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Friday, January 27, 2012

It Won’t Be Mad-Max, But It Will Be Mad

Original Article


The collapse. Blogs talk about it all the time. Some portray a future resembling the 1979 movie, Mad Max starring Mel Gibson depicting an apocalyptic future of gangs and individuals killing each other for the world’s last resources. In today’s reality, a more likely scenario of apocalypse will be one of economic meltdown, which may occur rapidly or may occur in slow motion – but will occur nonetheless, and will cause pain, hardship, and a given amount of social chaos for a period of years.

Like much of the Eurozone, the U.S. is broke. Although increasing numbers of people are realizing this, the fact remains that many people are not fully aware of the magnitude of the situation and are not aware of the fact that this has been cleverly hidden from them, albeit temporarily.

The consequences of years of over-the-top debt spending and promised financial obligations are catching up with most of the subsidiaries of the U.S. government. What do I mean by that? The cities and towns, counties and sates are running large deficits with mostly zero chance to balance without severely cutting benefits and programs or severely taxing the businesses and citizenry even more than they already are.

Either way, it will only increase the downward spiral as fewer dollars will be available for people and businesses to spend. Politicians absolutely do not have the guts to pull the plug (self preservation) and will absolutely continue to kick-the-can down the road – that is, continue to borrow more money from the FED to keep the government running at current levels of spending.

The thing is, and the the thing that’s going to ultimately cause the implosion, is that the U.S. government can continue to borrow newly printed money from the FED, at will… whereas the U.S. states, counties, cities and towns cannot print their own money to back-fill their deficits. The ONLY way that they can ever hope to resolve their debts is to drastically cut off their spending (they will still owe and have to pay their existing debt) and/or they will have to drastically increase their tax revenues. That’s it. No other way.

When the ratings of these various entities begin to be downgraded due to their excessive debt-to-income on their balance sheets, their cost of borrowing more money goes much higher – which only makes the problem worse. This is happening all over Europe right now, and will certainly happen in the U.S. in the not too distant future. When it does, very painful choices will have to be made, and the middle class will suffer greatly.

The middle class will suffer the most because either way, they will get slammed more than they already have been slammed. Many will have their pensions drastically cut. Taxes will go higher. The spending power of their dollar will continue to diminish as the Federal Reserve loans more money to the U.S. government. More jobs will be lost as fewer people spend a diminishing amount of money. Those who have jobs will continue to slip further behind as ‘real’ inflation far out-paces their wage.

There is NO EASY WAY OUT of this looming mega disaster. NONE.
We can only hope that their is a crash landing rather than an all out nose dive into the ground at cruise speed. The point is, the future may not be Mad Max (except perhaps in pockets), but it will be ‘mad’. There will be those that are going to be entirely stunned when the depression catches up with them, caught entirely unaware. These folks will probably suffer the most since they will have done nothing to prepare or to change their ways now in order to soften the blow later.

So, I’m warning you now, IT IS GOING TO HAPPEN. The magnitude and duration is unknown, but the net amount of pain will be severe – either very long and moderately painful or shorter and mind-numbingly painful. My bet is the long version because the government doesn’t want a massive social meltdown which would surely occur given a short and severe outcome.

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