Monday, July 23, 2012

What Happens When Governments No Longer Have Money to Pay Entitlements and Pensions?

Greece is broke. Spain is broke. Portugal is broke. Italy is nearly broke. Bailout requests continue to mount. Many nations simply borrowed heavily to sustain an unsustainable socialist cradle to the grave paradise. Folks are protesting in the streets in big numbers. They are protesting cuts in entitlements. They are protesting cuts in public sector pensions.  They are protesting cuts in healthcare benefits.  They are protesting the lack of jobs.

Demand for Spanish Bonds Collapses; "No Money Left to Pay Services" says Treasury Minister; Massive Protests Over Austerity; Two-Year Yield soars 60 Basis Points

But they can protest all they want. At the end of the day, broke is still broke, bankrupt is still bankrupt and there literally is no money to pay promised benefits. As the debt mounts, more and more revenues are siphoned off just to service the gargantuan debt which in turn decreases the amount of money left over for entitlements.

In France, Francois Holland won an election by promising to tax the rich at a rate of 75%, a campaign promised that he kept.  It's widely believed that such a draconian measure will drive the wealthy out of France and to much friendlier tax abodes.  The panicked Spainards are considering similar measures.

Prepare for Spanish Implosion: Businesses Threaten to Leave Spain Over Tax Hikes; Finance Minister Proposes 56% Tax on Short-Term Financial Transactions

Americans tend to ignore what is happening across the pond because they really don't believe that what is happening in Europe and elsewhere could ever happen in America.  Of  course, Americans are living in a fantasy land but that won't last long and when reality finally hits America it will pack a wallop of a bite.

There are credible signs in America that our delusions will be short lived.  The US is sitting on unfunded liabilities (pensions, SS, Medicare, Medicaid and other entitlements) of over $100 trillion.  This didn't come from Alex Jones.  It came from the Dallas Federal Reserve!
According to our calculations at the Dallas Fed, that unfunded debt of Social Security and Medicare combined has now reached $104 trillion—trillion with a 'T'—in discounted present value. – Richard Fisher, February 10, 2010
There is also the issue of massively underfunded public sector pensions and retirement benefits at the state and municipal level.

Public Sector Pensions Underfunded by $4.6 Trillion - That's a Future Tax Folks

Here's what is really going to happen.  Sooner rather than later, nations and people will simply be forced to start living off what they actually produce and save instead of the debt fueled consumerist economy driven by fiat banksters.

Will it be painful?  Absolutely.  But the alternative of continuing to live the monetary lie will be far more painful as central banks just continue to inflate currencies to the point where folks will need a truckload of greenback just to buy a loaf of bread.

Governments steal from the people by devaluing currencies with inflation.  And yes, citizens are complicit in the schemes so long as they perceive a value for themselves (raking in their share of the plunder).

America has one huge advantage.  The dollar still maintains its lofty status as the world's reserve currency and it's also a petro-currency.  If oil ever starts trading in non-dollar currencies, the dollar is toast and America officially becomes just another failed banana boat republic.  Moreover, there is the issue of our mountain of unsustainable debt and the continued willingness of foreign nations to subsidize our outsized debt fueled fictitious lifestyles.  Many astute financial pundits believe and have documented the fact the foreign nations are quietly and not so quietly shedding Treasuries because they are very concerned about ever getting paid. The simple truth is that America is a Debt Man Walking.   Who is the largest purchaser of Treasuries?  The Federal Reserve!
The Federal Reserve has been the largest buyer of U.S debt in the last three
Economist Peter Schiff has been saying for years that America needs to get back to producing things, learning to save and living within our means.  He's right.  It's precisely how America became the wealthiest and greatest free nation to ever grace the planet.   America once had the most prosperous middle class in all of human history.

We simply blew it by allowing government, banksters, militarists and corporatists to concentrate wealth and power into the hands of a few.  The consequences have been devastating.

Pundits like using the term SHTF (shit its the fan).  When the SHTF what will really happen?  Commodities will become the new temporary currency, especially food, fuel and medicines.  Alternative paradigms of survival will emerge, notably in underground economies that will grow as government becomes powerless.  There are communities in Greece where they barter and use local currency (not the Euro).   Raw and absolute survival instincts will kick in and trump loyalty to the state.

Some folks have put forth the premise that America's failed system of governance and its fascist, crony capitalist economic system must fail if the people are ever going to have the opportunity to rise in liberty and restore their prosperity.  It's a valid premise.

100 years of Keynesian statist economic central planning has effectively obliterated all that once propelled western nations to liberty and prosperity.  The system can't be tweaked or even saved. All that's left is starting over and starting over can only work with sound money and minimal government power.

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