America’s second bankruptcy in less than four decades is on the horizon.
The first bankruptcy occurred on a Sunday evening (August 15, 1971), when President Nixon closed the “gold window.” In effect, Nixon told foreign holders of dollars they could no longer redeem their greenbacks for gold at the official rate of $35 per ounce. Nearly forty years ago, the U.S. dollar became a fiat currency, backed by nothing except the faith that the Federal Reserve would maintain the purchasing power of the dollar. Since the dollar has no longer been convertible into gold, the greenback has lost approximately 80% of its value, because the Fed has opened the monetary spigot virtually nonstop to “stimulate” the economy, under both Republican and Democratic administrations.
Today, it is reported that foreigners are losing their appetite for U.S Treasury securities. This means that the federal government’s insatiable need for money may run into the greatest obstacle, the unwillingness of foreigners to continue funding America’s welfare-warfare state. If foreign buyers go on strike or curtail their demand for U.S. Treasury securities, then the Fed probably will be the buyer of “last resort,” unleashing a torrent of newly created money and thus runaway inflation.
If the Fed does not “monetize” the Treasury’s securities, then interest rates will go through the roof in order to attract buyers of the federal government’s debt, plunging the country into another great depression. Either way, the end is near for America’s experiment in statism, unless Obama and the Congress begin to downsize markedly the federal government and make the dollar as good as gold once again.