In Part One I chronicled my knowledge of bankruptcy, including the experience of a family member and former employer. I concluded by pointing out that at this point in the economic history of the United States, having a man — such as Donald Trump — with bankruptcy experience may be just who we need for a President.
You may wish to refer to my prior columns on economics, here…
In those columns you will find references to many sources I relied on in this current series.
If you are interested in additional research on your own, here are a couple more books you may find helpful: A Crash Course on Crises: Macroeconomic Concepts for Run-Ups, Collapses, and Recoveries by Markus Brunnermeier and Ricardo Reis; The Death of Money, by James Rickards; The Coming Bond Market Collapse: How to Survive the Demise of the U.S. Debt Market by Michael Pento; and The Greatest Ponzi Scheme on Earth: How the US Can Avoid Economic Collapse by Les Rubin and Daniel Mitchell.
I list my sources not to try to impress you with all the time I now have (since I retired) to sit around and just read since, but to illustrate that what I’m writing about isn’t just pulled out of a hat.
I don’t claim any of these sources are definitive. But collectively, along with all the other sources I’ve read on the basics of economics generally (and the U.S. economy in particular), they present a common theme.
Since I know many of you have neither the time, nor inclination, to delve into the subject as I have, I’ll try to give you the ‘Reader’s Digest’ rendition of what I’ve learned. It ain’t good news.
The bottom line is that it didn’t matter who won the recent presidential election, as regards what’s going to happen to the finances of the federal government of the United States of America. However, you and your family will have a far better chance of weathering the coming economic maelstrom (and still have your freedom intact) with Donald Trump at the helm of the U.S. ship of state than you ever would have had under a Harris administration.
To understand why, you need to recognize two basic facts of current economic life in the US. First, the economy, both nationally and for you personally, is manipulated by the Federal Reserve Bank (the Fed) and its objectives have nothing whatsoever to do with whether you can afford groceries or gas for you car to get to work (or if you even have a job).
Their goal is to maintain the “strength” of the U.S. dollar, vis-à-vis the currencies of other countries, because that’s the basis of global power for the elites who currently run the U.S. To maintain that strength as things now stand, the Fed needs to do two things: increase inflation; and encourage (or require) you to go into debt rather than save.
I’ll repeat that, because it is at the crux of what’s coming. Inflation is not a glitch in the Fed’s manipulation of our economy; it’s a critical feature.
As is keeping you as far in debt as possible.
Dominance of the U.S. dollar in international finance has been in decline since at least 1971 when President Richard Nixon took the U.S. off the ‘gold standard’. When Nixon announced he was doing so, he said it was a ‘temporary measure’ to address a situation at that time.
Fifty-plus years later that ‘temporary measure’ is still in effect, which enables the U.S. government to spend as much as it wants. (As President Ronald Reagan was fond of saying, “There is nothing more permanent than a temporary government program!”)
The decline in the U.S. dollar accelerated during the administration of President Obama, when he signed into law the Democrat-controlled Congress’ 2009 ‘stimulus’ legislation (the ‘American Recovery and Reinvestment Act’). ARRA was touted as a necessary ‘jump start’ to enable the economy to recover from the recession that followed the housing mortgage collapse.
Close examination of that ‘stimulus’ reveals little of it went into getting businesses back on their feet. (BTW, Joe Biden, the VP at the time, was instrumental in getting that Act through Congress.)
A portion of the taxpayer money spent under ARRA went to maintaining salaries of two key Democratic party constituencies: government bureaucrats, and union teachers… which did little, if anything, to stimulate business activity.
Other funding was wasted on boondoggles like the Solyndra solar panel scam and pay-offs to environmental groups who are also Democratic party constituencies.
Further accelerating the weakening of the U.S. dollar was the ‘Joint Comprehensive Plan of Action’ better known as the ‘Iran Deal’. That ‘deal’ alienated Iran’s historic religious/ethnic enemy, Saudi Arabia.
Without the co-operation of the Saudis, the U.S. dollar can not remain the ‘world’s reserve currency’. The ‘reserve’ status is the primary factor that enables the dollar to maintain dominance. (I explained ‘dedollarization’ and ‘petro dollars’ in my previous columns on economics.)
As a result of the distrust (due to U.S. overspending) of an increasing number of nations with the US dollar being the world reserve currency, the international central banking system has designated gold as a “Tier 1 asset” reserve on par with the US dollar, thus further weakening the status of the dollar.
The trend toward dedollarization had slowed during the first Trump administration. He re-established a positive relationship with Saudi Arabia by reimposing a hard line against Iran.
Weakening of the U.S. dollar internationally has not in and of itself caused the potential bankruptcy of the U.S. government. Government overspending does that. But the weaker dollar contributes to the problem.
The working definition of bankruptcy is having more debts than income — with no foreseeable way to pay off the outstanding debts. Our federal government currently fits that definition.
Economists measure government deficit spending by a metric called “primary deficit sustainability” (PDS)… “an analytical framework” to measure “whether national debt and deficits are sustainable” – or if they will instead result in a doom loop, ending in either hyperinflation or default (bankruptcy).
There is a formula to determine PDS, referred to as ‘BRITS’ which calculates borrowing (B), real output (R) (which is what our economy produces), inflation (I), taxes (T), and spending (S).
Not only has gold been made a tier 1 asset which can supplant the US dollar, but Saudi Arabia will now accept gold (and some other currencies) for oil, thus further undermining the status of the U.S. dollar.
As if that’s not enough of a problem for the U.S. economy, during the Biden administration one of the BRICS nations (China) brokered a reconciliation between Iran and Saudi Arabia ending centuries of religious conflict. It’s not likely the new Trump administration will be able to undo that.
Unfortunately, Biden’s foreign policy blunders that have contributed to dedollarization are paired with his horrendous economic decisions. As a result, the six trillion (with a ‘T’) spent during the his administration (capped off by the comically named “Inflation Reduction Act” has pushed the U.S. economic situation past the point of no return, according to the BRITS formula.
Our federal government now has the largest debt of any in history and it’s growing by the second. That debt is built on borrowed money which must be repaid with interest to big financial institutions — and foreign government central banks who hold U.S. Treasury bonds. Dedollarization will only make that repayment far more difficult, if not impossible.
The annual interest alone on that debt is now more than the entire U.S. national defense budget. By 2030 — if not sooner — payment on the interest will exceed all tax revenue. That means everything the federal government receives in tax revenue will not cover the interest on the national debt.
At that point, the only way the federal government will be able to continue to function will be … wait for it … borrow even more (if it can find a lender) which will trigger more (possibly hyper) inflation. The only alternative to what very well be hyperinflation is default (declare bankruptcy) and start afresh!
Neither option will be painless — but at least with bankruptcy, there is an end in site.
Bankruptcy is drastic, and will require a President with the political will of Abraham Lincoln during the Civil War. Having a President, as we will have on January 20, 2025 who can’t run for re-election and can therefore ignore electoral consequences may be just who we need.
As I explained in my previous columns, I’ve been engaged in a self-educated crash course in economics. But even though I now know a lot more than I did, there is still much I don’t completely understand. So I’m not even going to try to explain what bankruptcy by the federal government would involve — or how it can be accomplished.
What I do know is that for the financial elites, who run our economy (through the Fed and ‘big banks’), default would be a disaster, because they won’t get repaid what they have loaned the government. I suggest the reason the elites have done everything possible to thwart Trump’s re-election is to avoid that possibility. So they opt to keep earning interest payments from the taxpayers through inflation caused by the Fed against which they are largely insulated.