Servicing Debt

by Azreel | October 13th, 2009

The .gov takes in 2,674,007,818,000 a year. That’s 2.67 Trillion. Our national debt just rose from 9.98 Trillion to 12.87 Trillion. By 2014 it will have blossomed to a minimum of 18.35 Trillion.

Let’s put this in numbers we can easily wrap our heads around.

Let’s say you are the head of your household, the sole breadwinner, and you make $45,000 a year. You also have a mortgage. It is $168,000, with a monthly payment of $1344. But, one year, you decide to take out a second mortgage. Now you owe $217,000. And your monthly payment goes up to $1736. And your income hasn’t changed (in reality, federal tax revenues are likely to fall, but let’s disregard that for the sake of argument.)

If you’re making $45,000 in take home pay, that gives you a budget of only $3750. Your large but not unaffordable monthly payment of $1344 is now almost half of your monthly budget. But that’s not all. Every year you continue to take on more and more mortgage debt. By 2014, you owe $309,269, and your monthly payment is $2,474, leaving you with only $1276 a month for electricity and grocery. See where we’re going here?

The above example is exactly what our nation is doing.

Our nation’s debt is increasing at the same rate as our hypothetical homeowner. The numbers are bigger, but the relationship is the same. The housing bubble is just foreshadowing what we are doing on a national scale. Every year we are spending more than we take in, leaving us with even MORE debt to service. By 2025, we will have to take every dime we take in as tax revenue (based on current rates) and spend it just to service debt. We will have none left over. At that point, every dime the government spends will be borrowed.

The only solution is devaluing the dollar. Oh sure, we COULD stop spending so much and start saving again… but we all know that won’t happen. We’ve got a government that is convinced that the best way out of debt is to spend more, and a citizenry urging them on hoping to get just a little more milk from the government teat. Stop spending? Please… I can hear the whining already.

We could raise taxes too… but how likely is that? And even if taxes are raised, through the implementation of a Euro-style VAT or some other similar program, if spending isn’t reduced, we’ll simply be delaying the inevitable.

So, we’ll take the only solution left: print more money. Folks, inflation is coming, and it’s coming very soon. The Fed has opened the taps and is selling bonds to anyone who will bid, but bidding has slowed almost to a crawl. Long term bonds aren’t selling at all, so we’re selling short term bonds. This is akin to living off of a credit card instead of a cash taken out of a second mortgage. It’s crazy – anyone who can balance a checkbook should know that, but it’s exactly what our government is doing.

If you don’t already, you need to start moving your money to hard assets: Real estate, gold, silver, etc. Even the Euro and Asian currency markets are safer than the US markets right now. Deflation may be the word of the day right now, but it’s just the tide going before the tsunami hits.

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