Mathematically Assured Disaster: The Debt And Our Delusions Are Out-Of-Control

“Gold prices rise along with debt. Expect much higher gold prices as the “debt bomb” detonates.” Here’s why…

Quick summary: U.S. debt, spending and deficits are out of control. Thinking otherwise is delusional. The “runaway train” of debt creation will end tragically. Protect your assets from a mathematically assured disaster while you can. Buy and hold silver, gold and platinum.

The national debt of western nations plus Japan is a travesty that threatens national insolvency, a crashing financial system, and social stability!

WHY?

Governments spend more than they extract from their citizens. They borrow the shortfall, a virtual mortgage on the earnings of future generations. This is bad policy, delusional and self-destructive.

From Thomas Jefferson:

“I sincerely believe that banking establishments are more dangerous than standing armies, and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.”

From Herbert Hoover (President 1929 – 1933)

“Blessed are the young, for they shall inherit the national debt.”

Official U.S. government national debt (many other countries are no better) is the debt owed “on the books.” Unfunded liabilities, such as Social Security payments, Medicare, military pensions and upcoming student loan defaults are NOT included. The reality is far worse than indicated by the official national debt.

Plot 50 years of official national debt on a log scale. The trend is unmistakable. National debt has increased exponentially 8% – 9% per year. National debt doubles every eight to nine years.

Official national debt exceeds $21 trillion. Unfunded liabilities are $100 to $230 trillion, depending on who is counting.

BUT SURELY CONGRESS WILL ADDRESS THIS PROBLEM – RIGHT?

1. Name three reasons this 50 year exponential trend will reverse.
2. Name three congresspersons who want to reduce total spending.
3. Name three congresspersons who believe in a balanced budget.
4. Name one president who reduced spending or debt.
5. Name one “three-letter” agency volunteering to reduce their budget so the nation will be more fiscally responsible.
6. Name one defense contractor who wants to reduce their government contracts.

Give up? 0 for 12 is a strong sign that spending, debt, and deficits will increase until a reset occurs.

BUT SURELY OUR CONGRESS AND ADMINISTRATION ARE REDUCING THE DEFICITS EVEN IF THEY DON’T HAVE TOTAL DEBT UNDER CONTROL—RIGHT?

Well, no! The “debt ceiling” is a joke used for political purposes. Neither party wants to reduce spending or manage the nation’s resources.

Plot the deficits (national debt increases) year-by-year on a log scale. Some annual increases were larger than others due to wars, spending stimulus, extraordinary graft, and debt ceiling freezes, but the 50 year trend is clear—larger deficits. Since 1971 the exponential trend shows annual deficits increased on average per year.

(The reported “political deficit” includes only the items that congress wants to count.)

YES, THIS IS A PROBLEM. HOW DO WE FIX IT?

Doug Casey’s list follows. I discussed this topic here.

“In an ideal world there would be some radical changes. The best thing for the US in the (famous) long run is to go “cold turkey.” To abolish the Federal Reserve, fire its thousands of employees with their worthless PhDs. Return to 100% reserve banking with a strict separation of demand and time deposits. Depoliticize money by using gold, not Federal Reserve Notes. And default on the national debt, which is rewarding crony capitalists, and will turn future generations of Americans into serfs. And massively deregulate. And abolish the income tax, while cutting spending 90%. Etc. Etc.

The chances of that happening are exactly zero.”

Our financial system will not change until it collapses or resets, so we must adapt to its insanity.

It is a 5-D problem

• Debt has risen more than 8.5% per year, not counting unfunded liabilities. A 100+ year trend is unlikely to change.
• Deficits: The annual increase in the revenue shortfall has grown 14% per year since 1971, when President Nixon “closed the gold window” and let the dollar’s purchasing power collapse.
• Devaluation of the dollar occurs when the government and central bank create fiat dollars more rapidly than the economy grows. Have prices for steak, oatmeal, beer, cigarettes, new cars, prescription drugs, and political payoffs increased in the past 47 years? Yes, prices are far higher than when President Nixon separated the dollar from gold.
• Demographics: Baby boomers retire every day. Social Security payments and Medicare costs for them are skyrocketing. Expect larger budget deficits for many years.
• Difficult to correct:

1. Both Republicans and Democrats spend more money on pet projects and paybacks to donors.
2. The military wants more weapons systems.
3. Medicare costs are out of control and rising.
4. The U.S. government guarantees student loans. The national debt will increase as those loans default.
5. Congress passed a tax cut and spending increases which will boost the national debt.
6. The coming recession will lower tax revenues and increase other payouts.
7. Interest payments on $21 trillion of debt increase as rates rise.
8. The above will expand deficits and the national debt.
9. The U.S. government and the Federal Reserve have “painted themselves into a corner” with only difficult or next-to-impossible choices remaining, regardless of “happy talk.”

