From: bfrg9732@uxa.cso.uiuc.edu (Brian F. Redman)
Subject: Bankruptcy 1995 (part 6)
Summary: The approaching fiscal Armageddon
Organization: University of Illinois at Urbana
Date: Sun, 22 Nov 1992 00:56:18 GMT
Keywords: treachery trickery deceit deception



Bankruptcy 1995: The Coming Collapse of America & How to Stop It.
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

by Harry E. Figgie, Jr.
with Gerald J. Swanson, Ph.D.

About the authors:
-- Harry E. Figgie, Jr. is the CEO of Figgie International Inc., 
a diversified *Fortune 500* operating company. He was co-chairman 
of President Reagan's Private Sector Survey on Cost Control, also 
known as the Grace Commission.
-- Dr. Gerald J. Swanson is an Associate Professor of Economics 
at the University of Arizona.

"Any profits from this book have long since been assigned to 
charity. We make no profit whatsoever from it." (p. 25).

$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
*                                                               *
* The United States has a problem that is easy to understand,   *
* but whose effects are difficult to comprehend. Its solution   *
* is simple to prescribe, but hard to implement. This problem   *
* is more insidious than drug addiction, more pressing than     *
* recession; it is crueler than poverty and illness and more    *
* hazardous than a hole in the ozone.                           *
*                                                               *
* This problem, which is of our own making, will precipitate    *
* an economic nightmare that will dwarf the Great Depression    *
* and turn the history of America into one of history's         *
* closed chapters. This problem has a name. It is *government   *
* debt.*                                                        *
*                                                               *
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$

--------------------------- part 6 ------------------------------

		     -- Death by Debt --

"Unless the people's government in Washington, D.C., makes 
drastic changes in its fiscal policies now, the typical American 
family will be fortunate in 1995 if it can feed and house 
itself..."


The authors forecast the following conditions which we are likely 
to be facing within the next two-and-a-half years:

--* As many as 20 percent of American jobs gone.
--* Personal savings obliterated by inflation.
--* Pension and Social Security payments cut or eliminated 
because of inflation and mismanagement.
--* The American dollar "a joke."


The authors emphasize that "It's going to be awful."

The authors predict that the fiscal collapse will predominantly 
take one of two forms: 1) panic or 2) hyperinflation.

All this is going to happen unless we wake up *now*, according to 
the authors. They warn that once the crisis begins it will be 
virtually impossible to reverse its course. "Americans have the 
attitude that they can get out of any crisis *after* it's 
occurred. This time they are wrong. You can't recover from cancer 
once you've died."

The authors paint the following picture showing their view of 
each of the likely scenarios:

	      -- Scenario 1: Death by Panic --

"In 1992, the Bush administration will rack up a nearly $400 
billion budget deficit, the largest gap between revenue and 
spending ever recorded by any nation in the history of 
humankind... The American national debt at the end of 1992 climbs 
to $4 *trillion* [my emphasis], and the interest on that debt 
rises to some $300 billion -- more than the country spends on 
education, justice, housing, and the environment combined."

Continuing with this scenario, the 1993 deficit goes to $640 
billion. This is partly due to higher interest rates on Treasury 
bonds brought on by a growing lack of confidence regarding the 
national debt. Government debt climbs to $4.98 trillion. The 
world's investors are getting edgy.

By 1994, interest rates have risen quite a lot. Because of high 
interest rates, new mortgages decline and the housing industry 
collapses. Businesses stop borrowing and reduce or eliminate 
expansion and/or modernization projects. The interest charge on 
the national debt reaches $517 billion. Bank failures become 
epidemic.

In February of 1995, foreign bankers no longer have confidence 
that the U.S. will ever pay back, dollar for dollar, its colossal 
debt. Financial markets all over the world shut down under an 
onslaught of sell orders. The value of Treasury securities 
plunges.

"The next day, the sun is bright but millions of Americans find 
they have no jobs, no prospects, and no savings. They have no 
savings because the banks have no cash, only IOUs, such as 
mortgages and government bonds -- and those have now become 
worthless." An economic depression begins.

