This is a true story. It just hasn’t happened yet.
WASHINGTON April 7, 2021 – With the U.S. economy locked in the throes of an accelerating death spiral, the nation’s financial system teetering on the brink of total collapse and the nation’s healthcare system in ruins, angry citizens have intensified the violence in all major cities in protest of the extreme austerity measures imposed by Congress in a desperate attempt to combat a debt crisis some economists are calling “fiscal Armageddon.”
“It’s an ugly mob scene out here” said an Illinois National Guardsman assigned to protect the state capitol building in Springfield after rioting citizens overran local police and set fire to parts of the building. On Thursday, Illinois became the thirteenth state to declare Martial Law, and there have been unconfirmed reports that the White House is considering doing the same on a national level.
The faltering economy was dealt another crushing blow yesterday when Moody’s and Standard & Poors downgraded U.S. debt for the third time in the last five years sending the yield on the benchmark 30-year Government T-bonds over 22% for the first time in history and further eroding the value of the U.S. Dollar already devastated by the financial crisis. Despite the historic high rate of return, investors and foreign governments have been unwilling to buy U.S. debt because the risk of default has become too great.
The United States is broke and unable to borrow the cash needed to meet its obligations.
On Friday, the U.S. Department of Labor reported the official unemployment rate rose for the 22nd consecutive month to 18.6% while the real rate of joblessness spiked to 26.3%. Economists warn there is no end in sight to the dire unemployment crisis set in motion by historic-high interest and tax rates, skyrocketing energy costs, hyper-inflation, and a collapsing economy. The “crowding out” effect is playing out as many predicted when the Government’s borrowing needs swamp the needs of business leaving little for capital investments – the engine of corporate growth.
The Congressional Budget Office recently raised its deficit projection for FY 2021 to a record $3.8 trillion bringing the National Debt to a staggering $34.7 trillion by the end of the year. Interest payments alone on outstanding debt will consume an estimated 56% of the total tax revenues this year and is expected to reach 60% over the next three years.
Compounding the nation’s worsening crisis is the double-digit rate of inflation that has persisted for the past five years as a result of running money printing presses in overdrive for the past decade. Inflation, combined with a collapsing U.S. Dollar, has pushed the price of one barrel of imported oil to $375 and the average price of one gallon of gasoline now stands at $8.36 according to AAA.
More bad news: home foreclosures continue to accelerate with 51% of all mortgages in default. Since 2008, home values have declined nearly 65% with no end in sight as unemployment continues to climb unabated.
The FDIC is reporting that bank failures have reached an alarming rate with some of the nation’s largest banks facing near-certain collapse. Professor Jacob Sterns, world-renowned economist appearing before the Senate Banking Committee yesterday, warns that the entire U.S. financial system is dangerously close to a “thermonuclear meltdown.” Sterns went on to say that this was the most predictable crisis in the history of the world, and the most preventable. In a somewhat scolding tone, Sterns told visibly-irritated committee members that this crisis was brought on solely by an irresponsible Congress starting in 2009 when trillion-dollar-plus annual deficits became the norm.
General Motors has announced the company will file for Chapter 7 bankruptcy after Congress made clear there is no money to bail them out. This has been widely expected. U.S. banks face the same “no more bailouts” dilemma and are left to fend for themselves.
The most severe financial devastation is in individual state budgets. After Congress voted to suspend all state assistance for Medicaid, unemployment benefits, welfare, food stamps, and other forms of entitlements, most states have been forced to lay off all but the most critically-essential employees. Defaults on municipal bonds have been rampant as well as pension checks to retired state employees.
Congress is bitterly divided over the best way to halt the death spiral and stabilize a dying economy. Democrats insist tax rates must be increased across the board with the top current rate of 62% increased to 75%. Republicans argue the tax rates are already so high that economic activity is reduced to a point which actually reduces tax revenues. Florida Senator Marco Rubio gave a blistering speech from the floor of the Senate late last night in response to Democrats’ pleas for higher taxes. Rubio pointed to the Affordable Health Care Act passed in 2010 and fully-implemented in 2014 as a major contributor to the nation’s ballooning debt, citing a CBO report of last week that “Obamacare” has added $5.1 trillion to the debt since 2014 and wait times for routine surgeries extended to over one year.
Besides cutting off aid to states, the most visible and painful of the austerity measures imposed by Congress is the deep cuts in Social Security and Medicare benefits to existing retirees. Most economists agree the cuts were necessary because printing more money would only exacerbate the decline of the Dollar and accelerate its trajectory toward worthlessness.
As the blunt-speaking Professor Sterns put it in his testimony to Congress: “You waited too long. You made promises years ago you knew you couldn’t keep, but you made them anyway to get elected and now you have a catastrophic crisis that will not be solved in our lifetimes.”