Monday, May 13, 2013

We Are Heading Towards Hyperinflation

"In every year since the 2008 financial crisis, the US federal government has been incurring an operating deficit of more than $1 trillion. Because it is spending more than it receives in revenue, it needs to borrow dollars to fund these deficits. These borrowings cause its total debt to grow, so the debt ceiling must be raised periodically to enable it to keep borrowing. The latest ceiling of $16.4 trillion was reached in January.

Rather than deal with out-of-control spending, politicians of both parties agreed to suspend the debt ceiling, meaning that there will be no limit on what the federal government can spend and borrow through May 18. On May 19, the debt ceiling will be raised to the total amount of debt outstanding as of that date, and as a consequence, at that time the debt limit must again be considered to enable more borrowing to fund what is likely to be another year in which the deficit exceeds $1 trillion. I fully expect that that this scheme will repeatedly be used to avoid facing any limit.

This mechanism eerily parallels a step taken by President Nixon in August 1971. Rather than address the financial imbalances the US government faced, he chose – in his words – to “suspend temporarily” the US dollar's constitutional link to gold. His “temporary” suspension has now lasted 42 years. This observation brings up an important point.

This current suspension of the debt ceiling is not going to be temporary. From now on, each time it comes up for consideration, I expect that the politicians will just keep extending the suspension again and again. They will always take the soft political option, just like the politicians did in the German, Serbian and Zimbabwean hyperinflations."

- Excerpt from a recent article wrote by James Turk, read the full article here: