What will happen in the coming years...

I feel like I have to be on the record about what is going to happen in the coming years if we as a nation do not change course.

The problem is very basic: We are spending money we do not have. This happens both as individuals and as a nation. Our national debt now sits at $12 trillion, is projected to climb to $14 trillion next year, and in the next ten years is projected to double to $24 trillion. The interest payments on our debt alone are projected to rise to $700 billion every year in ten years time - in other words, a stimulus plan every year with absolutely zero benefit (not unlike the current results of the economic stimulus). This is money flushed down the toilet.

Compunding the problem, we have $109 trillion dollars in unfunded liabilities looking into the future - these unfunded liabilities are Social Security, Medicare/Medicaid, and Prescription Drug benefits paid primarily to the Baby Boomers who are just now beginning to enter retirement. Basically, we (they) have promised the Baby Boomers these benefits, and we (they) do not know how they are going to pay for them.

This fiscal problem does not take into account Health Care "reform," which will only add to the national debt problem and the unfunded liabilities.

The Ponzi Scheme that is Social Security, Medicare, Medicaid, and all the rest will come crashing down in a dramatic fashion. The US is bankrupt already - we just don't see it yet.

I will not even address the problem of the many pension funds out there, both public and private, that require an increasing population and increasing workforce to remain solvent. These are Ponzi Schemes as well, and they will follow suit.

The current financial situation is unsustainable.

How is the US government going to solve this problem? Will they raise taxes? No, that will destroy the economy and result in the ending of their political careers. Will they cut spending? No, too many people are dependent on the government and making the necessary cuts to remain solvent as a nation would result in the ending of their political careers. So what do they do? They are going to monetize the debt. They are going to print the money needed. They are going to destroy the US dollar.

Think about it. Most people don't understand what the dollar really is - it is mysterious, confusing, and complicated - because it represents nothing. The dollar is worth what it is worth because people believe it is worth something. It is also worth what it is worth due to the simple economic equation of supply and demand. When the US government is trustworthy, the demand for the dollar rises and it is worth more - when the US government is viewed as untrustworthy, its value falls.

It is also worth more when there are less dollars in circulation. It is worth less when its supply increases. And boy, its supply has increased over the last year - by a whopping 130%!

The drop in the dollar has been steady and gradual of late - that is because foreign governments that own US dollars in their reserves, as well as US debts, no longer trust the US government to pay them back and are slowly moving out of the dollar and into other currencies and assets (gold). The Federal Reserve is also keeping lending rates at extremely low levels - when taking inflation into account, they are in fact lending money to banks at negative interest rates! These banks in turn either use this money to shore up their books, or use this money to make money in other assets, such as stocks, bonds, or real assets.

But lets return to the national debt and the unfunded liabilities problem. How are they going to make good on these debts? They are going to pay these debts off with printed dollars - they are going to pay them off with worthless money. The government could pay off the national debt today - just print $12 trillion and pay off the principal. But what happens? You have too many dollars now in the system, and the value of the dollar plummets and we see hyperinflation. Every dollar you have in your savings account, or in stocks and bonds, is now worth nothing overnight. We reset as a country to zero.

China holds the most US debt. They want to be assured that the US is going to make good on its debt and its word and pay them back with money that is actually worth something. They also hold many dollars in their own reserves. When China believes that the US will inevitably be forced to pay them back with worthless money, with printed pieces of paper, they will dump their dollar reserves and get whatever they can get for them. This will start the hyperinflationary cycle. This hyperinflationary cycle is on a razor's edge right now - first one to blink, China or the US, things could change dramatically overnight.

Once China dumps its dollars, other countries will follow suit, and amidst the carnage the US government will decide to just print more money to pay off our debts, because the dollar is crashing with or without the actions of the Federal Reserve and US Treasury. In other words, "When in Rome, do as the Romans do, and right now Rome is burning."

This scenario gives the government the cover to either blame China, or blame some other bogeyman of their choosing, for the fact that every dollar you own is now worth nothing, and every cent the government owes you in Social Security, or Medicare, or any other unfunded liability is now worth nothing. It wasn't their fault! It's a crisis! It's a catastrophe! It's the fault of the rich and powerful!

The system resets, and your net worth is whatever you own in real assets, because real assets rise with inflation. Stocks will rise, but likely not along with inflation. Bank interest rates may rise, your wages may rise, everything will rise, but if it's not a real asset, they will likely not rise with inflation, but behind it. And then, when it takes hundreds of dollars to buy a sandwich, the government will create a new currency, and a new system, and all debts will reset to zero.

Take what you will from this prediction. You respond as you wish - you are responsible for your own decisions or lack thereof, and in no way am I a financial advisor or life coach. But if you want some advice, here are a few common sense suggestions:
1) Pay off your current debts and buy real things you need. Whatever you do, don't borrow money to buy shit you don't need.
2) Invest in yourself, not in others that are not beholden to you - invest in skills, knowledge, and in relationships. Whatever you are doing, make yourself indespensable. Be the best at whatever you do.
3) If you are a Baby Boomer, plan on not retiring. Social Security will not be there for you, nor will any pension plan. Remember, the dollar is going to be worth nothing, and everything promised depends on the dollar. If you do begin your retirement in the next couple years, perhaps do what you've always wanted to do - learn those skills, and be useful and productive even in retirement. It never hurts to be productive.
4) Become self-reliant. Don't keep up with the Joneses, because the Joneses are fucked. Be frugal with your resources, and learn to live with less.
5) A penny saved may be a penny earned - but only if it was coined before 1983. Paper money is worthless - coins have some inherent value based on the metals it is stamped from. Electronic money is worth even less - it is a promise, and promises can be broken. Be careful where you invest your earnings - just riding out the storm and keeping a long-term view only works when the foundation - the currency - is on a firm footing.
6) Make your word solid. Make your handshake firm. When the US government finally is shown to be the dishonorable den of thieves that it is, people of honor will be needed to lead once again. Your word will be worth more than anything else.