fed printing presses grind to a halt, page-5

Lookout october!!

Eyes down!!

THE US PLANS TO BORROW $US 3.4 TRILLION
By their own official estimate, the US government is expected to issue $US 2 TRILLION in new debt this fiscal year and $US 1.4 TRILLION in the next fiscal year to fund its stimulus program and other financial bailouts in an effort to combat the worst American recession in decades. All this will do is to postpone a collapse, it cannot prevent it.

In any case, US global borrowing on this scale is impossible. The rest of the world does not have $US 3.4 TRILLION in spare cash lying about which it can lend. And even if it did, the rest of the world has its own purposes for the lendable cash they do hold. These purposes do not include lending to the US so that it can continue its massive consumption.

Economically - The US Can NOT Do This On Its Own:
The US cannot provide its government with the funds they officially require. Eventually, Washington DC must scale its spending to the size of incoming tax revenues. At present, this would mean a federal budget cut in half this year, followed by cuts in the following year large enough to bring about a small budget surplus. To combat the economic downturn after that would require still further budget cuts - to the point where taxes can begin to be cut without pushing the budget back into deficit.

Geo-strategically, this process would require a full-scale global military withdrawal from all of the 800 plus bases the US now has around the world. It would also require that the US armed forces be reduced to about a quarter of their present size. This is precisely what the US did it after the end of WW I when the Senate balked at the cost of keeping US forces in Europe after the war had ended. The US can, and must, do this again. The alternative is to go broke trying to preserve an empire on borrowed money.

There Is NOTHING Inside The Fortune Cookie:
The China/US meetings on July 27-28 in Washington were a stand-off. Each side simply read its position papers. The basic US position is that it will begin to reduce the budget deficit - once the US economy is in recovery. The Chinese position is that the US has to act to maintain the value of the US Dollar.

China Gets A Veto On US Tax Policy:
One item did escape from behind closed doors at the Washington meeting. The Obama administration has stated that the budget deficit will be constrained in future even if that means higher taxes. Treasury Secretary Geithner refused to rule out that possibility, saying in full public view that the Obama administration will, from now on, "do what it takes" to bring the budget deficit down.

The Chinese Dragon Casts A Shadow On Sunday TV:
On US TV talk shows on August 2, Treasury Secretary Timothy Geithner and National Economic Council Director Lawrence Summers refused to rule out possible tax increases. They could hardly say anything else, having been head-to-head with their Chinese opposite numbers for the July 27-28 meeting.

Even so, it was as if a lightning bolt had hit the White House as the communication director rushed out to tell the US press that Mr Obama stood by his promise not to increase taxes on the American middle class.

In fact, what will happen over time is that a lot of the present federal handouts and subsidies will be cut back. Taxes will not be raised but a lot less money will flow out of Washington, cutting the deficit.

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(reproduced with permission)