American Missive

BECKLEY— What backs America’s money? Debt.  The value of the dollars you earn from your production (nationally GDP) in your pocket are backed by America’s ability to print more money.   The following chart shows this:

As the above chart demonstrates, our dollars are not tied to anything of value.  The value of our dollars are backed by debt.   They are not tied to our income, our assets, or anything like this.  We are in a spiral that cannot be recovered from without changing the system in which we work.  The surprising thing from the above chart is that we are now in a place where the more money that we print the less our productivity will be.  The less we produce the less we can pay back our debt.   In other words, we are printing money to service the printed money robbing productivity.   For every dollar of debt we take out we are now losing productivity.  Back in the 60′s each dollar of debt bought nearly a dollar of productivity this is now no longer the case.  The declining productivity coupled with increasing debt have caused us to become debt saturated.   We’ve entered a point where we are saturated with debt.

A look at Obamacare health bill makes it clear.  It is a tax bill caused to fee/tax those younger to pay for the older population since the older population failed to have the government safeguard their Social Security and Medicare.   We are now raising taxes just to cover the interest payments on off balance sheet debt.   Therefore, we are now robbing from the productivity of society to pay for the debt.   We are now at a spot where we can no longer repay our debt with our income.

As they say, “We haven’t seen anything yet.”   From here on debt will sky rocket.  First, the 1 trillion dollar price tag on Obamacare is only for six years of benefits even though it is a 10 year plan.  Obama decided to collect money 4 years before they start offering benefits (i.e. his “front loading the plan”).  So, add in the benefits for the full 10 years and the cost gets closer to 1 and 1/2 trillion.  Next is the doc fix.  Clinton cut payments to docs in Medicare but politicians haven’t allowed it; Obamacare fixes this by fixing the payment cuts in Medicare which is not part of the “cost” of the legislation advertised.  This gets the bill closer to a true cost of 2 trillion.  Wait did I say, “True”? Yes, what is a “true” cost? Well, let’s look at similar health care legislation like Medicare it’s original cost estimates were about 9 billion.  They missed that factor by a little over 10 (at 120 billion in cost).   So, conservatively one could say that Obamacare will probably cost closer to 20 trillion.

Thankfully, some programs of Obamacare’s long-term, in home care are front loaded creating a “trust” fund for payment of those moneys.  So, that the government can charge “premiums” (i.e. taxes) for this benefit and then spend that money to service todays debt payments.   This way they can hide larger amounts of debt off the balance sheet by creating more unfunded liability accounts.

This is the worst thing that we could possibly do.  In 2008 it was bad enough when it took $5 dollars in debt to increase productivity by $1.  Bush’s TARP sent us over the edge as we took out debt to cover debt basically kiting a giant check to the future administration (Obama).  If Bush hadn’t done that perhaps the whole system would have crashed much worse.  It should have crashed because now Obama is spending trillions more from ARRA to produce, according to CNBC, worse returns:

Analysts polled by Reuters had forecast GDP, which measures total goods and services output within U.S. borders, growing at a 5.9 percent rate in the October-December period. GDP increased at a 2.2 percent pace in the third quarter.

In other words, Obama’s spending is projected (if he can maintain this growth) to return about $286 billion in GDP growth (2.2% times 13 trillion) while he is projecting deficits of over $1 trillion.

Personally, I don’t buy the GDP numbers so it’s probably much worse.  I still think inflation is around the corner.  We’ve been spared by the troubles in Europe for now but those issues will resolve before we resolve our issues.  In fact since January of 2009 to currently the Dollar to Euro value has changed very lightly.  My Merk Hard Currency Fund has remained almost flat even for the year.  This I think is pretty telling.  The dollar is hanging on the balance.

The government is stuck though.  They’ve guaranteed and done so much that any little changes to interest rates which they WILL have to change will cause an EXPLOSION in the $450 trillion derivatives market calling in trillions in government guarantees and more.   They are stuck bailing out from here on out.  Our economy will not recover fully on the current system.   There is to much debt, the government cannot control inflation because it can’t risk a major depression by raising interest rates, they cannot raise taxes fast enough to pay for debt without killing production, and they have guaranteed to much.  The states and municipality across the country aren’t any better.   It is a matter of time only.   It will happen very fast.  As before, I predicted that we would see a recovery in 2009/2010, but we would not see a recovery in hiring and that we would see inflation in 2011.  I still predict this.

Obama’s support of Yellen into the Federal Reserve Board who has stated that she would set interest rates negative if she could is further proof that we’re going to get hammered with inflation.   Our money is worthless we just haven’t realized it.