Politicians, presidents and central bankers will not admit they have mismanaged the government, devalued the dollar and created unpayable debt. Regardless, the problem is real, escalating every year and unsolvable. Few in government will discuss it.

In 1971 the price of gold was $42 per ounce. Today $1,330. The national debt in 1971 was $0.4 trillion. Today over $21 trillion. Examine this graph of national debt, the debt ceiling, and gold prices. Gold prices rise along with debt. Expect much higher gold prices as the “debt bomb” detonates.

CONCLUSIONS:

• Official national debt and annual deficits rise exponentially.
• There are few reasons to expect deficits to decline.
• There are many reasons to expect deficits to climb much higher.
• The dollar will devalue as debt and deficits rise.
• Gold and silver prices will rise as the dollar devalues. Their rally will spike higher as people realize the magnitude of the debt problem.

by Gary Christenson of Deviant Investor

One Chart Explains What Bernie Madoff And Kentucky Public Pensions Have In Common

If Bernie Madoff taught us anything it's that every successful ponzi scheme requires precisely one critical component to keep it afloat: a steady stream of fresh capital to fund redemptions.  Absent that key component, even the most carefully crafted ponzi, with the best, most creative accounting fabrications in the world, will inevitably fail from a lack of real, cold, hard cash to keep the illusion going.

Unfortunately, it seems that Kentucky's public pensions are now running into the very same problem that ultimately brought down Madoff's multi-billion dollar 'empire'.  As the Lexington Herald Leader points out today, it's no coincidence that the Kentucky public pension system is suddenly collapsing just as the number of retirees (redemptions) has surged beyond the number of active employees (fresh capital) required to keep the ponzi going.

It’s impossible to know exactly who, where or when, but one day in 2016, a Kentucky state employee packed up her desk, said goodbye to her colleagues and retired.

Once she hit the exit, the number of retirees drawing a pension from the Kentucky Employees Retirement System (Non-Hazardous), the struggling $2.6 billion fund that serves most of state government, officially topped the number of active workers paying into it.

The 60-year-old fund has been mathematically upside down from that day forward.

Social Security, by comparison, has a roughly 3-to-1 ratio of workers supporting retirees, but KERS’ ratio is less than 1 to 1. Its numbers are expected to worsen as state government continues to cut its work force and aging baby boomers keep heading into retirement. The average age of a worker in KERS is 45, up from 43 just a few years ago. And they retire at age 57 on average to draw a lifetime pension.

“You just can’t depend on this model anymore,” said state Sen. Joe Bowen, R-Owensboro.

As Senator Joe Bowen notes, "it creates a cash flow problem"...

Bowen is working with Gov. Matt Bevin and other GOP lawmakers on proposed changes to Kentucky’s public pension systems, which face tens of billions of dollars in unfunded liabilities due to inadequate contributions and unrealistic financial assumptions by state government over much of the past two decades.

Bowen said Wednesday that an outline of their pension proposals could be unveiled within the next week, with a special legislative session to enact those changes possible later this year.

“The model of a defined-benefits plan doesn’t work for us anymore because we can’t raise enough money from this work force to pay for everyone who is going into retirement,” Bowen said. “This is why moving to 401(k) accounts, moving to defined-contribution plans, and then committing to paying down the existing liabilities … that’s really the only option we have.”

“It creates a cash-flow problem,” said David Eager, interim executive director of Kentucky Retirement Systems, which manages KERS (non-hazardous) and other state and local government pension funds. “The benefit payments are going to continue to go up. The contributions are going to continue to go down. That’s just the math of it.”

Of course, the demographics of the Kentucky pension system are hardly unique.  A surge in Baby Boomer retirements over the next couple of decades, combined with technological advancements that ensure that only a fraction of those retirees will have to be replaced with actual human workers, will inevitably result in a wave public pension ponzi failures as they meet with the same "cash flow problem" as Bernie Madoff.

That said, unlike the Madoff ponzi, no one will go to jail when the public pension ponzi schemes of the U.S. are exposed because, for some reason, defrauding taxpayers, as opposed to investors, is perfectly legal.

Fonte: qui