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A Trillion Ways to Poverty
The funny thing about mind-numbingly large numbers is that after a while, they somehow seem to lose their meaning. Not that the numbers themselves are meaningless, because they certainly are very important…
But when it comes to the level of Wall Street graft or say, even the national debt, (not comparing the two—not really) well, that’s when even the most sanguine of minds yearns to wonder, and even the most trenchant of eyes tends to glaze over and focus on some distant point in the middle air.
Remember, for example, only a decade or so ago, when a few billion in fraud was a big deal, like in the Adelphia scandal? The damage was about $2.3 billion in hidden debt. Enron’s debt was almost three times as large, around $6 billion in losses, with many employees and stockholders losing everything. That was a tragedy then. The numbers meant something. And $6 billion was—and still is—a lot of money. But, as we would soon see, such was mere child’s play.
An age of grand theft
A few years later, along came Bernie Madoff’s unveiling; he brought Wall Street scamming to a whole new level. He stole in excess of $65 billion from very sophisticated investors, and fooled somewhat less sophisticated regulators, for decades. But eventually, like all criminals, either in this life or the next, he was found out. Again, many people’s lives were ruined; there were suicides and families torn apart.
But the level of theft, $65 billion, was, for me, a number that I could no longer mentally visualize. Of course, I can write the number, and I can see it in terms of property values and corporate revenues; but in and of itself, $65 billion is just an amazingly large number for one man to steal. But, as we shall see, that number is but a drop in the proverbial commode…
And speaking of grand theft, it wasn’t that long ago when the US national debt was only in the hundreds of billions. It was 1980, to be exact, when it was about $930 billion. Under Reagan, the debt grew from just over $1 trillion to over $2.6 trillion. For comparison, it was just over $5.5 trillion when Bush II entered office, and doubled to over $10.6 trillion in 2008. And today, Obama has added over $5 trillion to the debt in just under 4 years’ time. The national debt passed the $16 trillion mark just this week.
And it gets worse.
To be clear, it’s not just that the numbers are astronomically large; that is bad enough. But it’s the burden of both the interest on the debt and the debt itself that is unfathomable and will ultimately prove to be fatal to our economy if it is not addressed; and soon. That’s where the grand theft comes in.
Right now, the interest rate on that enormous debt is around 1%. Why so low? Because, all things remaining equal, the Federal Reserve will keep interest rates artificially low through 2014. But historically, interest rates are 4-5%.
When interest rates rise to their historical mean—and they inevitably will—the debt service will be 4 times higher than what we’re paying today. In plain English, we won’t be able to pay it; at least not how we do so today.
What will happen? Nothing less than a supreme act of grand theft will be thrust upon us. As the debt service rises, we, as Americans will become poorer. Taxes will be raised and services cut to cover the higher debt service costs. More of our salaries will be taken from us to pay just the interest on the debt, not the debt itself.
Ah, but what about the debt? Anyone believe that the US will ever pay the debt back in real dollars? No? Not buying that? Me neither. This is where another act of grand theft occur will occur.
If the US pays the debt down at all, it will be in inflated dollars. The US will devalue the dollar—as it is already—in order to pay back its creditors with cheaper dollars. That’s theft on a grand scale that will not only render our savings nearly worthless, but will also make saving itself impossible and drive prices sky high. Again, this will result in more Americans—the middle class especially—becoming impoverished.
On the path of ruin
The numbers are, as I said at the beginning, are really large. When we no longer talk about US finance in billions or even hundreds of billions, but only trillions, the effect on the mind is to somehow, have no effect. Trillions are too large to conceptualize.
But what is not too difficult to understand is what it will mean for the US in the very near future unless we change the path we’re on. Without dramatic and sweeping changes to how we have been doing things for the past 50 years, we will likely have hyperinflation and experience great hardship. Mind numbing, isn’t it?
And those are…The Gorrie Details.