The Economy – The Growing Debt Bomb

The Growing Debt Bomb: Richard Rahn is the writer/author of this 9/21/09 moneynews.newsmax.com post entitled, “Richard Rahn: The Growing Debt Bomb – Facing a One- to Three-Year Countdown“. Mr. Rahn “… is a senior fellow at the Cato Institute and chairman of the Institute for Global Economic Growth.”

He has written the only piece PrudentHome will be reviewing today and one of the few pieces we would designate as a “must read” for the preparing family. Here’s some of what he has to say:

• “In just the past eight months, the Congressional Budget Office estimates of the amount of additional federal debt to be held by the public grew by an astounding $4 trillion for the 2010-19 period; and the amount of federal debt held by the public grew from $5.9 trillion to $7.5 trillion in just the last 12 months.’
• “ … the federal government (i.e., taxpayers) now owns (primarily through Fannie Mae and Freddie Mac) or issues (through the Federal Housing Administration and other government programs) About 80 percent of the $14.6 trillion of home mortgages outstanding in the United States.”
• “ … the Federal Deposit Insurance Corp. is considering tapping its Treasury credit line for up to $500 billion. It needs to do this because of the high number of bank failures and because each bank account is insured by the government (i.e., taxpayers) up to $250,000.”
• “The entitlement programs (i.e., Social Security, Medicare, Medicaid, etc.) all continue to grow faster than the economy, and they will take more than 100 percent of all federal tax revenues this year, requiring that virtually all of the other government spending programs, including defense and interest payments on the debt, be funded by more borrowing.”
• “… the government cannot tax its way out of the deficit situation, because increasing income tax rates in the upper income people will both slow the economy and cause them to find legal or illegal ways to avoid the tax increase … .”
• “… the politicians … cannot solve the deficit problem as long as they refuse to cut back on the growth in Social Security, Medicare, and Medicaid — because any new tax revenue will be quickly absorbed by the growth in spending.”
• “… the Chinese government … holds about $1 trillion in U.S. government securities.”
• “The Chinese are now trying to diversify their holdings – and their recent activity in buying large quantities of tradable commodities is probably, in part, a hedge against a falling U.S. dollar.”
• “What is particularly frightening is that neither political party has offered a serious plan to defuse the debt bomb.”
• “ When the debt bomb explodes – within the next one to three years – expect to see record high real interest rates and/or inflation, coupled with a collapse of many “entitlements.” IT WILL BE LIKE THE NEUTRON BOMB, THE BUILDINGS WILL BE LEFT STANDING, BUT THE PEOPLE WILL NOT (caps/PH ).”

The foregoing information is frightening and it drives home the need for the individual family to prepare for what are almost certainly more difficult times ahead. But, too, the information presented in informing us can help us in strengthening our commitment to, and giving us direction in, family preparedness.

Until mid-week; keep your eyes on the horizon as the weathers changing fast.