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It is hazardous
to your financial health to not understand the mechanisms of fiat money as
well as the central planners who operate these schemes. Fiat systems have
always failed historically, and this one, centered on the U.S. dollar, is
stretched beyond previous imagination. Most will be devastated when it
inevitably crumbles.
But
you do not have to be.
Last
week we looked at some of the tricks the Feds use to prevent their subjects
from seeing the reality of their ongoing monetary abuses. The website and
newsletter at www.shadowstats.com
portray a much more reliable Consumer Price Index calculation than what
typically comes your way.
This
week we'll delve into other accounting trickeries and the absurdity of ongoing
government promises. I'll also present a perfect but little considered
solution for these abuses. Shockingly, it's two presently out-of-favor
natural resources that can fortuitously turn the situation around!
Let's
first look at many claims over the recent decades of "balanced
budgets." Truth be known, there hasn't been one since before the years
of the Johnson Administration and their lost war on poverty. It has only been
through accounting gimmickry that any semblance of fiscal restraint has been
paraded.
As
mentioned last week, Social Security surpluses have long been pilfered,
spent, and not accordingly accounted. The last 11 administrations, regardless
of political party, have perpetuated this blatant fraud. This fact alone
blows a hole wide open in the current administration's claim to the present
projected deficit being "only" in the range of $300 billion.
If
budgets were balanced or actually showed surpluses, it would show in the
national debt figures. Take a peek below. See any balance or surpluses? Any
trends?
In
reality, you could have a year or so of balanced budgets and still see the
total debt climb higher due to accumulating interest on the debt. Trust me,
there have been no balanced budgets.
Nine
trillion dollars of red ink is a lot of money for an economy with a total GDP
of $13 trillion. Unfortunately, that's just for starters. There are other
obligations U.S. pols have committed to that have even less chance of ever
being paid. They are better hidden than even the official national debt
figures.
Let's
look at accounting methods and simplify them as much as possible.
The
government has used a cash basis system for decades. This system tracks only
annual cash revenues and expenses. It's an annual cash flow analysis only.
The future is pretty much ignored. Under this type of accounting method, your
family could borrow millions of dollars that you could never repay and still
have your finances look good on paper in a particular year. Future
liabilities are totally ignored. You can't borrow your way to wealth, and
cooking the books won't get you there either.
A more
realistic portrayal of overall financial health, either private or public, is
called generally accepted accounting principles (GAAP). Even Enron and Arthur
Anderson functioned under these more stringent guidelines. What would happen
if the U.S. Treasury operated under this more honest and accurate method of
accounting?
The
government would have to include unfunded future liabilities in their
calculations - Social Security, Medicare, Medicaid, etc. Here's what John
Williams of Shadow Government Statistics says about that proposition:
"The U.S. Government's negative net worth widened to $49.4 trillion in
2005. For the first time, total government liabilities have topped $50
trillion, and the number is continuing to grow. The United States is
bankrupt, whether the Bush administration wants to admit it or not."
There
are several important points here. Williams used the government's own
reported figures and then applied the more realistic accounting method, GAAP,
to them. We're also looking back at 2005 and nothing fiscally responsible has
transpired since then. It's considerably worse now. The debt continues to
compound and U.S. citizens are the only entities getting serviced.
Recent
reports out of Bill Buckler's highly acclaimed Privateer fingers U.S.
off-budget debts (future liabilities through promises to pay) now in the area
of $70 trillion. Add that to the official debt and we quickly approach $80
trillion … especially if you don't finish reading this essay within the
next few days.
Let's
try to gain perspective on this. We'll present a household budget run on an
annual $60,000 total income and project them to have similar debts and
obligations as the US government. Again, the U.S. GDP is $13 trillion.
Our
$60,000 household would presently owe $41,500 but have made future pledges of
almost $323,000 for a total of $364,500. Five-percent annual interest on this
debt alone is $18,225. Jane and Joe would have to pay this interest just to
keep from sinking into a deeper hole.
After
taxes and ordinary living expenses, exactly how much of this household's $60,000
do you think can be spared to square this enormous burden? Just maybe an
individual family could crawl out of this pit, but it would be exceedingly
difficult. It would also require extreme discipline and sacrifice. Please
e-mail me at snowballchance-inhell@DC.org if
you believe the Feds are so inclined.
Bottom
line - this isn't going to end well. These are the numbers more typical of a
third-world debtor nation than the issuer of the world's reserve currency.
Currency inflation and monetary debasement will inevitably accelerate. No
small feat there. Exchange and capital controls won't be far behind. Gold and
silver serve as safe havens for times such as these, but they are not exactly
what I was projecting as a final solution.
There
are a couple of other distinctly traditional American resources that will
hopefully soon end their centuries long bear market: tar and feathers.
Get you some.
Invest
Resourcefully,
Russel McDougal
Investor’s Daily Edge
All
articles by Russel McDougal
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