In this multi-part set of entries, I will do my best to summarize why Peter Schiff and Gerald Celente are predicting very hard times for the USA. Listening to economists and trends predictors talk does take time and requires a person to focus and do a lot of background research to understand where they are coming from.

I’ll give it my best shot to summarize the key components as to why the predictions are for a near total collapse of the USA economic system. It breaks down into the categories of government and personal finances, government intervention and attempts to control the market, the (un)intended consequences on the prosperity of the nation, the unfunded entitlement programs, and the crippling blow the proposed cap & trade will have on the economy.

Let me start with the personal and government finances.

On the personal finances, all of us know that you can’t spend more than you make without going into debt. Debt can very easily spiral out of control as payments on the debt remove your ability to fund other items leading into a deadly financial cycle. Many in the USA have hit this wall of having the need to dig out of debt and start saving up for other purchases or debt reduction.

All government in the USA does not have money. The government does not generate money. It takes money from one source (taxpayers) and gives it to a different source.

State government finances are very similar to our personal finances. They are limited to what their income is. If they spend more than they generate, then they are in debt and have to cover the difference. Again, interest on loans and payments on the loans eat into their available budget amounts and reduce what they can do. Just like many in the USA, the budgets are tight and cannot stand much change or the delicate balance is thrown off and they end up with issues like what California is dealing with.

The Federal Government is limited to generating income through taxes, loans, and printing more money. Taxes are not a viable option for a number of reasons. Raising income taxes on the employed work force can literally break the back of the economy as many are working to make ends meet with the increased costs of food, fuel, and heating. Raising taxes on business only results in layoffs as companies that are public need to make their projected profit margins to keep the stockholders happy or lose more money when their stock gets sold. Small businesses are often running tight budgets so any increase in expenses will require a decrease in personnel. Either that or the costs get shifted to the consumer – you and me.

The Federal Government can no longer turn to loans as the USA is swiftly becoming a bad credit risk or those loaning the money do not think the USA will be able to pay it back. That means they will not loan money to the USA, especially if it looks like the USA is in decline and may default on the loan. Further, these loans come at the cost of interest to be paid by us, the taxpayers. According to the Comptroller of the USA, the level of entitlement promises and interest payments is unsustainable. We can’t take on more debt.

The only option left is printing more money, but this brings with it many more problems. First, the US Congress and the President of 1913 voted to give the printing of money to the newly created Federal Reserve. However, the Federal Reserve then charges the US Government interest on the money it prints when the Congress was able to do so for free of charge under the US Constitution. Now, the more money that is printed, the less worth a dollar has. This goes to the basic Law of Supply and Demand. The more there is, the less it is worth. The more bailouts and spending money like mad that they do, the less our dollars can purchase and the more likely inflation will skyrocket and prices will go up quickly. Businesses will not absorb those costs for the same reason as they can’t absorb new taxes. In the end, we pay the price as consumers as our money buys less and our employers have less for pay raises.

Thanks,

Anah