What if you ever thought about what is the worth of the dollars in your pocket? what if you really don't want to know?. Ok, let's find out.
We all know that the USA is the world's biggest economy (GDP= 18,624.48 billion dollars), actually, the U.S economy is bigger than the BRIC's economies (Brazil-GDP=1,796bn, Russia-GDP=1,283bn, India-GDP=2,264bn, China-GDP=11,199bn, South Africa-GDP=295bn) all put together. But what will it happen if we see it in some other way, how about GDP per person?. China will move down because of its massive population, (China-GDP per Capita=8,481) and the US will still be on top by far (USA-GDP per Capita=59,609), but for how much longer.
So, how would this look like if we see it in a different way, let's think about growth, America has settled for 1.5% (US thinks that it should be enough in order to keep things the way they are forever), while China (9.5%), India (7.8%) South Africa (3.4%) know that they have some impressive growth, it is not enough in order to keep their countries moving. Now, why is this important? Let's find out.
Today's US debt is $20,804,998,625,487 American dollars and it is still growing, not only because politicians keep on borrowing money from other countries, but because of the interests on the money already borrowed. Putting this in a more uncomfortable way, every US citizen owes the rest of the world $ 64,411.76, and the way the US takes most of its debt is by T-bills or U.S Bonds, which yield at 3.03% if issued to mature in 20 years. So, let's round the numbers, Uncle Sam's income is close to 2 trillion dollars but spends 3.8 trillion dollars every year, to make out the difference, he does what most Americans do, he borrows money so we can pay the old debts with new debts. Since this happens every year, our debt is growing at an average of 50% every year. In a perfect world, if we were not paying interests on the obligations we already have or in the future ones for that matter, we would still owe 47.37% of the money we have to foreign countries.
Let's see what we've covered so far, our debt is growing and growing because our very expensive government layout, old debts are being paid with new debts, debt is growing at an average of 50% but we grow at 1.5%. So where are we all heading?. Let's get back to the way we honor our obligations, suppose that you pay your car loan with your credit card for several periods, and it seems to be so easy and comfortable, so you start doing it to your mortgage too and then to everything else plus using your cash to buy stuff you don't really need, and for a while you thought that you have found the secret formula to make money out of nowhere, that is until the new debts start to add up faster than you can borrow more money, and there we have it, the bottom of the pit. Let's take this example to a country level, Uncle Sam takes money from anywhere through bonds because he needs to do so, but the interests of the bonds add up really quickly to the point that we owe half the money we earn and we don't want to stop, this is why we are recently seeing the "government shutdown", that is because the Congress fails to approve the funding for the government operation and agencies, in a desperate effort of making the politicians of country come to their senses, fearing that this time, it might be too late to get back on the right track.
Then, what is the way to go when we owe 47 cents for every dollar we print? well, cut spending and/or increase taxes will do in order to close the gap, but if spending was cut, the people that the government is spending money on would complain that they don't have any money to spend and that it was hurting the economy, on the other hand, if the way to go was to raise taxes, not only people will definitely have less money to spend, but the government would probably would have riots on its hands.
This is why "uncle Sam" chooses the easiest way to get around this, make money, so dollars are created and deposit in banks all around America, the problem is that the more of something there is, the less is worth, the same goes for the US dollar, the more dollars there are, the less each will buy, that is why commodities like gas, food, and gold become more expensive whenever "Uncle Sam" does his "money making magic" the commodities aren't worth more, your money is worth less. That is called inflation.
Remember the foreign countries that lent money to Uncle Sam?, when they lend money to the American government, something interesting happens, it makes the US look richer, and their countries look poorer. when a country looks poor compared to America, one dollar of their money buys a lot of their money, so they can pay their workers a few pennies a day, with such low labor cost, they can sell their products in America for lower prices than any American manufacturer can, so the easiest way for American companies to compete is to move their factories overseas, and pay their workers a few pennies a day too, this contributes to a recession, because Americans lose their jobs, stop paying taxes and start collecting goverment benefits like Medicaid, and unemployement, this means that Uncle Sam has even less income and even more expenses. At the same time, people that still have jobs are desperate to keep them, so they tend to do more work, but not to get paid anymore.
When your dollars are worth-less and you are not earning more of them that is called stagflation, so the US government can't raise taxes or cut spending without causing the recession worse, and it can't have the federal reserve create more money without making inflation worse. For now, it can keep on borrowing money, but since it can pay adequately the interests of the loans it already has, it just makes its inevitable bankruptcy even worse.
Whether if it takes 2 months, 2 years or 2 decades, the day will come, when Uncle Sam can no longer pay his bills, when that happens, the banks, investors, and foreign governments, that were counting on that money, won't be able to pay their bills, because just like Uncle Sam, foreign governments don't actually have much money, mostly, all they have is debt to each other, if one link in the debt chain breaks, the whole thing falls apart. If investors can't pay their bills, corporations won't be able to pay their employees, if banks can't pay their bills, you won't be able to take out a loan, use a credit card, or even withdraw your savings, if foreign governments can't pay their bills, their own banks and corporations will have the same problems, and that is called a "global economic collapse". It has never happened before so nobody knows how bad it will be, for how long we will all suffer or even how eventually get out of it. The house of cards is already being built, there is no painless way to avoid it, so what if we take a little conscience, learn from the past (our ancestors) and start saving more, spending less and do what people in Germany do, working as a team and refusing to take more money for their work in order to save the Eurozone from the crisis. What if my friend, what if.
