Friday, April 30, 2010

Federal debt may grow to more than 300 percent of the size the economy by 2050

"...Persistently high deficits are harmful to the economy and the country’s long-run security.

If the government must keep borrowing to make up the difference, it could drive up interest rates and force private companies to compete with the government for investors. That, in turn, would reduce economic growth and, by extension, the potential earnings — and standard of living — of everyone.

The process is generally gradual. But it could be wrenching if creditors lose confidence that the government will ever put its fiscal house in order and suddenly decide to put their money elsewhere. That could lead to a fiscal crisis, with sharp spikes in interest rates and a rapidly depreciating currency.

There is no question that, over the next several decades, deficits and debt in the United States are headed for dangerously high levels. But today’s deficit fearmongers invariably fail to note that the impact of stimulus spending on the long-term fiscal problem is small, because the spending is temporary.

The real problem, which also goes unmentioned, is that dangerous deficits will accumulate over time if continuing trends and policies — especially in health care — persist unchanged...

If these problems are not addressed, here is what we face: Under current policies, federal debt in the United States — the sum total of annual deficits — would grow from 53 percent of the size of the economy in 2009 to more than 300 percent by 2050, driven mainly by rapidly rising health care costs and, in part, by the aging of the population..."

Thursday, April 29, 2010

20 reasons why the U.S. economy is dying

"...1)The "second wave" of mortgage defaults in on the way and there is simply no way that we are going to be able to avoid it. A huge mountain of mortgages is going to reset starting in 2010, and once those mortgage payments go up there are once again going to be millons of people who simply cannot pay their mortgages...

2)The Federal Housing Administration has announced plans to increase the amount of up-front cash paid by new borrowers and to require higher down payments from those with the poorest credit... Tighter standards are going to mean that less people will qualify for loans. Less qualifiers means that there will be less buyers for homes. Less buyers means that home prices are going to drop even more.

3)A total of 6,130,000 U.S. workers had been unemployed for 27 weeks or more in December 2009. That was the most ever since the U.S. government started keeping track of this statistic in 1948...

4)In December, there were also 929,000 "discouraged" workers who are not counted as part of the labor force because they have "given up" looking for work. That is the most since the U.S. government first started keeping track of discouraged workers in 1949...

5)Some areas of the U.S. are already virtually in a state of depression. The mayor of Detroit estimates that the real unemployment rate in his city is now somewhere around 50 percent...

6)...Millions of jobs have already been shipped out of the United States, and Princeton University economist Alan S. Blinder estimates that 22% to 29% of all current U.S. jobs will be offshorable within two decades.

7)During the 2001 recession, the U.S. economy lost 2% of its jobs and it took four years to get them back. This time around the U.S. economy has lost more than 5% of its jobs and there is no sign that the bleeding of jobs is going to stop any time soon.

8)All of this unemployment is putting severe stress on state unemployment funds. At this point, 25 state unemployment insurance funds have gone broke and the Department of Labor estimates that 15 more state unemployment funds will likely go broke within two years and will need massive loans from the federal government just to keep going.

9) 37 million Americans now receive food stamps, and the program is expanding at a pace of about 20,000 people a day....

10)...1.41 million Americans filed for personal bankruptcy in 2009 - a 32 percent increase over 2008.

11)For decades, the fact that the U.S. dollar was the reserve currency of the world gave the U.S. financial system an unusual degree of stability. But all of that is changing. Foreign countries are increasingly turning away from the dollar to other currencies.

12)The recent economic downturn has left some localities totally bankrupt...

13)The U.S. is facing a pension crisis of unprecedented magnitude...Robert Novy-Marx of the University of Chicago and Joshua D. Rauh of Northwestern's Kellogg School of Management recently calculated the collective unfunded pension liability for all 50 U.S. states for Forbes magazine. So what was the total? 3.2 trillion dollars.

14) Social Security and Medicare expenses are wildly out of control...

15)...The U.S. has allowed the total federal debt to balloon by 50% since 2006 to $12.3 trillion...

16)...Senate Democrats on Wednesday proposed allowing the federal government to borrow an additional $2 trillion to pay its bills, a record increase that would allow the U.S. national debt to reach approximately $14.3 trillion.

17)...U.S. corporate income tax receipts were down 55% in the year that ended on September 30th, 2009.

18)...The Federal Reserve bought approximately 80 percent of all U.S. Treasury securities issued in 2009. In other words, the U.S. government is now being financed by a massive Ponzi scheme.

19)The reckless expansion of the money supply by the U.S. government and the Federal Reserve is going to end up destroying the U.S. dollar...

