Can they pay it back?

The U.S. is about to go broke and they’ll take us down with them

by Colin Campbell

Can they pay it back?When Peter Schiff was making the rounds on U.S. cable news shows in 2007, warning about the collapse of the housing market, anchors and fellow guests literally laughed in his face when he launched into his gloomy predictions. That kind of meltdown could never happen, they said. The economy was on rock-solid ground. In those rosier economic days, Schiff, the president of Darien, Conn.’s Euro Pacific Capital, was repeatedly cast as a successful broker who’d gone off the deep end.

These days, a vindicated Schiff is back on the talk show circuit with an even darker message. The current recession, he argues, is only the beginning of a larger economic restructuring. The American economy has been destroyed by years of reckless spending and borrowing. And now, the U.S. government is so deeply in debt that at some point in the very near future, he says, its lenders—namely China—are going to come to their senses and cut America off. “We can’t have one country that just borrows and one country that just consumes that’s supported by the rest of the world. It doesn’t work.” When this system collapses—and it inevitably must, he insists—inflation will run wild as the U.S. prints money to support its spending habit. Interest rates will jump and everyone will suffer. The real day of reckoning is still to come.

This time around, nobody is laughing at Schiff. Anyone who has taken so much as a cursory glance at America’s financial books and seen the masses of red ink has come to a grim conclusion: not only is the situation no longer sustainable, it’s rapidly getting worse. The Congressional Budget Office estimates that the U.S. deficit this year will amount to $1.8 trillion (all figures in US$) and it sees the government spending about $1.2 trillion more than it brings in for each of the next several years. That’s one of the more optimistic forecasts. Others say that over the next few decades, revenues will remain relatively flat while spending soars as demand grows for benefits such as health care for an aging population. The U.S. debt now stands at over $10 trillion and will hit $17 trillion within the decade, according to the Congressional Budget Office—a number so large that it will nearly match the entire yearly output of the world’s most powerful country. In short, America is about to go broke and every Western country, including Canada, will pay the price.

What’s alarming about the situation in the U.S. is just how quickly and easily the country found itself buried under a mountain of debt. Back in 2001, the Congressional Budget Office was estimating that by now, the U.S. should be running a healthy annual surplus—in fact it figured that when added together, the surpluses between 2001 and 2011 would total $5.6 trillion. At the time, it seemed like a reasonable projection. After all, in 2001 the government recorded a surplus amounting to $128 billion. But two important things happened since then that launched the U.S. into a very different future: the dot-com bust and George W. Bush. The recession that followed in 2001 caused tax revenues to fall and spending on social services to rise, taking a good bite out of those estimated budget surpluses. At the same time, newly elected president George W. Bush—emboldened by the surplus he’d inherited when he came to office—proceeded to dole out steep and widespread tax cuts, which cut revenue by about five per cent. That was followed by a new $530-billion drug benefit program in 2003. To top it all off, the wars in Iraq and Afghanistan caused defence spending to explode. (The bill for those wars so far: $830 billion.) In just four years, America’s massive budget surplus was decimated and turned into a $400-billion annual deficit. Since then, it briefly showed signs of recovery, but when the recession hit in 2008, the deficit quickly plummeted back down to around $400 billion.

President Barack Obama hasn’t helped matters. Faced with a severe recession he has had little choice but to push policies that have piled debt on top of debt. Nearly $3 trillion has been spent rescuing banks and the automakers (that’s about as much as the entire government spent in all of 2008), and stimulus programs have added another $800 billion to the government’s tab. “It’s hard to overestimate the massive spending spree we’ve had in the United States over the past few years,” says Brian Riedl, a budget analyst at the Heritage Foundation, a Washington-based research organization. Under Obama’s budget, the debt-to-GDP ratio will double to 82 per cent by the end of the decade—a level not seen since the 1950s, when the U.S. was recovering from the Second World War.

But that’s not the worst of it. The biggest spending is still to come. With 75 million baby boomers retiring, there will be massive new strains on social services in the coming years. Three programs alone—Medicare, Medicaid and Social Security—will create a $43-trillion liability over the next 75 years, says Riedl. That kind of spending would push America’s debt-to-GDP ratio to levels that have only been touched by bankrupt Latin American nations. To cover these costs, the government would have to more than double income tax rates to more than 60 per cent—an option no lawmaker would dare consider.

These trends mean that even if Obama’s stimulus spending packages wind down as planned and the economy recovers this year and next, there is still no hope whatsoever that deficits can be eliminated in the short term. This is an unprecedented position. After the Second World War, when the U.S. had a debt-to-GDP ratio of more than 100 per cent, nobody expected deficit spending to continue, and it didn’t, says Alan Auerbach, an economist at the University of California, Berkeley, who has studied the debt problem. The deficits of the 1980s were also quickly erased. “The difference here is that things will continue to unravel because we’re going to have rapidly growing entitlement spending and no comparable growth in taxes under current policy.”

Add it all up and by the end of the decade, the interest payments alone on the debt will cost U.S. taxpayers $800 billion a year. That figure will rapidly worsen, as the money spent on interest payments is added to the deficits, which in turn are added to the debt, which leads to even higher interest payments. “The whole process can start to feed on itself,” says Isabel Sawhill, a senior fellow at the Brookings Institution and a former budget official in the Clinton administration. “You get into a vicious cycle which can become explosive at some point.” By 2040, those interest payments will eat up 30 per cent of government revenues, according to some estimates. Sooner or later, the U.S. will be handcuffed by its debt, with a diminishing ability to pay for basic services, from defence to infrastructure to education.

