Pinnacle Activity Ticker
DEBT DENIAL
Debt denial
By James Rickards | Published: 04/07/10 at
12:00 AM
| Updated: 04/09/10 at 8:42 AM
The sovereign debt crisis has crossed a threshold. It’s no longer
about economics. It’s about math and a complex system whose dynamics
tell us there is little time to avoid catastrophe and almost no exit.
Going forward, elections and policies will matter less as the debt
plague takes hold and dictates hard outcomes.
It is the case that real debt cannot be repaid through any feasible
combination of growth and taxes. We will soon arrive at the point where
it cannot be rolled over. Debt includes contingent liabilities as well
as bonds. In the U.S., this means social security, healthcare and
housing obligations estimated at over $60 trillion. That does not
include unfunded pension obligations of the states whose plans use
fanciful 8% growth assumptions to limit contributions. Pension debt
grows exponentially; a toxic brew of increased benefits, contribution
shortfalls and anemic performance.
Even what we call money is debt. Paper money is a contract between
citizen and government. As with any contract, it pays to read the fine
print. Embossed on each U.S. bill is the phrase “Federal Reserve Note.”
Give the Fed credit for full disclosure; these notes are liabilities. If
the Fed’s mortgage assets were marked-to-market the Fed itself would be
insolvent. In short, it’s all debt. Wealth is illusory if it involves a
claim payable in dollars which are but a claim on an insolvent central
bank backed only by its ability to print more debt. The situation is
worse in the UK, Europe and Japan. The global financial system is a rope
of sand.
If this system is illusory, how has it prospered over centuries? The
answer is that for many years governments ran surpluses and at times had
no debt at all. Growth was robust providing support to the tax base.
Governments had the trust of bond markets to rollover maturing
obligations. With some fits and starts, tangible wealth creation
outpaced debt creation. And until recently paper money was backed by
gold at fixed rates of exchange. Today all four legs of the table –
surpluses, growth, trust and gold are gone or damaged.
There is no prospect for surpluses; nations hit the brink of disorder
at the mere mention of 3% deficit-to-GDP ratios. Growth prospects are
likewise dim given current policy. Obama grew spending on a
feed-the-beast theory that forces taxes to rise to match spending. If
Obama does not get his way, deficits will be ruinous. If he does get his
way, taxes will stifle growth. You cannot tax your way to solvency in a
world of low growth and compound interest.
As for market trust, go ask the Greeks. Each bond buyer has a
critical threshold where he will not buy another bond. Picture bond
buyers as theatre patrons. The image of someone yelling “fire” and
patrons rushing out in a panic is familiar. More intriguing is the case
in which just a few patrons rush out for no apparent reason. Do those
remaining follow suit or stay seated? It depends on their individual
thresholds. If high enough, everyone remains seated. But if some
thresholds are low, those patrons leave too triggering other thresholds
and so on until a cascade of exits empties the theatre.
In markets, the array of individual thresholds is immensely complex.
The scale, interdependence and adaptability of market participants today
are greater than ever. It would take very little to trigger a wholesale
revulsion with sovereign debt.
What about gold? The view is that systems on a gold standard system
cannot increase money supply as needed; of course, that’s the whole
idea. Increasing money beyond the modest levels at which gold supply
grows is the Keynesian remedy. But empirical evidence shows the
so-called Keynesian multiplier is fractional and therefore a wealth
destroyer. Another attack on gold is that there’s not enough of it to
support money supply; but of course there’s always enough gold; it’s
just a question of price.
The U.S. has never truly gone off the gold standard. The U.S. gold
hoard today has a dollar value equal to about 20% of U.S. M1 money
supply – a respectable ratio even in the heyday of the fractional gold
standard. A gold price of $5,500 per ounce would comfortably support a
broader U.S. money supply on a one-to-one ratio and maintain confidence
in the dollar and U.S. sovereign debt.
Is there an exit? One path involves hyperinflation to destroy the
real value of debt followed by redenomination and a new paper money
game. The other path involves a gold backed currency at a
non-deflationary price. This is a choice between denial and frank talk.
Sound money leads to sound growth and the creation of real, not
illusory, wealth.
James G. Rickards is a director of Omnis, Inc. and former general
counsel of Long-Term Capital Management. Follow him at
twitter.com/JamesGRickards.
Read more: http://dailycaller.com/2010/04/07/debt-denial/#ixzz0kkLhMq6N
Join Now! It's Free
Test Your Investing IQ
Stock Challenge
| 1 |  | |
| 2 |  | |
| 3 | ||
| 4 | ||
| 5 |  |
Community Talk
Re: DEBT DENIAL- U.S. Printing Presses go till bubble bursts?