20)When a nation practices evil, there is no way that it is going to be blessed in the long run..."

Wednesday, April 28, 2010

Many western governments would eventually follow the US 'inevitable' debt default suit including Portugal, Ireland, Greece

"Marc Faber, author of Gloom Boom and Doom Report says many Western governments would eventually follow the US 'inevitable' debt default suit including Portugal, Ireland, Greece. Marc Faber doesnt give America much time before it goes bust and he says he will never sell his gold as governments inflate as a consquence of liabilities..."

Tuesday, April 27, 2010

Deficits, public debt and the ring of fire

“These red zone countries are ones with the potential for public debt to exceed 90% of GDP within a few years’ time, which would slow GDP by 1% or more. The yellow and green areas are considered to be the most conservative and potentially most solvent, with the potential for higher growth…

A different study by the McKinsey Group analyzes current leverage in the total economy (household, corporate and government debt) and looks to history, finding 32 examples of sustained deleveraging in the aftermath of a financial crisis. It concludes:

1) Typically deleveraging begins two years after the beginning of the crisis (2008 in this case) and lasts for six to seven years.

2) In about 50% of the cases the deleveraging results in a prolonged period of belt-tightening exerting a significant drag on GDP growth. In the remainder, deleveraging results in a base case of outright corporate and sovereign defaults or accelerating inflation, all of which are anathema to an investor.

Debt situation as it stands:”

Monday, April 26, 2010

We are Rapidly Moving Towards a Dangerous Time in Our History

"...In a recently posted presentation, Ron Paul raises serious concerns about our future.

We are rapidly moving towards a dangerous time in our history. Society as we know it is vulnerable to political and social unrest. This impending crisis comes as a product of our flawed foreign and domestic economic policies; a silly notion about money, ignorance about central banking, and ignoring the onerous power and mischief of out-of-control intelligence agencies; our unsustainable welfare state; and, a willingness to sacrifice privacy and civil liberties in an attempt to achieve safety and security from an inept government.Dangerous times, indeed.

Coming from a physican and long-time member of Congress, that's pretty scary stuff..."

Sunday, April 25, 2010

Downward Spiral: Massive Deficits and Debt, Increase in Interest Rates, Trouble for the Debtors (Households, Private Sector and the Federal Government) and the Moment of Truth

"...economic historian and Financial Times contributing editor Niall Ferguson argues that mushrooming sovereign debt concerns in Europe are a sign of things to come -- for the U.S. Here are a few excerpts:

I looked at the IMF numbers for gross debt-to-GDP today for developed economies -- the United States is number six. It is not that far behind Greece in terms of the size of its debt and the problem it's going to have getting back into any kind of balance in the foreseeable future.

The problem with massive deficits as a response to the recession is that, at some point, you are going to see upward movements in yields. Upward movements in long-term nominal interest rates at a time of relatively low inflation -- that spells trouble for anybody with a large burden of debt, and, of course, practically everybody in the U.S. has a large burden of debt, including...the federal government. So, although it is going to take a while to reach these shores -- I think this will play out in Europe for a while, spreading from one country to another -- at some point, people are going to look at the finances of the United States and say, you know, we really need more than 3.5 percent on a 10-year bond with numbers like these because they really aren't much better than the finances of Greece.

At some point -- and I think it is over the next six-to-12 months -- there is going to be a re-rating, a reappraisal of U.S. fiscal prospects, and that, it seems to me, will be the moment of truth..."

Saturday, April 24, 2010

China Stockpiling Gold and Copper to Build the Infrastructure for "Bancor" and to Replace the Dollar as the Reserve Currency?

"...Today, China sits atop a paper Everest, with foreign-currency reserves worth more than $2.4 trillion. No public financial institution boasts that degree of financial-asset firepower. Of that total, more than $800 billion is held in U.S. debt.

A war chest of this size serves as a great insurance policy during tough economic times. The trouble is that China is painfully aware of the damage that U.S. dollar inflation will inflict on that massive hoard of greenbacks.

During a visit to New York last February, Luo Ping, a director general at the China Banking Regulatory Commission said: "We hate you guys. Once you start issuing $1 to $2 trillion... we know the dollar is going to depreciate, so we hate you guys, but there is nothing we can do."

That's not completely true - there are some things that China is already doing. When that Asian giant recently announced an increase in its official gold reserves, it said the total had catapulted by 76% since 2002, reaching 1,054 tons. China accomplished this without a single purchase on global bullion markets. How? By quietly becoming the world's largest gold producer, then buying up all that it produced.

