What is the tipping point when government overspending collapses the buying power of the dollar?
Business as usual.
That’s the assumption underlying everything you see on the news: coverage of the 2012 election, the Dow Jones Industrials, the price of gasoline, and the rate of workers filing for unemployment insurance. The acceptable limits to major media coverage of economic indicators only ask whether the United States is still in an economic downturn or whether the economy is slowly heading toward a recovery.
All of these discussions assume only mild risk to the economy from paying interest on a national debt above sixteen trillion, more than the gross domestic product, plus current government spending in the trillions, more than can be collected in taxes from the American people. Adding new taxes or increasing tax rates does not increase tax revenue, for two reasons: investors seek lower tax rates and move businesses overseas; and domestic bottom lines shrink because business spending on new production or hiring is instead taken by the government first.
Given that old government debts and new government spending can’t be paid for by taxes, payments can only be made by the Federal Reserve making up the difference by increasing the supply of dollar-accounted money and credit.
It’s called Quantitative Easing. It devalues the dollar, making everything paid for in dollars more expensive.
History shows us that there’s a tipping point beyond which a shrinking economy and an expanding money supply causes a currency to collapse in a catastrophic hyperinflation: what the theories of Austrian economics calls a “crack-up boom.”
It happened during the French Revolution in 1793 and in Weimer Germany in 1923.
It’s sometimes called “wheelbarrow” inflation because the amount of cash needed to buy groceries can only be lugged around in a wheelbarrow.
That tipping point — what for a private business would be called “bankruptcy” — needs a different term when we’re talking about the lawful currency of the United States: Federal Reserve Notes issued with the signatures of the Treasurer of the United States and the Secretary of the Treasury.
I’m labeling that tipping point — government spending more than what can be paid for by the American people as a whole — “Yankruptcy.”
We’ve already passed that tipping point.
We’re already “yankrupt.”
The only question is how long the rest of the world is able or willing to continue tying their own currency to the dollar in international trading — and willing to accept dollars in exchange for things they sell to America.
If the media pundits are right and the choice this November will be between President Barack Obama and his replacement by Governor Mitt Romney, then the problem of American Yankruptcy will not be addressed.
Nothing drastic — such as eliminating cabinet departments, firing hundreds of thousands of federal regulators and administrators, or eliminating foreign military deployments — will be done.
The spending will increase and the economy will collapse under the burden.
The dollar will go wheelbarrow.
I was aware of this pending problem decades ago when I wrote a novel about it.
Look for the movie later this year.
Alongside Night Movie Poster
It won’t be a documentary because it’s an action story taking place in the future.
But Addison Wiggin who heads up Agora Financial has already called it “The Hunger Games for adults.”
This article is Copyright © 2012 The J. Neil Schulman Living Trust. All rights reserved.
Winner of the Special Jury Prize for Libertarian Ideals from the 2011 Anthem Film Festival! My comic thriller Lady Magdalene’s — a movie I wrote, produced, directed, and acted in it — is now available free on the web linked from the official movie website. If you like the way I think, I think you’ll like this movie. Check it out!