4. THE ON-GOING POLITICAL PARALYSIS
"The budgetary constraints which I have just discussed," said Nielson, "have all been of the ‘economic' variety but it is U.S. political constraints which are an even bigger obstacle in beginning to address the massive, triple-problem of U.S. insolvency: debts, deficits, and liabilities."
Nielson pointed out that "decades of gerrymandering have transformed roughly 80% of U.S. electoral districts into the permanent holdings of one or the other of the two U.S. political parties. As such, the candidates of the favoured party are essentially guaranteed seat for life and this eliminates any incentive for them to produce positive results for their own constituents - other than bringing home the ‘pork'. As a result, partisan politics has taken precedence over any, and all, other considerations in the U.S. and regretfully, the #1 rule of partisan politics is to never allow the party in power to accomplish anything good of significance.
The one exception to this scenario of total indifference is the American Association for Retired Persons (AARP) which is not only the largest voting bloc in the U.S., but it is comprised of the only segment of the U.S. electorate which has a consistently high "turn-out" in every election. Not surprisingly, their two most important issues are Social Security and Medicare - the two social programs which are 100% certain to bankrupt the U.S. economy. Barring a complete "metamorphosis" of the entire U.S. political system, these "unfunded liabilities" are essentially carved in stone, since they are the only issues where doing something unpopular could threaten the security of the sitting politician and this leaves current and future U.S. governments with nothing but terrible options."
Nielson maintained that the current situation demands that the government either:
1. Fully ‘fund' all these entitlement programs by printing up countless trillions of new dollars - which is the only possible way to cover those entitlements 100% or
2. Slash entitlements - and lose their own cushy positions - which would suck trillions of dollars out of the economy and result in a debt-implosion which would "make the death of the former Soviet Union look like a picnic."
"If the U.S. does not commit to one or the other of these actions the U.S. will likely suffer the worst of both worlds - hyperinflationary depression", he concluded.
5. THE PREFERENCE FOR HYPERINFLATION
Nielson sees hyperinflation as more than just soaring prices. He sees it as "a crisis of confidence with respect to the currency in question, and the beginning of a death-spiral for that currency" going on to say: "When a currency starts to rapidly lose value the government is forced to print up vast quantities of new currency to subsidize the depleted wealth of its citizens - so they literally do not starve to death. Then, that excessive money printing leads to an even more rapid rate of devaluation for the currency, and this vicious circle gets more and more severe. In virtually every example in history, such currencies effectively go to zero."
Nielson maintained that "hyperinflation likely is the inevitable course on which the U.S. is headed. Not only is the Federal Reserve under extreme pressure to continue to print countless trillions of new dollars, but hyperinflation ‘solves' the twin problems of massive, current debts and completely unpayable entitlement programs. The debts would get ‘paid' and the entitlements would be ‘funded'. That being said, the paper money used to do this would have only a minute fraction of its former value because, since hyperinflation causes a currency to move toward zero, all debts and liabilities expressed in that currency also become effectively worthless. As such, a very strong argument can be made that the U.S. will choose the informal ‘default' of a hyperinflation, rather than suffer a formal default - and a resultant debt-implosion."
Nielson laid out in no uncertain terms that "History is clear: the devastation of hyperinflation will destroy the wealth of average Americans to an even greater degree than through suffering the ravages of a deflationary implosion - although the former would preserve the "paper empire" of the Wall Street banks who have been dictating U.S. economic policy. As such, is there really any doubt as to what direction the government, unduly influenced by the country's financial oligarchy, is going to take?"
6. THE CURRENT DEFLATIONARY ENVIRONMENT
In order to delay inflation from ravaging the U.S. economy, however, Nielson believes that "the U.S. government is currently playing a very dangerous game - essentially starving the entire U.S. economy of capital. Bank lending is falling at the fastest rate in U.S. history because the banks are refusing to lend money to U.S. businesses, despite their promises to do the exact opposite. They prefer to keep most of the bail-out money ‘on deposit' at the Federal Reserve in what is literally nothing more than a ‘savings account'. That's where the Federal Reserve has been ‘borrowing' the money to buy up trillions of dollars of worthless U.S. mortgage bonds. The rest of the bankers' money is then used to ‘play the markets' with their proprietary trading", concluded Nielson.
7. THE LACK OF A VIBRANT ECONOMY
Nielson believes that those who insist that the ‘mighty' U.S. economy will ‘bounce back' as it always has in the past - that the U.S. will "grow" its way out of its huge debt/deficit crisis - don't seem to realize, with more than 50% of every new dollar of U.S. debt simply being interest payments on the old debt, that the U.S. economy will not be able to grow much, if at all - let alone at the above-average rate which is required just to produce enough revenues to service all that debt.
The U.S. economy is supposedly growing at more than a 5% rate, which is equivalent to an "economic boom" for any economy other than China's, said Nielson but "to borrow an old line: "where's the beef?" U.S. government revenues for all three levels of government are plummeting downward at an accelerating rate, so how can the economy be "booming" if no one is generating any tax receipts for the government? The fact is that, with the U.S. carrying the heaviest debt-load in its history, and an ever-larger portion of every dollar consumed just paying interest, the overall U.S. economy would have to be operating at a higher rate of activity than has been ‘normal' in the past just to achieve average growth. Can anyone really suggest that the U.S. economy is currently stronger than normal?"
A DEBT TRAP IN THE MAKING
Nielson concluded his remarks by saying, "With the U.S. economy currently carrying over $60 trillion in total public/private debt just raising U.S. interest rates only 1% would drain an extra $600 billion per year out of the U.S. economy in additional interest payments - an equivalent drop of 5% in U.S. GDP - and that would be the case even before factoring in the ‘multiplier effect' of sucking that much money out of the economy - and every 1% hike would inflict a similar, but compounded, amount of damage on the U.S. economy. Frankly, it is very likely that even a 1% increase in current U.S. interest rates would be enough to send the U.S. economy into an immediate deflationary spiral."
CONCLUSION
Nielson concluded in another article I wrote recently about his views that, "In a deflationary implosion or a hyperinflation scenario, some (and perhaps all) pap