Just consider the following chart ...
Pretty bad, huh? Now consider a second chart:
That’s right, folks. If Obama’s latest proposed budget passes, he takes that debt up to 90.4 percent of GDP. At that level, debt held by the public will be nearly as high as the highest it’s ever been in U.S. history.
(Note: The projected blue line above, “Current Law,” projects where our debt would be if no changes were made to President Bush’s last budget, which includes spending for TARP and other initiatives related to the financial crisis.)
Now I want you to look at a third chart:
There you have it. It’s a graphic picture of a freight train, and it’s headed right toward you.
It doesn’t matter whether you prefer the CBO’s figures or Obama’s. We’re merely talking about different shades of disaster. When you’re dead you’re dead. There aren’t some people who are “more dead” than others.
That means that, by 2020, half of all income tax revenues will go toward paying interest on a $23 trillion national debt. Very shortly, it will take all of our income taxes to pay the interest.
All reasonable projections show the debt curve going straight up. But of course that isn’t going to happen.
Long before your debt reaches “infinity”, you go broke. You are unable to pay even the interest on your debt, much less the principal, and nobody will lend you money anymore. That’s what happens to people like you or me.
If you’re the government, you have another choice. You can print money to get out of your fix. Then inflation takes off, interest rates take off, and the dollar becomes worthless.
That’s what we did with the debt we had after World War II. Did we pay it back? Yes, in part -- but the biggest contribution to paying the debt was massive inflation. 50 percent of the value of the dollars borrowed during the war was inflated away.
At most, we’re a few years away from one of these grim scenarios. It is too late now to reverse the situation.
Either the government will be forced to default on such obligations as Social Security, Medicare and military pensions. Or the government will pay everything in full -- with worthless money.
Those unprepared will be hit the hardest.
CEO, Founder & Director of Editorial Content
The Tycoon Report