E USD Has Crossed The “Event Horizon”.

The “event horizon” is a term used in astronomy that describes an imaginary point some distance from a black hole in the center of a galaxy where the gravitational force becomes so strong that any heavenly body which crosses that point (visualized as a circle around the black hole) cannot escape the hole’s gravitational pull, and matter is inexorably pulled into the black hole destroying it completely. This is an apt analogue to the continuous and increasing printing of fiat currency where once an astronomic amount of debt is issued creating the currency, it then starts to lose purchasing value such that it is no longer possible for it not to lose all or most of its value, and it collapses on itself.  Similar to stellar mass being destroyed in the case of black holes, the currency and its purchasing value is completely or mostly destroyed.

This article proposes that the unrelenting growth of national debt, which is the basis for currency creation has reached a global inflection level such that the value of fiat currencies across the globe, with several notable country exceptions, are drawn into a whirlpool of decline that will ultimately result in its near-complete loss of value. 

The problem of deficit spending

It seems unnecessary to cite the number of decades over which government budget deficits have persisted - nor their size, since fundamentals have been insistently ignored by politicians, economists, and investors. Our government increases national debt simply by selling more Treasury bonds to foreign and domestic investors (or the Federal Reserve), incurring this increasing liability for which citizens are responsible to service and ultimately pay off. 

When a government issues additional debt that is not benefiting its citizens or oppresses them, it is known as odious debt – which is deemed as illegitimate. Since the persistent growth of debt is debauching the value of currency and decreasing its purchase value, it is not benefiting its citizens. Our government, for the purpose of more easily servicing its mountain of debt, has also caused the Federal Reserve to suppress interest rates which is also financially oppressing citizens. Savings of citizens essentially earn no interest, and pension funds become increasingly underfunded undermining their future welfare. Simply odious.

Consider, for example, the evaluation that a mortgage lender makes in approving a loan for a home purchaser. The maximum loan approval amount will relate to the income of the borrower. Historically, such loan amounts – excluding special considerations - have topped out at approximately 2.5 times the income of the borrower. It is true that the government and its borrowing power are quite different from that of an individual citizen, so direct comparisons can be fraught with distortions. However, it is well to keep in mind that government’s only income comes from taxes. In addition, the national debt that needs to be serviced by taxes on individual citizens must largely come from citizens who already have borrowed nearly to their limit when receiving a mortgage loan.   

In 2019, the U.S. government collected $3.5 trillion in taxes, whereas the federal debt clock currently stands at $27.8 trillion – an income to debt ratio of 7.9. In addition, the nation’s new political administration has already proposed additional spending of $1.9 trillion, partially to cope with the economic hardship related to the coronavirus epidemic. Additional spending, in trillions, will occur as the nation tries to cope with a still, almost national lockdown of business and manufacturing enterprises, and soon to be acknowledged economic depression. See Gold’s Role in the Greater Depression of 2020.

Credit defaults across the industry including hospitality, airlines, commercial real estate such as offices, malls, retail stores, and corporate defaults of highly leveraged balance sheets – the so-called zombie companies, guarantee that our national debt cannot and will not ever be repaid. Credit and bond defaults, domestically and internationally, will cause a worldwide banking crisis.It will be a crisis of such scale, that it cannot be papered over by FED or other central bank liquidity, quantitative easing, or massive printing programs. The notion that the Federal Reserve can print dollars to pay off our national debt is theoretically, if unethically, possible. Remember that all government debt has been serviced by hard-earned income from millions of Americans laboring billions of hours. So if the Federal Reserve were to simply print the currency to pay off federal debt, such an action will come at the price of destroying faith or confidence in the dollar currency globally and would render the dollar immediately valueless.  

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and ...

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