Home     Writers     Op/Ed     Book Reviews     News     Bookstore     Photoshops     Submit     Search     Contact Us     Advertise  
  You are here: 

Wed

03

Jan

2007

Driving Towards National Bankruptcy
Wednesday, 03 January 2007 04:36
by Chris Martenson

I have a question for you. Let’s say you’re driving down the road, at night, along a busy highway, 10 miles from the next exit, and the oil warning light suddenly blinks on. What do you do? Are you the sort that pulls over or keeps on driving? If you’re the sort that keeps on driving, upset mainly because you don’t have any black tape to put over that pesky red light, then you might as well stop reading right now because we’re about to pull over.

First a set of definitions; when liabilities exceed assets by an amount that cannot be serviced by any conceivable future revenue stream, then one is said to be ‘insolvent’. When current cash flow cannot service current debt payments, then we say an entity is technically bankrupt. And finally, when a debt payment is missed, then a default has occurred, the entity is actually bankrupt and all sorts of legal machinery kicks into high gear.

In my last article I wrote about the fact that United States budgetary and fiscal officials revealed to us that in order for the United States government books to net out to zero there would need to be $53 trillion in the bank, today, earning interest. Of course there isn’t any public money of that sort, or any sort, in the bank.

SCREEEECH! That’s the sound of this article pulling over to the side of the road



Stop. Why is this not our #1 topic of debate in Washington DC? If we suspect that we are insolvent as the Comptroller and Treasury Secretary have indicated, then it’s questionable as to whether it does us any good to debate, say, the finer points of federal education reform or a new flag burning amendment. As noted above, insolvency precedes bankruptcy and bankrupt nations cannot afford to do anything so why talk about anything else? We have a bright red oil light lit up on our national dashboard yet the Democratic and Republican leadership continue to drive on bickering about who should have brought the black tape to put over the warning light.

What would it mean if our nation went bankrupt? A good analogy would be New Orleans. The city is bankrupt; it’s a mess, and can only rebuild with federal (outside) assistance. New Orleans completely lacks the ability to rebuild on its own because it doesn’t have the funds and its economy is pretty much destroyed. But if the US goes bankrupt, who will help us rebuild? If the answer is ‘nobody’, then you might want to take a trip down to The Big Easy to see for yourself what this country is going to look like in a few years.

The good news is that because the problem only grows more intractable with every passing day, our dithering politicians will have fewer options to chose from when the crisis hits thereby making their jobs that much easier. The bad news is that the more time we spend in denial, the less time remains for us to get busy and do something about it. There is even the danger that if we wait too long, we will face a potentially unfixable problem on the scale of what the Soviet Union experienced – catastrophic economic failure.

During my time as a consultant, I had ample opportunity to witness a very clear phenomenon. If the person at the top of an organization was ethical, for the most part so were all the rungs and layers beneath them. Conversely, an unethical leader usually presided over an unethical organization. As a social animal, we tend to take our cues from above.

Our federal government is now several decades into a reckless love affair with unrestrained profligacy. Because we’ve lacked any clear, moral leadership for so long, it is easy to find reflections of this behavior peering back from every corner of society.

Consider the evidence:

  • State pension shortfalls running towards a trillion dollars
  • Municipal pension shortfalls in the hundreds of billions of dollars
  • Corporate pension and healthcare deficits of one-and-a-half trillion dollars
  • 401K savings of only $53k per 55 year old worker
  • A national savings rate that has steadily eroded since the early 1990’s falling from 10% to negative 1.5%, a condition last seen at the depths of the great depression in 1933


In summary, the list above indicates that at the federal, state, municipal, corporate, and personal levels nobody is saving for the future. I could probably tick off a few more but since I’m out of fingers on my non-typing hand let’s agree that pretty much covers it. We are not saving for our future, we are all in this together, but it will take leadership to get us out.

It is imperative that we return to our heritage of saving and investing for the future. Somehow we’ve forgotten that a period of living beyond your means must always be balanced by an equal amount of living below your means. The belief that debts can be compounded forever is dangerously naive as it merely shuffles the bills off to the future as though they could be forever hidden by time.

