Monday, January 16, 2012

How Bad Will Things Get in the U.S.?

Following up on my warning that we are surrounded in the United States, Doug Casey warns on how bad things might get:
To sum up the situation, given its financial condition and the political forces working to worsen it, the US government is facing a completely impossible and irremediable situation...

Is there any chance that the US government can reform and go back to a sustainable basis at this point? I'd say no. Its descent started in earnest with the Spanish-American War in 1898, when it acquired its first foreign possessions (Cuba, the Philippines, Puerto Rico, etc). It accelerated with the advent of the income tax and the Federal Reserve in 1913. It accelerated further with World War I, when the government took over the economy for 18 months. The New Deal and World War II made the state into a permanent major feature in the average American's life. The Great Society made free food, housing and medical care a feature. The final elimination of any link of the dollar to gold in 1971 ensured ever-increasing levels of currency inflation. The Cold War and a series of undeclared wars (Korea, Viet Nam, Afghanistan and Iraq) cemented the military in place as a permanent focus of the government. And since 9/11, the curve has gone hyperbolic with the War on Terror. It's been said that war is the health of the state. We have lots more war on the way, and that will expand the state's spending. But the Greater Depression
will be an even bigger drain, and it will likely destroy the middle class as an unwelcome bonus.

In all that time, from 1898 to today, there have been no substantial retrenchments of the US government, and the situation is getting worse, on a hyperbolic curve. Trends in motion tend to stay in motion until a genuine crisis changes them, and this trend has been gaining momentum for over a century.

Let's divide people into three classes – rich, poor and middle class. Rich people are going to be okay. They can bribe the politicians to change the laws, hire the lawyers to interpret the laws, the accountants to limit their liabilities, advisors to help them profit from distortions and travel agents to get them out of Dodge. They may get eaten later, but for the moment, don't worry about them.

The poor don't have much to lose, and the government is going to keep throwing benefits at them to keep them happy. That's a shame because it cements them to the bottom as poor people – but that's a topic for another day.

The real danger is to the middle class, and it's a serious matter because the US is a middle-class society. These are people who try to produce more than they consume and save the difference in order to grow wealthier. That formula has worked well up to now – but almost everybody saves dollars. What happens, however, if the dollars are destroyed? It means that most of what they saved disappears, and most of the middle class will disappear with it, at least for that generation. They'll be very unhappy, and they'll be up for some serious changes...

the US government will go bankrupt. That's not the end of the world. Lots of governments have gone bankrupt, some of them numerous times – like almost all of them here in South America, where I am at the moment.

In fact, there's a temptation to look forward to it eagerly. After all, the state is the enemy of any decent human. One might hope that when they bankrupt themselves, maybe we will get to live in a libertarian paradise. But that's not likely the way things will come down; rather, just the opposite. Not all state bankruptcies are just temporary upsets. Most of the great revolutions in history have financial roots. Great revolutions are more than just unpleasant and inconvenient; they're extremely dangerous.

The French Revolution of 1789 was brought on by the financial collapse of the French government. It was a good thing to depose Louis XVI, but things didn't get better – they got much, much worse with Robespierre and then Napoleon. In Germany, the destruction of the German mark in 1923 set the stage for the Nazis – and then the Depression ushered them in. The collapse of the Czar's regime in Russia in 1917 seemed to be good news at first – but then things got worse, and they stayed worse for a long time.

The fact is that when a government collapses, especially when the government is providing all the things the US government does today, people want somebody to fix it; they want their goodies back. It's well known that over 50% of the US population are net recipients of state largess. And the degree of state support and involvement in the US is far, far greater than it was in France, Russia or Germany. After a period of chaos, it's always the people who are most political, who have the most rabid statist ideas who get the public's attention and rise to the top.

It seems highly likely that the US will get a savior, someone full of bravado, who assures the booboisie that he can straighten things out – if he is given sufficient power. Perhaps it will be an arrogant windbag like Gingrich, perhaps some general. The government won't wither away; it will reassert itself. I don't see any way around it, actually. We are already moving into a police state (evidenced most recently by the Senate's Nov. 2 vote allowing the military to indefinitely incarcerate anyone they accuse of terrorism). But at least it's a police state with a fairly high standard of living, one with Walmarts, McDonalds, and SUVs – at least for the time being.

But rest assured that if the situation evolves the way I expect, the standard of living will drop steeply, financial markets are going to become chaotic and the US will become a quite repressive place for some time – at least as long as the War on Terror lasts. I will bet you money on this. In fact, I am betting money on it.
Casey's full commentary with the facts and figures on why the U.S. government will go bankrupt is well worth reading and can be found here.


  1. While I like Casey, I think its foolish to look at things along the lines of economic classes such as rich/middle class/poor as if economic class alone will serve to protect one from the impact of the collapse of western governments. This kind of thinking is unwittingly feeding the Hegelian Dielect used by the Marxist to steer us toward global collectivism. What is going to happen will take down anyone, regardless of class that is not prepared. The AGD was a prime example of this where it wiped out a large majority of very wealthy people (my family included) due to lack of planning. There were only a handful of people that actually benefited from the collapse and many lost what they gained in the '37 collapse.

    As someone that works in the financial field I can tell you that from my view most wealthy people are not prepared for what is coming, and in fact many have faith that the central planners will fix things. The older they are the more they beleive this. You can't even have a conversation like this with a good many of them.

    At the end of the day it will come down to those that acted before the crisis and those that did not. The problem for those that acted before the crisis, will be those that did not.

  2. Democracy always leads to destruction and will never lead to peace and prosperity. Democracy is warfare...It is violence...It is terrorism by the stupid gimme-gimme majority.

  3. How will the government go bankrupt if they can print their own money? That Casey website is hilarious by the way. It reads like a Nigerian Prince scam.

  4. How the government can go bankrupt?

    Easily. There's a natural limit to how much money can be printed - it is called hyperinflation. When the value of money declines fast enough at some point people will try to exchange the money for *any* tangible goods as soon as possible, thus flushing money out of savings and other accounts into circulation... which, by the law of supply and demand makes money even less valuable, which feeds into inflationary death spiral.

    That has happened numerous times.