There are troubling financial signs coming out of Washington and the State Capitols. Deficits, mounting debt, and a poor economy are proving to be a direct threat to the future of our country. Poor economic policies, trillions of dollars in national debt, political bickering, and a fundamental lack of leadership will bring on the dissolution of the United States.
2011 and 2012
The Federal budget for 2011, which runs from October 2010 to September 2011, was finally passed in early April of 2011, six months late. The budget projected the 2011 deficit to be $1.645 trillion and is based on estimated revenues of $2.173 trillion with expenses of $3.818 trillion. The Federal Budget for 2012 is expected to be 3.7 trillion dollars with a deficit of 1.1 trillion dollars. The current national debt is 14.2 trillion dollars and will cross the 15 trillion dollar mark sometime this year. It is simply impossible for the United States to continue spending at this rate.
-Former Fed Chairman Alan Greenspan said the U.S. could face a bond-market crisis if politicians don’t act soon to start cutting the nation’s debt.
-Moody’s Investors Service has been warning Washington that the triple A Sovereign Credit Rating that the United States has could come under pressure if the budget isn’t brought under control.
-The world’s largest bond fund, PIMCO, began betting against U.S. government debt last month and dumped all of their Treasuries.
-The CBO, Congressional Budget Office, says that the growing debt “would increase the probability of a sudden fiscal crisis, during which investors would lose confidence in the government’s ability to manage its budget and the government would thereby lose its ability to borrow at affordable rates.”
The Presidential Election
The Republican candidate’s chances of being elected will be hurt by conservative independents and the Tea Party, much in the same way that President Bush (41) was hurt by Ross Perot’s Presidential run in 1992. In the end, President Obama will be re-elected to a second term. Afterwards, President Obama will feel justified that the people backed his fiscal policies and a tax hike will be in the works.
By late 2012, business owners will realize that they will need to adjust their business practices to compensate for higher taxes, mandatory health insurance, and the rising costs of doing business in the United States. Investors will seek out better yielding investments in Asia and South America. And the wealthy will begin to leave out of fear of higher taxes. These things are already happening, but the pace will increase after the election.
By January 2013, the stage will be set for a perfect economic storm. Winter is typically bad for retail, real estate, and construction. But, after the Christmas season of 2012, many small retail business owners and retailers will realize that they are better off cashing in and closing the doors while they still can. Large businesses will try to relocate where the business environment is better. The real estate market will continue to be bad through 2013, but now the commercial real estate market will turn south. With empty houses, businesses, and factories, the construction market will take a body blow. Shaken by all the data streaming in, investors wanting to preserve their gains will seek a way out. Banks will be reluctant to provide business loans to individuals and businesses in these markets fearing default. By spring of 2013 America will dip back into a recession. For the businesses and retailers that hold-on to the hope of a good Christmas season in 2013, there will only be disappointment.
By early 2014, the deteriorating economy will start to “snow ball”. The lack of people with good paying jobs coupled with the fear of becoming unemployed will keep people from spending. With higher interest rates on Treasuries, the dollar will start to fall, making goods and oil from overseas more expensive. Higher oil will mean high gas and diesel, making products and services even higher than they already are.
Washington and the state capitols will have their hands tied by the lack of tax revenue, payments to entitlements, and a mountain of debt. Some will argue for another economic stimulus, but new Treasuries will be difficult to auction without an even higher interest rate. Some will argue for a reduction in spending, but that would be an additional blow to the economy.
By April 2015, the national debt is predicted to be 22.4 trillion dollars and the debt to GDP ratio will be 133%. The breaking point will come when nobody has any faith in U.S. Treasuries and they refuse to purchase them or if Washington defaults on its financial obligations. If the United States defaults on the Treasuries that are currently in the market, an economic collapse will follow. Banks, Investment Funds, Pension Funds, Individuals, and Countries will go bankrupt if this happens. The Dollar will become worthless. The economic collapse of 2015 will make the stock market crash of 1929 seem like a small bump in the road. The effects of the economic collapse will be felt around the world, as if a financial comet hit the planet.
An economic collapse will bring a political collapse. With decreased tax revenue and the inability to auction Treasuries, Washington and the state capitols will be powerless. The recent near shutdown of the government showed just how far reaching the collapse would be. Hundreds of thousands of state and federal workers would be furloughed. Emergency workers would be required to remain on the job, but Hurricane Katrina showed us just how fast the police and medical workers would abandon their posts.
There will come a time that individual states will feel better off with out the federal government. Several states already have secessionist parties wanting to form independent republics, including Alaska, California, and Texas. When the states start to vote on whether they stay in the union or not, we will witness the end of the United States, much in the same way we watched the Soviet Union Collapse.
I write this with the hope of offering a realistic timetable of events and how I think the cards are going to fall. I hope this gives people a way to plan for what I think is coming. Conditions might change that would speed up or slow down future events, but in the end, the United States will fall.