Thread: Is The Us Bankrupt?

Patrick Wood
July 18, 2006


Do Federal Reserve managers secretly believe that the U.S is bankrupt and is about to go under?

Well, where there's smoke, there's fire!

A stunning 23 page report by Professor Laurence J. Kotlikoff titled "Is the U.S. Bankrupt?" was issued by the Federal Reserve Bank of St. Louis in November, 2005, and quietly posted on their public website. Although publicly accessible, it was totally ignored by the U.S. press.

Kotlikoff is professor of Economics at Boston University and has penned at least 355 papers published by the Federal Reserve over several years.

Kotlikoff concludes that "Countries can and do go bankrupt. The U.S., with its $65.9 trillion fiscal gap, seems clearly headed down that path."

The fiscal gap of $65.9 trillion is more than 5 times U.S. Gross Domestic Product and twice as large as national wealth. The fiscal gap is all the money that the U.S. owes now and in the future, for which it doesn't have revenue to pay for. According to the Kotlikoff,

One way to wrap one’s head around $65.9 trillion is to ask what fiscal adjustments are needed to eliminate this red hole. The answers are terrifying. One solution is an immediate and permanent doubling of personal and corporate income taxes. Another is an immediate and permanent two-thirds cut in Social Security and Medicare benefits. A third alternative, were it feasible, would be to immediately and permanently cut all federal discretionary spending by 143 percent. (p. 8)
Imagine Ben Bernanke, chairman of the U.S. Fed., getting up in front of Congress and stating "The U.S. is clearly headed toward bankruptcy!"

The stock market would crash, the dollar would melt down, the bond market would implode and real estate would be frozen in time.

The greater question is, "What does the Fed intend to do about its bankrupt client? After all, the Fed has the exclusive franchise to loan money to the government and for the issuance/destruction of money and credit in the U.S. The Fed has only one client- the U.S. Government - and it is about to bite the monetary dust.

This writer believes that the Fed's proactive response is already well underway, but we have not recognized is as such -- until now.

As of June 29, 2006, the Fed has raised discount rates for the 17th straight time. This has the effect of withdrawing credit from the banking system. In other words, the Fed has been pulling in its loans and creating resistance for bankers to not lend as freely as before. Ask around the banking community (as I have done) and see how willing they are to loan money these days! They are collectively pulling in their horns.



When John Snow abruptly resigned as Secretary of Treasury on May 30, 2006, President Bush immediately nominated his replacement: Henry Paulson, CEO of Goldman Sachs. Goldman Sachs is part of the white-hot core of global banking, ranking with Brown Brothers, Harriman, Lehman Brothers, Kuhn Loeb, Inc. J.P. Morgan, Chase and others. Is Paulson such a patriot that he would leave a $38 million per year job for the paltry salary of the head of Treasury? After all, he was the highest paid CEO on Wall Street and was still rising. Also consider that Paulson's personal stock in Goldman Sachs is currently worth almost $500 million. He is no pauper!



Against any other possible logic, it's more likely that Paulson went on the inside (of government) to protect his crony's investments: And what better place to do that than as head of the U.S. Treasury?

This writer hates to be a pessimist, but this does not make for an optimistic near-term or long-term forecast. Monetarily speaking, it's time to "run for the hills."

The demise of the dollar may be at hand.

(Ed. note: For you history buffs, compare today's monetary scenario with 1928-1929 and the subsequent sharp removal of credit from the manic stock market of the 1920's.)



© 2006 Patrick Wood - All Rights Reserved

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