The Fate of America in the Hands of Printing Presses?

Fate of America in the Hands of Printing PressesGoing into 2013, the outlook for the U.S. economy is dismal. And, until I see structural changes, my negative view on the U.S. economy will continue. Since 2009, all we have seen are low interest rates, massive government debt, and a record increase in the money supply—factors I call artificial economic stimulators.

The U.S. national debt has increased more than 77% over the last five years—from $9.2 trillion at the start of 2008 to $16.4 trillion now. (Source: Treasury Direct web site, last accessed December 6, 2012.) How is the government financing that record debt?

It’s just one big Ponzi scheme. In the U.S. economy, the Federal Reserve buys U.S. Treasuries from the U.S. government with money it essentially creates out of thin air. The U.S. government then uses that money to repay old debt, pay interest on old debt, and to run its operations.

Eventually, the money printing has to stop, and the government’s debt needs to be paid down. According to WorldDebtClock, in the U.S. economy, each American taxpayer’s portion of the national debt stands at $142,000. (Source: WorldDebtClock.Org, last accessed December 6, 2012.)

Logic dictates that, in order to pay off the ever-increasing national debt, taxes must increase in the U.S. economy. In times of economic growth, U.S. taxpayers could likely afford to pay a bit more tax, but with the majority of the jobs creation in the U.S. economy being in the retail and low-wage sectors, consumers do not have extra money to spend…paying more in taxes is the last thing on their list.

For those who argue that businesses can pick up a bigger piece of the tax they pay, we again need to revisit the economic growth situation. Profits rise for companies when the U.S. economy is moving forward. But, the evidence today is to the contrary: corporate earnings growth in the U.S. economy in the third quarter of 2012 was negative for the first time since 2009. The fourth quarter doesn’t look any better.

In a situation where the U.S. economy is experiencing stagnant growth, adding more to the national debt and printing more money can only go so far. In fact, it’s only a matter of time before the Ponzi scheme implodes.

Sure, the stock market has climbed since 2009 as a result of an unprecedented increase in the money supply, and the resulting cheap access public companies have to debt. But, the buying power of Americans, who account for 70% of U.S. GDP, has suffered. I don’t expect the U.S. economy to see any real growth in 2013.