The US Treasury recently went into technical default since its funded debt went above its legal debt ceiling. From the US Treasury's Web site it stated on January 24, 2006 that it had debt of $US 8,185.3 Billion. On February 2, 2006 that it had debt of $US 8,198.6 Billion. Well, its legal debt ceiling is $US 8,184 Billion. The Congress is not acting to legally raise the debt ceiling and the financial mass media sure is not saying anything about it. Odd, but one thing is for sure, if the US Treasury stops borrowing more and more, it will **crash** the huge welfare state that America really is now a days. America is the exact opposite of the "land of the free, home of the brave". And when the rest of the world stops loaning to the US, it will simply vastly speed up the US dollar printing presses.
The latest figures from the US Commerce Department say that US "growth" slowed to 1.1% in the fourth quarter of 2005, down from 4.1% in the previous quarter.
Spending on durable goods is down by 17.5% in the fourth quarter.
The US government's savings rate estimate for last year was negative. That has not happened since the beginning of the last great depression. The savings rate has been negative for the last 8 out of 9 months. What disguises this the huge welfare state that did not exist back at the beginning of the '30s, and the huge US Treasury borrowings.
From Bush's State of the Union Address:
"By 2030, spending for Social Security, Medicare and Medicaid alone will be almost 60 percent of the entire federal budget. And that will present future Congresses with impossible choices: staggering tax increases, immense deficits or deep cuts in every category of spending."
Bush conveniently forgot to say that another option to keep these staggering unfunded liabilities (about $US 51 TRILLION) is for the US Treasury and Federal Reserve Bank to simply create out of thin air the US dollars needed to keep these promises. I don't see why they will not create what ever dollars a needed. It is just that the dollars by then will not be worth anything. It will be a defacto default in terms of purchasing power of the government's promises.
The US dollar as we know it will probably not exist after about the middle of the next decade.
Over the next 25-30 years about 75 million Americans are expecting to retire. What the do not know or choose not to think about is that most will live in destitution and/or not be able to retire. The US government spent all the funds that were supposed to be saved for their retirement and healthcare. The US government is basically broke.
Americans as a whole stopped saving enough (consuming less than they produced) years ago since they fell for their government's promises. Now the US does not have enough wealth (savings) to keep the aging "baby boomers" comfortable in their retirement.
If creating US dollars out of thin air really worked, why should anybody bother working for a living? Give everybody their own printing press.
America used to be a bastion of freedom. Americans knew they were on there own and completely responsible for themselves and their futures. So they worked and saved huge amounts that helped create wealth the likes of which the world had never seen. That era is long long gone. Now America is a bastion of that old Communist tenet: "From each according to his ability, to each according to his need."
Well, as you know, the USSR imploded on itself (not that Americans learned anything from that or gave it any thought). Well, the US is next. What does that say about its US dollar? There are no free markets in the US, nor is there Capitalism in the US. What does that say about its US dollar?
In 1987 Ameirican household debt was $US 2.7 TRILLION, 58% of the economy. Now it is $US 11 TRILLION, 87%. That is not borrowing to create wealth. That is being trapped between a rock and a hard place, like their US government is.
According to a semi-annual AC Nielsen survey: 22% of Americans are living hand to mouth. That puts America near the top of a list of 42 savings short countries, neck and neck with Portugal. Other countries in the top ten are the UK, Canada and France, all heavy duty wealfare states. At the opposite end of the spectrum are Thailand and China, the people of which understand, value and save in gold.
At the World Economic Forum in Davos:
Mr Zhou Xiaochuan, the Governor of the People's Bank of China, said "We need to make a change to stabilise the situation. China has no intention of faster acceleration of foreign exchange reserves." ... "the pace of foreign exchange reserves will be reduced. Our foreign exchange policy is already in a good position.". So much for the US Treasury loading more US debt on China.
Ironically China, with it non-welfare state for the individual, is a high savings rate country and is "in the midst of a burst of "inadvertent individualism"".
Back to America:
The US Treasury and the Federal Reserve Bank have created a huge stock market bubble since the beginning of the '80s, which topped out in 2000. Then they did the same for housing in the US by creating too many dollar and too much available credit at too low of a cost. Well, the American housing bubble is bursting. What is the next bubble that will be created to keep the illusion that everything is economically ok in America? I can not see any other bubble that can be created. The illusion is about to crash along with the economy of America.
Remember, America is borrowing at an annual rate of about 1 TRILLION US dollars per year from the rest of the world to maintain its current lifestyle. That alone, if it were to end, would put about a 10% dent in the US's GDP. It's going to get ugly.