Economic crash The Fade of Uncle Sam Economic Flourish Era

Deficit

Meet Uncle Sam, who has a lot of bills to pay, almost $4

trillions dollars every year.

Uncle Sam income is a little a bit over $2 trillions per year.

To make up the difference “the deficit”, he does what most

of the Americans do. “HE BORROWES MONEY”

EXPENSES 3.8 Trillions

INCOME 2.2 Trillions

Income Vs. Expenses

Uncle Sam Bills

Please – Pay us, so I can pay them & they can pay you..

Uncle Sam's Bonds

When Uncle Sam take out a loan, he calls it a “BOND”.

Bonds can be held by banks, investors, or even foreign

government.

Uncle Sam has to promise to pay interest on these bonds

just as you do on any loan you take out from a bank.

Have you ever think of paying mortgage with a credit

card? That is exactly what Uncle Sam does.

Uncle Sam takes out new loans, new bonds, so he can make

payments on the old ones.

All those loans and specially all that interests adds up!!!

Right now Uncle Sam owes about $14 trillion dollars

($14,000,000,000,000).

Uncle Sam's Debt

To put that in perspective, $14 trillions is about the same

as the National GDP (the total value of all the goods and

services produced by the American economy in an entire

year.

DEBT = ENTIRE GDP

When Worse Comes to

Worst

It is such a huge amount of money that Uncle Sam has

starting to run out of people he borrowed from, and he is

having troubles just paying the interests on his loans.

The obvious solution would be to either cuts expending or

increase taxes.

No Exit

If he cuts expending, the people that he is spending

money on would complain that they don’t have money to

spend and that he is hurting the economy.

If he tries to raise taxes enough to close this gap, not only

would people have definitely less money to spend, he

would probably have a riots on the streets.

Uncle Sam's Magic

So, Uncle Sam chose the easy way to make money…

“JUST MAKE IT”

He calls up the Federal Reserve, which is the American

Central Bank, and like magic… Dollars are created and

deposited in banks all around America.

The problem is that the more something there is the less it

is worth! Same goes for the US dollar.

Inflation

The more dollars there are the less each one will buy.

That is why commodities like gasoline, food, and gold

become more expensive when Uncle Sam does his

money making this magic.

The commodities are not really worth more, your money is

just worth less. That is called “Inflation”.

Inflation: Prices go up because money is worth less.

Remember the foreign governments! That lent money to

Uncle Sam.

When they lent money to the American government,

something interesting happened.

It made the US look richer, and their countries look poorer.

When a country looks poor comparing to America, one dollar

of the American money buys a lot of their money, So they can

pay their workers only a few pennies a day.

With such low labour cost, they can sell their products to

America for lower prices than the any American manufacturer

can.

The easiest way for American companies to compete is to

move their factories overseas, and pay their workers a few

pennies a day too.

This contributes to “Recession”, American lose their jobs,

stop paying taxes, and start collecting government benefits,

like Medicaid, and farmer subsidies.

This means that Uncle Sam has even less income and even

more expenses.

At the same time the people who still have jobs are desperate

to keep them, so they intend to do more work but not to get

paid any more.

When the US dollars worth less and you are not earning more

of them that is called “Stagflation”.

Stagflation = Recession + Inflation

This is why Uncle Sam is in a so called “CATCH 22”.

Uncle Sam cannot raise taxes or cut spending without

making the RECESSION worse, also Uncle Sam cannot

have the federal reserve create more money without

making INFLATION worse.

For now Uncle Sam can keep borrowing money, but since

he cannot even pay the interest on the loans he already

has, it just makes his inevitable bankruptcy even worse.

“Catch 22”

The day will come, weather in two months or two years, when

Uncle Sam can no longer pay his bills, when that happens the

banks, investors, and the foreign governments who are

counting on that money will be unable to pay their bills.

Just like Uncle Sam, governments, banks, and corporations

don’t actually have much money, mostly all they have is debt

to each other.

If one link in the debt chain stops paying defaults, the whole

chain falls apart.

If investors cannot pay their bills, corporations will not be able

to pay their employees.

If banks cannot pay their bills, people will not be able to take

loans, use credit cards, or even withdraw their savings.

If foreign governments cannot pay their bills, their own banks

and corporations will have the same problems.

That is called “Global Economic Collapse”.

It is never happened before, so nobody really knows how bad

it will be? How long it will last? Or even how will eventually get

out of it?

The house of cards has been already built, there is no

painless way to dismantled now.

All we can do is to educate each other about what is actually

going on, and to prepare for what may be very extraordinary

circumstances.