I expect China will continue to covet gold. But with such a large reserve in dire need of both diversification and securitization, this emerging global superpower of 1.3 billion citizens has set its sights on other tangibles. Let's face it, the gold supply is small, and China needs resources of all kinds.

So it makes perfect sense for Beijing to trade holdings it has too much of - like U.S. Treasuries, for example - for assets China needs more of, like copper. There are multiple benefits to this strategy, too: Not only is China swapping a holding whose value is declining (dollar-based holdings) for a tangible asset whose value is on the rise (copper), it's also getting (in copper) an asset that's central to its ongoing infrastructure build-out.

Yet some believe that China's actions reflect a new strategy, since this acquisition binge goes way beyond national consumption requirements. And with a full war chest, that buying could be sustained for some time.

Copper could be used to back a currency, but it's also necessary for the modernization of China, and even in the next wave of automobile technologies - both electric and hybrid - an industry this nation could lead.

China's share of the copper market is a world-dominating 38%. Clearly, its 2009 record import levels helped vault the copper price by 226%, from its January slump of $1.50 per pound to a recent high near $3.40 per pound.

As China was buying hand over fist in early 2009, copper prices began to rebound. London Metals Exchange (LME) statistics underscore that copper stockpiles were raided from February until mid-July.

What happened next, however, was both surprising and counterintuitive.

As copper stocks continued to rise in the second half of 2009, the price of copper rose, as well - zooming from $2.50 a pound to about $3.40. The last time copper stockpiles were above 500,000 tons, the metal's price was $1.50. So copper at $3.40 was looking quite overbought considering current stock levels..."

Friday, April 23, 2010

Vertical and Horizontal Contagion in a Globally Synchronized Recession that Came after a Financial Crisis

"First the governments bail out the banks who were (are) basically insolvent. Then these governments, especially in Europe, see their balance sheets explode and face escalating concerns over sovereign default. The IMF now predicts that the government debt-to-GDP ratio in the G20 nations will explode to 118% by 2014 from pre-crisis levels of around 80%.

Now, the ball is put back onto the banks because many have exposure to the areas of Europe that are facing substantial fiscal problems right now. According to the Wall Street Journal, U.K. banks have $193 billion of exposure to Ireland. German banks have the same amount of exposure and an additional $240 billion to Spain. Many international bond mutual funds also have sizeable exposure to sovereign debt of Portugal, Ireland, Greece and Spain as well. Contagion risks are back. Stay defensive and expect to see heightened volatility.

In a nutshell, toxic assets have basically been swept under the rug in the hopes that we will outgrow the problem. Leverage ratios across every level of society are still reaching unprecedented levels as the public sector sacrifices the sanctity of its balance sheet in its quest to stabilize the dubious financial position of the household and banking sectors in many parts of the world.

Whatever bad assets have been resolved have almost entirely been placed on the books of governments and central banks, which now have their own particular set of risks, as we have witnessed very recently in places like Dubai, Mexico, and Greece, not to mention at the state and local government level in the United States. We simply have not seen a reduction in the percentage of properties with mortgages that are “under water”, hence the FDIC has identified 7% of banking sector assets ($850 billion) that are in “trouble”, so how can it possibly be that the financial system is anywhere close to some stable equilibrium?

When accurately measured, including the shadow inventory from bank foreclosures, there is still nearly two year’s worth of unsold housing inventory in the United States, and commercial vacancy rates are poised to reach unprecedented highs, and this excess supply is bound to unleash another round of price deflation and debt defaults this year. The balance sheets of governments are rapidly in decline across a broad continuum, and it is particularly questionable as to whether Europe is in sound enough financial shape to weather another banking-related storm"

The Government Bond Market in the West is a Gigantic Ponzi Scheme

"Let’s face it, the government-bond market in the West is a gigantic Ponzi scheme. Most governments in the ‘developed’ world are drowning in debt, they are running mind-boggling budget deficits and printing money like there is no tomorrow. Furthermore, under the guise of quantitative easing, their central banks are buying their own newly issued debt!

It is our contention that similar to Mr. Madoff’s hedge fund, the sovereign debt markets in the West have now become gigantic scams. Only this time around, the players have changed and the sums involved are significantly larger.

Figure 1 highlights the incredible expansion in America’s national debt. It is noteworthy that at the turn of the millennium, America’s national debt was less than half of its current value. Put simply, American policymakers have taken on more debt over the past decade than they have over the last one hundred years!

What is more astonishing is the fact that America is funding a large portion of its newly issued debt by direct purchases from the Federal Reserve. In other words, as private-sector demand for US Treasuries wanes, Mr. Bernanke is creating new money so that Mr. Obama’s government can bail out insolvent financial institutions. Strangely, the American establishment is quite content to pledge the economic fate of its future generations in order to protect the bondholders of dubious ‘too big to fail’ corporations.

