Government Shutdown: The Next Step In The Collapse Of The Dollar?
SHTFplan Editor’s Note: As our
benevolent benefactors debate our future in the hallowed halls of
Congress, one can’t help but wonder what would happen if the US
government were to shut down for an extended period of time. Let’s be
honest, if the Federal government shut down and essentially stopped
operating it’d almost be a dream come true. They’d pass no more laws, no
more restrictions, and they’d finally be out of our lives (and, as a
side effect, the President would apparently have to do his own
laundry!). However, with any such shut down would come consequences.
Though they’ll probably “save us” again in the 11th hour, Brandon Smith
of Alt Market
explores the possibilities and after-effects should the government shut
down for an extended period of time; be it today or at some point in the
future. It would be painful to be sure, as tens of millions of
Americans would almost immediately lose access to the social safety net
that is keeping the whole thing afloat.
There is a considerable amount of debate in alternative economic
circles as to whether a federal government shutdown would be a “good
thing” or a “bad thing”. Frankly, even I am partially conflicted. I
love to read mainstream news stories about how a shutdown in the capital
would be “horrible” because Barack Obama might have to reduce the White
House cleaning staff and wash his own laundry:
http://www.bloomberg.com/news/2013-09-27/obama-stripped-to-skeleton-staff-in-a-government-shutdown.html
It’s about time that sellout bastard did something to clean up his
own act. I also love the idea of the federal government out of the
picture and removed from the U.S. dynamic. Americans need to learn
again how to live without the nanny state, even if only for a few weeks,
and what better way than to go cold turkey. I can hear the tortured
sobs of the socialists now, crying for their SNAP cards and low grade
government healthcare. It’s like…beautiful music…
That said, as much as centralized government needs to be erased from
the face of the planet, there are, indeed, consequences that must be
dealt with. It is foolish to believe otherwise. No social system, and I
mean NO SOCIAL SYSTEM, changes without pain to the population. I am
not among those that cheer a federal shutdown, because I understand that
the only people to ultimately feel suffering will be average citizens,
not the establishment itself. The sheeple may be ignorant and blind,
but no one deserves the kind of unmitigated hellfire that could rain
down upon our country if a shutdown continues for an extended period of
time. Call me a humanitarian…
As I write this, mainstream media projections estimate a 90% chance
of government shutdown by midnight on September 30th. Though
technically, government funds will not run out until October 17th:
http://www.usatoday.com/story/news/politics/2013/09/25/treasury-debt-limit-october-17/2867471/
We have dealt with this kind of talk before over the past few years,
and it’s interesting to see the kind of cynicism that has developed over
the idea of a shutdown event. After all, the last time a government
shutdown occurred was at the end of 1995, lasting only a couple of weeks
into 1996. The GOP has folded so many times over the U.S. budget and
debt ceiling that most of the public expects they will obviously do it
again. It is certainly possible that the Republicans will roll over,
however, I am not so sure of that this time around. Why? Not because
Obamacare is on the table. Obamacare is just a distraction. No, I’m
far more interested in the circumstances surrounding the U.S. dollar.
Obamacare is designed to fail. Anyone with any financial or
mathematical sense could look at the real national debt and deficit
projections of the U.S. and understand that there is no money and never
will be enough money to fund universal healthcare. The GOP could simply
let the program take effect, sit back, and watch it crash and burn over
the next three to five years. This would entail, though, watching the
whole of our economy crash and burn with it.
What we have developing in front of us is the recipe for a new false
paradigm. Already, the MSM is discussing the possibility of debt
default and who will be responsible under such circumstances. Not
surprisingly “Tea Party” conservatives have been named the primary
culprits if a shutdown goes south; even former Democratic president Bill
Clinton is getting in on the blame game:
http://abcnews.go.com/blogs/politics/2013/09/bill-clinton-when-it-comes-to-obamacare-gop-begging-for-america-to-fail/
All the bickering over Obamacare is fascinating, I’m sure, but lets
set the Affordable Care Act aside for a moment and look at the bigger
and more important picture. The private Federal Reserve Bank has just
announced to much surprise a complete reversal on its suggested QE
“taper” measures, resulting in a shocked and confused marketplace. If
the U.S. fiscal system is stable and sound, as the Fed has been
suggesting for the past year, then why continue stimulus measures at
all? Could it be that most if not all positive economic numbers
released by the Fed and the Labor Department are actually fake, and that
investors have been duped into assuming overall growth when America is
actually in an accelerated decline? Wouldn’t that be a high speed
excrement storm straight out of left field!
The first day rally over the Fed announcement faded quickly,
resulting in a slow bleed of the Dow ever since. The magic of Fed
stimulus is wearing off, and the investment world is not happy. If I
were a member of the Federal Reserve Bank, I suppose I would appreciate a
large scale distraction designed to take attention away from me and my
elitist club-mates as the primary culprits behind the greatest currency
implosion in the history of the world.
Sadly, a government shutdown is sizable threat to the American
financial system, and few people seem to get it. Perhaps because the
expectation is that any shutdown would only be a short term concern.
And, this assumption might be correct. But, if a shutdown takes place,
and, if “gridlock” continues for an extended period of time, I have
little doubt that the U.S economy will experience renewed crisis.
