How will ever growing US debt impact our future? I suspect many of us have already gone through a little drill on how excessive debt can crush any freedoms previously enjoyed. Every penny earned goes to interest payments, otherwise you face losing most of what you have including your dignity. And there is no light at the end of that tunnel. So a bankruptcy was invented. You can replace long suffering of repaying your debt by slashing your lifestyle to bare minimum by simply declaring Chapter whatever and go on with your life. Easy Peasy Pie….
Well, our dear Uncle Sam has a similar solution, but more clandestine, to answer the nagging ever increasing national debt. Be patient, the solution will be outlined later in this post. Let’s lay out some ground work first.
Back in 2008 the Real Estate bubble bursted and Uncle Sam decided that rather than let failures fail, he will use tax payers money as a promissory note to borrow a trillion or so to bail out those who were too big to fail. Why not, it is easy to spend somebody else’s money.
As recession set in, Uncle Sam decided that the government needs saving as well so it used another trillion or so of the taxpayer’s money as a promissory note to borrow so it can “create or save jobs” mainly in the government sector and waste the rest on the projects we cannot afford building the Walls of China here and there. Why not, it’s easy for politicians to borrow money when THEY are not the ones who have to repay the debt. They just used our kid’s future as collateral. I would not underestimate the kids though. One day those kids will be the shakers and movers in charge and will see through the ploy of their parents and grandparents and turn the tables back at those who wanted to bailout from the responsibility of paying their own debts. That plan is already on the back burner as a ultimate solution to promises kept.
The difference between us the citizens and Uncle Sam is the fact that Uncle Sam cannot publicly bail himself out in a form of a bankruptcy. But the younger generations of politicians already have “app for that”. It’s called inflation and funny money.
You and I, when we borrowed more than we make and cannot repay our debt, we declare bankruptcy. Uncle Sam just prints more paper Dollars and pretends everything is OK. How many Dollars did Uncle Sam print since 2008? Just take a look at this chart. Picture is worth thousand words.
how-much-money-fed-printed-since-2008
Uncle Sam printed 2.4 trillion Dollars since 2008.
Printing that much money without creating products, service or value for it in turn devalues US Dollar and causes inflation. Inflation is the ace in the hole that your children hold to make sure that today’s debt is paid by those who incurred it.
When you and I retire, we will be on so called FIXED income. Living from assets we have accumulated during our productive life. Your retirement savings. Say you have saved $500,000 , retired at age of 65 and plan to live on $40,000 per year while your savings earn 3% yearly return.
First year you draw $40K and your savings remain at $460,000 then earn 3% so you have $478,000 left, so first year you use roughly 4.5% of your retirement money. Average inflation lately amounts to 3% per year. So the following year you will need $41,200 to pay the same expense. The earnings on your retirement account pretty much zero out the inflation so you can take whatever retirement savings, in our case $500,000 and divide it into amount per year you need to pay your expenses then you would arrive to how many years will your retirement savings last. In my example it would be roughly 12.5 years. So if you retire at 65 with 1/2 million dollars under these assumptions you would be broke by age of 77.5 If I am not mistaken, life expectancy in US is higher than that. AND this is where inflation and funny money printing can really ravage your golden years.
As US prints Dollars like crazy, other nations are considering the same strategy to bail themselves out of economic turmoil. Recent Earthquake/Tsunami/Nuclear disaster in Japan resulted in Japan’s Central Bank printing 40 billion Yen (1/2 trillion Dollars) which in turn prompted Central Banks of developed nations to print mountains of their own currencies – to “help” Japan and themselves.
“Western governments and Japan’s government are essentially bankrupt and have no intention of ever reducing their deficits or indebtedness,” Crichton-Watt, 63, said. “Once confidence goes, there will be a real panic.”
So back to our retirement example. The irresponsible Monopoly Money printing will result in inflation. Global Inflation. If inflation in US was an average of 3% per year, it will break that barrier and could go to 4%, 6%, 10% or more. so instead of $40,000 per year you will need $45,000 then $55,000 then $65,000 to pay for the same things in the subsequent years. So instead of your nest egg lasting 12 or so years it will last you less and then you are destitute. Money printing and inflation is the ace in the hole politicians have and use so they can keep their promise that they will not touch or reduce social security benefits and other reckless promises they made while in office bidding for re-election. Except that $2,000 social security check in 2015 might only by 60% of what it bought 5 years ago. If they print 14 trillion dollars today, they can pay the national debt today and have a balanced budget without any further interest payments. Kind a like bankruptcy private citizens have come to know.
How Much things cost in 2000 vs. 2010
Average Cost of new house $134,150.00 in 2000 vs. $232,880.00 in 2010 = 74% inflation. If you own a home outright, your property taxes will rise by 74% if you rent, your rent will do the same.
Cost of a gallon of Gas $1.26 in 2000 vs $2.73 = 116% inflation and we know that cost of gas/transportation/shipping will accelerate faster than anything.
Average cost of new car $24,750.00 in 2000 to $29,217 = 18% inflation
US Postage Stamp 33 cents in 2000 vs. 44 cents in 2010 = 33% inflation
Loaf of Bread $1.72 in 2000 vs. $2.49 in 2010 = 45% inflation
Dozen Eggs 89 cents in 2000 vs $1.37 in 2010 = 54% inflation
Barrel Of Oil Tops $30.00 per barrel in 2000 vs. $73.00 per barrel in 2010 = 243% inflation
US Government recalculated cost of inflation to artificially show it’s lower than it actually is. It is in the interest of Uncle Sam to hide the real inflation numbers to prevent widespread panic and further financial instability. This Monopoly Money politics just delays the unavoidable outcome. One of these days you gotta pay the piper. So if you hear a politician telling you they will not allow your Social Security, Medicaid, Medicare, Welfare be taken away, do not believe them as long as they print money like crazy. Your $10,000 Social Security check in 1020 may be worth less then $1,000 Social Security check today.
No matter how much you give Uncle Sam, it will never be enough. Uncle Sam did not earn that money so he does not know it’s value. Uncle Sam will always want more and more as the politicians are very generous with somebody else’s money. And if they do not collect enough, they are great at borrowing it. The only path to prosperity is responsibility! If we do not have the money, we cannot allow our politicians to borrow it and spend it. Vote fiscal responsibility. It’s easier to tighten our belts now while we have the earning power and make up the deficit. Otherwise the Monopoly Money printing resulting in accelerated inflation will leave most of us destitute in our retirement years. The only ones laughing all the way to the bank will be those politicians who amassed their wealth in kickbacks from lobbyists and special interests as they appropriated your tax money under the pretense of reinvestment, compassion, future development, humanitarian aid, foreign aid, defense, clean energy….. knowing well that when their term limit is over, they and their families will be taken care off.
It is Thomas Jefferson’s birthday today. So it is only appropriate to look back to our founding father. Drafted by Thomas Jefferson between June 11 and June 28, 1776, the Declaration of Independence is at once the nation’s most cherished symbol of liberty and Jefferson’s most enduring monument. Here, in exalted and unforgettable phrases, Jefferson expressed the convictions in the minds and hearts of the American people.
IN CONGRESS, JULY 4, 1776
The unanimous Declaration of the thirteen united States of America
When in the Course of human events it becomes necessary for one people to dissolve the political bands which have connected them with another and to assume among the powers of the earth, the separate and equal station to which the Laws of Nature and of Nature’s God entitle them, a decent respect to the opinions of mankind requires that they should declare the causes which impel them to the separation.
We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security. — Full text
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