The United States is still – by a wide margin – the wealthiest and most powerful nation in the world.  We have a great productive capacity than any other nation.  It’s probably larger than all of Europe combined.  And despite what many people believe, I don’t think our country’s best days are behind us.

That may sound funny coming from the person who predicted the “End of America” but my thesis is about the end of the dollar’s status as the world’s reserve currency and the devastating economic crisis that would follow.  ButAmericahas recovered from crises before (and usually emerges stronger).  I’ve always said I thought our political union would survive.

I’m still an optimist.  I think that sooner or later, and I can’t say when, the madness of our current economic policies will be so evident that this country will make wholesale changes.  I just don’t believe we’ll vote ourselves down the abyss.

Eventually, the middle class will realize that this idea that we can tax, borrow and spend our way to prosperity is failing.  By then, real wages will have fallen so far … the wealth gap will become so pronounced … the collusion between the government and the banks will become so evident that people will vote in a candidate willing to take some radical steps to get us on the right track.  Somebody like a Ron Paul, for example.

And you would be amazed how quickly even the huge hurdles we’re setting for ourselves could be overcome just with some sensible policies.  For instance:

Sensible Policy No. 1

Imagine what would happen if we just had a flat income tax rate for everybody.  We’d abolish every other tax – corporate taxes, social security taxes, payroll taxes and every other federal tax, levy, fine and fee.

Instead, you’d just pay 20% of your income, whatever the source.  We’d get rid of the different tax structures for different corporate entities and the different shelters and rebates.  Wherever your source of income, dividends, capital gains, wages, etc., we all pay the same, flat rate.

So the first thing we need to do to get our country back on track is to have a fair, sensible income-tax policy, period.

Sensible Policy No. 2

We need to pass a balanced budget amendment that keeps us from financing foreign wars and an endless welfare state.  We need true welfare reform, not the kind you saw in 1996, where everyone just jumped from welfare to disability.

If you have some kind of an emergency situation, you can apply to the federal government for help for a limit of $5,000 over six weeks (to pick arbitrary terms).  And that’s it … you won’t get any money from the government again.

Sensible Policy No. 3

We need to get out of the business of trying to regulate every single banking transaction in the world.  In the financial crisis, who got in trouble?  Was it the hedge funds that are unregulated and backed with private capital?  No. It was the banks that are heavily regulated and backed with public capital.

To ensure everyone’s money is safe, we’d back the currency by gold.  We’d put up 20% of every dollar in existence in gold.

We need to stop trying to regulate the banks and guaranteeing the deposits.  Leave that up to the market.  But guess what?  You won’t even have to put your money in a bank if it’s backed by gold.  All you’d have to do is put it under the mattress and you’ll be fine.

With those three steps, we’d have a fair and transparent tax policy; we’d have a sensible federal budget with no budget deficit and we’d be out of the business of trying to control every dollar that’s spend and the way it’s banked around the world.  If we just did those three things, the size of our economy could double in five years.

It would be an unbelievable boom becauseAmericais still the largest market in the world.  We still control the global language of the business.  We still have the best computing and software companies and the best technology.  We have unlimited amounts of energy (thanks to the shale oil and gas boom) despite what the idiots in the government will tell you.

But as long as we continue with idiotic socialist policies we’re currently pursuing, we are going to bankrupt ourselves just like every other socialist nation – no matter how wealthy and powerful we are.

This is When the Bankruptcy of America Will Occur

From Porter Stansberry with Sean Goldsmith in S & A Digest Premium October 23:  Stanley Druckenmiller, one of the most successful hedge-fund managers of all time, recently gave a presentation on how senior citizens are robbing young people.

The presentation highlights a lot of facts that we’ve been covering for a long time – people are living longer, the elderly are receiving huge entitlement payments and they’re consuming a huge percentage of gross domestic product (GDP).

This is an idea, I (Porter) have covered as part of my “End of America” thesis that I call the Baby Boomers “generation debt.”  And they’re slowly bankrupting our country.

For example, Druckenmiller says that by 2050, Baby Boomers will be taking more than 20% of  GDP in entitlements.  And historically, tax revenues as a percentage of GDP have a ceiling around 20%.  So our government’s entire income will be spent paying for the Baby Boomers.

But the problem will likely occur even sooner.  If theU.S.government had to pay a fair rate on the nearly $17 trillion in debt – remember, the Fed is artificially manipulating interest rates – it would equal around $1.5 trillion a year in interest.  Today, we’re paying around $250 billion a year.

So if you just put those two problems together (paying a fair interest rate and paying out entitlements), you see that these problems will arise in short order, not decades from now.  I expect we’ll see these problems come to a head by 2020 or 2025.

The math doesn’t work anymore.  There’s nothing left in the budget after these two things.  And that’s if you assume that debts don’t grow anymore at all, which of course they will.  It’s also assuming entitlements wont’ grow anymore, which of course they will due to politics and inflation.

Another top hedge-fund manager, David Einhorn of Greenlight Capital, gave a similar presentation called “Don’t Worry about the Grandkids” at an investment conference in New York.  Einhorn’s point was that we keep saying that we’re creating this problem for our grandkids and we’re not.  We’re creating this problem for ourselves.  It’s not going to take 30 years to get there.

The financial day of reckoning for our federal government is going to occur sometime in the next decade, and most people don’t expect that.  They believe we’ll be able to find some way to avoid the problem, like we do every year with the deficit.  We just saw this play out with the government shutdown and debt-ceiling debate.

But there is no doubt, with our current taxes and policies, that we cannot outgrow this problem.  Nor is there any political will whatsoever in our country to deal with it … which means sooner or later, we’ll be in a serious crisis.

A version of this article by Porter Stansberry first appeared on October 23, 2013 in the Daily Wealth Premium, published by Stansberry & Associates Investment Research, an independent investment research firm.  You can visit them at www.stansberryresearch.com.

 

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