By Sheila Weinberg
There are two possible nightmare scenarios. The first scenario is called “Death by Panic.”[i] The plot of the first nightmare is currently and quickly taking shape. With our rising budget deficit and ballooning trade imbalance, the United States is running up a foreign debt of record-breaking size.[ii] America is already leaning heavily on foreign investors and governments, especially Japan and China, to buy the government debt that funds the deficits. As the nightmare continues, foreign investors realize that we are not going to come to grips with our deficits. The rest of the world loses confidence in our fiscal management and gives up on the United States long-term ability to pay its debt.[iii] The financial markets of the world will be flooded by the sell orders on U.S. bonds, notes and bills and no one will buy. Desperate for buyers, the U.S. will have to raise interest rates to usurious levels, and practically overnight the dollar will become nearly worthless.[iv] The U.S. government will be completely broke and have no way to borrow the money it needs to run. The government will have to shut down. Social Security and Medicare benefit checks cannot be printed. Even if the checks were printed, they would be returned to the retirees stamped “Insufficient Funds.”
The second nightmare scenario is called “Death by Hyperinflation.” As a way of financing its debt, the U.S. Treasury frequently sells bonds, notes and bills to the Federal Reserve. When the Fed buys these securities it simply writes a check and the Treasury puts the money in the bank. The bank credits the deposit even though the Fed did not actually have real money to back up the check. The moment the Treasury cashes the check, new money has been created.[v] But creating new money without corresponding economic growth, leads to inflation. As the government needs more money to pay its bills more and more new money is created without corresponding economic growth so more and more inflation occurs. Inflationary cycles will intensify to the point where hyperinflation takes over. The value of the dollar decreases. Workers find it will take more dollars to buy their groceries, clothing, housing and, other products and services. Retirees will find their savings dollars are less valuable and will not cover their living expenses. Eventually the dollar becomes virtually worthless. Foreign investors will swoop down and buy up entire industries “dirt cheap.” Banks will cancel all credit cards because they cannot collect money fast enough to keep pace with the rapidly falling value of the dollar.
As Americans wake up in either one of these nightmares, they will have no jobs, no savings and no prospects. Black markets will spring up, workers will strike, seniors will storm Capitol Hill and the White House, riots and anarchy spread across the land.[vi]
Wake up! Wake up!
[i]. Harry E. Figgie, Bankruptcy 1995, Boston: Little, Brown & Company. 1993, p. 26.
[ii]. Elizabeth Becker and Edmund L. Andrews, “IMF: U.S. deficits a global time bomb,” Chicago Tribune 8 Jan. 2004: p. 3.
[iii]. Shawn Tully, “The Deficit: American’s Credibility GAP,” Fortune 8 Mar. 2004
[iv]. Harry E. Figgie, Bankruptcy 1995, Boston: Little, Brown & Company. 1993, pp. 26-27.
[v]. John R. King, Chaos in America, Tehachapi: America West Publishers, 1990, pp. 73-74.
[vi]. King, pp. 74-75.