The dismal state of America’s finances, and the prospect of decades of ballooning deficits, have understandably started to make the country’s lenders a little nervous. The U.S. raises money by selling Treasury Securities, largely to foreign buyers. Lately, those investors have been increasingly wary of the stability of those treasuries, which were once considered the safest bet in the investing world. Demand at recent U.S. Treasury auctions has been weak, leading to slight rises in interest rates—a potentially troubling indicator. Late last month, well-known bond guru Bill Gross, founder of Pacific Investment Management Co., warned the U.S. could eventually lose its AAA investment grade ranking.

The largest buyer of U.S. debt is China, which held $768 billion worth of Treasury Securities as of March. Recently it has openly expressed concerns about America’s ability to repay the loans. “Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried,” said Chinese Premier Wen Jiabao at a news conference earlier this year. “I’d like to take this opportunity here to implore the United States to honour its words, stay a credible nation and ensure the safety of Chinese assets.”

Those are the kinds of politically loaded statements that keep Schiff up at night. What happens if lenders like China and Japan come to the conclusion that their investments in America have turned out to be bad ones? “The fact that we squandered all the money they loaned us, and the fact that by lending us money they’ve contributed to our economy being less efficient and less productive, they’re actually in a situation where the more money they lend us the less likely we are to pay them back,” he says.

Many scoff at the idea that China will suddenly say “no more” to the U.S. After all, the two countries have had a mutually beneficial relationship for years. China lends money to the U.S. and the U.S. buys masses of consumer goods from China. What’s more, it’s a long-standing relationship and many doubt that China would want to upset the status quo. Schiff sees no logic in that argument. “That they’ll keep lending indefinitely makes about as much sense as the argument that real estate prices have been rising, so they’ll rise forever,” he says. “Nothing that is unsustainable will go on forever.”

But the thing is, China doesn’t have to entirely cut off the U.S. to cause problems. Even if China decided to pull back slightly there would be consequences. The U.S. would still find itself short of the cash it needs to pay its bills, and like a homeowner who misses a mortgage payment, it would have to find that money somehow.

Regardless of precisely how and when this all unfolds, the dollar will inevitably become less valuable and interest rates will rise as the U.S. scrambles to attract new lenders. That will translate into inflation and higher interest rates for the average person, too. The cost of living will go up and the value of people’s savings will decline. Canada would likely get dragged into the mess too, just as it was affected by the current downturn in the U.S. The question is how severely this will all hit. “We could have another economic crisis or we could simply have a termites-in-the-woodwork scenario where we gradually have an erosion of our standard of living and become a nation in decline,” says Sawhill. At the very least, from here on in, the debt will act as a giant anchor, slowing whatever modest economic growth the U.S. can muster.

For the past five years or so, a small group of economists, researchers and former government officials have put on what they call the Fiscal Wake-Up Tour. It’s a kind of travelling road show aimed at raising awareness among citizens about America’s looming debt crisis. “We’ve been frustrated that there hasn’t been more attention paid to [the debt] and that steps weren’t taken earlier,” says the Brookings Institution’s Sawhill, who’s taken part in the tour.

Lately, however, the issue has been getting more attention, say some of the tour’s participants. The trouble is, nobody has any faith that this new-found interest will translate into any timely reaction from lawmakers. There really is no politically feasible solution to America’s debt crisis at the moment. For starters, no amount of economic growth can erase the deficits the U.S. is now facing, says Susan Irving, the director of federal budget analysis at the U.S. Government Accountability Office, a congressional body that oversees how the government spends tax dollars. No matter what numbers they enter in their simulations, she says, they can’t fix the problem.

That means any solution boils down to highly unpopular tax hikes and big spending cuts. To maintain the current debt-to-GDP ratio and prevent a debt explosion from happening over the next 75 years, the government would have to either raise revenues by 44 per cent or cut spending by 31 per cent, says Irving. It’s clear that there’s no appetite whatsoever for either of those options. Tax hikes are especially daunting when you consider that health care costs in the U.S. have been growing about two per cent faster than the economy. “You can’t raise taxes fast enough to catch up,” adds Irving.

Canadians know first-hand how hard and painful it can be to wrestle down a growing national debt. In the 1990s Canada embarked on an effort to slay its much more modest annual deficits. It worked, but not without sacrifice. We ended up with higher taxes and deep cuts to services like health care.

For the Americans, the first step is to at least “stop digging,” says the Heritage Foundation’s Riedl. “Take a step back and think twice before enacting [Obama’s] very expensive proposals.” Then, somehow, lawmakers need to get together and put some spending caps in the budget, he adds. Eventually, taxes will have to go up—on that point everyone can agree. The question now is whether this happens in the midst of a crisis, or in a more measured way, with some foresight and planning. “It’s just tragic that we’re not dealing with this now,” says Auerbach. “If we do it under time pressure because suddenly U.S. interest rates are going up, it’s not going to be nice.”

