How Much More Reason Do You Need?

For many years, those of us who are not American have frequently advised our American friends of the coming economic collapse of the US, suggesting that they prepare a "back door" so that they are not trapped in a location that may well be a problematic and even dangerous place to live for themselves and their families. This is not to say that we suggest they "slink away in the night," but rather that they legally provide themselves with an alternative residence in a country that is either not likely to be affected, or is likely to be positively affected by the coming difficulties.

Also, this is not to say that we have not warned residents of other countries in the First World, particularly those in EU countries. These countries, too, will soon be facing very troubled times. However, it does appear that, just as the US was the leader in good times, it remains the leader in the current decline and continues to be the bellwether as to how the First World will fare.

As the US unravels, citizens are being repeatedly shocked by political developments. Over and over, we have heard, "I never thought that our government would stoop to this." Indeed, there have been many "firsts" lately for the formerly great nation. The government, having increasingly meddled in matters best left to the private sector, are now seeing the results of their efforts in the collapse of the economy. Having done the damage, they are now backing away from their messes, leaving the responsibility for the private sector to fix.

Case in point:

The US Treasury Department recently issued a report that proposes the elimination of Fannie Mae and Freddie Mac - the institutions it created to expand the secondary mortgage market and helped make possible the housing debacle. It is commendable that the Treasury Department has decided that these institutions should be dissolved. It is unfortunate, however, that they did not do so before the debacle. It is also disappointing that they did not do so immediately after the debacle. Instead, they bought up shares in these companies following the housing crash in 2008. In fact, it's fair to argue that the government's purchase of such a large number of shares (along with other bailed out firms) contributed substantially to the stock market "recovery."

Since the crash of 2008, the US government has been hell-bent on sending good money after bad. Creating a false recovery by buying up shares of doomed companies is only a small a part of the waste that has been undertaken by the government. Now, however, the Treasury says that it wishes, in future, to limit itself to "robust oversight" of the mortgage industry and to cease direct involvement in the industry.

On the surface of it, we would be inclined to recognize the recommendation to liquidate Fannie and Freddie, but….. there's more.

It would seem that the damage done to the American economy through these institutions has been maximized, but, incredibly, the Treasury Department has made a second recommendation. They recommend that the private sector (read: taxpayers) "bear the burden of losses."

While the first recommendation of the Treasury Department did not make headlines in the US press, the second one should make headlines in the minds of every American investor. The Treasury Department is, in effect, saying:

"We've taken your tax money and used it unwisely to create a financial disaster. Having done so, we wasted more of your tax money buying shares in the dying institutions. We now recommend that these institutions be eliminated and that you, the taxpayers, pay for all the debt that we have created."

We suggest that you read the last two sentences again, slowly, and reflect upon the significance of them. As an indicator of the perspective taken by the leaders of the US, it means that, as each further facet of the American economy goes down in flames, the government will first shovel on as much of your (tax) money as they can, then leave you holding the bag.

Consider this line of reasoning being applied to Social Security when it collapses….or Obamacare….or any of the other government-created programmes that are proving unsustainable. If the government continues to meddle in what should be a free market, creates a financial disaster at every turn, then pushes the responsibility onto taxpayers, the deficit will become even more bloated than it is now. The only logical conclusions are more currency printing or even higher taxes. Both situations will ultimately mean the end of America as we know it at some point.

The present collapse is still unfolding and, indeed, it has not by any means reached bottom. If the government reacts to the falling of each domino the way that they have reacted to Fannie and Freddie, it is anyone's guess just how bad the economic (and therefore the social) situation will become. If, until now, you have been hanging on, trying to decide whether to prepare an exit plan, how much more reason do you need?

Tags: second passport, politics, internationalization, debt crisis,