Apart from the world’s largest economy, various other nations in the ‘developed’ world are also following such misguided policies. For instance, UK’s national debt is exploding and is forecast to reach GBP1.1 trillion by 2011. At present, its national debt is worth GBP891 billion and this equates to GBP14,304 for every man, woman and child in the United Kingdom!
Elsewhere in Europe, the situation is equally dire in nations such as Ireland, Spain, Greece and Italy. Furthermore, various countries in Eastern Europe are on the verge of economic doom.

Given the precarious state of so many economies in the West, we are amazed that the respective government bond markets have not fallen apart at the seams. Perhaps, they are all heading down Japan’s route, where national debt is now above 170% of GDP, yet the yield on Japanese government debt is pathetic. But then again, perhaps they are not…

In our view, in the not too distant future, the interest payments on the outstanding national debts in the overstretched ‘developed’ nations will become so large that their central banks will need to create money just to keep the Ponzi schemes going. When that happens, the game will be up and we will probably experience a total breakdown of the fiat-money experiment. At this stage, we do not know when the day of reckoning will arrive but we do know that all Ponzi schemes ultimately collapse under their own weight and this one will be no different.

Given the shocking debt overhang in the West and the threat of surging inflation later this decade, we cannot understand why anybody would want to lend money to bankrupt governments!? In the worst case scenario, these naïve bondholders risk losing their entire capital and the best outcome involves a significant loss of purchasing power due to inflation. Accordingly, we are not investing in sovereign debt and we suggest that you refrain from lending money to dubious governments."

Thursday, April 22, 2010

Even Private Banks Without Sovereign Bond Exposure Would Be Crushed By Funding Costs In A Sovereign Crisis

"...Some banks are exposed to the risk of a sovereign debt crisis directly through bond investments, such as by owning, say, Greek bonds.

Yet even banks without any direct exposure to troubled government bonds could be slammed by a sovereign crisis as well.
That's because in a sovereign debt crisis, underlying benchmark interest rates would likely skyrocket for troubled nations.
This would sharply increase funding costs for many banks, which is bad news for financial businesses who borrow short term and lend long term, earning a spread.
At best this would reduce their profits substantially, at worst it could lead to substantial losses if suddenly higher funding costs meant that banks were earning negative spreads on certain lines of business:
The Economist:
The bigger concern, however, is not banks’ direct exposure to government bonds, which average just 5% of euro-zone banks’ assets, but the impact on their financing. The costs of funding for banks on Europe’s periphery are rising in tandem with the allegedly “risk-free” benchmark rates on the bonds of troubled European governments. Steep downgrades of the sovereign-debt ratings of countries such as Portugal, Greece and Ireland would probably translate into immediate rating cuts for their banks, as well as higher capital charges on banks’ debt holdings and bigger haircuts when using this debt as collateral. Regulators are busy designing rules forcing banks to hold more government bonds on the assumption that they are the most liquid assets in a crisis. That premise may not hold for every country’s debt.
A second concern is that the premium that investors demand for holding bank debt may also widen above the benchmark “risk-free” rate. “If governments are either less willing, because of competing pressures on budgets, or are unable to provide support then that could have a material impact on bank ratings,” says Johannes Wassenberg of Moody’s, a rating agency. The consequences of even small changes in a bank’s borrowing costs can be extreme. JPMorgan, an investment bank, reckons that an increase of just 0.2 percentage points in the borrowing costs of British banks such as Lloyds Banking Group and Royal Bank of Scotland would trim their earnings by 8-11% next year, assuming they could not immediately pass these costs on to customers."

A Light at the End of the Tunnel Or an Oncoming Train? 14 Facts About The U.S. Government Debt

