DEFICIT IN US

When reading this article we all know what the end game is for the US dollar. In the short term I maintain my USD strength call in the face of deleveraging the debt mountain, but one has to say the end for the dollar will be far uglier than the current demise is portraying. For now a crumbling dollar has just not really registered on the US psyche, when the full impact of this eroding purchasing power is internalised the effects will be significant, at that stage I wager the death of the US empire.

Read this column out of Forbes by Bruce Bartlett, former Treasury Dept. economist -- "Whenever I write about the federal deficit, some nitwit always demands to know why we don't just cut spending," says Bruce Bartlett. "Here is the simple, if unsatisfying, answer. We can't. Nearly two-thirds of spending -- 62% is mandatory, entitlements and interest on the debt. The defense budget -- which will never be cut substantially, -- consumes more than half of what remains, leaving a total of $485 billion for everything else. Given a deficit of $459 billion last year, a balanced budget would require the elimination of virtually every single domestic program, including all social programs, education, highways, border patrols, air traffic control, and the FBI. The only alternative is to reduce mandatory spending on Medicare and Social Security -- and good luck with that. The elderly will fight anyone who tries to cut their benefits, even as they hypocritically demand fiscal responsibility. And seniors' political power will only get stronger, as baby boomers get old. Face it, if the US ever stops running a deficit, it won't be because Congress made massive cuts in federal spending. The votes aren't there, and never will be."

And how about this, also from Mr. Bartlett? "How Much Debt is Too Much? Projections show the national debt rising from $5.8 trillion last year to $14.3 trillion in 2019, and from 40.8% of GDP in 2008 to 67.8% in 2019. So at what point are the economic consequences so severe that radical action is required? According to the IMF Monetary Fund, the critical point is when a government borrows just to pay the interest on its debt. The Congressional Budget Office says we'll reach that point in 2019, when the US is forced to borrow $722 billion, same as it projects its net interest expense. Financial markets haven't priced in the possibility that Republicans would rather default on the debt than raise taxes. The fiscal situation going forward is even more precarious than it appears at first glance. Default on the debt is a real possibility."