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Sunday, June 8, 2014

US Dollar Faces Growing Challenges-So Does Your Wallet

Poor Man Survival

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"Washington, of course, aside from being one of the most mismanaged, crime-ridden cities on the planet, is a place where 535 federal legislators and about 38,000 lobbyists work at confiscating and redistributing the incomes of the American people."
-- Charley Reese
(1937-2013) American syndicated columnist

The second largest private sector component of GDP is Business Investment (after consumer spending). This represents spending by business to grow and expand operations. In the first quarter of 2014 investment was almost 12% lower than it was during the same period in 2013. Not only did this figure cause most of the decline in output during the first quarter, it may mean more problems lie ahead.

The U.S. dollar faces significant pressure these days. And it's not just because of what’s going on in the market.

There’s a good chance that in the next decade the USD may no longer be the world's reserve currency. That's especially true with the Chinese Yuan becoming fully convertible in 2015.

But Washington isn't doing anything about it.

The Obama administration's inept leadership, coupled with the constant fighting and inaction of Congress are destroying the world's confidence in America--and the dollar.

In February, Congress voted to raise the debt limit, again. While avoiding another government shutdown, all this did was put the matter, and any serious fiscal reforms, off the table until after next November's mid-term elections.

Sadly, all politicians care about is the limelight, which means all this drama is good for their careers.

Unfortunately it's terrible for our economy.

Washington can't create a predictable environment for investment (taxes, healthcare, regulation), so companies aren't investing (low capital expenditures in U.S., belt tightening, no or little hiring).

So while the President, Senators and House do-nothing members alike are becoming celebrities, the nation – and the dollar – suffers.

Most economists believe that the economy will grow by about 3% for the rest of the year, thereby technically avoiding a recession. If that's true for the entire 2014, growth will average about 2%, roughly the same as in 2013. In fact since the recovery began in July 2009, economic growth has averaged just about 2% annually. Compare this to the more than 4% annual growth that followed the four and a half years after the 1981 recession.

The administration's economic policies are responsible for this poor showing. We spent over $800 billion on a stimulus package which provided almost no "shovel ready" jobs, but rather led to a $6 billion increase in the public debt. We passed a health care law that discourages businesses from hiring full-time employees. We raised the tax rates on successful business people so they had less to spend on expanding their business.

Last year, more than 40 states finished in the red, and more than half the country, 27 states, had deficits of 10% or more. In addition, the nation's debt now totals $17.4 trillion, and this year the U.S. government will end up paying over $500 billion worth of interest on the debt.

What's worse is that in 2013, total public debt as a percentage of GDP hit a record 105.08%.

But when you take into account unfunded obligations - Social Security, Medicare, pensions - you end up with a total debt/GDP ratio above 1,355%.

Janet Yellen and President Obama know this but are too afraid – or smart -- to mention it publicly. Instead they continue to preach that growth will solve everything and ignore the fact that most Americans have felt few positive effects from quantitative easing.

That's been the Great Divide in this “recovery”. Stocks are up and home prices have rebounded. But for those of us living on Main Street, we know the truth. Companies are hoarding their cash, banks will only lend to the best clients and none of the recovery money got past Wall Street.

Regardless of government statistics that suggest inflation is under 2%, the fact is that prices are rapidly rising in this country, some more than 15% this year already.

You're feeling this in your wallet every day. The costs of education, medicine, and groceries are all up, up, up. Apparently, the government bean counters are the only ones who aren't feeling the squeeze.

The reality is that things aren't as good as stocks suggest. In fact, 93% of Americans have gotten poorer since the "recovery" started.

Major retailers are closing down stores at the fastest pace since the collapse of Lehman Brothers, consumer confidence is down, trading revenues at the big Wall Street banks are way down, and the steady decline in home sales is more than just a little bit alarming.

Now that the Fed has started to taper, things are going to get real ugly. That's because our markets are so addicted to quantitative easing that the removal of the monthly stimulus will make 2008-2009 look like a picnic.

But, it's not the absence of QE, or the threat of defaulting, or actually missing a few payments that will ultimately crash the dollar.

It's something that's already begun...

We're Bankrupt

Even though the debt has escalated, interest payments as a percentage of GDP have not increased and are in fact near all-time lows.

That's about to change as rates rise.

In fact, the fastest growing segment of federal spending from 2015 to 2021 is not expected to come from Social Security or Medicare, but from interest payments on the debt.

The Fed will try to slow the rise of interest rates as long as they can. But that will just delay and augment the coming crash. The numbers don't lie, America is already bankrupt and it will only take the 10-year rate to move up a couple more points to prove it.

At that point, not even a 100% income tax would payoff the debt burden. We are where Greece was a few years ago, yet our collapse will dwarf theirs.

Soon, the U.S. will have to admit it cannot return the money it borrowed and restructure its debt.

When that happens, one of two things will occur.

Either we will enter a period of massive inflation, or we will pay back only part of the debt.

Neither is appealing.

Weimar-style inflation could effectively allow the debt to be paid, while destroying the dollar's purchasing power at the same time. That means partial payment, or a default, might be the only way to unwind the biggest Ponzi scheme in history.

At that point our government must decide between which creditors to pay, 47% which are foreign investors, and which agencies and programs to fund.

Ultimately, the dollar will lose its global dominance, standards of living in the U.S. will sharply deteriorate, and the American Dream will cease to exist.

The solutions to surviving the war on the Middle Class can be found in our new e-book.

 Discover life-saving ways in which you can survive and prosper during The End of the Monetary System As We Know It. This is the information that your financial advisor, your doctor, your police precinct and your government hope you never discover…plus learn how food is your best investment!


Yours in freedom,

Bruce ‘the Poor Man’


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