Leaving aside the obvious moral parallel between this behavior and the fable about The Ant and the Grasshopper, this insolvency issue, large though it appears, is merely a symptom; an effect rather than a cause. At the root of it all is our monetary system, which we need to understand before we can begin to posit solutions.

Let me be clear – I think that while it was operating well, our monetary system was a great system, one that fostered incredible technological innovation and advances in standards of living. But every system has its pros and its cons and our monetary system has a doozy of a flaw.

It is run by humans.

Oh, wait, that’s a valid complaint but not the one I was looking for.

Here it is: Our monetary system must continually expand, forever.

Which means it has a math problem in the same way that a beached whale has a breathing problem. In each case we have a massive organism that was optimized for a very different set of conditions than those in which it currently finds itself.

This will be the topic of our next article.

In the meantime, be on the lookout for DC politicians seeking to buy black tape.

Copyright, C. Martenson, 2006©
More from this author:
The United States is Insolvent (5048 Hits)
by Chris Martenson Prepare to be shocked. The US is insolvent. There is simply no way for our national bills to be paid under current levels...
The End of Money (5123 Hits)
by Chris Martenson [Note: I begin today with a short bit from where we left off last week. Also today’s title is the same as the economic...
Connect the Dots (15247 Hits)
by Dr. Chris Martenson Can you possibly stand another article about Greenspan? If the answer is “no” I completely understand – I too...
Bankers warn of impending fiscal crisis (4520 Hits)
by Chris Martenson This past week, Ben Bernanke warned the US Congress that our nation faces a ‘fiscal crisis' if the out of control spending...
US Citizens Sacrifice for Iraq War (5442 Hits)
by Chris Martenson “The average American has not been asked to sacrifice for the Iraq war…” At least once a week for the past few years...
Related Articles:
Armagideon Time: Bush's Nuclear Folly and the National Security Lie (13029 Hits)
Written by Chris Floyd This story is appearing today at Truthout.org. "The Bush Faction's remaining claim to political...
National Impeachment Movement this Saturday in Philadelphia! (8374 Hits)
by Dave Lindorff, With Democrats in control of Congress again, it's time to start a national campaign for impeachment. Nancy Pelosi may...
Impeach for Change Kicks off National Campaign (7623 Hits)
by Dave Lindorff The kick-off session of the new national movement for impeachment of President Bush (and Vice President Dick Cheney), Impeach...
Videos from Thursday's Impeachment Forum at the National Press Club and Rally at the Capitol (14672 Hits)
John Nichols puts current movement for impeachment into historical context: Cindy Sheehan: Daniel Ellsberg on How...
Why do We Need a National Conference for Media Reform? (4496 Hits)
by David Swanson Here's why. Bush just connected Iraq to 9-11 again, and the media will not tell you it was a lie. Bush just gave a...


Add this page to your favorite Social Bookmarking websites
Trackback(0)
Comments (1)add comment

Hellasious said:

0
Federal vs. Total Debt
While the govt. has a great share of the blame for creating the mess of the twin deficits, the greatest portion of the total debt of the US (320% of GDP, excluding Social Security and unfunded pension liabilities) is owed by households and corporations, with the past few years witnessing an explosion in the debt of the financial sector of the economy. There is very little that politicians can do to reign in the rampaging Wall Street boys who have lent money to even the least creditworthy borrowers as sub-prime and exotic loans exploded across the nation. And for that "largesse" one need look no further for blame than the Fed, "independent" as it is, that got incredibly scared of a deflationary cycle back in 2001-02. Not only did it cut interest rates to almost zero, more importantly it told everyone concerned that if push came to shove it would bail everyone out. Moral "suasion" disappeared overnight, particularly after Bernanke's speech on 21 Nov. 2002 to the Economists' Club.

Regards
 
January 03, 2007 | url
Votes: +0

Write comment
smaller | bigger

busy
 

adsense

Top