As former Comptroller General David Walker told 60 Minutes, the unfunded liabilities of entitlement programs, especially Medicare, are so huge that even shutting down the Pentagon would not help significantly. He states that leaving this huge debt to the next generation is morally wrong. He does not, however, address the question of who will continue to lend us the money that subsequent generations will have to repay. Apparently, it has been assumed that the funds would be forthcoming.
If the U.S. loses its triple-A credit rating—which is the anchor of the world financial system—severe global consequences would follow. This could occur within a decade (Francesco Guerrera et al., Financial Times 1/11/08).
The subprime mortgage crisis has exposed much deeper concerns. As more borrowers defaulted, banks and other institutional investors began discovering that they owned huge quantities of a new security, collateralized debt obligations or CDOs, which many financial writers don’t even understand. CDOs quickly became the most important influence on home values in America, writes Stephen Mihm (“The Black Box Economy,” Boston Globe 1/27/08).
Mortgage-driven securities are “but the tip of a much larger iceberg,” Mihm observes. Quoting Bill Gross, manager of the world’s largest bond mutual fund, he writes: “Our modern shadow banking system craftily dodges the reserve requirements of traditional institutions and promotes a chain letter, pyramid scheme of leverage, based in many cases on no reserve cushion whatsoever.”
We could see “failing banks, busted brokerages, toppled corporate giants, bankrupt cities, states in default, foreign creditors cashing out of U.S. securities,” warns Gerald Celente, director of the Trends Research Institute in Rhinebeck, N.Y. He predicts that the dollar will bottom out at 10 cents on the euro, perhaps by 2010, and notes that even some Third-World vendors are refusing payment in greenbacks. Formerly invited onto television and cable networks, Celente is now shunned, and USA Today did not cover the Trends Report for the first time in decades, writes Christopher Ketchum (“Trends for Downsizing the U.S.: the Bright Side of the Panic of ’08,” Pacific Free Press 1/31/08).
Arthur Robinson notes an immediate problem: 30% of U.S. energy is now produced abroad, costing $400 billion per year. “Either the government gets off the backs of our energy industries—especially our hydrocarbon and nuclear energy industries, or else the citizens of the United States will become the bankrupt inhabitants of a low-technology country” (Access to Energy, November 2007). Oil and gas that we now import will be purchased by “countries who are able to pay with goods and services and real money, rather than unpayable debt and fiat money.”
Of all the presidential candidates, only Ron Paul has acknowledged the seriousness of the impending economic crisis. The stimulus package will not do the job, he says. “Unfortunately, too many in Washington still believe that we can spend our way into prosperity. This will not work and never has.” Business and jobs go overseas when “taxes bleed away profits and burdensome regulation hamstrings operations,” Paul writes (Ron Paul’s Texas Straight Talk 1/27/08).
Additional information:
- “Leveling,” AAPS News, March 2008
- “U.S. Suffers from Fiscal Cancer, States U.S. Comptroller David Walker,” AAPS News of the Day 1/23/08.
- “The Eve of Destruction?” Civil Defense Perspectives, January 2008.“Environmental Effects of Increased Atmospheric Carbon Dioxide,” by Arthur B. Robinson, Ph.D., Noah E. Robinson, Ph.D., and Willie Soon, Ph.D., J Am Phys Surg, Fall 2007.