But all of this is much easier said than done. What’s happened in Washington so far is minor, says Sawhill, “a drop in the bucket . . . or in the sea,” she says. There are some signs that political pressure to curb deficit spending is growing (mostly from the opposition Republicans), but no agreement on how to proceed. Democrats generally fear the looming spending cuts while Republicans fear the taxes. “Those fears are understandable—but they should be outweighed by the fear of what will happen if we fail, if our debts overwhelm us, and if the fiscal meltdown comes,” said House majority leader Steny Hoyer, in a speech last month.

Riedl finds some cause for optimism in the fact that at least Americans, both inside and outside of Washington, are finally talking about the debt problem after ignoring it for all these years. That may be one of the few positive outcomes of the economic downturn: it has led Americans to slowly begin to acknowledge the elephant in the room. “The financial crisis has shown a lot of people that dire economic calamities can happen,” he says.

Schiff, the broker-turned-celebrity-prognosticator, is concerned enough about such a calamity that he says he’s now considering taking his message straight to Washington and running for a seat in the U.S. Senate. His threat to enter politics, which he first made last week on The Daily Show with Jon Stewart, has caused some buzz in Washington. But much as he seems to crave the spotlight, he says there’s another reason for his bid. “I’d do it because somebody has got to do something to stop this. It’s going to end in misery.”




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Can they pay it back?

  1. the question is not can they (doubtful) but do they intend to. The basic Reagan Republican fairy tale (whose effects we are witnessing) is that you can have bread and circuses, and never have to pay for them. We see what that idea did for Rome and it will do the same for the USA. One way or the other (default or inflation) their creditors will never again see most of their money.

  2. Considering that about 80 some per cent of our export market is tied to the US, I'd say that we Canadians are most certainly going to go down with the Yanks.

    • Bring on that EU trade agreement!

    • what happened to switzerland's economy from 1900-1950? We can be switzerland too if we play our cards right, and our oil wealth is a wonderful thing to make it happen and pay for our government. With low enough taxes we can start stealing rich citizens and startup businesses from the US, like Switzerland did. Ontario autos stopped making us rich in about 1988

    • IMHO, this is not doom but an opportunity for Canada. To find other, more sustainable markets.

  3. Its a plan to crash our currencies, what comes nexts is special drawing rights, the 2009 name for the Bancor devised by john maynard keynes backed by 12 or so different commodities or the amero. However, it will have the same problems as the dollar, just on a global scale. We want sound money and money that is not issued by globalists. Wake up people there is a worldwide conspiracy going on to bring all of us further into global and regional government. We need currency competition and national soveriegnty all of us. US, Canada Mexico

  4. The U.S. Federal Reserve is/has printed $38 billion/day, every day since Barack Obama has been in office. This is a fact. If you're a nation in debt, inflation is your friend. "Oh! We owe you how many billion? No problem…" (PRINT IT!!!). The United States is Canada's biggest trading partner. Over 85% of our goods is sent south of the border. In order to make our goods attractive to our predominantly American consumers, The Bank of Canada must artificially LOWER the value of our dollar below the $U.S Greenback which means we will have to DILUTE, DEVALUE AND INFLATE EVEN MORE THAN THE U.S. This is a disaster in wait. I disagree with the article that Canada is going to sink along with the U.S. IF we are proactive and press our leaders not to inflate (Stephen Harper just frigged us in that department by going some $50 billion CDN into debt), but rather do the opposite and maintain a strong currency – perhaps backed by a commodity arrangement, like gold. And if we can shirk or loosen our American trade obligations in the FTA and NAFTA and sell our goods to more responsible consumers like the Chinese, perhaps we can save ourselves. Let's face it. With "Buy American" provisions in the TARP legislation – America doesn't want Canadian goods anyway. And you know what? That's fine with me. Because as far as I'm concerned, Canada doesn't want their shitty money. Let's get back to fiscal and monetary basics. Write your Member of Parliament and INSIST that we don't inflate to make our goods attractive to American consumers. Pressure them to pull from NAFTA and the FTA and to send trade delegations so that we can sell Canadian goods and services to more responsible nations with sound money to mitigate this obvious impending disaster. The time is now. If not, we will surely pay the price for America's flagrant consumerism and economic mismanagement. If not, Canadians will rue the day. You've been warned. Now get off your ass and write your MP!!! TODAY!!!!

    • And then America will just attack us and take everything as they have a habit of doing world wide to weak countries.

    • I second that!!!

  5. It's a tough spot right now – if the governments don't spend, the recessions gets worse or stagnates, making it that much harder to pay down the debt. However, this mounting debt, on both sides of the border, threatens to handcuff our economies for decades if we don't make meaningful steps to pay it off. Worse, while Chretien, Martin and to a lesser extent, Clinton, did run surpluses, they didn't run large enough surpluses – Trudeau and Mulroney in Canada, and Reagan and Bush in the US put their respective countries on the hook for more than their successors were able to pay off, even accounting for inflation and GDP increase.

    The current Conservative government is doing a lot of things wrong economically, but in terms of the sheer size of deficit alone, it's not bad – yet. Stimulus is needed, but this is the easy part. Anyone can spend when it's a good idea, the true test of both Harper's and Obama's economic prowess will come in a year or two, when overspending ceases to be necessary. Without a serious effort to cut spending and raise taxes without completely stiffling a recovering economy, we're going to be in very rough shape.

    • "Current conservative government?" I hope you are not talking about the US. If so, would that be the Democratically controlled Congress or the Democratic president?

