- Workers would require higher wages to pay for the increased cost of living. This could lead to layoffs and businesses failing because companies can't afford the higher salaries.
- More unemployed people would lead to more dependence on government programs. That means more spending and more government debt.
This last point is the most devastating. As prices rise, so too does government spending. And that could lead to a second, even more difficult problem: A disastrous shift in our ability to fund our own government.
Trillions in Wealth "Preordained" to Disappear
To understand the magnitude of this problem, one needs to understand how we fund our own government spending. There is a certain amount of spending, and a certain amount in tax revenues that partially pay for that spending. So we borrow the rest. How? By selling Treasury bonds to whomever will buy them.
Each year, we issue about $900 billion in new debt (by selling these bonds). But here's where it gets dicey. Of that $900 billion, about 51% has regularly been purchased by foreign buyers. But 37% must now be purchased by our own Federal Reserve Bank (which simply creates the money, instantaneously, out of thin air, on a computer, to make these purchases). And a measly 13% are purchased by US citizen investors.
But think this through: Right now, foreign governments hold around
$6.2 trillion in US treasury bonds. In
other words, these guys are the ones financing most of our debt. But once these countries have no further need
for US dollars, they also don't have any need for US Treasury bonds (hereafter
referred to as "Treasuries"). That's
when they'll begin selling them on the open market. And the longer anyone waits to sell them, the
less they're going to get for them.
As Ambrose Evans Pritchard of The Telegraph reports, the sell-off is already beginning:
"Somebody is a selling a fistful of US Treasuries. It could be Russia, or China, Turkey, South Africa, or Indonesia, or all frantically selling bonds at the same time for different reasons. We don't yet know. All we know is that the US Federal Reserve's custody holdings on behalf of foreign central banks plunged by $106 billion in the week ending March 12, 2015, the biggest one-week drop (sell-off) on record. Russia's central bank is undoubtedly liquidating reserves at a breakneck pace."
Once the sell-off gets into high gear, the immediate impact will be a severe drop in the value of US Treasuries (which many Americans depend on for a decent retirement). But beyond that, it means that the US will have to figure out how to finance all of our debt WITHOUT foreign buyers of our treasury bonds.
Next Page 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11 | 12 | 13
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
1
1
1