"Fed will print and print and print until the final crisis," says Marc Faber
Source: BI-ME , Author: BI-ME staff
Posted: Tue August 3, 2010 8:44 pm
Meet worldwide manufacturers, wholesalers
& importers
in Alibaba now!
google_protectAndRun("ads_core.google_render_ad", google_handleError, google_render_ad);
INTERNATIONAL.
Marc Faber the Swiss fund manager and Gloom Boom & Doom editor said
the US Federal Reserve will create a "final crisis" by continuing to
print money because it is underestimating the strength of the economy
which shows no signs of stenghtening but signs of weakening everywhere
in the world.
Speaking to CNBC
Worldwide Exchange Tuesday in a live interview from Zurich, Faber said: "
They will print and print and print until the final crisis wipes out
the entire system."
Investors should have listened to me already six months ago when I
wrote that the Fed will continue to monetize. They will never let up",
Faber said.
Asked if the Fed policy is driven by concerns about deflation above
all, Faber said: " They are very bad forecasters of economic events".
That was the case with Mr Greenspan but "Mr Bernanke is in the same
boat. He has no clues what the economy is doing," Faber added.
Explaining his argument, Faber went on:" They misread in 2007 the
severity of the forthcoming economic crisis and then they misread in the
last few months the strength of the economy, which shows no signs of
strenghtening but signs of weakening everywhere in the world."
I would therefore argue that with the Fed and its policy, significantly more quantitative easing will be coming , he added.
Asked if recent moves in China could be interpreted as
diversification away from US dollar assets, Faber said US Treasurys are
likely to suffer because of the Fed's policy.
"Everyone in the world has somes concerns about the ultimate value of
the Dollar and of the value of US bonds." If the fiscal deficits stay
at these levels and in my opinion they are likely to increase, over time
obviously you will have a credit problem in the US, he added.
While this will not happen in the next three years, the implications
are that diversification out of Us Dollar Treasurys is a good thing, he
noted. This is why he is "not all that negative" on stocks.
And investors who share his bearish view would be better off holding stocks instead of bonds in their portfolios, Faber said.
Equities, rather than bonds, "should be part of your porfolio if you are bearish about the long term," he said.
Re: DEBT DENIAL- Hedging Chaos with Gold
Hedging Chaos with Gold
Darryl Robert Schoon
Posted Aug 5, 2010
…what if history is not cyclical
and slow-moving but arhythmic, at times almost stationary, but
also capable of accelerating suddenly, like a sports car? What
if collapse does not arrive over a number of centuries but comes
suddenly, like a thief in the night… dramas lie ahead
as the nasty fiscal arithmetic of imperial decline drives yet
another great power over the edge of chaos.- Niall Ferguson,
July 28, 2010
The nasty fiscal arithmetic of imperial
decline that Harvard professor Niall Ferguson refers to is
America’s unsustainable debt. Growing levels of debt according
to Ferguson are now about to drive the US, like other great powers
before it, over the edge of chaos; an event Ferguson believes
will come sooner rather than later.
…most imperial falls are associated
with fiscal crises…empires behave like all complex adaptive
systems. They function in apparent equilibrium for some unknowable
period. And then, quite abruptly, they collapse.
In 2010 the U.S. government is expected
to issue almost as much new debt as all other governments, around
the world, combined
The resemblance between the above chart
and the following is obvious - except, of course, to those in
denial. [see them
side by side here]
The US borrows 45 % of all moneys borrowed
by all governments and spends virtually that same percentage
of global military spending. Beginning in 1980, President Reagan
started the US on the road to financial collapse, borrowing heavily
in order to fund the US military buildup, an act of fiscal irresponsibility
that would later prove fatal. In his two terms, Reagan increased
the US national debt by 258 %, the cost of which would be the
loss of America’s economic power-base.
After WWII, both the USSR and the US
spent vast amounts of their respective GDPs on military expenditures.
Bankrupted, the USSR collapsed in 1992. Three decades later,
the US now faces the same fate.
America’s pending bankruptcy reflects
America’s shift from the world’s creditor to its
largest debtor. Prior to Reagan’s military buildup, the
US did not need to borrow to support the global deployment of
its military; instead, in order to do so the US spent its entire
hoard of gold - 21,775 tons.
The only gold the US now possesses is
there because in 1971 the US refused to convert its remaining
gold for dollars as required under Bretton-Woods; and by the
time Reagan was elected, the US could pay for its global military
force only by indebting itself to others
When Reagan took office, total US debt
was $980 billion. Today, the budget deficit for this fiscal year
alone is projected to be $1.4 trillion. After the Reagan presidency,
the US accelerated its spending until sovereign default or currency
debasement are its only options.