      Stimulus is not needed. A correction is needed and it is being prevented through massive monetary inflation and deficit spending. Once that spending stops, the problem comes back. They cannot cut back on spending because too many people are hooked on government entitlements. They cannot increase taxes, because they would need to increase everyone's taxes, for fear of public outcry. Taxing the rich only chases them out of the country in search of better tax structures, which hurts government revenue when you consider only 1% of the country's population contributes over 50% in taxes. This country needs to cut spending (military, regulatory, and entitlement), cut taxes and deregulate. Allow the markets to work and they will sort themselves out.

      And again, Clinton didn't run a surplus, accounting tricks were used to cover up his deficit. They double counted Social Security funds as general revenue to cover up governmental spending. You can look up the numbers at the Bureau of Public Debt.

      • I think Craig O's talking about Harper's Conservatives in Canada.

  6. the question is not can they (doubtful) but do they intend to. The basic Reagan Republican (in Canada the Mike Harris / Steven Harper boodogle) fairy tale (whose effects we are witnessing) is that you can have bread and circuses, and never have to pay for them. We see what that idea did for Rome and it will do the same for the USA (and Canada if we are stupid enough to believe Harper's claim that deficits dont have to be paid for through increased taxes … just leave the debt for our kids to pay). One way or the other (default or inflation) their creditors will never again see most of their money.

    • Why do Canadians have such a hard time understanding growth/wealth?? Perhaps it is because of the belief that governments provide a solid basis of societal well-being and are the source of wealth— neither, sadly, is true. Ronald Reagan's policies not only worked but by the time Clinton was done, those policies– which Clinton did not change– produced a surplus. It did so because the pie grew bigger, a notion that socialist/marxists can not grasp. They see the same sized pie being divied up at all times; not a larger and better pie. The debt that GWB created was not good but this article fails to mention the devastating effects of 9/11 on the debt which makes the whole analysis defective. Obama, though is going to sink the ship as he steers cluelessly into the mist, wishing and hoping for change—-

      • Few economists believe Reaganomics were good fiscal policy, nor the cause of Clinton's surpluses. Besides the fact that there was four years of Bush in the middle during which there were continued deficits, Clinton's surpluses were largely due to a remarkably strong US economy during the 90's and no major increases in public spending (thanks in no small part to a hostile Republican Congress).

        9/11 only exacerbated the relatively small dotcom bubble recession in the US, which was completely over by 2003. Afghanistan wasn't expensive enough to cause massive, static deficits – Iraq was far more expensive and had nothing to do with 9/11. But, it wasn't even these wars which caused the deficits. Bush radically expanded social programs (not very effectively, but still at huge cost) and needlessly cut taxes – none of which have anything to do with 9/11.

        The pie can get bigger, but not that much bigger. Basic fiscal restraint is really the only option to prevent deficits and pay off debt.

        • you hit it right on the head or was it robin willcourt that was hit in the head

        • Clinton's surpluses were largely the result of inflationary monetary policy at the Fed as well as accounting tricks. The treasurey department raided the social security fund to produce a surplus that didn't exist.

          The dotcom bubble would have been a fairly decent correction if allowed to proceed but interest rates were lowered so that the housing bubble could replace it. If you look at the historical fed funds target rates, the 80's saw rates from 9.09%-16.39% from '79-'84 and remained relatively high (>7.0%) throughout the decade to combat the creeping stagflation of the 70's. Just prior and all through Clinton's term, rates were artificially low (<5.50%), spiking (to 6.24%) in 2000 to start the dotcom bust. The solution was to lower rates further (<4%) until 2006, where another spike up in rates (to 4.97% and then 5.02% in 2007) caused our current bust. 2008 saw 1.92% and it is even lower for 2009.

        • I thought Reagan was a great President, but I basically agree with Craig O. – Bush got hit with 9/11, and the economic repurcussions of that were not his fault, but his giving us more Dem-lite social programs like No Child Left Behind and expanded drug coverage coupled with getting us into Iraq – both of those were really bad for the economy. I don't really have a problem with the Bush tax cuts, but I think he should have coupled them with some spending cuts, and he should have concentrated his tax cuts in areas that would have grown the economy. Our government is bloated – we need smaller government Of course, Bush also started the bail-outs; now Obama is taking the bad Bush policies and making them worse. The man has no grasp of how economics works and under him we'll see a second Jimmy Carter economy.

          • Bush didn't start the bailouts. Bailouts have a long standing tradition in the US. I suggest you do a little more research into Conrail and Amtrak, Chrysler (from the 60s-70s), Boeing (or Lockheed, I don't remember), and a few large banks. There are others but I cannot remember them. All have been bailed out prior to the most recent round of bailouts. The entities that were nationalized and unable to pay back the government have since either gone completely bankrupt or continue to run at a loss.

            We need a much smaller government. We also need one not so centrally powerful. However, Abe Lincoln and the federal government decided that central planning was correct and decidedly established that fact when the Civil War was won.

        • Saying "few economists believe" is a logical fallacy – an Appeal to Authority. As has been proven, most economists are fools and didn't see what Peter Schiff saw coming.

          As for cutting taxes, it's always good policy. The problem was that government spending went up. One thing is certain, without the Reagan tax cuts, there never would have been a dot com boom because no one could have profited from creating all those new businesses. Who wants to pay 70% of their income in taxes? Only a complete and total moron, or a complete and total fool.

