Dollar notes without ketchup

Let us look at the financial facts, these are not disputed and available from the US treasury.

A.: The US has a budget of $2.2 trillion of which 53% are obtained from income tax.
Expenditures are $3.8 trillion. This causes a deficit of $1.6 trillion to be added to the existing $14.3 trillion.

The three most important positions causing the deficit are:
Pensions $748 billion (up from $408 in 2000 = 82%)
Health $882 bn (up from $352 in 2000 = 150%)
Defence $910 bn (up from $341 in 2000 = 167%)

When we relate the total of $2.54 trillion for these three positions to the deficit of $1.6 it becomes obvious that no significant reductions can be made to eliminate the deficit, not even reduce it to a sustainable level.

Also an increase of income tax is no solution, a 100% income tax rate would be needed to raise one extra trillion. Not a very sensible option as nobody would have a cent to spend causing the total collapse of the economy.

On the other hand you could reduce income tax to zero and increase the deficit to $2.6.
Added to $14.3 it would make no difference at all, as you neither can repay $14.3 nor $16.9, nor the planned $15.9.

B. How did we get into this situation and what is the solution?

Our world economies in so-called democracies are based on neo-liberal capitalism which constitutes a war of the rich against the poor.

The rich determine the battlefields and the weapons that each side gets. Hence it is no surprise that the rich have won the war. It is about time for the poor to acknowledge defeat.

This acknowledgement came on September 15th 2011. The US treasury in agreement with the European central bank, the Japanese central bank and the Bank of England announced an auction of US$, an unlimited quantity of US$ will be made available to European banks, the emphasis being on “unlimited”.
There will be three auctions, the first to be held on October 12th.

This is an unprecedented move in the history of world economics, the markets don’t seem to have grasped the significance yet, the real significance. Banks are expected to borrow some $50 trillion in the first round at an interest rate of below 0.5%. This will increase to $100 trillion or more in round two and three.

The interest of less than $1 trillion hardly reduces the US deficit, so why does the US do this?

This action is called Quantitative Easing, QE. The first QE happened in 2009. The official intention was to pump money into the economy to get out of the crisis. But the banks did not lend to local companies, they bought land in developing countries instead, the land of the poor.

A hectare of organic farming land in Paraguay was $900 in 2008 and $1200 in Brazil and Argentina. QE pushed the price up to above $3000 in all of these countries. The small farmers sold out and can no longer buy as the yield of organic farming is below $500/ha.
The yield of GM-crops, however, is above $2000/ha, so Monsanto & Co took control, Paraguay is now the world’s 4th largest producer of GM-soy, some 65% of all farming land in Argentina is under GM-crops.

Food prices in Paraguay in 2008 were between Gs.800-2500 for fruit and vegetables and are now between Gs.3000 and 10.000, exceeding 10.000 for those vegetables that are no longer grown and need to be imported.

Incomes are so low that people spend some 80% on food three years ago already, so you can well imagine what these prices mean for the diet of most people, an apple is a total luxury now and a tomato just not affordable at Gs10.000 compared to Gs2.000 three years ago.

All GM-crops are exported to US for cattle feed and bio-fuels, there prices are escalating which increases the yield and pushes land prices up even further here. Even in US farmland prices increased some 20% while the real estate market keeps going down.

Food has become a commodity for speculators. The poor are selling their land for worthless dollars, no doubt the increase of dollar volume will devalue the dollar. In 2008 one US$ bought Gs.5.400, today Gs.3.850, next year it will be Gs.2000 or less.

This is good news for the US deficit as inflation will eat it up. Not so good news for the developing world, what they are going to eat remains to be seen, dollar notes without ketchup, I guess.

This entry was posted in World Economy + Health. Bookmark the permalink.