Dollar Status

News out this morning from China shouldn’t surprise any of our subscribers. The BRICS(Brazil, Russia, India, China, & South Africa) came out with a statement calling for a revamped global monetary system that relies less on the U.S. dollar. Meeting on the Chinese island of Hainan, the group agreed to establish mutual credit lines denominated in their local currencies,NOT in U.S. dollars. They also stated that the current financial crisis had exposed the inadequacies of the current monetary order (code word for dollar). The BRICS are very concerned right now about the inevitable dollar devaluation due to out of control spending and deficits in Washington. They also were frustrated with the advantages and privileges that the U.S. has controlling the reserve currency, calling for a new [su_quote]broad-based international reserve currency system providing stability and certainty[/su_quote] in an official statement. These statements all come out just after congress and the President agreed to spend and borrow more for fiscal year 2011 then they did in 2010. If congress is to follow through on what they passed to avert a government shutdown (shutdown in name only), then the U.S. will need to borrow at least another trillion in order to get us to October. Of course the debt ceiling is currently by law set at 14.3 trillion which it’s at now, so we are headed to at least 15.3 trillion within the next 6 months. Amazing isn’t it, the first trillion took 204 years and the next one is projected to take 6 months.

So the BRICS are starting to do transactions in their own currencies, pushing for a new reserve currency, and importing record amounts of gold and silver. Yet, more than likely we will have to suffer through more gold bubble talk from the main stream media, when in reality they should be talking about the mother of all bubbles, the dollar bubble.

Mandatory Spending

Doing a comparison of the year 2000 Vs. 2010, we can see that the national narrative and assessment of our current fiscal condition is fatally flawed. Lets look at the changes we have seen in the last 10 years. In the year 2000, 49.3% of Americans had jobs, we also had about the same number of non-working adults as we did children. In 2010, 45.4% of Americans had jobs, 66.8% of men had jobs (the lowest on RECORD), and the non-working adult population grew 27 million, while children under 18 grew by just 3 million. Why note non-working adults and children? Because with 77 million baby boomers, this change in demographics matters big time!

Public school education costs tax payers around $10,000 a year, however a baby boomer entering their retirement years (social security & medicare) costs around $25,000 a year. Now it is important to note that the Federal Government picks up the tab for the retirees and educating a child is shared. What we are trying to point out is that when it comes to how much we are going to have to spend and borrow in order to keep up with entitlements, we have barely scratched the surface. In the year 2000, our fiscal budget was 1.8 trillion, with 197 billion going towards medicare and 232 billion going towards entitlements. By 2010, our budget nearly doubled to 3.4 trillion, medicare spending went up 128% to 451 billion, and entitlement spending went up 140% to 558 billion. Now, the first baby boomer didn’t turn 65 until this year, so all of these spending increases were done before this huge wave of baby boomers began to enroll in these programs. In the last 2 years, our government has already been spending so much that just 2 years ago when President Obama took office, Medicaid spending has gone up by 50%, and as a percentage of the economy, government has gone from 35% to 44%. The advocates for taxing the rich simply don’t understand economics nor our demographics. believes we will see significant changes either to our currency status or our entitlement programs in the next 5 years. If it’s a currency crisis first, then by default the entitlement changes will happen. So which one will happen first? Well, let’s just say at this point changes to the largest voting blocks retiree benefits is politically impossible.