There is a considerable amount of debate in alternative economic circles as to whether a federal government shutdown would be a “good thing” or a “bad thing”. Frankly, even I am partially conflicted. I love to read mainstream news stories about how a shutdown in the capital would be “horrible” because Barack Obama might have to reduce the White House cleaning staff and wash his own laundry:
It’s about time that sellout bastard did something to clean up his own act. I also love the idea of the federal government out of the picture and removed from the U.S. dynamic. Americans need to learn again how to live without the nanny state, even if only for a few weeks, and what better way than to go cold turkey. I can hear the tortured sobs of the socialists now, crying for their SNAP cards and low grade government healthcare. It’s like…beautiful music…
That said, as much as centralized government needs to be erased from the face of the planet, there are, indeed, consequences that must be dealt with. It is foolish to believe otherwise. No social system, and I mean NO SOCIAL SYSTEM, changes without pain to the population. I am not among those that cheer a federal shutdown, because I understand that the only people to ultimately feel suffering will be average citizens, not the establishment itself. The sheeple may be ignorant and blind, but no one deserves the kind of unmitigated hellfire that could rain down upon our country if a shutdown continues for an extended period of time. Call me a humanitarian…
As I write this, mainstream media projections estimate a 90% chance of government shutdown by midnight on September 30th. Though technically, government funds will not run out until October 17th:
We have dealt with this kind of talk before over the past few years, and it’s interesting to see the kind of cynicism that has developed over the idea of a shutdown event. After all, the last time a government shutdown occurred was at the end of 1995, lasting only a couple of weeks into 1996. The GOP has folded so many times over the U.S. budget and debt ceiling that most of the public expects they will obviously do it again. It is certainly possible that the Republicans will roll over, however, I am not so sure of that this time around. Why? Not because Obamacare is on the table. Obamacare is just a distraction. No, I’m far more interested in the circumstances surrounding the U.S. dollar.
Obamacare is designed to fail. Anyone with any financial or mathematical sense could look at the real national debt and deficit projections of the U.S. and understand that there is no money and never will be enough money to fund universal healthcare. The GOP could simply let the program take effect, sit back, and watch it crash and burn over the next three to five years. This would entail, though, watching the whole of our economy crash and burn with it.
What we have developing in front of us is the recipe for a new false paradigm. Already, the MSM is discussing the possibility of debt default and who will be responsible under such circumstances. Not surprisingly “Tea Party” conservatives have been named the primary culprits if a shutdown goes south; even former Democratic president Bill Clinton is getting in on the blame game:
All the bickering over Obamacare is fascinating, I’m sure, but lets set the Affordable Care Act aside for a moment and look at the bigger and more important picture. The private Federal Reserve Bank has just announced to much surprise a complete reversal on its suggested QE “taper” measures, resulting in a shocked and confused marketplace. If the U.S. fiscal system is stable and sound, as the Fed has been suggesting for the past year, then why continue stimulus measures at all? Could it be that most if not all positive economic numbers released by the Fed and the Labor Department are actually fake, and that investors have been duped into assuming overall growth when America is actually in an accelerated decline? Wouldn’t that be a high speed excrement storm straight out of left field!
The first day rally over the Fed announcement faded quickly, resulting in a slow bleed of the Dow ever since. The magic of Fed stimulus is wearing off, and the investment world is not happy. If I were a member of the Federal Reserve Bank, I suppose I would appreciate a large scale distraction designed to take attention away from me and my elitist club-mates as the primary culprits behind the greatest currency implosion in the history of the world.
Sadly, a government shutdown is sizable threat to the American financial system, and few people seem to get it. Perhaps because the expectation is that any shutdown would only be a short term concern. And, this assumption might be correct. But, if a shutdown takes place, and, if “gridlock” continues for an extended period of time, I have little doubt that the U.S economy will experience renewed crisis. Here’s why:
Obamacare only tops a long list of already existing “unfunded liabilities” (otherwise known as entitlement programs). These programs are not counted in the government’s official calculations of national debt or deficit spending, but they cost taxpayers money all the same. True deficit costs and national debt costs expand every year without fail. If the debt ceiling does not rise in accordance with this exponential debt, a default is inevitable. No amount of increased taxes could ever fill the black hole already created by negative government spending.
