Robbing Peter to Pay…Peter
Government spending is so bad and so out of control that “we” already owe ourselves more than $222 trillion dollars. That’s the true “fiscal gap” between America’s assets and its liabilities, according to Boston University Professor of Economics Lawrence Kotlikoff, who reviewed CBO numbers to arrive at such a stunning figure.
You’d think the government would simply stop spending; that’s what any responsible individual or company does when the amount of money they owe exceeds what they make.
But Congress can’t…they’ve socialized risk. The only way to keep the Ponzi scheme going is to keep handing out freebies. “They” just hope the bluff is called on the next guy’s watch.
And that brings me back to President Obama’s proposal.
The government has to sell debt to fund its operations. Right now it relies on an international network of buyers who are growing weary of the United States’ fiscal policies and leery of its ability to pay back those obligations. What better way to ensure you have buyers than to create a captive monetary pool?
President Obama’s plan, or at least some version of it, will pass in the next few years. Then, when it doesn’t work, the government will step in to save the day by allowing exemptions and special tax-advantaged contributions under the guise of offering better financial security if – ta da- they are in the form of Treasury purchases. Chances are they’ll play the “patriotic” card too while they’re at it.
This would not only maintain the cap the president seeks but also ensure that even higher levels of debt are effectively monetized without resistance.
You’d think I’m describing something from George Orwell’s “1984″ but I’m not.
Japan has done this for years. Few people understand that one of the primary reasons that nation has not totally collapsed as a result of their financial crisis is that an estimated 95% of workers and retirees own Japanese government bonds. Therefore the combined public, private and corporate debt that’s nearly 500% of GDP is almost irrelevant.
Bernanke and the president could only dream of having that kind of spending power.
Then again, perhaps they already do…
I’ll be monitoring this situation closely in the weeks ahead – as you might imagine, everybody literally has something to lose.
But you know what?
Savvy investors have something to gain, too, which is why I’ll be back in touch with information on where to stash your cash and what structures you can use to protect your assets. I’ll also have more on specific investments that are going to benefit from this.
Somebody, as the old saying goes, is gonna make a pile of money.
It might as well be us.