  7. A recession/depression is unavoidable. The economy must sometimes contract just as surely as the sky must sometimes be cloudy. A recession is not a bad thing; it tightens purse strings and puts wealth back into perspective. It can be painful, but so are most other medicinal items.

    If we try to postpone the inevitable by spending wildly, we will make the whole experience a lot worse due to interest on our debt. It is much easier to get through a drought if you have some corn stored in the silo than if you've been feeding your livestock madly and have nothing left. With large interest payments comes greater deficits, thus more debt, and hence more interest, etc. In the end the government can only inflate money to pay off the debt or renege. Reneging on trillions in debt is a good way to start another world war. Inflation isn't much better, since the payment won't be worth the paper it's printed on.

    Therefore governments (both US and Canada) have to reduce the debt. As with any debt-ridden consumer, the first step is to cut all unnecessary spending. The US and Canada must immediately cut all unnecessary social programs and government spending, not just waste, but everything not essential for the basic functioning of our society.

    Now, will they do this? Unlikely. Obama ran on promises of many new social programs, including socialized health care. He can renege as he has on most of his other promises, but is unlikely to do so. Rather he has increased spending dramatically. His first year in office has seen the deficit increase four-fold. It now exceeds the deficits incurred during all major US wars, including Iraq and Viet Nam, combined. The lenders are in China, Japan, and Saudi Arabia. These debts must be paid; no lender is willing to continue lending indefinitely without prospect of repayment. Yet there is no money to pay them. It must be raised (taxes on an unprecendented scale), printed (inflation on an unprecedented scale), or forgotten (war on an unprecedented scale).

    Prospects are not good.

  8. Canada's Federal debt load is actually pretty good. As a percentage of GDP it is half what it was in 1995. The deficit is bad, but in real dollars and in terms of the overall size of economy it has been worse. The US is in worse shape. Their deficit is huge. However, the debt to GDP ratio is not what it is Greece, Italy, or Japan. Moreover, the US debt is all in US dollars. Unlike Argentina say, the US has the option of inflating its way to a smaller debt.

    In both cases it is the level of private debt in Canada and the US that is the real concern in the short term. No one carries more debt than the US consumer. Canada — and the UK — are not are behind. In the long term, everyone must deal with mushrooming health care costs. Demographically the US is far better shape than Europe. The US is much younger. However, health care costs in the US are going up faster than anywhere else.

  9. IMO, the most urgent issue facing Canada is the need to diversify our foriegn trade.

    Considering that 80% of Canada's exports go to the United States, our government will have little choice but to devalue the Canadian dollar proportionally to any declines in the US dollar.

    Anyone who wants more on this topic should check out Chris Martenson's "Crash Course," a series of free video clips that provide an excellent overview of America's financial problems.

    Anyone considering a real estate purchase needs to have a look at Garth Turner's "great fool" blog. Here are the links:

    http://www.chrismartenson.com/crashcourse

    http://www.greaterfool.ca

  10. The American government has absolutely no intention or inclination of paying its debts. As long as there are chumps who will buy Washington's debt, Washington will sell them debt. Mr. Obama's glorious future for America is based on an enormous increase in debt financed by not-so-bright foreigners. He operates on the P. T. Barnum theory of finance: there's a sucker born every minute. Apparently this is true. Americans have lost all good sense and cannot save themselves from catastrophe. Why do foreigners want to jump into the abyss with them?

    • I think you're right. I suspect the criminal gang that runs the Treasury and owns the Fed have already made plans to default on US Debt. In the meantime they will try to prop up the House of Cards as long as possible to extract more free money from the taxpayer.

  11. Wow. Look at that. The sudden realization that deficits and debt have consequences, and wild hard-to-fathom deficits and debts have catastrophic consequences.

    FERCHRISSAKES, WHERE WERE ALL YOU PEOPLE BEFORE THE DRUNKEN SAILORS TOOK OVER THE LEVERS OF POWER???????

    • Some were caught in "Stay the course" mentality and refused to oppose Bush when he started spending too freely (i.e. deficit of several hundred billion). Everyone else was engulfed in Hope, Change, and Obama Worship as he promised to blow Bush's deficit out of the water with a new and improved multi-trillion dollar version (currently crossing the 4 trillion mark).

    • Some were caught in "Stay the course" mentality and refused to oppose Bush when he started spending too freely (i.e. deficit of several hundred billion). Everyone else was engulfed in Hope, Change, and Obama Worship as he promised to blow Bush's deficit out of the water with a new and improved multi-trillion dollar version (currently crossing the 4 trillion mark).

      Cults are not good for governance. Vote with your ass and it will get bitten.

  12. There is nothing Peter Schiff or anybody else can do to stop the total economic and societal collapse of the US and the rest of the world.

    • People can do something, but the current trend of thought in the US will not motivate people to do anything. A return to a hard currency (aka. silver or gold), restoration of private property rights, deregulation, reaffirmation of the Constitution and a return to a federation of states each having sovereign power, etc. is necessary but will not happen. We have had roughly 100 years of Socialist indoctrination, pushed most heavily through public education. People don't fight every governmental infringement on their rights and just accept whatever the explanation is. The days of a free people and government that served them instead of the other way around are long gone unless people start to fight back and regain what was lost.

  13. I am inspired by the street protests in Iran. I am not inspired by the riot in LA over the Lakers' win…The differences speak volumes, our complacency and cowardice are our undoing. I don't know if there is a heaven, but I kind of imagine hell as a place beyond death where we are forced to look back at the world we left our descendents…And realizing only then how badly we hosed them.