A long term government shutdown will eventually require cuts in entitlements, if not a total overhaul of certain aid programs. Imagine an end to all disability payments, including veterans disability payments. Imagine federal employee pensions put on hold for an undesignated period of time. Imagine food stamps placed on hiatus for 50 million people. Imagine how many states now rely on federal funding just to keep municipalities from bankruptcy. Get the picture now?
End Of Foreign Faith In U.S. Treasuries
In a disgusting display of propaganda, media outlet Reuters has released an article claiming that, default or not, Asian investors and central banks are “hostage” to U.S. debt:
Their argument essentially revolves around the lie that Asian investors believe an American default to be “unthinkable”. Surely, the unnamed Japanese investment source they cite as an “insider” truly represents the whole of Asia.
The reality is, the Asians (the Chinese in particular) have been preparing for a calamity in the U.S. Treasury market for years.
Most foreign investors in U.S. Treasuries have converted their long term bond holdings to short term bond holdings; meaning, they are ready to liquidate their bonds at a moment’s notice. Overall purchase levels of treasuries are either static, or falling depending on the nation involved.
China has been internationalizing its currency, the Yuan, since 2005. China has opened Yuan “clearing houses in multiple countries to allow faster convertibility of the Yuan, quietly supplanting the dollar as the world reserve currency. These clearing houses now exist in London, Hong Kong, Singapore, Taiwan, and Kenya. The Federal Reserve and international banks like JP Morgan are heavily involved in the internationalization of the Yuan.
The assertion that Asia is somehow hostage to U.S. debt is a fabrication beyond all proportions. In truth, the U.S. economy is actually hostage to Asian holdings of U.S. debt. A call for a dump of U.S. treasury bonds by China, for example, in the face of a U.S. default, would immediately result in a global chain reaction ending in the destruction of the dollar as the world reserve currency. This is not speculation, this is mathematical fact. China is not going to sit back and do nothing while their investment in U.S. debt quickly disintegrates. Why would they take the chance when they could could just sell, sell, sell!
The very idea that Reuters is attempting to twist the fundamentals surrounding a default event leads me to believe a default event may be preordained.
What Will Be Defunded?
Non-essential personnel (which apparently includes Obama’s maids), will be the first to receive a pink slip from the federal government. Extra Pentagon staff, EPA staff, FDA staff, IRS staff, etc will all be cut. Good riddance. But what will follow will not be so pleasant.
If a shutdown stretches for months, expect cuts in all support programs and entitlements. Veterans disability checks, social security, Medicare, employee pensions, even the Postal Service (which has been receiving it’s own brand of bailout in the form of quiet cash infusions from the Federal Government) is likely to undergo defunding. National Parks, and schools that receive federal aid will discover immediate cash-loss. In fact, any state or city that relies on federal funds should plan for the possibility that those funds will disappear.
Military cuts would be at the bottom of the list, but I would not discount the chance of that either.
It cannot be denied; an enormous subsection of the American public is dependent on federal money. If that money dries up, chaos will ensue. I don’t like it, but it is a concern.
A long term shutdown will be catastrophic no matter how you slice it. Foreign creditors will react harshly. The bond market will see a haircut not unlike that given to investors in Greek treasuries. Austerity will become an American way of life. The only mitigating factor will be the Federal Reserve, which I believe may institute “extraordinary measures” without congressional consent in order to continue feeding stimulus into government regardless of whether the debt ceiling is raised or not. Given enough desperation, the American public might even applaud such an action and praise the Fed as “heroic”.
In this situation, the U.S. would be facing a Weimar-style currency collapse, rather than a pure debt default. But in either scenario, the dollar is the final target.
Unfortunately, too many economic analysts presume that the only threat to the dollar’s value is hyperinflation (these are the same people that quote the Fed’s crooked CPI numbers). But the dollar is just as vulnerable to a debt default and loss of reserve status. Devaluation seems to be inevitable regardless of the outcome of the funding debate.
The Republicans could still surrender, and even if they don’t, real damages will not be felt until after October 17th. This is plenty of time to manipulate the public into demanding more spending even when more spending is not in our best interests in the long term. Our greatest concern, though, should be whether or not the establishment is ready to pull the plug on the dollar altogether, using the debt ceiling crisis as cover in order to distract away from the involvement of international banks in the overall problem. There is no doubt given the facts at hand that America is on the edge of a terrible pyre. Is this the event that will finally trigger collapse? We’ll know more in a week…
Incoming search terms:
- government collapse after shutdown october 2013 (1)
- government shutdown collapse us dollar (1)
- will american government shutdown bring world economic collapse (1)