America has fallen from its lofty perch. It lies in pieces scattered across the country’s landscape, the victim of greed. In 2006 I launched the Reenactment of 1776. In my first mailing I said that what was coming was “people will be losing their homes in unprecedented numbers, banks will be going under, unemployment will skyrocket, and that we would go into a depression like this country has never experienced.” It was a unique position to take at that time because the economy was humming along and no one in the government or Wall Street even mentioned a scenerio like this. Now it is 2009 and everything has come true. A basic knowledge of economics 101 was all that was needed to predict this catastrophe. My new forecast calls for the collaspe of the government. Recently, I put out an idea for the people to create a bank with which we could use to fight the tyranny and corruption that got this country where it is today, on the brink of collapse This is no longer feasible because we cannnot create the bank quick enough to accomplish this goal. Even if it were possible, the ensuing collapse of the financial system and the government will ruin the people whether they have this bank or not. Here is why there is a high probablility that the collapse is going to happen.
1. The government finances its debt by selling treasury bills, notes and bonds. In its simplest terms either people or institutions give their money to the government. In return the government gives an investor a bill, note or bond. These instruments are basically IOU’s with varying lengths of maturity. These range from 30 days to 30 years. When these instruments mature the government is responsible to pay off the IOU.
2. Historically, the biggest investors in these financial instruments have been financial institutions and central banks of other governments. These institutions are banks, insurance companies and pension funds. The government is now lending money to banks and insurance companies. Therefore, the government cannot be loaned money from the banks or insurance companies. The pension funds are crippled by their investments and have no money to lend to the governement. As this is a world wide depression, foreign countries are in the same situation as our government. They cannot lend our government any money.
3. The government is experiencing a reduction in income because people are not working and are not paying taxes. Instead people are collecting social security, unemployment and welfare, accounting for a negative cash flow for the government. More is going out then is coming in. As the depression worsens so does the negative cash flow. On top of that we’re in a war which is consuming more government money. On top of that there will be between $750 billion to $1 trillion of debt created by the initial bail out, maybe more. Obama has proposed to create another $800 billion of debt under the auspices that it is an economic stimulus package. When the corrupt lawmakers get finished with it the number will be probably around $1trillion. As is the same for individuals, as long as the debt expense to income is kept at a fiscally responsible percentage then the debt is managed properly and poses no problem. However, when the percentage of debt expense gets too big in relation to income then a point is reached where the debt cannot be paid back. The government’s debt is now too large in relation to the gross domestic product. Like what happened to everyone that has defaulted on their mortagages the government has so much debt that it has reached the point of no return.
4. What the government did for years was borrow money and then when the IOU’s matured they borrowed more to pay those off. This was basically a Ponzi scheme. In addition to that scheme the corrupt politicians looted social security and other funds that held cash leaving an IOU behind. There is no more money to loot.
5. When these bonds mature the government has to pay them off. If they cannot pay them off then they will default. The United States government has never defaulted on its bonds. If you and I default on our debt then that means we’re bankrupt, kaput, out of business. Same with the government. If the government defaults then no one will loan it any more money. These bonds mature every quarter, March, June, September and December. The fall of our government will probably come during one of these months within the next year to year and a half.
6. If the government cannot borrow then they have one alternative. That is to just print the money to pay off the IOU’s. It is called monetarizing the debt. They will have to print so much money that the worth of a dollar will be reduced to nothing. Too much money chasing too few goods creates inflation, which will in all likelihood result in a hyperinflation not seen since the pre-World War II days in Germany . In this scenereo the dollar will become like the Confederate currency of old or the German mark prior to Hitler. In Germany they had to get a wheel barrow and fill it with money just to go to the store for a loaf of bread. Those that forget the past are doomed to repeat it. A loaf of bread could easily go to $50 or higher. For people on fixed incomes the burden will be insurmountable, because their income will not go up; it is fixed. For people on retirement, social secuity, unemployment and welfare, clearly one fourth of their income would go for one loaf of bread. The people will not be able to eat or purchase staples that they need.
7. If hyperinflation hits, the worth of the bonds will plumment. Individuals, institutions and investors and foreign governments will either sell every bond they have or risk losing everything invested. The ones who will have to buy those bonds are banks, insurance companies and pension funds. As stated above, they are broke and cannot buy the bonds. The government bond market will fall apart, only this time the government will not be able to bail it out. This will be equivilent to a run on a bank, only this will be a run on our entire financial system.
8. Because local and county governments don’t have borrowing power they will be the first to fold. Individual states and then the federal government will follow into default. If the police aren’t getting paid they won’t be on the streets. Minus law and order, chaos, rioting, looting and other forms of lawlessness will take place. It will get ugly.
9. The only positive thing or silver lining is that those corrupt politicians and lawyers that have stolen all our money from us will find that their money is also worthless.
10. Obama’s plan is a political plan, not an economic plan. It will be counterproductive to the economy and actually accelerate the problems.
11. If we were to create the bank then all of our assets would be dollar denominated. Because of that the bank would get wiped out along with all of the investors. The plan was a good one but it was based on the fact that the government would continue as a going concern. The level of debt and the level of corruption have proved to be too much for the system to handle. It will collapse – totally!
12. This forecast is from the same guy with the same economics background that forecast this depression. These forecasts are not doomsday forecasts; they are based on basic economics 101.
13. If you have any doubt about this forecast I will ask you one question. Why are the Secretary of Treasury and the Chairman of the Federal Reserve working with members of the government planning military actions within this country and why are they making plans to enact Martial Law? It’s simple, they used economics 101 also. Their conclusion has to be the same as mine.
Everyone who has shown interest in the bank has the same thought at heart. They want to save the country because it has been going in the wrong direction. The hardest part of revolution is taking over the government. With no action on our part the government is going to collapse for us. It will create an opportuinty for us. Or it will create our worst nightmare. Luck is when planning meets opportunity. If the people are ready they will be able to seize the moment. If anybody has any ideas on how to make this situation work for us then please contact me with your suggestions. As for me, I’m considering arming myself for the first time in my life.
Larry Bumgarner, founder of Reenactment of 1776