At What Point Will It Be Impossible To Fund The Federal Government’s Debt .

Payday Loans Neon Sign

Payday Loans Neon Sign (Photo credit: rinkjustice)

These three articles show the future of our Government debt bomb. “Presenting The Fund-Tastic Four”, at zerohedge.com, “Fed Seen As Pumping Up Assets to $4 Trillion In New Buying”, at Bloomberg Businessweek, and “Only In California: School Owes $1 Billion On A $100 Million ‘PayDay’ Loan”, also at zerohedge.com. Use these as a crystal ball to see the direction of the Government’s future ability to fund itself.

The funding of Government, the Governments attempts to stimulate the economy through spending, and the Federal Reserve’s attempt to steer the economy by counterfeiting and injecting the printed money into the economy through their “open market operations”, has brought us to a level of debt that can’t be sustained. Open market operations are also how the Fed finances the Government’s debt through purchasing Government treasuries, either directly from the Government, or indirectly from the original purchasers of the T-Bills. The money that the Fed uses to purchase this debt is created out of thin air, (counterfeited), and electronically transferred to the accounts of the sellers. Don’t you wish you could fund yourself through a scam like this.

The last article, “Only In California:”, shows what happens when Government gets to a point where they can’t fund their day-to-day operations. Because the cost of the borrowing takes an ever-growing percent of the tax revenue, it creates a downward spiral toward collapse. They continue to borrow, trying to buy time, in an attempt to push the inevitable default further down the road. They are hoping a miracle happens to jump start the economy before reality hits. Unfortunately they think the miracle cure is the printing of money and low-interest rates. They don’t realize that the printing of money and easy credit are the cancer, not the cure.

Here is an excerpt from the article, California State Treasurer Bill Lockyer said “It’s the school district equivalent of a payday loan or a balloon payment that you might obligate yourself for, … It’s so irresponsible.”

“There has to be some lesson in here – some philosophical reflection on our society’s complete and utter inability to see beyond the next cashflow need… Simply mind-blowing…”

Read this previous post, Economic Reality Will Prevail, Even If Debt Ceiling Is Raised, for more analysis.

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