Sunday, November 10, 2013

When Will the Final Collapse of the US Economy Occur?

By Robert Wenzel

Bionic Mosquito has a very important article discussing the eventual collapse of the US economy. He writes:
Rothbard, from the final chapter of his book “For a New Liberty”:
“Indeed, we can confidently say that the United States has now entered a permanent crisis situation, and we can even pinpoint the years of origin of that crisis: 1973–1975. Happily for the cause of liberty, not only has a crisis of statism arrived in the United States, but it has fortuitously struck across the board of society, in many different spheres of life at about the same time.”
This was almost forty years ago – and it has been more than forty years since Nixon dumped gold. Yet, “the creativity and shell game trickery of the central planners” has found no limits. In the grand sweep of economic history, is 2008 a bigger shock than 1971? I think not. In a couple of centuries, when the follies of this time are chronicled, which chapter will get more attention? Yet the world has continued spinning, for 42 years and counting.[...]To close on a positive note: this will eventually end, as it must – with a breakdown of the state and centralized control. It just may not be as fast as many advertise or hope, but it is certain to come.
It should be noted that Bionic is for the most part discussing the business cycle and government debt. As far as the business cycle goes, it should remembered that it is a boom and bust cycle. As long as the Fed stops printing everyonce and awhile, for a bit, before serious price inflation develops, there is no reason it can not continue the boom-bust cycles for decades, perhaps centuries (See, for example, 1929, 1979-80, 2008) . There need be no ultimate collapse.

That said, the Fed has been able to get away with a lot more money printing than other central banks because the dollar is an international reserve currency. If foreign central banks choose to no longer add to their dollar postilions and indeed liquidate the positions they hold, this could bring on a massive collapse of the dollar with serious price inflation repercussions in the US. It could feel very much like a final collapse.

But there is much more to the economy than just monetary policy. Serious problems can arise in a number of ways. Unemployment is higher now in the US for a number of reasons, from minimum wage laws to the government, through unemployment  payments, providing incentive for people to not work. All this stagnates the economy.

In another part of the economy, Obamacare will stagnate the healthcare sector.

Perhaps, the most dangerous thing that could occur is if price inflation heats up because of more Fed printing or foreigners dumping dollars (or both). If the response to climbing prices is  the government instituting price controls, it could be very destructive to the economy and bring the economy to very low levels. Products could literally disappear off the shelves within days. Again, another situation where the economy could feel very much like in a final collapse.

It will be specific circumstances, though, as to how bad the economy gets and why. There is nothing that guarantees a final collapse.

Bottom line; There are many problems that could develop in the economy because of government interventions, some worse than others. Hardly any will lead to what could be thought of as a final collapse, but most will result in serious deterioration in the standard of living for most Americans. What most think of as a final collapse, say along Soviet Union style, is unlikely to occur in the US until things get much, much worse. The global dollar overhang is probably the most dangerous threat right now. That  could turn into a problem tomorrow or 10 years from now. However, it is the growing intervention in all aspects of the economy that is most likely to lead to a final collapse as the economy is suffocated, but this remains far off--much, much decline will occur first.


I should add that another serious problem could develop if interest rates rise dramatically and force the government to increase its borrowing significantly. At that point, the Fed will be pressured to buy eve more Treasury debt with newly printed money. This will make it even more difficult for the Fed to create periods of slow money growth and could result in accelerating price inflation, leading to a fast deterioration of the economy.

Also, as a commenter below has pointed out, the expanding cost of entitlement programs is likely to add to Treasury borrowings, making it difficult, from this direction, for the Fed to slow money printing.

 Robert Wenzel is Editor & Publisher at and at Target Liberty. He is also author of The Fed Flunks: My Speech at the New York Federal Reserve Bank. Follow him on twitter:@wenzeleconomics


  1. I agree that monetary collapse could last for many years. What bothers me is technological advances in nuclear and biological weapons. Hydrogen bombs are thousands of times more powerful that what was dropped on Japan. Germ warfare advances that could infect the entire species and render it extinct. And, the scariest thing of all ...political action designed to make it happen.

    1. You know U.S. will invade and attack any country that doesn't agree with the dollar. Iran, Afganistan, Syria, Egypt , and ect... we won't go down without a fight....

