IS THE US BANKRUPT?

[Kat Kanning]

IS THE US BANKRUPT?

Patrick Wood
July 18, 2006
NewsWithViews.com

Do Federal Reserve managers secretly believe that the U.S is bankrupt and is about to go under?

Well, where there's smoke, there's fire!

A stunning 23 page report by Professor Laurence J. Kotlikoff titled "Is the U.S. Bankrupt?" was issued by the Federal Reserve Bank of St. Louis in November, 2005, and quietly posted on their public website. Although publicly accessible, it was totally ignored by the U.S. press.
http://www.minyanville.com/assets/File/Kotlikoff_USBankruptcy_paper%5B1%5D.pdf

Kotlikoff is professor of Economics at Boston University and has penned at least 355 papers published by the Federal Reserve over several years.

Kotlikoff concludes that "Countries can and do go bankrupt. The U.S., with its $65.9 trillion fiscal gap, seems clearly headed down that path."

The fiscal gap of $65.9 trillion is more than 5 times U.S. Gross Domestic Product and twice as large as national wealth. The fiscal gap is all the money that the U.S. owes now and in the future, for which it doesn't have revenue to pay for. According to the Kotlikoff,

    One way to wrap one?s head around $65.9 trillion is to ask what fiscal adjustments are needed to eliminate this red hole. The answers are terrifying. One solution is an immediate and permanent doubling of personal and corporate income taxes. Another is an immediate and permanent two-thirds cut in Social Security and Medicare benefits. A third alternative, were it feasible, would be to immediately and permanently cut all federal discretionary spending by 143 percent. (p.

Imagine Ben Bernanke, chairman of the U.S. Fed., getting up in front of Congress and stating "The U.S. is clearly headed toward bankruptcy!"

The stock market would crash, the dollar would melt down, the bond market would implode and real estate would be frozen in time.

The greater question is, "What does the Fed intend to do about its bankrupt client? After all, the Fed has the exclusive franchise to loan money to the government and for the issuance/destruction of money and credit in the U.S. The Fed has only one client- the U.S. Government - and it is about to bite the monetary dust.

This writer believes that the Fed's proactive response is already well underway, but we have not recognized is as such -- until now.

As of June 29, 2006, the Fed has raised discount rates for the 17th straight time. This has the effect of withdrawing credit from the banking system. In other words, the Fed has been pulling in its loans and creating resistance for bankers to not lend as freely as before. Ask around the banking community (as I have done) and see how willing they are to loan money these days! They are collectively pulling in their horns.

When John Snow abruptly resigned as Secretary of Treasury on May 30, 2006, President Bush immediately nominated his replacement: Henry Paulson, CEO of Goldman Sachs. Goldman Sachs is part of the white-hot core of global banking, ranking with Brown Brothers, Harriman, Lehman Brothers, Kuhn Loeb, Inc. J.P. Morgan, Chase and others. Is Paulson such a patriot that he would leave a $38 million per year job for the paltry salary of the head of Treasury? After all, he was the highest paid CEO on Wall Street and was still rising. Also consider that Paulson's personal stock in Goldman Sachs is currently worth almost $500 million. He is no pauper!

Against any other possible logic, it's more likely that Paulson went on the inside (of government) to protect his crony's investments: And what better place to do that than as head of the U.S. Treasury?

This writer hates to be a pessimist, but this does not make for an optimistic near-term or long-term forecast. Monetarily speaking, it's time to "run for the hills."

The demise of the dollar may be at hand.

(Ed. note: For you history buffs, compare today's monetary scenario with 1928-1929 and the subsequent sharp removal of credit from the manic stock market of the 1920's.)

[AlanM]

Well, the US Gov has been morally bankrupt for years. It is now on the verge of fiscal bankruptcy. Who will pay this debt, and how? I don't owe it. Do you?
The collapse is not that far away, I fear. Lots of ordinary folk see it coming. I talked with a young fellow the other day who senses the economy is being held together with smoke and mirrors. (Not a political type young fellow, by the way. Just an average construction worker, yet he senses it.)

[Russell Kanning]

the economy and the federal government are 2 different things. We know the government spends more than it steals ..... it has to steal more or go belly up. I won't be worse off for it. I don't get payments from them.

[dalebert]

the economy and the federal government are 2 different things. We know the government spends more than it steals ..... it has to steal more or go belly up. I won't be worse off for it. I don't get payments from them.

