The coming financial collapse of the U.S. government: Fed papers reveal what's in store for Americans
by Mike Adams Originally published July 17 2006
The bankruptcy of the United States government has been talked about for years by independent observers. If you've read the book, "Empire of Debt," then you know where the U.S. is headed financially. But most people have no idea about the ultimate financial consequences of decades of borrowing and spending by Washington, and they remain irrationally convinced that the status quo will remain intact for eternity. No one in any position of authority, you see, has yet admitted that the U.S. government is indeed going bankrupt.
Until now, that is.
In a remarkable paper posted by the Federal Reserve of St. Louis, and authored by a Boston University teacher named Prof Kotlikoff, it is revealed in blunt, powerful language that the era of borrowing and spending without consequence may soon come to a close. The paper, entitled, Is the United States Bankrupt?, may not remain posted for very long once the public gets word of what it actually says.
And what, exactly, does it say? For starters, Kotlikoff explains, "Unless the United States moves quickly to fundamentally change and restrain its fiscal behavior, its bankruptcy will become a foregone conclusion." The country is bankrupt
He goes on to explain, "[that] the United States is going broke, [and] ...that radical reform of U.S. fiscal institutions is essential to secure the nation’s economic future."
Failure to engage in these massive reforms will inevitably result in the financial demise of the United States, Kotlikoff says: "[W]e have a country at the end of its resources. It’s exhausted, stripped bear, destitute, bereft, wanting in property, and wrecked (at least in terms of its consumption and borrowing capacity) in consequence of failure to pay its creditors. In short, the country is bankrupt and is forced to reorganize its operations by paying its creditors (the oldsters) less than they were promised."
We might possibly be saved, he explains, if the nation engages in massive, radical reform in three areas: 1) Eliminating the current income tax system and moving to a national retail sales tax of 33 percent. 2) Privatizing social security so that workers own their savings accounts and the federal government can no longer swipe funds from Social Security. 3) Launching a national health insurance program that covers everyone and relies on a system of government-issued vouchers that citizens can spend with health insurance companies.
These radical reforms are necessary because the future gap between what the government owes and what it stands to receive in revenues is already monstrously large, and it's growing by the minute. This gap, called the Gokhale and Smetters measure, currently stands at an astonishing $65.9 trillion. (Yes, with a "T".) As Kotlikoff explains, "This figure is more than five times U.S. GDP and almost twice the size of national wealth. One way to wrap one’s head around $65.9 trillion is to ask what fiscal adjustments are needed to eliminate this red hole. The answers are terrifying. One solution is an immediate and permanent doubling of personal and corporate income taxes. Another is an immediate and permanent two-thirds cut in Social Security and Medicare benefits. A third alternative, were it feasible, would be to immediately and permanently cut all federal discretionary spending by 143 percent."
If you read that last paragraph with any presence of mind, you now begin to understand the magnitude of the fiscal problem facing the United States. It could be solved, as explained above, by doubling all personal and corporate income taxes. But then what's the point in working? It could also be solved by slashing promised benefits in Social Security and Medicare. But what about the inevitable street riots?
None of these solutions are likely to occur. And that leaves the Ace up the sleeve. It's the Ace that all government eventually play on their way to bankruptcy and collapse, and it's the Ace that the United States will ultimately be forced to play, too: hyperinflation. The U.S. will have to print more money to escape the financial consequences of its unbridled spending
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