    • It ain't over yet. The American public is like that mule who needed a 2×4 in the head to get his attention. At some point we will wake up and get it together. But the party is over for a good while. And thanks for stepping up for the USA.

  14. To all of you Canadian railing for diversification I suggest that you lobby your elected official to exit Nafta and go your merry way. America will do just fine without you.

    • I would love to exit NAFTA, which has only served to bring our labour/education/health care standards toward to the lowest common denominator. If people would actually do some research rather than believing everything your politicians say through their corporate media mouthpieces, you would understand that NAFTA and free trade in general has only made the super-rich even richer, and the poor poorer.

      • The problem Jim is that NAFTA is not free trade, despite its title claim to the contrary. Rather, it is government managed trade designed to favor politically-connected/favored businesses. It si quite incorrect to suggest that free trade is the culprit behind "making super-rich even richer, and the poor poorer." Government central planning, that is to say, regulation, taxation, and perhaps most of all, central banks' ability to print money out of thin air (in effect, a tax) that has culminated in the present economic crisis.

        For a detailed explanation please read the book "Meltdown" by Thomas E. Woods, Jr.
        http://www.amazon.com/Meltdown-Free-Market-Collap

    • Uh. You do realize how much of energy the US gets from Canada and the restrictions NAFTA places on Canada to ensure that the US keeps getting a cheap supply?

      No?

      Perhaps you should read up before speaking up.

  15. Peter Schiff and Ron Paul are both followers of the Austrtian School of Economics. The economists from this school of thought were the only ones who have correctly predicted this depression. the Austrians economists theory on the business cycle correctly explains what has happened, what will happen and why it has happened.

    It seems insane to keep borrowing money (or printing it) to try to get out of a mess that government borrowing got us into. It also seems stupid to bail out businesses that could not make a go of it. Let them go under and let viable businesses pick up the pieces.

  16. All government is a tower of Babel doomed to fail. The flawed nature of man makes the cycle of history inevitable.

    Prepare to be humbled.

    • Hell of a lot of people deserve to be humbled, but it sucks that I have to be amongst them even though I've been against it the whole time.

      • It was once said that those who do not study history are condemned to repeat it. Not often said enough, however, is that those who do study history are also condemned to repeat it. Natural selection for common sense has not quite refined a critical mass of population within Homo sapiens yet.

  17. This has all been planned for years. If you don't believe that, you would have to believe that everyone in charge is really this monumentally stupid. I am glad I listened to people like Peter Schiff and took all of my investments off the stock market last summer before the collapse. I guess the next step is buying gold before its illegal.

    Finally, I am glad I own some land, have a big garden, and have experience raising and butchering animals.

    • Yes, these individuals are this monumentally ignorant. A primary example of this is president Obama, a graduate of Harvard, and the economists he has surrounded himself with. Unfortunately, the school of thought that is taught at this university is primarily Keynesianism, that is, the ideas of the late economist John Maynard Keynes.

      For a detailed criticism of Mr. Keynes ideas, please read the following below:

      The Misesian Case Against Keynes
      by: Hans Hermann-Hoppe
      http://mises.org/etexts/hoppekeynes.pdf

  18. economic depressions and recessions are inevitable whether in a free market or socialized / fascist hybrids seen across the world and specifically in the US. Mal-investment is the root cause and recessions purge the malinvestment liquidate the assets of the speculators who guessed wrong and reward those with the ability to buy up assets andput them to market supported uses. the problem that schiff refers to is when governments intervene they protect and subsidize malinvestment there by rewarding failure (GM, jpmc, boa, aig, gs, etc [not lehman]) think bush giving paul bremmer and others the medal of freedom for their planning and "effectiveness" in Iraq.
    without the liquidation of malinvestment, the inevitable recession/correction is only DELAYED.

  19. On top of this delay, currencies and other parts of the economy bear the burden of the propped up institutions.
    we are living through hamilton's curse (central banking). the 200+ yr experiement in liberty has failed and needs rebirth. what made this nation great were limited government and free markets. if we americans wish to return to prominance and unburden ourselves with this leviathan, we must end the empire, end subsidies for oligarchs in all industries, and return to a proper functioning constitutional republic that was forged by the will of those who yearned for freedom on a knife's edge. i fear that spirit and free will are lost amongst most of the US population, but not all of us.

  20. Harper would prefer to have Canada destroyed with the USA rather than have Canada prosper without the USA. For deluded ideologues like Harper, a world without the USA providing the dominant economic paradigm is not worth living in.

  21. I think the nation is finding it difficult to recover from on of the deepest downturns of the housing market so far. Despite a lot of federal efforts to bail out the situation, the market is not showing very bright signs of easing. The recession in this market is still increasing every day as the unemployment rates are also reaching red alert.

    With high job losses, house owners are unable to pay back the loans which they thought they would repay through their fat pay checks every month. In spite of efforts taken by the government to alter the loan repayment terms, the anxious borrowers are still unsure of their repayment capabilities. Hence, foreclosure rates are still on the high and the lenders are pricing them aggressively to increase the sales of these homes.

    http://www.housingnewslive.com/is-the-housing-mar

    • Agreed……I think job losses are playing an important role here.