SOVEREIGN DEBT SOVEREIGN DEFAULT SOVEREIGN
DENIAL
The Emperor has no clothes, i.e. the
empire has no money
The publication of Rogoff and Reinhart’s
seminal work on sovereign debt in 2008 predated the sovereign
debt crisis by two years; and if Rogoff and Reinhart were not
surprised, they would be surprised that it would be industrialized
nations that would find themselves under the scrutiny of global
debt collectors.
In 2010, sovereign default concerns unexpectedly
shifted from developing nations, i.e. Rogoff and Reinhart’s
sovereign rite of passage, to industrialized nations -
Greece, Spain, Italy, the UK, the US, and Japan etc.
The shift in sovereign debt concerns
was accompanied by another extraordinary shift. Between 2000
and 2010, China became America’s creditor as well as its
sweatshop; and China knows that the US owes so much money that
only by borrowing more can it pay what it owes, a condition economist
Hyman Minsky called ponzi-financing, the last stage prior
to debtor default.
In truth, the US is not the default virgin
described in Rogoff and Reinhart’s study. The US default
on its gold obligations was perhaps the most important monetary
default in history, plunging the entire world into a regimen
of fiat money against its will
Sovereign default, however, is not the
only strategy available to the US regarding its unpayable debt.
The US could alternatively pay down its massive obligations by
debasing its currency, a strategy wherein the US would pay its
creditors with increasingly worthless US dollars - to the US,
a far more convenient solution.
This is why China is worried - and the
rest of the world (including Americans) should be worried too.
BORROW BORROW BORROW SPEND SPEND SPEND
No one will be surprised when the US
again tries to borrow its way back to economic growth. This has
been the default strategy of the US ever since Ronald Reagan’s
Treasury Secretary, Donald Regan said, “Deficits don’t
matter”, a financial heresy that would eventually undermine
the American economy.
Capitalism is an uneasy balance between
credit and debt. However, in the 1980s, far more credit was created
and far more debt resulted. Combined with the removal of gold
as a constraint on monetary growth, it would be only a matter
of time until capitalism’s accrued debt would overwhelm
the capacity of credit to contain and service it. That time has
now arrived.
Bankers have unleashed a beast they cannot
contain. The beast is of their own making although they are careful
to deny their patrimony. The bankers’ deflationary black
hole of defaulting debt is now destroying capital faster than
bankers can create it.
This is why Fed Chairman Ben Bernanke
is contemplating flooding the US economy with even more printed
dollars, the so-called helicopter drop of money (Milton Friedman’s
term), the proscribed solution of Milton Friedman to the Great
Depression.
Because Friedman observed that the money
supply had contracted during the Great Depression, Friedman erroneously
believed sufficient monetary expansion would prevent another
depression in the future. This is why Bernanke flooded the US
with money and credit in 2009 hoping Friedman was right.
But Friedman was wrong. Bernanke’s
palliative was temporary, producing only a short boost instead
of a sustained recovery. Despite trillions of dollars spent and
interest rates lowered to zero, the US money supply is still
contracting - and the US economy is again slowing.
Chart
courtesy of www.sirchartsalot.com
Despite Friedman’s failed theory,
Bernanke still believes more injections of credit and debt can
do what previous injections didn’t. This is akin to an
alcoholic believing more alcohol will dispel the hangover that
previous drinks did not. Friedman and Bernanke’s helicopters
are coming. Get ready.
Can you hear the helicopters coming
Sounds of choppers fill the sky
Whirling birds of destruction
This is how currencies die
Printing money is easy
The problem is the debt
Money’s source is credit
You ain’t seen nuthin’ yet
Bernanke’s dream is our nightmare
His solution is our demise
Helicopters filled with money
Dropping from the skies
THE GOLDEN HEDGE AGAINST CHAOS
In The Critical Path (St Martin’s
Press 1981) Buckminster Fuller predicted the world’s power
structures would fall, plunging the world into an unprecedented
crisis. Communism collapsed in 1992. Now, capitalism is about
to do the same. Bucky’s predicted crisis comes next.
In The Great Wave (Oxford University
Press 1996), Professor David Hackett Fisher observed we
are at the end of a great wave - a phenomena that separates historical
epochs, a phenomena which always end in the complete economic
collapse of the existing order. Great Waves last 80 to 120 years.
The current wave is 114 years old.
At the 2010 Aspen Ideas Festival last
month, Harvard Professor Niall Ferguson warned the collapse of
the American empire could be imminent.
I think this is a problem that is
going to go live really soon,” Ferguson said. “In
that sense, I mean within the next two years. Because the whole
thing, fiscally and other ways, is very near the edge of chaos..
When America’s empire does collapse
and, like all empires, it will, chaos will reign. Today, the
US is the world’s super power, its dollar is the world’s
reserve currency. The collapse of the US will change all this
and more.
