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The Great Liquidity Crisis of the Not Too Distant Future

Washington’s politicians are fairly blasé about the national debt. After all, the interest payments to the debt are not significantly different than they have been over the last 40 years. However, what is not being communicated to the public is that the Federal Reserve must raise rates substantially over the coming years. If interest payments even begin to approach historical levels, federal revenues simply won’t be enough to pay the interest.

Currently the United States is projected to pay around $333B next year in interest on the national debt: half of what we pay on national defense. However, this amount is only as low as it is because of a bit of trickery known as “quantitative easing,” wherein the Federal Reserve has been able to finagle unprecedentedly low interest rates since the last financial crash in 2008. According to the Congressional Budget Office, the interest rate on debt has been hovering at between 1.5-2.5% since that time. In order to pull this off, the Fed kept rates at 0.25% from December 2008 until December 2016! Currently the Fed has the rate set at 1.25%. However, historically, the interest rate has been much higher. Since 1980, the interest rate has varied between 3% and 20%!

What would happen if interest rates went up…even a little?

If the Fed raised rates just two percent from the current projection (let alone the whole 20%), the United States would have difficulty paying just the interest. If we ran the numbers, assuming the debt stays at $20 trillion (though it will go up) and 2017’s rate of 1.33 % goes up by 2%, at the low-end we’re looking at interest payments of $666 billion (cue maniacal laughter), an amount greater than what we spent on defense/homeland security in 2015. If we calculate our payment at 20%, the high-end of rates we’ve paid in the past, we’ll be paying $4 Trillion; that’s a price-tag equivalent to the federal government’s expenditures for one year, meaning economic disintegration for the whole Union! You can’t grow your way out of that, and there aren’t enough rich people to tax your way out of it, either! And financial giant JPMorgan has already assigned a name to this inevitable catastrophe: The Great Liquidity Crisis.

With all this, then…is there any wonder that Texas is establishing a Gold Repository in Leander?

As there is no politically-viable way to avert the impending federal debt-pocalypse, I, for one, thank GOD that I live in Texas. The more steps (like Leander) that Texas takes towards independence, towards shielding ourselves from the desperately foolish spending and monetary policies of the U.S., the more we can preserve what we already have. However, the longer Texas drags it’s heals in embracing a hard Texit from the U.S., the less certain our economic future will be.


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