{"id":5130,"date":"2011-08-01T09:44:44","date_gmt":"2011-08-01T13:44:44","guid":{"rendered":"http:\/\/www.pgm-blog.com\/?p=5130"},"modified":"2011-08-01T09:44:44","modified_gmt":"2011-08-01T13:44:44","slug":"what-is-the-possible-outlook-for-the-usa-its-debt-situation","status":"publish","type":"post","link":"https:\/\/www.pgmcapital.com\/nl\/what-is-the-possible-outlook-for-the-usa-its-debt-situation\/","title":{"rendered":"What is the possible Outlook for the USA & its Debt situation?"},"content":{"rendered":"

\"\"<\/p>\n

Dear PGM Capital<\/strong>, blog readers,
\nDuring the last\u00a0few\u00a0days our telephones and E-Mail box were red hot <\/strong>from readers and clients asking <\/strong>our opinion on the current deadlock in the USA regarding the increase of the debt ceiling.<\/p>\n

History has proven to repeat itself within a certain cycle.\u00a0On\u00a0average we have a recession every 5 years and a depression every 75 years.\u00a0The\u00a0last time we had a depression it was in 1933;\u00a0<\/strong>when we add 75 years to 1933 we\u2019ll come to 2008. So was the crash of 2008 coincidental? Or is it the beginning of a new depression?<\/p>\n

A depression also marks the end of\u00a0the\u00a0hegemony of a super power and the rise of\u00a0(a)\u00a0new one(s). Most of the time the depression is caused by a highly indebted\u00a0super power, which has no other means\u00a0of paying its debt than via money printing, which will lead to hyperinflation and at the end\u00a0reset<\/span>\/\u00a0<\/span>confiscation<\/span><\/em> of assets by the government.
\nThis means\u00a0that a new currency will be created\u00a0to\u00a0replace\u00a0the old one and that citizens and debt holders are only allowed to exchange a small portion of their old currency for the new one.<\/p>\n

Most of the time imploding of the Super powers\u00a0is\u00a0caused by costs of wars and the military trying to maintain their supremacy.<\/p>\n

Most of the time these military expenditures are being financed via government bonds.
\nThe <\/strong>problem rises when either the war lasts\u00a0too long or the country loses the war.
\nIn both cases the debts and interest payments on the debt\u00a0accumulate\u00a0to such a proportion that\u00a0they\u00a0cannot be repaid and have to be\u00a0refinanced <\/strong>in\u00a0order to avoid default.
\nThe consequence of this\u00a0may lead\u00a0to loss of\u00a0<\/strong>confidence\u00a0by\u00a0the outside world in these bonds,\u00a0which in its turn\u00a0will lead to a decrease of credit rating,\u00a0resulting in\u00a0higher rates, which will increase interest payments and worsen the debt situation,\u00a0causing\u00a0the country to get entangled in a vicious circle\u00a0<\/strong>of increasing debt, decreasing credit rating and increasing interest rates and interest payments, which\u00a0eventually may\u00a0lead to the collapse of the Economic super power and empire.<\/p>\n

Examples\u00a0of this development\u00a0are the collapse of the Roman Empire, the Weimar Republic and most\u00a0recently\u00a0the collapse of the Soviet Union.<\/p>\n

In our\u00a0opinion,\u00a0talking about increasing the debt ceiling should be accompanied by measures for\u00a0a\u00a0structural reduction of government spending and\u00a0an\u00a0<\/strong>increase of government revenues and reengineering of the USA Economy.<\/p>\n

As long as\u00a0this is not the case, the USA might\u00a0land\u00a0in\u00a0a vicious circle of continuously increasing Debt (to GDP ratio) and increase of the debt ceiling.<\/p>\n

When we\u00a0revisit the\u00a0History of the USA and its Debt Ceiling\u00a0we\u00a0see the following debt ceiling increase since JFK.
\n(The colors blue stands for a Democrat and\u00a0 Red for a Republican president)<\/em><\/p>\n