From September of last year to February of 2011 the rise in gasoline prices has cost US drivers $75 billion additional dollars. As gasoline prices surge, they virtually wipe out the tax cut recently passed in Congress and would evaporate nearly $200 billion from Americans by the end of the year.
And where does that gasoline money go? It goes to places like Saudi Arabia, which produces oil and then turns around and buys US Treasury bills in return for the favor of US military protection for that country.
So while there is a public debate over whether to tax the rich, a huge tax increase in the form of gasoline price hikes has already been covertly put in place.
The U.S. is handing money from its left hand to its right and calling that demand for US Treasury Bills. The T-bills act as a credit line for the US national debt habit, now at $1.6 trillion a year over and above what it collects in taxes, which is largely comprised of costs for military and Medicare. Neither of these two sacred cows were touched in recent budget battles.
The US is also creating shill buyers for T-bills from nebulous investors in the Cayman Islands. So the demand for US T-bills is artificially created. China and Japan aren't buying up our debt any longer and acting as enablers of our over-spending habits.
Japan can't continue to buy US Treasury Bills because of its earthquake/tsunami disaster and because it will probably have to flood the market with $700+ billion treasury bills it owns in a profit-taking to pay for the disaster.
The U.S. could have sent a big message and cut spending significantly. But instead the actual cuts ended up being just 0.02%. Real significant cuts in military and Medicare spending would cause the world to have greater confidence in US money.
But the US uses its propaganda machine, with US News & World Report saying: "The best and simplest way to own treasuries is to buy Vanguard's Total Bond Fund ETF (BND), which is a basket of nearly 5,000 bonds and yields more than 3 percent a year." This is simply balderdash. The inflation rate is running about 10%, a figure the government can't hide any longer. Don't forget you pay taxes on that 3% yield on bonds also.
So how does US News & World Report respond when confronted about inflation when buying low-yield T-bills from bond funds? It says: "Worried about inflation? The average duration of all the bonds is only 5 years--only 8 percent of these bonds have durations greater than 20 years, and 25 percent are between one and three years. BND consists of 43 percent treasuries, 28 percent U.S.-guaranteed mortgages, and about 5 percent in foreign bonds." But, but, 10% inflation is now, not next year.
State unemployment funds are already in the red. The States owe the Federal government $45.7 billion in borrowed funds for the unemployed.
New Mexico wanted to raise taxes to pay for the unemployed. The NM unemployment fund runs dry by March of 2012. Raising taxes to transfer funds from the employed to the unemployed is a bad precedent. The Governor vetoed the idea. Other States face the same impending problem.
As the Federal Reserve's Quantitative Easing II program winds down in July 2011, and the realization any further "easing" would further fan the flames of inflation, there won't likely be a QEIII. So now what?
You don't need to be a rocket scientist to see it coming
- an economic meltdown that is reflected in the rising price of silver and gold
acts as a bellwether for lack of confidence in paper money.