Sovereign Man / Notes From The Field By Simon Black
The US Government Is Out Of Options
September 16, 2015
Sovereign Valley Farm, Chile
Six months ago, on March 16, 2015, the government of the United States of America once again reached its statutory debt limit.
In other words, the Land of the Free had maxed out its credit card and was legally barred from borrowing a penny more.
That’s pretty sad when you think about it.
The supposedly richest country in the world is such a deadbeat that they had borrowed the maximum amount of money as permitted by its own law.
They call it the ‘debt ceiling’. And the only way to borrow more is for Congress to pass a new law… something that, embarrassingly enough, has occurred dozens of times over the past few decades.
The US is undoubtedly addicted to debt.
So much so, in fact, that even when the government hits the debt ceiling, it still doesn’t deter them from borrowing.
Rather than shocking them into taking drastic action to reduce the debt, they just find creative ways to keep borrowing that don’t –technically- count towards the debt ceiling.
In the words of the United States Secretary of the Treasury, they’re known as ‘extraordinary measures’.
And in a letter to Congress that he sent last Thursday, Secretary Lew described “the extraordinary measures we have taken to avoid default,” which include grabbing money from federal retirement funds.
It’s truly pathetic-- to be so dependent on debt that even when you legally breach your credit limit, your only option is to start stealing from your employees.
That’s not how it works in the real world. Responsible adults have to figure out a way to make ends meet.
Too much month at the end of the money means making tough decisions, and, at a minimum, is treated as a personal crisis.
For the US government, however, overspending is an entitlement that’s now built into the system.
It’s just business as usual for these guys… and it’s truly incredible how cavalier they are about such a devastating weakness.
Here’s some hard facts: there are basically three categories of government spending.
First is what’s called Discretionary Spending. This is what Congress debates about endlessly—deciding how much money each department of government will receive every fiscal year.
Then there’s the Mandatory Spending. These are programs like Social Security, Medicare, etc. which are set by law.
Congress doesn’t have to debate anything with these programs, the money just automatically gets sucked out of the Treasury, just like your monthly mortgage payment.
Last is interest on the debt, which, sadly, is so big that it has its own category.
Right now the system is so screwed up that if you add up the Mandatory Spending programs AND interest on the debt, the total is nearly as big as ALL of the government’s tax revenue.
In other words, you could eliminate nearly every department of government—Homeland Security, the State Department, etc. and the US government would still likely be running a deficit.
And that problem is only going to get worse. By the government’s own estimates, the long-term shortfall in its major mandatory entitlement programs is more than $42 trillion.
If you add the $18 trillion (and rising) in US debt, America’s total liabilities exceed $60 trillion.
This is not a drill. This is real world, and the situation is dire.
Oh there’s just one more thing.
The Treasury Department (by its own admission) is running out of money.
In the same letter to Congress from last week, Secretary Lew disclosed that the Treasury Department’s cash balance had fallen below its minimum level.
He also mentioned that his extraordinary measures were running out, urging Congress to please please please raise the debt ceiling for the 79th time since 1960.
The Treasury Department is out of options. And candidly, the government itself is running out of options.
Now, tonight there’s apparently another debate of leading Presidential candidates.
If asked what they’ll do about the US debt, there will probably be a lot of high-sounding language and tough talk.
But at the end of the day, the cold reality is that the government has no choice but to default.
They could default on their creditors like China who have purchased trillions in US debt. But that would only temporarily solve the problem, not to mention cause a catastrophic financial crisis across the entire world.
Or they could default on the Federal Reserve, which also owns several trillion dollars in US debt. Though that would cause an unprecedented currency crisis and a run on the US dollar.
Most likely, they’ll default on the promises they’ve made to their citizens.
Namely, they’ll default on their obligation to maintain a sound and stable currency; and their obligation to provide retirement income from the Social Security program that people will have spent their entire lives paying into.
This is something you can absolutely count on.