    2. No you were under International Bankers Orders silly.

    3. Iran, Afganistan, Syria, Egypt, ant then, Russia, China, France and Germany. Banksters won't go down without destroy all the planet (militarily, economically and ecologically). You've got big responsabilites americans guys, but you are so stupids (like europeans, we are all bankster's slaves and "agree" with that)

    4. I feel sad for the good american ppl with good intentions, but I do hope you ppl agree, there is no other option but going down with such a leadership. The corruption must stop in that country (who barely exists a few generations) Borrowing money everywhere to make war, far enough from home in countries like Irak and blaming ppl who THEY don't like. Bring down the big families who are hiding in there big protected (by the small man) mansions and castles. Track them down with no opportunity to escape anymore by giving ppl some (false) dollars to buyback there freedom. Remember! OBAMA DOESN'T CARE, HE NEVER DID AND HE NEVER WILL! Neighter that small ugly bug, his good friend Mister BUSH who think he can kill ppl and call them terrorist, just to become even more rich buy stealing the 'black gold' called oil. To all american ppl who DO care, bring in those scumbags who are only willing to intend to kill your sons, daughters and other beloved ppl who are against their lovely laws (written by their death cold hands)!
      PS. I'm not american, neighter English so forgive me my bad English!

    5. Honestly,
      your English is better than most of us Americans... No pardon required =)

  2. Bob, the one aspect of this fine analysis that is missing is the eventual bankruptcy of the federal government. With all the dependency being created by the feds, the eventual calamity of default or, more likely, the worthlessness of future transfer payments to dependent constutuences will create certain violence in many areas, and, as an addition to the problems you have pointed out, might look like the final collapse.

    Also, don't rule out war as a possible scenario in this dystopian future, brought to us all by the violent lying thieves of government

  3. Bob please comment on what anonynous said about the role of violence due to the failure of future transfer payments and the possible martial law that could be implemented. I believe that its closer than most think. Your thoughts?

  4. There is still plenty of wealth out there to plunder.
    The former USSR succeeded in confiscating 95% from each individual.
    The USSA has a good 25% to go.
    And they will.

    1. Very good point. The collapse of the USSR seems only inevitable because it happened. If the USSR had avoided the Afghanistan fiasco, they might have limped along for another decade, perhaps two. That would have put them in the expensive oil era, and with oil at 50-100$ per barrel, they might have been able to finance themselves for another 20 years or so after that. Especially as they would control all the central Asian oil and gas as well.

      And if they were smart, they could have gradually reintroduced market capitalism ala China. Far from perfect but way better than what they had. And I think that may be what Gorbachev hoped to do in the 1980s.

      OTOH, the US seems hell bent on global domination, and will spend whatever they have to to get. As they fail, and as competitor nations grow stronger and form alliances, this will prove more and more expensive. That will definitely speed up collapse, though by how much who can say?

  5. I envy BioMisq. I wish I was as insightful, eloquent and intelligent.

  6. By chance I happened on this post after these several weeks, and only now am seeing some of the comments. I would like to address a couple of these, both found in this one post:

    Anonymous November 10, 2013 at 12:30 PM

    “Bob, the one aspect of this fine analysis that is missing is the eventual bankruptcy of the federal government. With all the dependency being created by the feds, the eventual calamity of default or, more likely, the worthlessness of future transfer payments to dependent constutuences will create certain violence in many areas, and, as an addition to the problems you have pointed out, might look like the final collapse.”

    I think about default – a real, no kidding default. I think central banks will write off (or perpetually roll-over) all government bonds on their books. This can delay, but not eliminate, the day of reckoning.

    As to the possibility of violence bringing on the final collapse, I touch on this – perhaps tangentially?

    From my original article on the subject:

    “It seems to me that the solution to this possibility of a perpetual motion money machine might only come when there are too many dependent relative to the number of independent – largely, but not solely, driven by demographics.”

    In other words, increases in productivity by the independent can no longer satisfy the needs of the growing number of dependent non-productive. For what I mean by “dependent” and “independent,” see here:

  7. The ability for the fed to control the increase in short term and long term interest rates is over. The rest of the world will begin to dump dollars, as the United States Government has no way to inflate or payback any debt. The Federal Reserve has sold all of its gold holdings which includes gold held by all of our Allies. The collapse will begin yet this year. My predictions are between June and August. David Lewenz

  8. Omigosh. I can't believe the New York Times rhetoric that's being regurgitated in response to this post. The same ideology that helped foist the debilitating healthcare program will be same ideology that demonizes the inevitable havoc wreaked on both the 2 percent and the 98 percent.

  9. Get ready for it . It just a matter of time and the USA will collaspse . We didn't learn from history. We are just like the Roman Empire

  10. God help us all as the country that thought it was helping the world did just the opposite. It has been lead by crooks for so many yre the people have lost what really is happening. I pray that the world will forgive us for being so stupid. Thomas Jefferson said it yrs ago that the government would overtake the people .

    1. yes they already have taken over now they will make there rules of law ,look out people,the guilotenes are all greased up and sharpened!

  11. I would be getting my investments out of America. I am predicting acollapse of the US economy, Around Spring.