  22. Nothing will bring out the lunatics like a soothsayer delivering a message about the collapse of the evil empire! There is a self-professed 'expert' opinion available for every conceivable economic forecast. There are fraud schemes that are based on putting out a multitude of forecasts and then only following up on the ones that prove correct. If Schiff was correct with his first forecast – and if you look closely at what he actually forecasted it is likely not as close as it appears in the rear-view mirror – the overwhelming likelihood is that he will be wrong with this one.

    The truth is that US debt to GDP ratio is half of what it was in the 40's. It will indeed be sad if the current trend continues and the lessons of national debt have to be learned once again, but tales of the collapse of America are hyperbole at the moment. China does not want its greatest debtor to go broke, because a) it wants its money back, and b) America is the engine that is propelling its economic growth.

    • gee ed. What planet do you live on? You are right about China wanting their "money" back, but if you read what China is really saying, they want their money back, and they want it now. We're 92 trillion dollars in debt, Ed. Yes, 92. These numbers in the story are wrong. Peter Schiff, Ron Paul, and others have been saying the same thing for over 20 years. Let me put it to you like this: If you print 8 trillion Babe Ruth baseball cards, they're worthless. Get it? The dollar is done. Over. The fiat money system is a fraud. It's counterfeit money. There is no way to fix it. Already there is a fascist economic takeover by the bankers and the federal reserve. What don't you get??

      • Gee, pat, last time I checked it was planet Earth, but sans spaceship and the time to survey the galaxy, I can't absolutely confirm that.

        Like the saying goes, "If you owe the bank a million dollars, that is your problem. If you owe the bank a billion dollars, that is their problem." And gee, pat, if these people have been saying the same thing for twenty years, I guess all we can conclude is that they have been wrong for 20 years in a row. Good track record.

        And gee pat, don't look behind you now, the Gestapo are creeping up on ya.

  23. With all due respect, this article is way behind the curve.

    The Chinese have already started cutting back. How? By reducing their total Treasury "investments", by pretty much restricting their Treasury buying to the short-term stuff, by drastically raising their gold and other commodity purchases, by spending more of their money on their own infrastructure, and by buying much more into our hedge funds(which are somewhat guaranteeed by our Treasury Dept., and for which they are using their T-bonds as collateral!).

    They will also start demanding to be allowed to buy large equity interests in our corporations, and we will be ill advised to decline, as we did in 2005 in that Unocal deal.

    BTW, they will also start more openly dictating our foreign policy on a behind-the-scenes basis, if they are not already so doing, especially in areas that concern them directly, such as Taiwan and the South Pacific.

  24. Can the U.S. pay it back? You bet. First the money will be debased and the creditors will be repaid in worthless dollars. Savers will be wiped out as will all currencies tied to the greenback. The quickest path to recovery is the collapse of the Federal Reserve System and the U.S. government. The longer this rotted system tries to keep the life support plug from being pulled, the more painful this process is going to be for everyone.

  25. The USA has painted itself into a corner, which debt spending always does eventually. We've played every delaying tactic, but the world is starting to wise up to our little game.

    The Chinese have been our enabler. Of course, it's been good for them, too, up to a point, but now their biggest customer isn't buying so much, and tens of millions of Chinese are now unemployed as a result. They also realize they are WAY overinvested in our debt, and we are going to stiff them through inflation or default.

    The USD is about to lose its reserve currency status.

    Canada, don't follow USA's lead into the economic and social abyss!

  26. The idiot Keynesians and statists—and they infest the banking industry, the government, the media, and academia—have gotten the whole world into a gigantic mess.

    The Austrian School economists like Schiff saw this train wreck coming long ago, but they were mostly ignored until now. On a political level, Ron Paul is one of the very few who has a clue, and he's been ostracized as some right-wing nutball.

    We idiotic and apathetic Americans will have to suffer through a full-on systemic collapse to start to understand the truth about our debt spending, and our terrible government and Federal Reserve market meddling. Too bad Canada and much of the rest of the world will have to suffer some as well.

  27. Good story but the numbers are all wrong. We're 12 trillion in debt. We've printed 8 trillion in two years. The Bailouts are over 12.8 trillion, the war was 3.2 trillion, and social security and medicare etc are 56 trillion. So… That's 92 trillion. How much is a Babe Ruth baseball card worth if you print 8 trillion of them? Nothing.

  28. Economic depressions and recessions are inevitable whether in a free market or socialized / fascist hybrids seen across the world and specifically in the US. Mal-investment is the root cause and recessions purge the mal-investment liquidate the assets of the speculators who guessed wrong and reward those with the ability to buy up assets and put them to market supported uses. When governments intervene they protect and subsidize mal-investment there by rewarding failure (GM, jpmc, boa, aig, gs, etc [not lehman]) think bush giving paul bremmer and others the medal of freedom for their planning and "effectiveness" in Iraq. Without the liquidation of malinvestment, the inevitable recession/correction is only DELAYED.

  29. Kuiu Island, Alaska. Approx 2000 sq km. Singapore approx 650 sq km. Hong Kong approx 1100 sq km. Rhode Island approx 2700 sq km.