Of course they’re going to tell you that if you’re dissatisfied, the only thing you can do is go to the voting booth and cast a ballot.
And in the meantime they’ll parade a bunch of candidates around who will tell you every lie that you want to hear.
“Social Security is fine.”
“We can get the debt under control.”
It’s all a bunch of BS.
The truth is that while the government has no good options remaining, you have very powerful options and solutions at your disposal as long as you have the courage to look at objective data and stop believing their lies.
This is no time for ‘hope’. Rational people have Plan B. It’s time to make sure yours is airtight.
Until tomorrow, Simon Black Founder, SovereignMan.com
Notes From the Field September 17 2015
Sovereign Valley Farm, Chile
First of all, I really want to say thanks to all of our extremely kind and thoughtful readers who emailed us to make sure that we’re all OK.
If you hadn’t heard, there was a rather substantial earthquake in Chile yesterday that made international news.
While the horses may still be a bit spooked, our team is fine, the farms are fine, and we very much appreciate the kind words and thoughts.
If this were a different country my answer could have been dramatically different.
Yesterday’s earthquake measured an 8.3 at its epicenter with a very shallow depth of just 11 kilometers.
Parenthetically, a lot of people think that the intensity of an earthquake is just its score on the Richter scale, but in fact there are many other factors involved.
Shallow earthquakes can be much more destructive even with a lower magnitude, and 11 kilometers is considered quite shallow. So this one was pretty big.
A few months ago an earthquake of lesser magnitude struck Nepal and devastated much of the country… because they weren’t prepared.
In Chile it’s different.
Earthquakes are just part of the deal when you live here. So even when powerful earthquakes strike, the impact is not ruinous.
They don’t ignore the risks.
My own house was specifically designed to withstand powerful earthquakes, and we built in strong cross-bracing and other countermeasures.
It’s no accident that it’s still standing this morning.
Coincidentally, while my house was shaking last night, hopefuls for the US presidency debated last night about how to make America great again.
They spent three hours bickering and quibbling while nary a word was spoken about the real challenges.
Right now nearly every Western government is completely bankrupt.
This is not hyperbole-- these are facts ripped from the pages of their own financial reports.
Most Western central banks are borderline insolvent, again based on their own published balance sheets.
Western banking systems are dangerously illiquid, and pension systems around the world are fraudulently underfunded.
It took decades to get into this mess, and it’s a total farce to believe that the way out is to simply go down to the voting booth and cast a ballot.
It’s even more insane to think that after generations of bad decisions that a single person can restore grandeur and prosperity in a few months, or even years, especially when almost everything the government does makes things worse.
Again, the numbers paint a very clear picture here.
Since 2008, US official debt has doubled, and their own budget projections show they have no plan to pay down a penny of it. Ever.
And how can they, when the government blows through almost all of its tax revenue just on entitlement programs and interest on the debt?
They could eliminate entire departments of government and still not make a dent in the budget deficit.
As I wrote to you yesterday, ds either default on the people who loaned America money, or default on their obligations to the American people.
Either way, a lot of people are getting the shaft.
Don’t allow yourself to be a victim of other people’s stupidity. Remember that rational people have a Plan B, especially in light of such obvious risks.
If all the objective data shows that your government is completely insolvent, and that your banking system is dangerously illiquid, why would you keep 100% of your money there?
Instead, it probably makes sense to consider moving at least a portion of your savings to a safe, stable banking system overseas in a country that has no debt. (Yes it exists!)
Even if you want to believe they can still fix everything, it’s hard to imagine that you’ll be worse off for taking sensible steps to prepare for reality.
Here in Chile, they don’t ignore the obvious risk of earthquakes.
In the developed West, however, people are ignoring what could turn out to be some of the biggest risks of their lives.
You can’t fix your broken government.
But with a little bit of awareness and a few sensible steps, you can ensure that no matter how strong the force, your house will always remain standing.
Until tomorrow, Simon Black Founder, SovereignMan.com