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While the DONKEYS (Liberal Democrats) and the RINOs (Republicans In Name Only) both stick their heads in the proverbial sand about the SEVERITY of the US Debt Crisis and the EXTREME and IMMEDIATE cuts that are necessary to save our nation from an upcoming economic DISASTER, the US Government will soon be faced with the great PARADOX of their interest rate/Debt shell game.  As this PARADOX begins to materialize, many Americans will be confused by upcoming events that DRASTICALLY change their understanding of government debt and the role of the American Media.  Given that the Public Education system has taught most Americans ABSOLUTELY NOTHING about their own monetary system (arguably one of the most important things to learn in school), it should not surprise anyone that most politicians, Media Elite and average Americans alike shrug off the upcoming debt crisis as if it will never happen.  Ignorance is bliss.  REMEMBER THIS:   Your parents and grandparents got away with the debt SCAM because of the Birth Rate…..The baby boom.   Due to the expanding population, the US economy was always able to grow it’s way out of debt.  This is no longer the case.  The Baby Boom will now be working AGAINST us instead of in our favor.

THE GREAT PARADOX OF THE UPCOMING DEBT CRISIS

The only way to save this nation from High inflation, Stagflation or even the potential of HYPER INFLATION that we will face will be to raise interest rates SUBSTANTIALLY.   By Raising interest rates substantially, a total collapse in the economy will occur because the Federal Budget will be consumed by interest rate payments. The housing market will then collapse  because the housing/banking crisis of 2008-2009 was not properly handled…it was just buried for political reasons.  The crisis was never solved.  We have merely put off the day of Reckoning to a future date.  Americans can not expect to buy houses with 5% down with interest rates as low as 2.5%.   At these rates, how can creditors protect their investment capital??

Currently, the FED interest rate is 1/4th of a percent…..and ZERO percent at the discount window for certain FED banks.  ZERO PERCENT!!!!!!

When the FED lowers interest rates too low, it causes inflation (an increase in the money supply) and bad spending decisions by businesses and citizens.  This happens via debt monetization and also the multiplier effect.  Additionally, low interest rates increase the VELOCITY of money.

Inflation always takes place like this:

1. Gold, Silver and precious metals reflect the inflation very quickly.

2. Next are commodoties like energy, corn, sugar, coffee, cotton, etc.

3. As commodity prices increase, manufacturers either raise prices or lower quantities per container.

4. As rising prices start to work their way through the economy, soon wages must rise so families can afford the basics.

5. Once wages begin to rise, EVERYTHING starts rising.

The ONLY way to stop inflation is to raise interest rates.  You may remember back in 1981 the interest rate had to be raised to 20% by the FED to stop inflation.

At that time, the US debt was under one trillion dollars, so it was possible to raise the rates that high.  Take a close look at the current debt situation and you will quickly see that it will be impossible to raise the rates to stop inflation.

1. Gross Annual Federal Revenues – $2.5 Trillion (approximately)

2. Total Estimated National Debt as of 2012 – $16.6 Trillion (estimated)

3. INTEREST PAYMENT ONLY ON THE DEBT AT 20% RATE – $3.3 Trillion Dollars.

4. Social Security and Medicare TRUSTEES report -  $107 TRILLION dollars unfunded

As you can see, Even at HALF the rate that was necessary to stop inflation the last time would cripple the US economy by sucking out 3/4 of the budget.   Even at 5%, which is only 1/4th as high as it needed to be the last time, the interest rates quickly climb to one trillion dollars a year.

This doesn’t even begin to address the Social Security, Medicare disasters or the Public Employee Union Pension fund disasters.