"Within the week, the government announces plans to cut the armed 
forces by half. The other half will be kept on... to quell the 
uprisings that have begun in cities and suburbs alike. Riots 
become commonplace throughout the country."

           -- Scenario 2: Death by Hyperinflation --

Hyperinflation can be defined as inflation that is severe enough 
to cause people to lose faith in the U.S. dollar. Hyperinflation 
would occur if, instead of selling government securities to 
outside investors, the Treasury instead sells its securities to 
the Federal Reserve (i.e. "monetizing" the debt).

By following this policy of "monetizing" the debt, new money is 
created. This is problematic in that "Creating new money without 
any accompanying economic growth breeds inflation, since it just 
adds money to the economy without increasing the amount of goods 
or services to spend it on."

In this scenario, the financial markets notice that the Treasury 
is selling its securities to the "Fed" and they react by raising 
*their* interest rates. They do this because they anticipate that 
this policy of monetizing the debt is going to be inflationary. 
"After all, what's the use of charging 4 percent interest on a 
loan if the inflation rate will climb to 10 percent... So, if 
lenders think inflation will rise to 10 percent, and they want to 
earn 4 percent *real* interest, they'll raise their *nominal* 
interest rate to 14 percent."

Higher rates in turn mean that the interest on the national debt 
grows. This increases the deficit even more.

The value of securities purchased in the 1980s plunges. This is 
because they were issued at low (pre-inflation) rates of interest 
and now nobody wants to hang on to them. Instead, because steady 
inflation causes a steady drop in the value of the dollar, people 
purchase durable goods. But this new demand for durable goods 
causes the prices to rise even more.

"By late 1994, the annual inflation rate has climbed to 22 
percent and is rising by a point or more a month. Interest rates 
are running at 30 percent and more... profits vanish, submerged 
by inflation, and no individuals or companies are able to borrow. 
The home construction industry dies... [manufacturing] plants 
deteriorate."

"As time goes on, banks cancel consumer credit cards... 
Accounting systems break down... Hyperinflation is pushing the 
economy, along with public morale, into a hopeless and major 
depression."


		 -- Early Warning Signs --

The authors do not think that either of these two scenarios will 
be played out exclusively but rather that some mixture of the two 
will occur. But "...that it's going to happen somehow in the 
absence of quick and dramatic remedial action by the federal 
government I am absolutely certain. We have frittered away a 
decade when we could have done something about our problem 
without too much pain." [Sorry to butt in, but I wish to stress 
"Pain for whom?" While it is laudable that the authors have 
pointed out the mess we are in, I am concerned that they are 
turning this issue into a new "red scare" which may wind up being 
used as a tool to benefit the already rich and powerful. Beware 
of calls for "shared" sacrifice. Yes, we are in a mess but how 
about having the rich and powerful lead *by example* in their 
calls for sacrifice?]

The authors close this chapter by giving three "warning signs" 
which they say will be an alert that U.S. government securities 
are no longer "rock-solid safe."

1) The government can no longer service its debt.
In 1992, the annual debt service (i.e. interest charges) on the 
debt "...is expected to reach 44 percent of the total revenue the 
government collects." In 1993, this annual debt service is 
expected to reach 61 percent. At some point, if this rate of 
service on the debt continues to rise, "...investors will begin 
reevaluating the safety and security of U.S. government debt 
securities... You'll see this warning sign in news reports 
comparing the deficit with the government's interest expenses, 
but you may have to read closely to find the numbers."

2) The federal reserve begins to buy substantial amounts of the 
government's debt.
"To keep an eye out for this warning sign, watch the newspapers 
again. You'll begin to see stories about... the expanding money 
supply."

3) The government shows complete unwillingness to address the 
deficit problem.
Forget what the politicos *say* about the deficit and instead 
watch what they *do* about it. If they do nothing, look out.


------------------------- end part 6 ----------------------------

You can do a lot of good by taking this article and posting it to 
other areas besides "alt.activism." You can also post this or 
upload it as a file to a local BBS. This would help give the 
people of this nation an alternative to the "fluff" and 
propaganda posturing as hard news which they are currently 
getting from the major networks.


Synopsis/Review by Brian Redman
"Ah yes, Armageddon. I remember it well."
End part 6




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