The US economy is literally on the ledge of a cliff.
Today, the Federal Government accounts for 35% of incomes and salaries in the US. That’s over one third of all income in the US coming from the Government’s ability to dole out funds.
What supports this largesse?
Money printing and our ongoing debt-orgy. And today, these are one and the same. The US Federal Reserve and Treasury have enacted policies so insane that the US Federal Reserve is now the single largest holder of US Debt with a balance sheet of $2.8 trillion.
Let’s give that number some perspective. Germany, the world’s FOURTH largest economy is only $3.3 trillion in size. At $2.8 trillion the Fed’s balance sheet is larger than the economies of France, the UK, and Brazil.
Why is the Fed’s balance sheet so huge? Because US Treasuries are so unattractive to foreign Governments that the Fed has had to pick up the slack and buy our debt (usually within a week or two of it being issued).
Let me rephrase that: the US Fed is now printing money so it can buy US Debt because other investors are no longer interested in buying it.
This is just one of the various schemes Washington is employing to maintain its fiscal insanity. Another is the active raiding of pension funds to buy new US Debt (YES, the Treasury is doing this).
So… the US Government is now paying over 1/3rd of US incomes… and it’s financing this by having the Fed buy new debt from the Treasury.
Do you think this entire system might end up collapsing in a horrific manner?
And this is just ONE ASPECT of the nightmare that is the US Financial system. I’m not even detailing the $600 TRILLION in derivatives, the clear insolvency of the big banks (you know who I’m talking about), the FDIC running a deficit (are our deposits REALLY insured?), erupting inflation in food and energy prices, (Fed data CLAIMS prices FELL in the last four months) and the hundred other issues all of which will end very, VERY badly.
Regardless of how we look at the US’s current situation, it is clear that 2008 will NOT go down in history as THE Financial Crisis for the US. No, 2008 will be considered the “warm-up.”
The reason for this is simple. 2008 was primarily the collapse of the private banking system in the US. The Fed’s response to this was to transfer the garbage debts that nearly took down the banks ONTO the US’s balance sheet.
Put another way, the Fed allowed the systemic risk to spread from private bank balance sheets ONTO the US’s public balance sheet… which means the next Crisis will involve not only Wall Street and the banks but the US as a whole.
I’m talking about a sovereign debt Crisis. The kind of collapse we’re now seeing in Greece… only for the single largest economy in the world as well as its reserve currency.
So what happens when this Crisis hits and a partial if not complete Government shutdown occurs? What happens when that 35% of incomes and salaries stops being paid? What happens when prisons and other Government paid services run out of money? What happens when the next major banking run reveals that there is no WAY on earth the FDIC can truly insure all the deposits in the US (other than more money printing from the Fed)? What happens when the US defaults on its debts?
THEN and only then will we experience the REAL Crisis of the US Financial system. It is coming. There is no doubt about it. And people are only just starting to wake up to it (nearly half of Americans now believe we’re going to have a Great Depression).
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