We're Screwed!

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Do you believe
everything the government tells you? Economist and statistician
John Williams sure doesn’t. Williams, who has consulted for individuals
and Fortune 500 companies, now uncovers the truth behind the U.S.
government’s economic numbers on his Web site at ShadowStats.com.
Williams says, over the last several decades, the feds have been
infusing their data with optimistic biases to make the economy seem
far rosier than it really is. His site reruns the numbers using
the original methodology. What he found was not good.

So we are technically bankrupt?

Yes, and when countries are in that state, what they usually do
is rev up the printing presses and print the money they need to
meet their obligations. And that creates inflation, hyperinflation,
and makes the currency worthless.

Obama says
America will go bankrupt if Congress doesn’t pass the health care

Well, it’s
going to go bankrupt if they do pass the health care bill, too,
but at least he’s thinking about it. He talks about it publicly,
which is one thing prior administrations refused to do. Give him
credit for that. But what he’s setting up with this health care
system will just accelerate the process.

Where are
we right now?

In terms of
the GDP, we are about halfway to depression level. If you look at
retail sales, industrial production, we are already well into depressionary.
If you look at things such as the housing industry, the new orders
for durable goods we are in Great Depression territory. If we have
hyperinflation, which I see coming not too far down the road, that
would be so disruptive to our system that it would result in the
cessation of many levels of normal economic commerce, and that would
throw us into a great depression, and one worse than was seen in
the 1930s.

What kind
of hyperinflation are we talking about?

I am talking
something like you saw with the Weimar Republic of the 1930s. There
the currency became worthless enough that people used it actually
as toilet paper or wallpaper. You could go to a fine restaurant
and have an expensive dinner and order an expensive bottle of wine.
The next morning that empty bottle of wine is worth more as scrap
glass than it had been the night before filled with expensive wine.

We just saw
an extreme example in Zimbabwe. … Probably the most extreme hyperinflation
that anyone has ever seen. At the same time, you still had a functioning,
albeit troubled, Zimbabwe economy. How could that be? They had a
workable backup system of a black market in U.S. dollars. We don’t
have a backup system of anything. Our system, with its heavy dependence
on electronic currency, in a hyperinflation would not do well. It
would probably cease to function very quickly. You could have disruptions
in supply chains to food stores. The economy would devolve into
something like a barter system until they came up with a replacement
global currency.

What can
we do to avoid hyperinflation? What if we just shut down the Fed
or something like that?

We can’t. The
actions have already been taken to put us in it. It’s beyond control.
The government does put out financial statements usually in December
using generally accepted accounting principles, where unfunded liabilities
like Medicare and Social Security are included in the same way as
corporations account for their employee pension liabilities. And
in 2008, for example, the one-year deficit was $5.1 trillion dollars.
And that’s instead of the $450 billion, plus or minus, that was
officially reported.

the rest of the article

25, 2009

Dr. Phil
Maymin [send him mail] is an
Assistant Professor of Finance and Risk Engineering at the Polytechnic
Institute of New York University. He is the author of Free
Your Inner Yankee

and Yankee
Wake Up

Best of Phil Maymin

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