Why The U.S. Dollar Will End In Collapse
David Levenstein: The U.S. government has begun a partial shutdown for the first time in 17 years, after the two houses of Congress failed to agree a budget. The Republican-led House of Representatives insisted on delaying Mr Obama’s healthcare reform – dubbed Obamacare – as a condition for passing a bill. More than 800,000 federal employees face unpaid leave with no guarantee of back pay once the deadlock is over. The Senate is to meet again at 09:30 (13:30 GMT) on Tuesday, Democratic Senate Majority Leader Harry Reid said.
The news prompted a sell-off in gold on the opening of the US session on Comex. Possibly, traders see this as a short-term opportunity to knock the price down as the possibility of a total shut-down and a US default is practically impossible. However, this latest clown show will undoubtedly cast a shadow of doubt on the value of the US dollar.
Several Federal agencies have been instructed to reduce services after US lawmakers could not break a political stalemate. But spending for essential functions related to national security and public safety will continue, including pay for U.S. military troops. The fiasco has sparked new questions about the ability of a deeply divided Congress to perform its most basic functions.
At this stage, it is unclear how long the shutdown may last and so far there is no clear plan to break the impasse. The Senate has planned to recess today until 9:30 a.m., at which time Democrats expect to formally reject the House of Representatives’ latest offer for funding the government. The shutdown will continue until Congress resolves its differences, which could be days or months. But the conflict could spill over into the more crucial dispute over raising the federal government’s borrowing authority.
The current disagreement is over Obamacare – Obama’s health care initiative. The goal of Obamacare is to increase the number of Americans with insurance. In short, everyone is now eligible for insurance. And not just eligible… it is compulsory. All Americans must carry a minimum level of insurance by January 1. If you don’t, you will be fined the greater of $95 or 1% of your annual income. The launch of Obamacare comes at a time when the official national debt of the United States is about $17 trillion and the national deficit is some $1 trillion per year. When Obama was elected in 2008, the official national debt stood at only $10 trillion. That means the Obama Administration has added more than $7 trillion in debt in only five years.
A failure to raise the $16.7 trillion debt ceiling would force the country to default on its obligations, dealing a potentially painful blow to the economy and sending shockwaves around global markets.
While mainstream media proclaim victory for the Obama administration because of a supposedly “shrinking” deficit, what they either fail to mention or are too stupid to understand is that the official reporting of the deficit does not account for real deficit expenditures each year. The official deficit does not include “unfunded liabilities,” like Social Security and Medicare, or off-book agencies like Fannie Mae and Freddie Mac. If one were to calculate the true national debt, of the US including “unfunded liabilities,” it could well be in the region of anywhere from $120 trillion to more than $200 trillion.
The question remains is how is this going to be funded. The total revenue from taxes won’t be sufficient. So, what about foreign treasury investment? At this time it seems that investors are more likely to sell their holdings of US debt than buy more. U.S. Treasury holdings by foreign creditors witnessed a record sell-off in June of this year.
The majority of all Treasury purchases by foreign investors are short-term bonds, meaning international faith in America’s ability to cover its debts has fallen considerably. Creditors now want only bonds that mature quickly, so that they can be liquidated at a moment’s notice. Foreign investment in the United States is currently either static or dropping, depending on the country, meaning no extra cash flow for the US government.
No matter how this drama plays out, there is another one about to start… It’s the new battle over the debt ceiling that Congress and the White House are due to have in a couple weeks.
Meanwhile, what I find absolutely fascinating, is while these political clowns can’t agree on some major issue, threatening their own government, they are all quick to agree on a policy that does not pose such a serious threat and which is pretty much meaningless to the average US individual. For now, that issue has disappeared, but for a few weeks it was in the headlines. If you haven’t already guessed what I am on about, it is the situation in Syria.