Government Dependency

The System Will Collapse into Chaos if the Government Stops Entitlements

October 21, 2010

SHTFplan - International forecaster, Bob Chapman, tells it like it is, as usual. In We See Totally Surreal Markets, Chapman points out what those on the unemployment rolls, those with lost homes, and those close to personal economic collapse already know - that our economic system is in complete and utter shambles:

We see totally surreal markets, because the US government has been manipulating them under the fascist model for years. As in 1984, good news is bad and bad news is good. Market manipulation is insanity and it guarantees a dreadful conclusion. There is no logic, and the denizens of Wall Street go right along with the scam, least they lose their jobs. Most all of the economic and financial news is bad, and that is a fact. Markets cannot thrive on hope in the Fed or the administration or on QE2. The fundamentals simply are not there. Zero interest rates cannot last forever and neither can a never-ending, growing Fed balance sheet.

The Fed’s policies have been losers. How can you have faith in a failed system driven by the greed and looting of the American public by Wall Street and banking, which owns the Fed? In fact we now see them praying for inflation so their system doesn’t collapse. They really believe they can propagandize the public into spending more again. That is going to be a very hard sell with real unemployment at 22-3/4% and real estate still collapsing.

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At the heart of today’s financial problems is one of the greatest frauds ever pulled by American banking. This is the result of issuing fiat money and credit. This is the result of leaving the gold standard 39 years ago. The release of gold as an anchor ended any incentive to stop inflating. Government can spend as it pleases and the public gladly accepts inflation to have a better lifestyle, not understanding that debt piles up, taxes have to rise, and, in the end, the bubble breaks as we have just seen in real estate. It has also ushered in fascist socialism that has allowed welfare, food stamps, and extended unemployment forever, Medicare, Medicaid and educational grants.

The politicians, and those who control them, cannot and won’t stop the gravy train, because if they do the system collapses in chaos. It is called a race to the bottom that began 39 years ago, initiated by President Nixon, who said we are all Keynesians at heart. In other words, everyone wants a free lunch.

One thing we can guarantee is dollar devaluation, versus other currencies and gold and default. This is another lock Americans are going to have to deal with. Social Security and Medicare are already in default. Why do you think government wants to steal your retirement plans? How else can they keep them going with other government spending, such as wars of endless duration and creating employment in a staggering economy? The bank known as Washington has already been broken.

They are just barely hanging on right now. Though it may have been a painful and politically incorrect position to take, had the US government not engaged in massive, multi-trillion dollar stimulus, bailouts and backstops for the last two years, we might have already had a major economic reset and the system might be closer to stabilization.

Unfortunately, our government and the Federal Reserve chose to continue the machinations that got us to the 2008 crisis -- and they took it to a whole new level -- with unprecedented spending and monetization of US debt.

Now, we’re locked in -- that is, until the system eventually hits a brick wall and comes crashing down.

Right now, our policy makers are in a Catch 22. It’s checkmate, and the only thing that we can do is delay… to a point.

We need austerity measures, much more severe than those of France, Greece and the rest of Europe. But mass cuts in entitlement programs that tens of millions of Americans have come to depend on will lead to serious problems, not just for our economy, but on a social level as well. What happens if 40 million people were to lose their food stamps, or 20 million people lose their unemployment benefits? Many are already at the breaking point, and if the government were to stop the gravy train, as Chapman puts it, the system would get very chaotic, very quickly. Thus, we just don’t see something like that happening anytime soon.

But make no mistake, the current entitlement system, driven mainly by US government borrowing, is unsustainable. So, whether we like it or not, the cut to entitlement programs is coming one way or the other.

Politicians are just not going to do it; for many, it would be political suicide.

So, the end result we foresee, as Chapman points out, is a high inflationary environment that will make it impossible for the average food stamp, unemployment or welfare recipient to purchase essential goods like food, energy and shelter.

We’re seeing it in Social Security already, albeit in limited form. The government has not re-adjusted social security payments higher because the CPI inflation index has not shown an increase over the last couple years. However, the CPI does not include calculations for food and energy because our government says those are highly volatile and should not be counted. Thus, social security recipients are now paying more for food than they were two years ago, but there has been no adjustment made in their benefits. They’ve essentially taken a mandated pay cut as the US dollar has lost value.

This is exactly what we will see in other entitlement programs. Now imagine for a minute what it will look like if/when inflation is running rampant at 10% - 15% per year, and entitlement adjustments only account for 1% to 3% increases.

A lot of people will go broke a whole lot faster.

And, we’re not talking about people not being able to buy iPads, new home decor, or Christmas presents for the kids. No, we’re talking about being able to put food on the table, paying the rent for shelter, and putting gas in the car.

This can get very ugly. As Peter Schiff previously pointed out, a great number of Americans will be impoverished. And according to Gerald Celente, many may take to the streets in riots and protests circa 2011 and beyond.