The third phase of America’s Financial Endgame™ is the time when America’s bond market for government debt securities will collapse. The prospect of a bond market collapse is not a pleasant one, since it will result in the retirement plans and pensions of many people being simultaneously decimated. It is the unfortunate, and inevitable outcome of unlimited debt financed spending.
There is no way to tell how much longer the world will continue to finance the US government’s spending habits, and there is no way to tell exactly when the proverbial “bill” will come due. However, it is a matter of complete certainty that the current trajectory of spending on the part of the US government will eventually lead to a bond market collapse. It is my sincere hope that these events do not unfold, but it is also my sincere belief that the current national trajectory makes it only a matter of time before they do occur.
The eighth stage in America’s Financial Endgame™ will occur when the relentless quantitative easing finally spills over into broad inflation. This will create major problems for many people who are currently living at or near the edge of poverty since inflation typically impacts commodity products the hardest, and people with low incomes must devote a disproportionately large percentage of their incomes to basic necessities such as food, energy, and shelter.
As this process unfolds, there will be many people in both the US and around the globe who find themselves in desperate circumstances. This is all but certain to lead to civil unrest and riots, which will inevitably cause large, volatile swings in the financial markets. The tricky part about this phenomenon is that it will create the appearance of stabilization, just before the ultimate collapse.
The next stage of America‘s Financial Endgame™ will occur when the quantitative easing by the Federal Reserve spills over and broadly inflates prices. This is a seminal step in the end game scenario, because it signals one of the important “turning points” where the actions being taken by the government become extremely difficult to reverse.
In the case of our current financial situation, broad price inflation is being held back by a lack of growth in private bank lending. (In contrast to rapid expansion of government debt and quantitative easing by the Federal Reserve) The result of this private contraction / government expansion has been a very slow increase in the rate of growth for total credit.
The next stage in America’s Financial Endgame™ is the process where the perpetually increasing national debt creates a spiral. The spiral, or “debt spiral” as its frequently referred to in personal and corporate finance literature is the situation where debts grow so large that you are no longer able to even pay the interest from your current income.
This situation is very typical for individuals who get “over their head” with credit card debt. It is also a regular occurrence with corporations that finance expansion with borrowed capital and are unable to generate the additional cash flows that they need to carry the increased interest payments. The unique part about this story is the fact that it is happening to the United States Government.
One of the things that many people hear about, but few people understand is the impact of the “Fed Balance Sheet” on our national finances. Whenever the Federal Reserve “Expands” its balance sheet, the effective result is using printed money to purchase treasury notes in the open market. This action is also known as “monetizing the debt.”
The reason that this action monetizes the debt is because the Federal Reserve creates new money for the purpose of purchasing treasuries that are held on the balance sheet of the Fed. Thus, as the Fed balance sheet “Expands” it means more money is being printed for the purpose of supporting bond prices to keep the government’s cost of borrowing low.