We all know that the USA is the world's biggest economy (GDP= 18,624.48 billion dollars), actually, the U.S economy is bigger than the BRIC's economies (Brazil-GDP=1,796bn, Russia-GDP=1,283bn, India-GDP=2,264bn, China-GDP=11,199bn, South Africa-GDP=295bn) all put together. But what will it happen if we see it in some other way, how about GDP per person?. China will move down because of its massive population, (China-GDP per Capita=8,481) and the US will still be on top by far (USA-GDP per Capita=59,609), but for how much longer.
So, how would this look like if we see it in a different way, let's think about growth, America has settled for 1.5% (US thinks that it should be enough in order to keep things the way they are forever), while China (9.5%), India (7.8%) South Africa (3.4%) know that they have some impressive growth, it is not enough in order to keep their countries moving. Now, why is this important? Let's find out.
Today's US debt is $20,804,998,625,487 American dollars and it is still growing, not only because politicians keep on borrowing money from other countries, but because of the interests on the money already borrowed. Putting this in a more uncomfortable way, every US citizen owes the rest of the world $ 64,411.76, and the way the US takes most of its debt is by T-bills or U.S Bonds, which yield at 3.03% if issued to mature in 20 years. So, let's round the numbers, Uncle Sam's income is close to 2 trillion dollars but spends 3.8 trillion dollars every year, to make out the difference, he does what most Americans do, he borrows money so we can pay the old debts with new debts. Since this happens every year, our debt is growing at an average of 50% every year. In a perfect world, if we were not paying interests on the obligations we already have or in the future ones for that matter, we would still owe 47.37% of the money we have to foreign countries.
Let's see what we've covered so far, our debt is growing and growing because our very expensive government layout, old debts are being paid with new debts, debt is growing at an average of 50% but we grow at 1.5%. So where are we all heading?. Let's get back to the way we honor our obligations, suppose that you pay your car loan with your credit card for several periods, and it seems to be so easy and comfortable, so you start doing it to your mortgage too and then to everything else plus using your cash to buy stuff you don't really need, and for a while you thought that you have found the secret formula to make money out of nowhere, that is until the new debts start to add up faster than you can borrow more money, and there we have it, the bottom of the pit. Let's take this example to a country level, Uncle Sam takes money from anywhere through bonds because he needs to do so, but the interests of the bonds add up really quickly to the point that we owe half the money we earn and we don't want to stop, this is why we are recently seeing the "government shutdown", that is because the Congress fails to approve the funding for the government operation and agencies, in a desperate effort of making the politicians of country come to their senses, fearing that this time, it might be too late to get back on the right track.
Then, what is the way to go when we owe 47 cents for every dollar we print? well, cut spending and/or increase taxes will do in order to close the gap, but if spending was cut, the people that the government is spending money on would complain that they don't have any money to spend and that it was hurting the economy, on the other hand, if the way to go was to raise taxes, not only people will definitely have less money to spend, but the government would probably would have riots on its hands.
This is why "uncle Sam" chooses the easiest way to get around this, make money, so dollars are created and deposit in banks all around America, the problem is that the more of something there is, the less is worth, the same goes for the US dollar, the more dollars there are, the less each will buy, that is why commodities like gas, food, and gold become more expensive whenever "Uncle Sam" does his "money making magic" the commodities aren't worth more, your money is worth less. That is called inflation.
Remember the foreign countries that lent money to Uncle Sam?, when they lend money to the American government, something interesting happens, it makes the US look richer, and their countries look poorer. when a country looks poor compared to America, one dollar of their money buys a lot of their money, so they can pay their workers a few pennies a day, with such low labor cost, they can sell their products in America for lower prices than any American manufacturer can, so the easiest way for American companies to compete is to move their factories overseas, and pay their workers a few pennies a day too, this contributes to a recession, because Americans lose their jobs, stop paying taxes and start collecting goverment benefits like Medicaid, and unemployement, this means that Uncle Sam has even less income and even more expenses. At the same time, people that still have jobs are desperate to keep them, so they tend to do more work, but not to get paid anymore.
When your dollars are worth-less and you are not earning more of them that is called stagflation, so the US government can't raise taxes or cut spending without causing the recession worse, and it can't have the federal reserve create more money without making inflation worse. For now, it can keep on borrowing money, but since it can pay adequately the interests of the loans it already has, it just makes its inevitable bankruptcy even worse.
Whether if it takes 2 months, 2 years or 2 decades, the day will come, when Uncle Sam can no longer pay his bills, when that happens, the banks, investors, and foreign governments, that were counting on that money, won't be able to pay their bills, because just like Uncle Sam, foreign governments don't actually have much money, mostly, all they have is debt to each other, if one link in the debt chain breaks, the whole thing falls apart. If investors can't pay their bills, corporations won't be able to pay their employees, if banks can't pay their bills, you won't be able to take out a loan, use a credit card, or even withdraw your savings, if foreign governments can't pay their bills, their own banks and corporations will have the same problems, and that is called a "global economic collapse". It has never happened before so nobody knows how bad it will be, for how long we will all suffer or even how eventually get out of it. The house of cards is already being built, there is no painless way to avoid it, so what if we take a little conscience, learn from the past (our ancestors) and start saving more, spending less and do what people in Germany do, working as a team and refusing to take more money for their work in order to save the Eurozone from the crisis. What if my friend, what if.
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