(This is Part 5 of a series. Go back to Part 4.)
In Song of Existence we've discussed in detail the unprecedented and colossal debt structure that has built up around the world, especially in the U.S. And in recent articles we've discussed the staggering build-up of unregulated derivatives transactions among financial entities, which has now reached the mind-boggling sum of $284 trillion.
Like a heroin addict needing greater and greater injections to get the same effect, it now takes $6 of new debt for each new $1 of GDP, and that figure is rising. Larger and larger injections of money and credit to get less and less effect.
Combine this greater and greater money, credit, debt and derivatives edifice among governments, businesses and consumers with greater and greater fragility as the edifice grows ever higher and we have a recipe for a sudden shock of some kind that could implode the whole edifice in a surprisingly brief time.
Everything is interconnected these days and getting more so. Corn farming in the Mid-West is connected to the price of oil in the Middle East is connected to bond traders in Japan is connected to shoppers in Paris is connected to telecom computers in New York.
It's all connected in a complex web of interlocking obligations. What money you or I have at the bank is simply an obligation of the bank, because the money itself is mostly not there; 99% of it is loaned out. The "insurance" obligations of many derivatives contracts are orders of magnitude above the capital bases of the companies that write them.
Focusing more narrowly, the U.S. government has entered into vast obligations that it cannot possible pay. Social Security and Medicare crises are shortly to arrive on the front burner and virtually nothing has been done to prevent them. The total unfunded obligations of the U.S. government have been estimated recently at $44 trillion. If the U.S. government were forced to do its accounting the way business has to,
the U.S. government would already be declared bankrupt.
If we want to know the real cash-outlay deficits the federal government is running, we don't look at the "official" deficit number, which is just another manipulated statistic and recently went from "$319 billion" in fiscal 2005 to "$248 billion" in fiscal 2006, a decline. Those figures are as phoney as the other economic statistics coming out of Washington, since all sorts of things—including an entire war—are "off-budget."
If we want to know the real deficits the federal government is running annually, we look instead to the increases in the federal debt from one year to the next. That is where we will find the true numbers for the federal deficit, because that's the actual amount of new money that the government is borrowing to keep going.
Measured in this way, the true deficit of the U.S. governemt in fiscal 2005 was not $319 billion but $554 billion; in fiscal 2006 the actual deficit was not $248 billion but $574 billion, an increase in a deficit that is already incomprehensible.
Not only are these deficits unfathomable, but they are due very soon to get larger yet. The combination of falling tax receipts as the recession takes hold with larger interest payments on its debt as interest rates rise will soon balloon even the "official" federal deficit into uncharted areas of the stratosphere.
This is turn will help to boost the already fantastical U.S. trade deficit —currently running $700+ billion a year—into even higher nose-bleed territory. Basically, to finance itself the U.S. government is borrowing more and more money—and borrowing more and more of it abroad.
And that's where the dollar comes in...
(This is the end of Part 5. Go to Part 6.)
—jim sloman, 11.10.06
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