"#1) As of December 1st, 2009, the official debt of the United States government was approximately 12.1 trillion dollars.
#2) To pay this 12.1 trillion dollar debt would require approximately $40,000 from every single person living in the United States.
#3) Now the U.S. Congress has approved an increase in the U.S. government debt cap to 14.3 trillion dollars. to pay this increase off would require approximately $6,000 more from every man, woman and child in the United States.
#4) The U.S. government's debt ceiling has been raised six times since the beginning of 2006.
#5) So how hard is it to spend a trillion dollars? If you spent one dollar every second, you would have spent a million dollars in twelve days. At that same rate, it would take you 32 years to spend a billion dollars. But it would take you more than 31,000 years to spend a trillion dollars.
#6) When Ronald Reagan took office, the U.S. national debt was only about 1 trillion dollars.
#7) The U.S. national debt has more than doubled since the year 2000.
#8) Barack Obama’s most recently proposed budget anticipates $5.08 trillion in deficits over the next 5 years.
#9) The U.S. national debt on January 1st, 1791 was just $75 million dollars. Today, the U.S. national debt rises by that amount about once an hour.
#10) The U.S. national debt rises at an average of approximately $3.8 billion per day.
#11) In 2010, the U.S. government is projected to issue almost as much new debt as the rest of the governments of the world combined.
#12) The U.S. government has such a voracious appetite for debt that the rest of the world simply doesn't have enough money to lend us. So now the Federal Reserve is buying most U.S. debt, and the only reason they can do that is because they basically create the money to lend us out of thin air.
#13) A trillion $10 bills, if they were taped end to end, would wrap around the globe more than 380 times. That amount of money would still not be enough to pay off the U.S. national debt.
#14) As if all of the above was not bad enough, according to the 2008 Financial Report of the United States Government, which is an official United States government report, the total liabilities of the United States government, including future social security and medicare payments that the U.S. government is already committed to pay out, now exceed 65 TRILLION dollars."

Wednesday, April 21, 2010

How to invest for a global-debt-bomb explosion

"Wake up investors. Are you prepared for the economic anarchy coming after a global-debt time bomb explodes? Are you thinking outside the box? Investing differently? Act now -- tomorrow will be too late.

The Big One is coming soon, bigger than the 2000 dot-com crash and the 2008 subprime credit meltdown combined. A huge market blowout. And as Bloomberg-BusinessWeek predicts: "The results won't be pretty for investors or elected officials."
After the global-debt bomb explodes don't expect a typical bear correction followed by a new bull. Wall Street's toxic pseudo-capitalism is imploding. Be prepared for a massive meltdown. Yes, already the third major bubble-bust of the 21st century, triggered once again by Wall Street's out-of-control Fat Cat Bankers. And it's dead ahead.
Can your family survive in the anarchy after the debt bomb explodes?

America's already descending into economic anarchy. We're all trapped in a historic economic supercycle, a turning point that must bleed through a no-man's land of lawless self-destructive anarchy before a neo-capitalistic world can re-emerge. Investors tell me they "feel" it at a deep level, "know" it's happening. They keep asking: "What's the best investment strategy to prepare now?"
This is no joke, folks. Are you prepared? Or preparing? Will your family survive in a post-apocalyptic world, when anarchy is rampant in America? Look at Washington, Wall Street and Corporate America today. You know it's already begun.
You are witnessing a fundamental breakdown of the American dream, a systemic breakdown of our democracy and our capitalism, a breakdown driven by the blind insatiable greed of Wall Street: Dysfunctional government, insane markets, economy on the brink. Multiply that many times over and see a world in total disarray. Ignore it now, tomorrow will be too late.

Not a war about ideology, but an economic game-changer

This is a war to control 299 million American taxpayers. A war waged by the "Happy Conspiracy" Jack Bogle profiled in his 2004 "Battle for the Soul of Capitalism," a war machine of Fat Cat Bankers, CEOs, 42,000 mercenary lobbyists and a Congress held hostage to unlimited campaign donations. Their conspiracy has been waging this war against Americans for decades, long before the Supreme Court exposed their dirty secret.
Yes, your enemy is that "Happy Conspiracy:" It has degraded into a pseudo-capitalism with no conscience, no sense of the public good, hell-bent on controlling America's mind, your money and the global markets for its own selfish ends. And eventually it will trigger the game-changing global-debt bomb, the third global meltdown of the century that finally ignites the Great Depression II, plunging us into an era of anarchy."

Tuesday, April 20, 2010

It May Be an Oncoming Train: US Banks Facing $1.4tn Crisis over Commercial Property Loans

"America's fragile high street banks are bracing themselves for a fresh financial crunch as a wave of commercial property mortgages go sour on offices, shops and factories, causing losses of up to $300bn (£192bn) hitting nearly 3,000 small- and medium-sized financial institutions.
A congressional oversight panel charged with scrutinising the Obama administration's bailout efforts has warned that $1.4tn of loans covering commercial premises will reach maturity between 2011 and 2014. After a plunge in property prices, nearly half of these loans are underwater, with borrowers owing more than their underlying property is worth.
An analysis by the panel found that 2,988 of America's 8,100 banks have potentially dangerous exposure to commercial property loans. The impact could damage hopes of a US economic recovery and could cause a further squeeze in the availability of credit to consumers and businesses."