Monday, 11 March 2013

What Happens if U.S. Doesn’t Cut Spending?

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Everybody is talking about the cuts in government spending with the $85 billion in forced spending cuts in military and social programs.  $85 billion amounts to little more than a 2% cut in $3.8 trillion (or $3,800 billion) in federal spending per year.  Didn’t most working Americans just suffer a 2% pay cut with the expiration of the Social Security tax holiday?  How many times have we heard that thousands of government jobs will be lost to sequestration?  The so-called Great Recession destroyed at least 8 million private sector jobs, and if you count the underemployed and discouraged workers, it’s easily 23 million.  

Government Spending Cuts 2013: What Happens if the U.S. Doesn’t Cut Spending?

Why are government employees being considered as some sort of sacred cow?  What many are feeling was summed up with a recent comment on the USAWatchdog.com site from “Chuck O.”  He wrote, “I’ve retired after 44 years working. Throughout the entire period, I lived through no fewer than 10 lay-offs and cut-backs. I have yet to see any appreciable lay-off or cut-back in the federal work force (EVER). I feel it is about time “they” should take a “hit.” How about a 20% cut back on ALL salaries? “They” need to share in the austerity. We all should have the same insurance benefits, too. “Their” retirement program and health insurance is way out of line; cut it back. A 20% cut would be way better than NO PAY at all. 20 % could really help lower the debt. I’m really getting KILLED by this money printing. In the 12 years I’ve been retired, my dollars have lost more than 30 % of their purchasing power. Obama’s crew hasn’t a clue. My wife and I have BOTH had to go back to work at 70 years old. 

With foreigners increasingly shunning Treasuries and the dollar, the only way to keep all those government jobs is to raise taxes on the private sector or print money.  The Republicans caved on tax increases at the beginning of the year, so that option is closed.  Now, we are left with the Federal Reserve’s “open-ended” money printing operation that creates $85 billion a month out of thin air.  A little more than half of that amount ($45 billion) goes to buy Treasury bonds to finance the federal government.  The rest ($40 billion) goes to the continued banker bailout that buys their sour (and I think fraudulent) mortgage debt.  The money printing is what’s causing Chuck O’s “30%” loss in purchasing power for his retirement dollars. As the money printing continues, the buck will buy less and less. 

Why doesn’t the President divert just 2 months of the $40 billion the Fed creates every month to continue the banker bailouts to stop most of the $85 billion of spending cuts?  In case you haven’t noticed, the bankers are a sacred cow.  The big banks have gobbled up trillions in bailouts already, and there is no end in sight.  After all, the Fed action is “open-ended.”  The banks are the reason why the U.S is in financial trouble, and the continuing banker bailout is why the economy will never get better.  The only reason why the economy has not collapsed is the Fed can print money to buy sour debt that no one else would touch.   

Because of all this money printing, the rest of the world is in the process of shunning the dollar and the U.S. Treasury.  It looks like gold, or some other gold-backed currency, will facilitate global trade in the not-so-distant future.  Jim Willie of GoldenJackass.com says when the world stops using the dollar, it’s game over.  In a recent post, Mr. Willie wrote, “The gold trade finance concept ushers in a new alternative system long sought in order to create a more viable equitable sustainable financial structure. The banking system should serve trade, not the reverse. Hence the UST Bond will slowly vanish from the global banking system, and the US Dollar will lose its global reserve status. The end result is an unavoidable slide by the United States into the Third World.”  (Click here for the complete GoldenJackass.com post.)    

You want to see what an “unavoidable slide by the United States into the Third World” looks like?  Behold the bankrupt city of Detroit that recently became a ward of the State of Michigan.  Detroit’s bond debt alone is a whopping $14 billion.  I doubt it’s worth pennies on the dollar, if that much.  You are not hearing much about this in the mainstream media (MSM).  Maybe it’s because this is what socialism looks like when you finally run out of other people’s money.   In a recent post on the FinancialSurvivalNetwork.com, Kerry Lutz wrote, “The city’s day-to-day operations are in total meltdown. Many police calls go unanswered. Large sections of the city are dark at night because thieves have stolen the streetlights’ copper wiring for scrap. Public education is a euphemism for warehousing and babysitting the criminal youth of tomorrow. Packs of wild dogs are found throughout the city. In many areas, garbage collection is a luxury that can no longer be afforded, and street cleaning is non-existent.” 

 (Click here for the complete FSN post.) 

Do you really think Detroit can turn things around without big cuts and sacrifice?  They keep telling us about how the cuts will hurt and they need to be done in a “smart way.”  I’ll bet Detroit would have liked to have tackled their financial problems in a “smart way” and made all of those “smart cuts.”  Every time I hear the “smart cut” argument, I think, okay, give me $85 billion in “smart cuts” this year and every year for the next 10 years.  I also keep hearing that we need to fix our financial problems long term and not now during this “fragile recovery.”   Haven’t the powers been telling us this for years?  You can see how well it has worked. 

Remember, what is going on with the $600 billion in new taxes and $1.2 trillion in spending cuts (total of $1.8 trillion) is less than half of what the bi-partisan Simpson-Bowles debt commission came up with in 2010.  The Simpson-Bowles plan was around a $4 trillion combination over the next 10 years, and even that only slowed the growth of our debt.  Everyone keeps asking about the pain caused by the spending cuts.  They are asking the wrong question.  Everyone should be asking: What happens if the U.S. doesn’t cut spending?  I think the answer is Detroit.  
Read More : usawatchdog

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