Still not sure whether the debt crisis is over yet? Some smart traders are very sure it’s not over. Consider the latest Federal Reserve Z.1 Flow of Funds report for the close of the calendar year 2009 for the ‘tale of the tape.’
The Federal Reserve Z.1 Flow of Funds report reveals that while households and business have pared debt in response to terrible economic conditions, government has more than made up for the shortfall. Total debt from all sectors, public and private, is at record highs.
Why is this important information? It tells the world that the debt bubble is alive and well in the U.S. This time the players have changed rankings. Expectations of households and businesses unwilling to play the reflation game were, of course, spot on, so the public sector had to stepped in to pick up the slack�oh so Keynesian.
But here’s the problem: While times are good, governments at all level must have surpluses to make up for the unwilling players of the new debt-backed dollar scheme. And since this reckless borrowing is how we got into this mess in the first place, more of the same won’t fix the problem; it just puts the day of reckoning out for a while.
Governments have the power to tax, cut and force the private sector to pay the bills. Creditors don’t care how the fiscal balances are carried out; they just want them carried out. Germany’s insistence that Greece fix its fiscal problems by insisting the people of Greece take it on the chin with cuts in benefits and higher taxes is the latest example of how this works. Besides, that’s what the International Monetary Fund (IMF) is all about�fiscal rebalancing through sanctioned austerity measures.
Under a gold standard, or any standard that imposes fiscal responsibility, public debt levels never reach these unsustainable levels without periodic currency devaluations. But this time bomb was lit in 1971 with the new �kick-the-can down the road� approach of fiscal irresponsibility replacing the discipline of a backed currency that has lasted for nearly 40 years.
A lot of the fascist-like legislative process of the passage of universal healthcare (like the bill or not,) was an IMF-like remedy to the ridiculous public debt levels in the U.S. The idea behind the self-imposed IMF plan is simple: take control of as much of the U.S. economy as possible (under the guise of doing good for the people) and institute severe austerity measures once control of that sector of the economy is at hand by raising contributions while cutting benefits. The net result is a tax increase of mammoth proportions.
The plan for balancing the fiscal budget while maintaining growth in the economy is impossible of course. The revaluation of the currency is the only step left in the plan. And it appears to be coming soon.
On March 22, Bloomberg ran a story entitled, �Obama Pays More Than Buffett as U.S. Risks AAA Rating.� The market anticipates a dollar devaluation in the near future. The symptoms are appearing. This is not to say that other countries won’t have currency revaluations before the U.S. But, when Berkshire Hathaway can pay three basis points less in carrying costs than the U.S. Treasury, it�s a sign something is very wrong with the U.S. dollar right now.
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