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US Economy Crisis 2011

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Meet Uncle Sam he has a lot of bills to pay almost four trillion dollars worth every year, uncle Sam’s income is a little over two trillion dollars per year. To make up the difference the deficit he does with most Americans do, he borrows money when Uncle Sam tix alone he calls a bonds, bonds can be held by banks investors or even foreign governments.

Uncle Sam has to promise to pay interest on these bonds just as you do on any loan you take out, ever think about paying your mortgage with your credit card? That’s exactly what uncle sam does he takes out new loans, new bonds, so that he can make payments on the old once. All those loans and especially all the interest adds up. right now Uncle Sam was about 14 trillion dollars, to put that in perspective $14 trillion is about the same as the national GDP the total value of all the goods and services produced by the American economy in an entire year.

It’s such a huge amount of money that Uncle Sam starting to run out of people to borrow from, and he’s having trouble just paying the interest of his loans. The obvious solution would be to either cut spending or increased taxes, but if it cuts spending the people that he’s spending money on would complain that they don’t have money to spend and that he was hurting the economy.

If he tried to raise taxes enough to close this gap not only with people definitely have less money to spend he probably have riots on a sense, so Uncle Sam chooses the easy way to make money just make he calls up the Federal Reserve which is our central bank and like magic dollars are created and positive in banks all around America.

The problem is that the more if something there is the less it’s worth, same goes for the US dollar the more dollars the roller the less each one will buy. That’s why commodities like gasoline, food and gold, become more expensive when uncle Sam does he making money in magic. The commodities aren’t really worth more your money is just worth less that’s called inflation, remember the foreign governments that lent money uncle Sam.

When they lent money to the american government something interesting happened it made the us-led richer in their countries look poor when a country looks poor compared to america one dollar our money buys a lot of their money, so they can pay their workers only a few pennies a day with such low labor costs they can sell their products in america for lower prices than any American manufacturer can.

The easiest way for american companies to compete is to move their factories overseas and pay their workers a few pennies a day to, this contributes to a recession Americans lose their jobs stopping taxes and start collecting government benefits like Medicaid and unemployment. This means that Uncle Sam has even less income and even more expenses at the same time the people who still have jobs are desperate to keep them so they tend to do more work but not to get paid anymore.

when your dollars are worth less and you are not learning more them that’s called stagflation, and this is why Uncle Sam’s in a catch-22 he can to raise taxes or cut spending without making the recession worse and he can’t have the Federal Reserve create more money without making inflation worse. For now he can keep borrowing money but since you can’t even pay the interest on the loans he already has it just makes his inevitable bankruptcy even worse, whether it’s in two months for two years the day will come when Uncle Sam can no longer pay his bills.

When that happens the bank’s investors and foreign governments put counting on that money, will be able to pay their bills you see just like Uncle Sam governments banks and corporations don’t actually have much money mostly all they have is debt to each other, if one leak in a debt chain stops paying defaults the whole thing falls apart. If investors can’t pay their bills corporations will be able to pay their employees, if banks can’t pay their bills you’ll be able to take out a loan use a credit card or even withdraw your savings.

If foreign governments can’t pay their bills their own banks corporations will have the same problems that’s called a global economic collapse, it’s never happened before so nobody really knows how bad it will be how long it will last or even how will eventually get out of it the house of cards has already been built there’s no painless way to dismantle it now, all we can do is to educate each other but what’s actually going on and to prepare for what may be very extraordinary circumstances.

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