Yellen is Yellin': DEBT NOW UNSUSTAINABLE

“Out of the mouths of babes.”

It’s a saying in reference to a child’s ability to verbalize uninhibited, often embarrassing and politically incorrect truths at the most inappropriate time. We’ve all heard them.  “Uncle Harry is that a hat or is that your hair?” “Auntie Ida, why don’t you shave your mustache like Uncle Harry?”

Then we grow up and become politicians. Instead of saying what we think – we think before we say. At least we try to. Sometimes though, our inner child surfaces and we blurt out something we have been thinking but suppressing for fear it may be offensive.

Indeed, that must be the kind of moment Fed Chair Janet Yellen had during a July 12, 2017 House Financial Services Committee hearing when she warned Congress that “given current spending and taxation decisions, is going to lead to an unsustainable debt situation . . .”

Chair Yellen made this comment after being accused by Rep Steve Pearce, R-N.M., of paying little attention to the fact that the United States, with respect to our debt, appears to be on a crash course similar to Illinois.  Illinois’ credit rating has been downgraded due to its inability to pay $15 billion in bills currently due.  Is Yellinois next?  The United States that is?

The Alternative media has long been criticized for over-dramatizing the debt situation.  Now our Banker in Chief, under direct accusation from a Congressman, has finally acknowledged that our debt is unsustainable.  Yellinois, here we come!

What exactly are the things Chair Yellen sees that have caused her – finally – to acknowledge a truth many have long known and warned about?  I have identified 7 glaring facts about our unsustainable debt and deficit that will allow any reasonable person to come to the same conclusion as Chair Yellen.  Pay special attention to #7.  It will send you hiding under the covers tonight when the lights go out.

Unsustainable Fact #1 – Total Receiving Government Benefits Exceeds Total of Those Who do Not.

Nearly 51% of all U.S. citizens, including men, women and children, now receive some form of federal benefit.  With nearly 10,000 baby boomers per day reaching retirement age, this number grows by the minute.  This alone is unsustainable.  Benefits include Social Security, Medicare, Medicaid, Federal Pensions, Veterans Benefits and a variety of Federal Welfare payments such as food stamps. 

Unsustainable Fact #2 – Shrinking Work Force Supports Larger Population.

In year 2000 the total U.S. work force was larger than our total work force today.  When measured in relative terms and adjusted for growth in population, there were 2.6 million more workers in year 2000 than there are today.  Put into current perspective, 153.3 million workers today are supporting 164.3 million federal benefit recipients.   When measured by this standard, today’s claim of full employment offers little hope to growing our way out of recession.

Unsustainable Fact #3 – The Real Debt to GDP Ratio is 353%.

Our debt to GDP ratio is often reported at 104% or 105%.  That is, our debt exceeds our reported GDP by just 4 or 5 percent.  This number, however, pays no mind to household debt, state and local debt, business debt and the debt of financial institutions.  The total of this debt now exceeds $67.3 trillion dollars not just the $20 trillion so often referred to in national debt reports.  When measured on a per-family basis, this amounts to $813,673 of debt per family.  Can you sustain that?

Unsustainable Fact #4 – Unfunded Liabilities are ASTRONOMICAL and UNSUSTAINABLE

Shhhhh!  No one is supposed to talk about this. Everyone knows it but nobody dares speak to this issue of insurmountable debt. Not in a million years can this debt be paid off.  The only way to deal with it is to cut benefits or jack payroll taxes up so high that nobody can afford to pay them.  That would be political suicide, hence the reason no one wants to talk about it out loud.  Conservatively, today’s unfunded liabilities total $107 trillion dollars.  This alone is more than 500% of GDP.  Said another way, it is an $888,101 dollar liability per taxpayer.  Sustain that!

Unsustainable Fact #5 – Entitlement Spending Runs at an Annual Deficit of $1.2 Trillion Dollars

If Alfred Hitchcock were still alive, surely, he would see this story as an opportunity to make an award winning movie.  He would probably call it The Bird Brains.  Currently, annual spending on Social Security, Medicare and Medicaid, approaches $2.1 trillion dollars.  This, against something just shy of $1.2 trillion in Payroll Tax Revenue.  Add in another $290 billion of additional entitlement spending in the form of Federal Welfare, and we arrive at a deficit spending level over $1.2 trillion dollars.

It is said this deficit is covered by investments held in the Social Security Trust Fund.  But, here’s the horror story.  The Social Security Trust Fund is filled with Treasuries.  There is no cash.  Treasuries that taxpayers pay interest on just like any other debt.  When it comes time to tap into the trust fund to cover deficits, treasuries sufficient enough to cover the deficit are sold.  Here’s where the plot twists. Taxpayers still have to pay the interest on the treasuries regardless of who is the next owner.

In short, we’re paying off debt with debt.  That is unsustainable. 

Unsustainable Fact #6 – Defense Spending is the Root of all Evil - True or False?

Many blame our unsustainable debt situation on Defense spending.  The U.S. Defense Budget currently runs at a $630 billion dollar annual pace.  As ranked by the Stockholm International Peace Research Institute, [2016 data] that’s more than the total spending of the next 8 largest government defense budgets.  China is #2 at $215.7 billion.  Russia is #3 at $69.2 billion.

What would our budget deficit look like if we cut the defense budget to match just what Russia and China spend?  Here’s the unsustainable fact.  That would equal a $345.1 billion dollar cut to our budget.  With a budget deficit now running in excess of $674 billion per year, we would still be left with a $329.4 billion dollar annual budget deficit.

Unsustainable Fact #7 – Our National Debt is the Least of our Problems

What if we could magically pay off our entire $20 Trillion of national debt in one day?  Would that solve our budget problems?  Numbers don’t lie.  If we paid off our entire $20 trillion of national debt in one day, we would still be left with a $410 billion dollar annual budget deficit.  If there is one debt fact that should keep you up at night – this is it. 

 

 

  

It’s Just a Diversion

It seems, mainstream commentators, politicians and financial experts, when discussing debt, cannot bring the conversation past the $20 trillion mark.  It’s as though the more they talk about it the more people believe that is the extent of our debt problems.  As proven here, our national debt is the least of our problems. 

When you realize the extent to which the value of our dollar has been eroded by the printing of hundreds of trillions of dollars (debt), you realize just how hopeless our debt situation is.  I have said it before.  We have two ways out.  Either default on debt or inflate it away.  Whichever occurs, the results will be the same.  The dollar will crash and gut value from your savings and retirement accounts. 

To protect yourself against the inevitable crash of the dollar, there is just no better option than to diversify some of your savings and retirement accounts out of dollar assets and into something tangible like gold and silver.  There may be no better time to do that than now.  Stocks are at record highs, Real Estate is back in bubble territory and the bond bubble could burst when the Fed begins to run off its balance sheet.

After the last crisis struck, gold prices doubled, silver tripled and those who owned some were protected.