Here’s why:
Exponential Debt
Obamacare only tops a long list of already existing “unfunded
liabilities” (otherwise known as entitlement programs). These programs
are not counted in the government’s official calculations of national
debt or deficit spending, but they cost taxpayers money all the same.
True deficit costs and national debt costs expand every year without
fail. If the debt ceiling does not rise in accordance with this
exponential debt, a default is inevitable. No amount of increased taxes
could ever fill the black hole already created by negative government
spending.
A long term government shutdown will eventually require cuts in
entitlements, if not a total overhaul of certain aid programs. Imagine
an end to all disability payments, including veterans disability
payments. Imagine federal employee pensions put on hold for an
undesignated period of time. Imagine food stamps placed on hiatus for
50 million people. Imagine how many states now rely on federal funding
just to keep municipalities from bankruptcy. Get the picture now?
End Of Foreign Faith In U.S. Treasuries
In a disgusting display of propaganda, media outlet Reuters has
released an article claiming that, default or not, Asian investors and
central banks are “hostage” to U.S. debt:
http://www.reuters.com/article/2013/09/29/us-usa-debt-asia-analysis-idUSBRE98S0GY20130929
Their argument essentially revolves around the lie that Asian
investors believe an American default to be “unthinkable”. Surely, the
unnamed Japanese investment source they cite as an “insider” truly
represents the whole of Asia.
The reality is, the Asians (the Chinese in particular) have been preparing for a calamity in the U.S. Treasury market for years.
Most foreign investors in U.S. Treasuries have converted their long
term bond holdings to short term bond holdings; meaning, they are ready
to liquidate their bonds at a moment’s notice. Overall purchase levels
of treasuries are either static, or falling depending on the nation
involved.
China has been internationalizing its currency, the Yuan, since
2005. China has opened Yuan “clearing houses in multiple countries to
allow faster convertibility of the Yuan, quietly supplanting the dollar
as the world reserve currency. These clearing houses now exist in
London, Hong Kong, Singapore, Taiwan, and Kenya. The Federal Reserve
and international banks like
JP Morgan are heavily involved in the internationalization of the Yuan.
The assertion that Asia is somehow hostage to U.S. debt is a lie
beyond all proportions. In truth, the U.S. economy is actually hostage
to Asian holdings of U.S. debt. A call for a dump of U.S. treasury
bonds by China, for example, in the face of a U.S. default, would
immediately result in a global chain reaction ending in the destruction
of the dollar as the world reserve currency. This is not speculation,
this is mathematical fact. China is not going to sit back and do
nothing while their investment in U.S. debt quickly disintegrates. Why
would they take the chance when they could could just sell, sell, sell!
The very idea that Reuters is attempting to twist the fundamentals
surrounding a default event leads me to believe a default event may be
preordained.
What Will Be Defunded?
Non-essential personnel (which apparently includes Obama’s maids),
will be the first to receive a pink slip from the federal government.
Extra Pentagon staff, EPA staff, FDA staff, IRS staff, etc will all be
cut. Good riddance. But what will follow will not be so pleasant.
If a shutdown stretches for months, expect cuts in all support
programs and entitlements. Veterans disability checks, social security,
Medicare, employee pensions, even the Postal Service is likely to
undergo defunding. National Parks, and schools that receive federal aid
will discover immediate cash-loss. In fact, any state or city that
relies on federal funds should plan for the possibility that those funds
will disappear.
Military cuts would be at the bottom of the list, but I would not discount the chance of that either.
It cannot be denied; an enormous subsection of the American public is
dependent on federal money. If that money dries up, chaos will ensue.
I don’t like it, but it is a concern.
Controlled Reaction
A long term shutdown will be catastrophe no matter how you slice it.
Foreign creditors will react harshly. The bond market will see a
haircut not unlike that given to investors in Greek treasuries.
Austerity will become an American way of life. The only mitigating
factor will be the Federal Reserve, which I believe may institute
“extraordinary measures” without congressional consent in order to
continue feeding stimulus into government regardless of whether the debt
ceiling is raised or not. Given enough desperation, the American
public might even applaud such an action and praise the Fed as “heroic”.
In this situation, the U.S. would be facing a Weimar-style currency
collapse, rather than a debt default. But in either scenario, the
dollar is the final target.
Unfortunately, too many economic analysts presume that the only
threat to the dollar’s value is hyperinflation (these are the same
people that quote the Fed’s crooked CPI numbers). But the dollar is
just as vulnerable to a debt default and loss of reserve status.
Devaluation seems to be inevitable regardless of the outcome of the
funding debate.
The Republicans could still surrender, and even if they don’t, real
damages will not be felt until after October 17th. This is plenty of
time to manipulate the public into demanding more spending even when
more spending is not in our best interests in the long term. Our
greatest concern, though, should be whether or not the establishment is
ready to pull the plug on the dollar altogether, using the debt ceiling
crisis as cover in order to distract away from the involvement of
international banks in the overall problem. There is no doubt given the
facts at hand that America is on the edge of a terrible pyre. Is this
the event that will finally trigger collapse? We’ll know more in a
week…
Posts
By Michael Snyder, on September 30th, 2013
