2010 saw the United States government close with a deficit of $1.714 trillion, about $100 billion higher than 2009’s $1.612 trillion. In recent weeks we’ve heard calls to further extend the debt ceiling, and we’re not sure just yet whether or not Congress is going to allow the government to break a new deficit record in 2011.
Karl Denninger warns Congress that any extension of the debt ceiling will have serious and irreversible consequences:
Further, the true GDP rate for the last 12 months is in fact -7.31%.Â We now have a cumulative decline in GDP built into the economy of approximately 30% that must be absorbed.Â If you attempt to continue this path much further, it won’t be a decline that we will be dealing with, it will be an all-on collapse.
I know 30% sounds outrageously large – and beyond the nation’s ability to absorb.Â It cannot be absorbed without severe pain.Â But if we do not take that pain, force the bad debt into the open that is causing this and clear it – irrespective of whether we want to or not, the result will be political and economic collapse.
Let me be clear: If you extend the debt ceiling and by doing so allowÂ deficits of this sort to continue for another year, say much less two,Â you will have placed a loaded shotgun in the mouth of this nation and pulled the trigger.
It will go off, and you will splatter this nations’ economic and political system all over the wall.
Promises at this point are three years old and have been proved lies.
Simply put, you must act now and shut off spending you cannot fund.
I fully understand that in order to address this problem both The House and Senate will have to do very unpopular things.Â Nonetheless, you are duty-bound by your oath of office to do so.
No promises to “do something about it tomorrow.” We’ve heard about that now for three years.Â The time for political stunts and showmanship is over.Â This is a real issue, it is a real national crisis, and if you don’t do something about it you’ll be lucky to get through 2011 before it blows up.
The sledgehammer is coming down and there’s no way out. We either make massive cuts to government spending and borrowing on the local, state and federal levels, or the whole system is at risk of terminal failure.
While the perceptions of the electorate can be controlled for a time through media manipulation, government statistics, empty promises and fuzzy math, eventually we will be faced with the fact that 1+1 = 2.
According to Karl Denninger, Congress can either take action right now, in the next few weeks and months, or the reality of the problem will be evident by the end of 2011.
All those who believe Congress, the Federal Reserve, the US Treasury and the powers that be will do the right thing and take the pain now step forward.
If you didn’t take a step, then we recommend you get ready for all economic hell to break loose.
If you have yet to make the effort to be prepared, now would be a good time.
Invest in hard assets for protection as we discussed in our articles Wealth Preservation, Investing, and Prepping for Hard Times and Buy Commodities at Todayâ€™s Lower Prices, Consume at Tomorrowâ€™s Higher Prices:
If you are a prepper, for example, who is already stocking essentials foods and goods, youâ€™re way ahead of the game. As commodity prices continue to rise for a variety of reasons, your â€œinvestmentâ€ is paying off in real terms. Buy 10 pounds of rice today for $10, and when that same bag of rice goes to $20 a year or two from now, you can say you earned a 100% return on your investment! And the great thing about your investment, is you donâ€™t have any counter party risk, for the most part, meaning that you own the physical good and it is in your possession â€” you take delivery at any time!
This is a strategy we outlined in 2010 in the aforementioned articles, and it remains timely as we face the threat of a collapsing economy and the possibility of a completely worthless U.S. dollar. We’ve since seen a major rise in commodity prices, which have yet to be reflected on store shelves, but be assured that it’s coming soon (we’re already starting to see significant movement at the gas pumps).
Perhaps we’ll be lucky and our benevolent leaders will be able to kick the can down the road for several years longer. But what if they aren’t successful? Do you know what money is when the system collapses?