    America to China: "How about this…to settle some of our debt we give you Kuiu Island in Alaska to establish a great, new Chinese American city. It could be the biggest city north of Seattle and Vancouver on the Pacific northwest coast. Kuiu is located near Prince Rupert BC which has railway and port facilities to support a new city of a few million. We can negotiate economic considerations and political representation. Perhaps Kuiu could be a stand alone city state within America or maybe Kuiu could be part of Alaska jurisdictions/laws but independent as a city. Perhaps the million plus inhabitants of Kuiu might gain instant proportional voting rights within the House of Representatives…with future considerations regarding electoral college presidental votes and Senate seats. Perhaps the island might be listed as a fire-arm free province…yet there still might be great opportunities for hunting on the mainland with Native and American guides.

    • continued…

      The Chinese who come to inhabit and build in Kuiu could make futuristic buildings worthy of settlement and tourists from China and mainland North America. While not exclusively a "white collar" city due to land constraints…."New Hong Kong"/Kuiu could showcase Chinese excellence in trades involving medicine, technology, tourism…yet be situated in a North American time zone and a short flight/boatride from Seattle/SanFran/Vancouver.

      The Japanese buying Rockefeller Centre in the 80's as a "showcase" deal is not apt for the situation China and America finds itself in today. "Big deals" need to be thought of that are mutually beneficial for both China and America.

    • Did you know that Germany tried to buy Anticosti Island in the Gulf of St.Lawrence in 1937? Big island…almost 8000 sq km. Makes one wonder how history would have turned out if PM King would have allowed such a deal to go through. Also makes one wonder if Germany/Nazis/Hitler were thinking of inhabiting the island with Jews or "other" Germans. I've heard about the German "Madagascar plan", but only after researching Anticosti on wiki did i learn about the proposed deal in 1937.

  30. Little Pudding—brilliant exposition! I wish everyone could read and copy it for later rereading. Tell me if there's a way I can do that, will you?

    Patrick—-You're spot on. The gov'ts refuse to allow the market to correct, because they don't understand how the real world works, or because it would be very politically unwise in the short term to tell the sheeple, "Look, the gov't cannot fix this. We've got to let the economy fix itself over time. We'll do our best to get the heck out of the way, and there will be a LOT of pain while this is happening, but in the long run we'll all be much better for it. If we don't allow the market to self-correct, we'll have a total collapse."

  31. In 1492, Chemor, chief Rabbi of Spain, wrote to the Grand Sanhedrin, which had its seat in Constantinople, for advice, when a Spanish law threatened expulsion.2 This was the reply:

    ” Beloved brethren in Moses, we have received your letter in which you tell us of the anxieties and misfortunes which you are enduring. We are pierced by as great pain to hear it as yourselves.

    The advice of the Grand Satraps and Rabbis is the following:

    1. As for what you say that the King of Spain obliges you to become Christians: do it, since you cannot do otherwise.

    2. As for what you say about the command to despoil you of your property: make your sons merchants that they may despoil, little by little, the Christians of theirs.

    3. As for what you say about making attempts on your lives: make your sons doctors and apothecaries, that they may take away Christians' lives.

    4. As for what you say of their destroying your synagogues: make your sons canons and clerics in order that they may destroy their churches. [Emphasis mine]

    5. As for the many other vexations you complain of: arrange that your sons become advocates and lawyers, and see that they always mix in affairs of State, that by putting Christians under your yoke you may dominate the world and be avenged on them.

    6. Do not swerve from this order that we give you, because you will find by experience that, humiliated as you are, you will reach the actuality of power.

    (Signed) PRINCE OF THE JEWS OF CONSTANTINOPLE.”

    2. The reply is found in the sixteenth century Spanish book, La Silva Curiosa, by Julio-Iniguez de Medrano (Paris, Orry, 1608), on pages 156 and 157, with the following explanation: “This letter following was found in the archives of Toledo by the Hermit of Salamanca, (while) searching the ancient records of the kingdoms of Spain; and, as it is expressive and remarkable, I wish to write it here.” — vide, photostat facing page 80.

    ~ The above was quoted from Waters Flowing Eastward by Paquita de Shishmareff, pp. 73-74 YOU ASSISTED THE CONVERTED KHAZARS JEWS TO DO THIS TO AMERICA.JEWS HAVE ADOPTED JUDAISM IN 740 KINGDOM OF KHAZARIA,BIBLE,REVELATION 2:9,,3:9…ZECHARIAH 2:1,,2:2,,2:3,,2:4 USA=NEW ISRAEL.

  32. I thought I was reading the Washinton Times for few moments…

    When did MacLean's morph into a wildly right wing rag? Y'all do realize this Schiff fellow was an adviser to Ron Paul, don't you, and that he's an advocate of the bat sh*t crazy Austrian School? What's next, articles about how Obama is a Muslim?

  33. America needs Canadian oil, gas, hydroelectric, lumber… Canada needs, uh, uh, the NFL?

  34. The story smells like a fraud. Jews have contributed far more to Western Civ than they have received. Don't buy the propaganda.

  35. That is an excellent article that that everyone should read. As an investor, an ordinary person, one of the working class I think I have to keep the points for the article in mind and that will help me manage my life better to prepare for the worst.

  36. YES! when you start 'manufacturing paper' instead of things it is the beginning of the end. it applies to Canada as well. we also have little control of major industries due to foreign ownership. we may have to join USA more than we may like to. and we will go down with them as well, in unison!

  37. I very much agree with PolJunkie that around 80 % of our export market is tied to the US.

  38. canada has wien it self off the usa they are going down and if we start now we may have to go down with them

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