock and load Bitchez.

You had forewarning.

Mon, 09/30/2013 - 19:49 | 4007599 Pegasus Muse
Pegasus Muse's picture

Neil Cavuto Destroys Obama Over Blatant ObamaCare Lies  (3 min)

Mon, 09/30/2013 - 22:42 | 4008158 buyingsterling
buyingsterling's picture

Every time I try to watch a 'freedom oriented' video on youtube it stops halfway and has to be reloaded. I'm sure Lady Gaga videos all work great.


Mon, 09/30/2013 - 22:06 | 4008061 Mr.Bigfoot
Mr.Bigfoot's picture

C'mon. The can kicking will go on. There will be an agreement to fund the government without touching Obamacare and this will all be forgotten in short order.
DOW 16,000, Gold 1200, WTI $90
Just watch

Tue, 10/01/2013 - 01:40 | 4008779 buttmint
buttmint's picture got it "lock 'n load," the moment has come...

no moar Fruit Loops!

Mon, 09/30/2013 - 19:32 | 4007535 AllWorkedUp
AllWorkedUp's picture

Plus 100.

Fuck the USD, fuck the gov't. Let the pig get sckewerd, let it collapse.

I'm American, we don't need no stinking gov't, or reserve currency, we don't deserve it. Bring the troops home. Fuck Obamacare, fuck Obama, go isolationist.


Mon, 09/30/2013 - 21:11 | 4007870 SWRichmond
SWRichmond's picture

Let's get this motherfucker started.  Tired of dying the slow way.  Ready to dish.

Tue, 10/01/2013 - 04:37 | 4008904 Kobe Beef
Kobe Beef's picture

Pay the vets. Liquidate the rest.

Mon, 09/30/2013 - 19:51 | 4007598 Tall Tom
Tall Tom's picture

Spend MOAR on WOAR. We need MOAR WOAR. They need to fund the MIC at all costs. Cut everything else but the MILITARY. Nobody needs SNAP. Put those Useless Eaters on the front lines as Human Shields to protect our Military. That is what is important. Our Military.


We need MOAR WOAR. MOAR WOAR to get the HOAR. /sarcasm


I mean where can you have sex with 14 Year Old Girls and get away with it. Pay attention to what this guy says at 2 Minutes and beyond...


Now understand that the pedophile were not convicted. There are AT LEAST TEN OF THEM ROAMING YOUR STREETS courtesy of the US Military.


Notice that the NSA...Military Intelligence...did not find this video...AFTER IT WAS PUBLISHED ON THE INTERNET FOR OVER FIVE YEARS.


Maybe those guys will find your daughter...Think about it.

Blind men!!!

Mon, 09/30/2013 - 19:29 | 4007527 silverstud
silverstud's picture

Hang on guys .. FIAT paper dollars will have some uses in the future...


cheap toilet paper or

wall paper... :)

Mon, 09/30/2013 - 21:06 | 4007860 WakeUpPeeeeeople
WakeUpPeeeeeople's picture

If you are thinking TP, best to first run them thru the dryer with some tennis shoes. Don't ask me how I know.

Mon, 09/30/2013 - 20:16 | 4007700 Nobody
Nobody's picture

In response to your Big Ag statement, let me bring a smile to your face:
The $20+ billion dollar deficiency checks to farmers for the 2013 year (which are now paid in the 2014 fiscal year) have been put on hold.
The withdrawal symptoms begin immediately. The first major recipients of national governmental welfare (farmers in 1927), now are the first to feel the government's financial crisis. Poetic, is it not?

Mon, 09/30/2013 - 20:25 | 4007733 cougar_w
cougar_w's picture

They'll get paid. Big-Ag owns the US government outright. All else is illusion.

Mon, 09/30/2013 - 18:54 | 4007398 Herd Redirectio...
Herd Redirection Committee's picture

The choice is between the government, or the currency.

Just spelling it out.  One has to go or the other.  I am completely indifferent in the debate, to be honest.

Mon, 09/30/2013 - 19:05 | 4007433 Enslavethechild...
EnslavethechildrenforBen's picture

When they shut down Rome it was a good thing.

Same with Weimar.

