Thu, Jun 9, 2011
From Simon Black of Sovereign Man
Is The Debt Problem As Bad As They Say
On the rare occasion that I’m bored, I like to watch 24-hour news
television for entertainment. It’s hilarious watching the talking heads
spin out of control in apoplectic fits when they’re essentially arguing
the same point; they might be from different parties, but they’re merely
battling over small details of the same government-sponsored solution.
Recently I caught one of these talking head financial experts on TV
arguing about debt levels in the United States. He was saying that the
US debt doesn’t matter all that much because the US government has so
many assets to offset its debt.
For example, he suggested that things like the highway system,
national parks, and strategic petroleum reserve would more than offset
America’s liabilities, so the looming national debt isn’t such a big
deal after all.
He couldn’t have been more wrong.
The Government Accounting Office (GAO) puts out an annual financial
report that looks and feels like corporate financial statements… of
course, the US government doesn’t have to abide by the same accounting
principles as the private sector, so they get to cheat quite a bit in
overstating their position.
The most recent report
is signed off by Tim Geithner and includes oodles of newspeak from the
Ministry of Plenty about how dazzling their economic recovery measures
have been. Needless to say, the numbers paint a different picture.
Even when you add up -all- of the assets, right down to every desk,
chair, and lifeguard stand, and even if you throw in a healthy boost to
the asset column to account for premiums in the market value for land
and “gold” in Fort Knox, the government is still in the hole to the tune
of over $ 10 trillion. It would take more than 300,000 years to count
And yet, the fake recovery is vanishing, the dollar keeps falling
against anything of real value, and the average guy on the street is
realizing limited benefit for his share of the debt and inflation
burdens. How is this possible?
I’ve often said that bureaucrats and politicians have an extremely
limited playbook consisting of taxation, regulation, and inflation.
These three ugly sisters of bureaucracy effectively serve to steal from
people, make things more difficult for them, and rob them of their
purchasing power… and yet they’re dressed up as solutions instead of
Consider the case of Illinois– the state is completely insolvent and
running out of cash quickly. It doesn’t have the luxury of printing its
own currency, and is thus being forced to deal with its fiscal reality…
much like Greece.
Rather than trying to make their state more competitive in order to
attract talent and capital, they’ve opted for the old playbook… starting
with taxes. Specifically, Illinois lawmakers have targeted companies
like Amazon, arguing that online transactions through the company’s
Illinois-based affiliates are within the state’s sales tax jurisdiction.
For Amazon, the calculus involved is totally objective– once the
Illinois legislature passed this legislation, the cost of doing business
in the state exceeded the benefit, and Amazon cut all ties to its
Thousands of people across the state who used to earn a portion of
their living as an Amazon affiliate were stripped of their income thanks
to do good lawmakers trying to squeeze a little more dough out of a
Peoria, Illinois based Caterpillar Inc. is in a similar position, now
threatening to leave Illinois because the politicians keep raising
income taxes. Now the financial powerhouse CME Group is echoing this
sentiment. The impact this would have to the state economy is
These steps that Illinois lawmakers are taking, along with their
destructive consequences, are reflective of what will happen when the
federal government is finally forced to deal with its own fiscal
$ 10 trillion in the hole and facing a steep downward trend, the US
government is either looking at substantially higher borrowing costs,
substantially higher inflation, or both. Investors are getting jittery
about loaning money to the United States, so they will either demand a
higher return, or the Federal Reserve will hyperinflate the currency to
mop it all up.
Regardless of the scenario, Congress will reach deep into this
playbook until they chase away every productive citizen and company they
can… In fact, it’s already happening.
The number of people renouncing US citizenship has been more than
doubling year-over-year for the last several years. Meanwhile, many
businesses are moving overseas, or at least focusing on international
operations and shifting profits offshore.
It’s easy for companies to move… much more difficult for people who
have emotional ties, fear, anxiety, etc. that maintains their
geographical inertia. As such, it will ultimately be the individual
citizens remaining behind who will be exploited like malnourished milk
cows to pay for the destruction.
In the coming days, I’d like to tell you a lot more about how I see this playing out. Stay tuned.
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