Economist John Williams says the Federal bank account at the US Treasury Department is down to just one-day’s estimated outlay, a dire situation that can only be papered over for a short time. Williams cites the May 28 Daily Treasury Statement showing the US Treasury has an operating cash balance of ~$16 billion which is roughly one day’s average cash outlay of about $17 billion.
Williams paints reality over the fantasies created by the federal government in his latest commentary (#527). At his website Williams shadows government-issued economic statistics, erasing the false illusions created to make it sound like the economy is in recovery mode.
Williams shows the annual rate of inflation (buying power of the dollar) is ~9.3% rather than 2.4%, unemployment is more like 22% rather than 8% and the Gross Domestic Product, the measure of the production of goods and services, is actually in decline.
By papering over the real numbers, government has bought some time, but it won’t last long according to Williams.
The US government can’t control foreign holders of US IOUs (US Treasury Bonds) who have a growing perception they will never be paid back on the trillions of dollars of debt owed them. Foreign holders of US Treasury bills can sell them off at a loss to others.
The amount those T-bonds are discounted is the amount the US dollar will be valued at in the world marketplace. At that point, the US faces a default on its obligations to pay back lenders.
Williams says he had expected the US dollar to come “heavy selling pressure in April and May, but manipulated market perceptions of a pending reversal of the Federal Reserve Bank’s “quantitative easing” program temporarily averted a looming US fiscal disaster.
Williams calls federal government efforts “false dollar props that are illusions.” When these perceptions shift sharply, which he says is soon, is when panic is possible and “full dollar debasement is inevitable” (means 100% devaluation of the US dollar)!
Williams says the scandals unfolding in the White House only create an environment where further lack of trust will hasten the collapse of the US government as we know it.
Brace yourselves. Williams says “The timing of this remains sooner, rather than later, still likely within calendar 2013” and that the dollar sell-off probably “will be the proximal trigger for the onset of hyperinflation before the end of 2014.” It may be time to buy a ticket on a spaceship to another planet.
What are the chances all this will be averted? No better than 5-10% by his estimation.
Williams says “the government cannot raise taxes enough to cover the actual deficit in any given year. That shortfall also is so large that every penny of government spending (including defense) could be cut to zero, except for the social programs, and the fiscal circumstance still would be in deficit.”
Williams points to looming downgrades in the federal government’s credit rating as another bullet it will take.
Williams says: “When the dollar selling starts, safe-havens likely will be sought by investors among all the major Western currencies. A likely place investors will run to is Japan which “still has basic system stability.”
“The games being played here are vicious,” says Williams, “but the underlying fundamental value of gold as a store of wealth, and as an asset that preserves the purchasing power of the dollars invested in it, cannot be altered by the machinations of the people who created the crises threatening the collapse of the U.S. dollar.” He emphasizes gold remains the primary hedge against the US dollar debasement which lies ahead.