Mon, 09/30/2013 - 19:10 | 4007453 NOTaREALmerican
NOTaREALmerican's picture

Well,  they never really did shut-down Rome, did they?

I think they rebranded themselves.     The smart-n-savvy people never really lose.   The dumbasses are the ones going to get killed, and their kids - of course.

Mon, 09/30/2013 - 19:44 | 4007581 Terminus C
Terminus C's picture


For the most part we'll come through the maelstrom and the other side will look... a lot like this side.  Maybe a few different names (institutions and families) but, for all intents and purposes, the same.

Mon, 09/30/2013 - 20:03 | 4007655 o2sd
o2sd's picture

The other side will have a few less peasants though. And less marketing executives. It's not all bad.


Mon, 09/30/2013 - 22:25 | 4008111 WOAR
WOAR's picture

Less is more, as they say.

Mon, 09/30/2013 - 22:57 | 4008191 RaceToTheBottom
RaceToTheBottom's picture

Is this the time for the new world currency:  Not just based on one nation's currency but a weighted average of the mix, or that UN thingie.  Plus since we are still setting the rules we will manipulate the mix and the conversion rate....

Anything to beat the discipline of gold/silver.  They cannot have that...  At all costs

Mon, 09/30/2013 - 18:59 | 4007412 runningman18
runningman18's picture

The Post Office has even been borrowing money to remain functioning, which means they may have to make cuts if a shutdown goes on too long.

Mon, 09/30/2013 - 18:59 | 4007417 Leonardo Fibonacci2
Leonardo Fibonacci2's picture

Obama is the worse President in the history of the USA

Mon, 09/30/2013 - 19:10 | 4007439 NOTaREALmerican
NOTaREALmerican's picture

Re:  Obama is the worse President in the history of the USA

Yeah,  I've heard that one from both sides for 40 years now.   

The Red and Blue Team are doing exactly what their owners bought them to do.   The government takes 2 trillion bucks a year of dumbass loot and pumps it through Big-Ag, Big-MIC, Big-Road, Big-Water, Big-Airport, Big-Energy, Big-Ed, Big-House, Big-Fin, Big-OldFart, Big-OldFartHealthcare, Big-AntiDrug, & Big-PoliceState in a process that took at least 60+ years to create.    Lots and lots and lots of people got really really really rich living off of socialism.   The world's greatest generation started it,   and they are all driving around in the government paid-for motor scooters finishing it off.    The world's greatest generation of scam artists.  

Mon, 09/30/2013 - 20:18 | 4007706 object_orient
object_orient's picture

Those scam artists must be very clever and crafty.

Mon, 09/30/2013 - 23:15 | 4008253 buyingsterling
buyingsterling's picture

I wanted to give you thumbs up and down. Up for the truth about corporate fascism and the "greatest generation", and down for not seeing that there is an essential difference between the two parties: given free reign republicans would encourage more work, generally freer markets, and less theft from the productive, demonrats would encourage the opposite (and have orgasms over all the dead babies). Fuck the left. They make me want to vomit. The real right makes me want to cheer, the 'Republican party' just makes me want to cry and hit something.

Mon, 09/30/2013 - 19:21 | 4007494 Surging Chaos
Surging Chaos's picture

I respectfully disagree. Off the top of my head, I can think of five presidents that were a million times worse than Obama based on what they did:

- Lincoln set the precedent for a massive amount of power in the executive branch

- Wilson signed the Federal Reserve Act

- FDR created the great Ponzi scheme that is Social Security

- LBJ created another Ponzi scheme (Medicare) and The Great Society

- Nixon ended the gold standard

As bad as Barry is as a president, he couldn't have gotten to where he is right now if it weren't for his predecessors setting the stage for him. Stuff like Obamacare is a complete nightmare from hell, but the country was already finished by the time Barry got into power. He's merely accelerating the end of this big circus that started a long time ago.

Mon, 09/30/2013 - 19:44 | 4007577 TeamDepends
TeamDepends's picture

Standing on the shoulders of giant douschebags.  Barry will be remembered as the worst however, as he will be captain when we sink down towards Davey Jones' locker.