True, they're separate, but pretty intricately intertwined right now. Isn't about 40% of our economy tied up in government spending? I've always believed our economy and technology would make incredible progress if we manage to massively shrink the size and scope of government, but would it not be at least temporarily traumatic to most of us if it happened too rapidly?

[Kat Kanning]

Welcome, dalebert!

[Otosan]

Is the US Bankrunpt?

In one of the two following words..... Y E S !    or S O O N !

[Russell Kanning]

True, they're separate, but pretty intricately intertwined right now. Isn't about 40% of our economy tied up in government spending? I've always believed our economy and technology would make incredible progress if we manage to massively shrink the size and scope of government, but would it not be at least temporarily traumatic to most of us if it happened too rapidly?

Like how it would feel as a runaway slave if you where living off the government ..... but most of us are not. It will be very hard on some people, but great for the rest of us.
Think of the Soviet Union going broke.

[tracysaboe]

russel, more then likely we'd have hyper inflation -- and people that have mostof their assets tied up in Dollars are going to have temorary -- many times traumatic -- set-backs.

But there's things you can do to minimize the damage to you. Get your house paid-off. And Own Gold, Silver, and Platinum.  Have your wealth -- when your not using it to buy things -- in real things.

Tracy

[toowm]

OK, I've been wanting to ask this:

If your fear is hyper-inflation, why pay off mortgage debt or any debt for that matter? US mortgages are not putable (where the bank could force you to pay the entire loan). Under inflation, you don't want to be a lender.

Another idea I've heard is having rental properties generating income. But again, this is a form of lending, and under hyper-inflation, you couldn't set an annual contract with high enough rent based on the current market price. Probably monthly rent escalation would develop.

Agree on the real assets. I'd also include inflation indexed bonds, and foreign equity/debt that will benefit from increased demand.

[Russell Kanning]

If your fear is hyper-inflation, why pay off mortgage debt or any debt for that matter?

Another idea I've heard is having rental properties generating income.

I have thought that is funny. It doesn't hurt us poor folks with no $s stashed away. The best thing would be to borrow piles of dollars and buy real things.

We rent out our room in silver. Not perfect, but much more reality based.

[tracysaboe]

OK, I've been wanting to ask this:

If your fear is hyper-inflation, why pay off mortgage debt or any debt for that matter? US mortgages are not putable (where the bank could force you to pay the entire loan). Under inflation, you don't want to be a lender.

Another idea I've heard is having rental properties generating income. But again, this is a form of lending, and under hyper-inflation, you couldn't set an annual contract with high enough rent based on the current market price. Probably monthly rent escalation would develop.

Agree on the real assets. I'd also include inflation indexed bonds, and foreign equity/debt that will benefit from increased demand.

Because in hyper-inflation you're going to have widespread unemployment -- and if you owe real tangeble assetts you don't need to worry as much about not having a job.

Tracy

[Caleb]

If your fear is hyper-inflation, why pay off mortgage debt or any debt for that matter? US mortgages are not putable (where the bank could force you to pay the entire loan). Under inflation, you don't want to be a lender.

You pay off all debt (and avoid any further debt), because it cripples the FED.  That's how they create money.  But to create money off a debt instrument, they need a BORROWER.

Deprive them of their borrowers, and don't pay taxes, and you will choke the monster til he's dead.

Caleb

[Dreepa]

But there's things you can do to minimize the damage to you. Get your house paid-off.

If your mortgage is 6% and inflation is above that... you probably don't want to pay your house off because it will be a cheap loan.

[tracysaboe]

But there's things you can do to minimize the damage to you. Get your house paid-off.

If your mortgage is 6% and inflation is above that... you probably don't want to pay your house off because it will be a cheap loan.

True. But that's partially taking advantage of government money manipulation (perhaps even morally tantamount to accepting welfare, don't know. I don't judge.)

The real threat however in hyperinflation is loosing your job.  Get everything paid off and be as self sufficient as possible -- and you don't need to worry about that so much.

Tracy

[Dreepa]

True. But that's partially taking advantage of government money manipulation (perhaps even morally tantamount to accepting welfare, don't know. I don't judge.)

What... .that means that you are accepting welfare now.  I mean there is inflation right now.
Who owns your mortgage?  Did your bank sell it to Fannie Mae or Freddie Mac?