Solutions: Do You Have More Confidence in Yourself or Your Government?

Friday, June 17, 2011
By Paul Martin

by Simon Black

Over the last days, I’ve endeavored to explain why the economic reversal of fortune in the west is unstoppable… and what the social implications of this decline will be.

Economic decay and social upheaval are inextricably linked. This is not some doom and gloom conjecture, but rather simple historical reality: when you take away people’s livelihoods and their abilities to put food on the table for their families, turmoil reigns.

Consider Argentina during its millennium economic crisis… Zimbabwe during its hyperinflationary period… Japan during its lost 2-decades… Germany in the interwar period… Rome during the reign of Tiberius… Russia after the fall of communism…

There is a common element in each of these examples – even just a few years before the economic turmoil began, nobody would have expected it.

If you had told an Argentine in the mid 1990s that he would be digging for food out of a trash dumpster in a few years, he would have been insulted. If you had told a Japanese businessman in 1984 that he would spend the next decades floundering in stagnation, he would have thought you were crazy.

What would you have said in 1995 if someone told you that government agents would fondle children at airports while stagflation takes over the economy and the government borrows money just to pay interest on the money it has already borrowed?

America’s balance sheet is deteriorating by the hour, and lenders will require a higher return to compensate them for this additional risk. Consequently, government borrowing costs will rise, making the situation even more precarious.

The increased interest expense will cause them to borrow even more money and go deeper into debt until one of two things happens: either the Federal Reserve debases the currency to its intrinsic value, or the US government defaults.

Either case is catastrophic. If the US defaults on its debt, it would set off a chain reaction of derivatives that would bankrupt the entire financial system. If the Fed debases the currency, Americans will be left holding worthless dollars that can’t even be used as toilet paper.

The Rest…HERE

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