Tue, 10/01/2013 - 05:28 | 4008925 prains
prains's picture



Obamney will get at leats 4 at bats to whiff this into history, that way american history will forever get to "blame" the mormons



(i drink too much to be a mormon)

Mon, 09/30/2013 - 23:19 | 4008271 buyingsterling
buyingsterling's picture

I still say Obama is the worst: when all of those other things happened, it looked like they wouldn't take the country down. Obama knows his policies will take us down. Maybe I'm naive, but I think he wants to take us down because he doesn't like white people, and we're still the functional backbone of the country. He's a hater, and his hatred drives everything about him. Other than that he's great.

Tue, 10/01/2013 - 01:25 | 4008756 moonstears
moonstears's picture

Mostly agree, respectfully suggest you read more on FDR and LBJ, their lists are far too short. JMO

Mon, 09/30/2013 - 20:48 | 4007793 AGuy
AGuy's picture

"Obama is the worse President in the history of the USA"

Madison is still the worse, as he nearly lost the nation during the War of 1812. Who declares a war on a superpower (Britain at the time) when you have no army and a tiny navy? Answer: Madison.

If the US collapses before O'bama term is up or shortly after, then he will become the worse president of all time.

Tue, 10/01/2013 - 01:24 | 4008753 moonstears
moonstears's picture

Madison had Jefferson to call upon, and did so often, one of the GREATS(Jefferson IMO). We did win the war afterall, so, meh.

Mon, 09/30/2013 - 19:04 | 4007423 Pure Evil
Pure Evil's picture


When did Faber start writing pseudonymously?

Doom & Gloom - is that a Fortune 500 company?

Doom & Gloom - the new mantra.

Mon, 09/30/2013 - 20:31 | 4007750 Groundhog Day
Groundhog Day's picture

I was told by someone that in the event of gov. employees not coming into work for a week is the equivalent of a paid vacation.  Is this true?? does anyone know if gov. employees are paid their week off once they return to work?

Mon, 09/30/2013 - 21:08 | 4007867 Clever Name
Clever Name's picture

They got paid the last time in '95 when it was shut down. Congress decides so its up in the air, my guess is they will this time also but not everyones so sure.

Mon, 09/30/2013 - 18:53 | 4007397 world_debt_slave
world_debt_slave's picture

no pain, no gain

Mon, 09/30/2013 - 19:39 | 4007558 masterinchancery
masterinchancery's picture

All of the consequences seem utterly necessary and therefore good, no matter how unpleasant for some.

Mon, 09/30/2013 - 20:26 | 4007732 stocktivity
stocktivity's picture

"China is not going to sit back and do nothing while their investment in U.S. debt quickly disintegrates.  Why would they take the chance when they could could just sell, sell, sell!"


Ok...but who the fuck is going to buy, buy buy all that crap?

Mon, 09/30/2013 - 20:51 | 4007804 AGuy
AGuy's picture

"Ok...but who the fuck is going to buy, buy buy all that crap?"

Fed, Fed Fed. Of course if China  dumping dollars for tangible assets it would get really ugly real fast. If your China and you want to Take out the US military a dollar collapse might just do the trick.

Mon, 09/30/2013 - 18:44 | 4007370 Meat Hammer
Meat Hammer's picture

I wonder what King George warned about a government shutdown.

Mon, 09/30/2013 - 18:50 | 4007384 The Alarmist
The Alarmist's picture

King George would have warned that a small faction of extremists was seeking to bring down a rightful government with their obstinate and unreasonable demands for their demands to be given due regard despite the will of the British People (as defined by the residents of the British Isles, with the exception of areas outside of Northern and Southern Ireland, and only limited regard for most of Scotland).

Gee, when you look at it that way, we should be petitioning Parliament for re-admission to the Union.

Mon, 09/30/2013 - 19:32 | 4007539 Dugald
Dugald's picture

Gee, when you look at it that way, we should be petitioning Parliament for re-admission to the Union.

Hell no! they are fucked up enough without you lot making it worse.

You run elections that to the rest of the world resemble three ring circuses.....then you pretend to be agast when you get clowns for leaders......YOU the voters are responsible for the mess you are in.

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