Between Default and Hyperinflation

There must be a happy place somewhere between defaulting on treasury debt obligations and hyperinflating the world's reserve currency. I say this because the US political asylum keeps humming along in this neverland and dares not deal with reality. It's a delusional place full of delusional people who do whatever it takes to keep themselves in this delusional world.

Helicopter Ben insists that he isn't printing money and technically he's right. HE isn't standing behind a Gestetner churning out pages after pages of fiat money that bears the words - In God we Trust. He pays somebody to do it for him. What he does is work on rhetoric with his other fed cronies; rhetoric to to keep the spin going as long as possible. The problem for him and his god backed currency is that reality is taking hold.

The country has been technically insolvent for several years according to University of Boston professor, Lawrence Kotlikoff. This is because he accounted for all of the unfunded liabilities. In time, we won't need to worry about unfunded liabilities because they will all be washed away with the coming default. Let me explain:

At present debt levels, a rate of interest of 11.1% would cause the US government to have to pay more interest on the debt than total income from taxes. As the debt rises at a present burn rate of over 110 billion per month, the interest portion also rises. Unemployment figures continue to rise, so the amount of tax income is dropping. The stock market is at the same level is was at 4 years ago indicating no new net revenue from capital gains on stocks. Housing prices continue to decline very slowly - no new taxes there. Consumer spending has declined considerably over the past few years as they are getting tapped out - don't look for any new sales tax revenue. Given the limitations for any new tax revenues, we are left with only the growing expenditures with the main culprits being the debt service, military, social security and medicare but also includes the rest of the ballooning public service.

The Interest Expense on the Debt Outstanding includes the monthly interest for:

• U.S. Treasury notes and bonds
• Foreign and domestic series certificates of indebtedness, notes and bonds
• Savings bonds
• Government Account Series (GAS)
• State and Local Government series (SLGs) and other special purpose securities.

These amounted to $104 BILLION in December 2010.

Did you catch that?

Debt service in December $104 billion and total NEW debt per month averaging $110 billion. Looks that happy place (the difference) is getting a lot smaller than it used to be.

I may put together an estimate of when this default becomes actual rather than technical for the next time I write.