No Way To Fly Out Of This Box Canyon

Why A Global Financial Crisis Is Now Certain

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Table of Contents

• Why A Global Financial Crisis Is Now Certain

• The Flight to Stability Has Begun. Most Investors …

• Three Things To Know Before We Go…

A box canyon, if it’s steep enough and narrow enough, can cause catastrophic plane crashes.

A plane enters the box canyon (a narrow gorge with steep, cliff-like walls) and before the pilot recognizes the danger he flies too close to the soaring end wall. There’s not enough room to pull up and fly over. And the sides are too narrow to turn around.

That’s what happened to Blackwater 61, the call sign of a CASA 212 turboprop plane carrying six Blackwater private security contractors on November 27, 2004, in the mountains West of Bagram airbase in Afghanistan. Everyone on board died.

It’s the perfect metaphor for the U.S. government’s fiscal problems. The “plane” seems to be flying normally. And even though everyone can see the “canyon,” nobody understands yet that we don’t have the ability to pull up before there’s going to be a devastating crisis.

I introduced you to some of these ideas earlier this week. And, as I expected, lots of people didn’t seem to read (or understand) the facts that I laid out. Instead, they saw my warning as merely a criticism of the President. So, before we continue, I want to make it explicitly clear, once again, that these problems are not political. The problem is our system (our plane) can’t possibly handle our existing debt load.

At some point soon – very soon – the bond market is going to piece this together. And there will be the largest financial crisis the world has ever seen, because our government’s debts are the foundation of the entire world’s system of trade, banking, and finance.

The numbers I showed you on Wednesday (which only became public last week) are the cleanest real-time proof I’ve seen yet that my box-canyon hypothesis is correct. Tax receipts were up a staggering 24% year-over-year yet the deficit still widened by 10.5%!

Please think about that for a second: even a once-in-a-decade revenue windfall (tariffs, capital gains, strong wage growth) was completely swallowed by the autopilot growth in interest expenses, Social Security COLAs (cost of living adjustments), and Medicare. That’s the structural trap – the box canyon – in one data point.

Everyone still believes that “we can grow our way out” of our debt problem. But data now say otherwise. It’s not just a mountain of debt – it’s a box canyon.