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Presenting the CBO’s ‘Long-Term Outlook’ infographic

43289-land-LTBOinfographic_1

June 8, 2012
en route to San Francisco

When you hear two politicians in the US going toe to toe arguing about public finances (i.e. money that isn’t theirs), they’ll often cite numbers published by the Congressional Budget Office (CBO).

In political circles, the CBO is considered an honest broker… an objective referee that simply presents the facts without taking a position on the numbers.

As such, it’s usually interesting when the CBO publishes something new about the macro situation of the world’s largest economy.

Today they’ve released an infographic showing America’s debt to GDP ratio over the last 100-years, through World War I, the Great Depression, World War II, the Nixon Gold shock, and the Global Financial Crisis. (click to enlarge)

43289 land LTBOinfographic 1 Presenting the CBOs Long Term Outlook infographic

[As a note, this graphic only shows ‘federal debt held by the public’ expressed as a percentage of GDP. Total federal debt, including debt owed to the Federal Reserve and intragovernmental agencies like Social Security, is much higher.]

It’s really amazing to put in context how much debt levels have risen since (a) the creation of the Federal Reserve in 1913, and (b) Richard Nixon ending dollar/gold convertibility in 1973.

I suspect that our savvy readers will not find this coincidental.

For what it’s worth, both of the CBO’s scenarios for future debt growth seem absurd; in the ‘baseline’ case, they assume that the economy grows, spending falls, debt falls, and the unicorns come out to play in the sunshine.

In the ‘alternative fiscal scenario,’ the office assumes that current spending policies remain in place and debt skyrockets to Japan’s level.

Both of these scenarios are underpinned by an even larger assumption– that the status quo is maintained, i.e. the United States remains the world’s most powerful economic force, can print currency at will without consequence, and can inspire foreigners to buy Treasuries.

This assumption is a major stretch, to say the least.

The realistic scenario to consider is that foreigners lose confidence in the US dollar, the dollar is displaced by gold, the renminbi, SDRs, or some other reserve alternative, and the flood of dollars back to US borders creates conditions for substantial price inflation and/or a total restructuring of US debt.

This isn’t far-fetched at all.  Reserve currencies have shifted regularly throughout history,  from 15th century Florence to the Spanish Empire to the Ottoman Empire, and this generally leads to painful consequences for whichever country is on its way out.

Naturally, you’ll never see this sort of projection coming from a government office… it’ll just be some version of the status quo in perpetuity.

Rather than relying on some bureaucrat, though, history is really the best indicator for what will happen in the future. It may not repeat, but it’ll certainly rhyme. And history shows that the long-term likelihood is financial repression, severe inflation, and/or default.

The nice thing is that anyone can heed this lesson and take basic steps to reduce any nasty consequences… steps like:

– buying precious metals and storing them abroad
– opening a foreign bank account to safeguard against capital controls
– purchasing foreign property and agricultural land
– diversifying income, business, and investment opportunities overseas.
– obtaining a second citizenship

The options are almost limitless. The time left to take action is not.

Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

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About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

Comments on this entry are closed.

  • Alex

    Nixon’s Shock was August 15 1971, not 1973

  • http://profile.yahoo.com/44TJWTQXYZ2W7TI56EIZS6DPAE J

    It’s getting more and more difficult to believe any statistics coming from the Government. A recent article in USA Today reported that the CBO doesn’t count Social Security and Medicare expenditures as normal accounting would showing a real deficit of $5 trillion instead of $1.3 Trillion. So who do you believe?

  • Harleylweiss2

    FWIW, Anytime anyone,anything tells you something, you need to ask yourself ” what does this smiley face gain by my believing this INFO. 

  • Jeff Nabers

    Fact update: Gold window closed 1971, not 1973

  • Hal Workan

    Begin the Change in November!

  • Cfbert

    anyway you slice it its the math behind the formulas and its the author who dictates the logic you blindly accept, worry not my brothers and sisters, vote for change, buy American if you buy at all and middle finger all others

  • Maxdeville

    Dear Simon:  Long before I ever started to read your newsletter, I began distrusting Washington and its corporate cronies.  I have dual citizenship (US and Canadian), I have purchased property in Costa Rica (CR), over 6 acres in an agricultural area, in the name of a CR corporation, I have opened a bank account in CR, and I have purchased many silver coins, but the coins are here in a US bank and I don’t know how to transfer them abroad.  I don’t necessarily want to transfer them to CR, but maybe to a Canadian bank.  Maybe I should also open a Canadian bank account while I am at it.  The only thing I have not yet managed to do is to find a way to earn income abroad.  I am a professional and only licensed to practice in one state, I really feel stuck here.  My dream is to escape the US as soon as possible, but I have to find a way to earn a living abroad.  Any suggestions?

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