This is why the price of gold has quintupled
in only ten years. America’s failing grasp on power has
been mirrored by gold’s rise during that same time. In
2000, America’s credit-driven prosperity began to falter
with the collapse of the dot.com bubble. Ten years later, America
has still not recovered. Indeed, as Niall Ferguson predicts,
its demise is imminent.
Since the 1980s, the US has conspired
with others to suppress the price of gold as it is an indicator
of the failings of the fiat financial system upon which its power
is based. This is akin to doctors icing the thermometer to convince
others that the patient is not in danger; and while they have
been successful in so doing, the patient is now about to expire.
When the US empire implodes, the global
geopolitical matrix will collapse as will much of the world’s
financial underpinnings. It will be a time of chaos; and gold
- history’s hedge against chaos - will again perform its
time-honored role.
RESPONSIBILITY AND RENEWAL
In an extraordinary mea culpa
published July 31st in the New York Times, President Reagan's
Director of the Office of Management and Budget, David Stockman,
a Republican, blamed his own party for four critical errors that
contributed to America's decline:
The errors are as follows:
The first of these started when the
Nixon administration defaulted on American obligations under
the 1944 Bretton Woods agreement to balance our accounts with
the world. It is.. an outcome that Milton Friedman said could
never happen when, in 1971, he persuaded President Nixon to unleash
on the world paper dollars no longer redeemable in gold or other
fixed monetary reserves. Just let the free market set currency
exchange rates, he said, and trade deficits will self-correct. [But] relieved of the discipline of defending
a fixed value for their currencies, politicians the world over
were free to cheapen their money and disregard their neighbors…
The second unhappy change in the American
economy has been the extraordinary growth of our public debt…This
debt explosion has resulted not from big spending by the Democrats,
but instead the Republican Party’s embrace, about three
decades ago, of the insidious doctrine that deficits don’t
matter if they result from tax cuts…
The third ominous change in the American
economy has been the vast, unproductive expansion of our financial
sector…the trillion-dollar conglomerates that inhabit
this new financial world are not free enterprises. They are rather
wards of the state, extracting billions from the economy with
a lot of pointless speculation in stocks, bonds, commodities
and derivatives. They could never have survived, much less thrived,
if their deposits had not been government-guaranteed and if they
hadn’t been able to obtain virtually free money from the
Fed’s discount window to cover their bad bets.
The fourth destructive change has
been the hollowing out of the larger American economy…It
is not surprising, then, that during the last bubble (from 2002
to 2006) the top 1 percent of Americans - paid mainly from the
Wall Street casino - received two-thirds of the gain in national
income, while the bottom 90 percent - mainly dependent on Main
Street’s shrinking economy - got only 12 percent. This
growing wealth gap is not the market’s fault. It’s
the decaying fruit of bad economic policy. Read
here.
Stockman’s mea culpa is
an unexpected admission of political responsibility especially
at a time when Americans are searching for someone to blame.
But there’s no one to blame except America itself. The
Russians aren’t responsible, the Muslims aren’t responsible
and guess what, illegal immigrants aren’t responsible either
- America, and America alone, is responsible for its own demise.
America was born out of the desire for
freedom and a better life for all (apologies, however, are due
to the Native Americans and the African slaves who suffered in
the process). But, along the way, America chose to instead pursue
power, not freedom; and, today, the considerable bill for America’s
fatal choice is coming due - and more paper money won’t
pay it.
God save America from itself.
Buy gold, buy silver, have faith.
###
Darryl Robert Schoon
email: info@drschoon.com
website: www.drschoon.com
website: www.survivethecrisis.com
Schoon Archive
Schoon
In college,
I majored in political science with a focus on East Asia (B.A.
University of California at Davis, 1966). My in-depth study of
economics did not occur until much later.
In the 1990s,
I became curious about the Great Depression and in the course
of my study, I realized that most of my preconceptions about money
and the economy were just that - preconceptions. I, like most
others, did not really understand the nature of money and the
economy. Now, I have some insights and answers about these critical
matters.
In October 2005,
Marshall Thurber, a close friend from law school convened The
Positive Deviant Network (the PDN), a group of individuals whom
Marshall believed to be "out-of-the-box" thinkers and
I was asked to join. The PDN became a major catalyst in my writings
on economic issues.
When I discovered
others in the PDN shared my concerns about the US economy, I began
writing down my thoughts. In March 2007 I presented my findings
to the Positive Deviant Network in the form of an in-depth 148-page
analysis, "How to Survive the Crisis
and Prosper In The Process."
The reception
to my presentation, though controversial, generated a significant
amount of interest; and in May 2007, "How To Survive The
Crisis And Prosper In The Process" was made available at
www.survivethecrisis.com and I began writing
articles on economic issues.
The interest
in the book and my writings has been gratifying. During its first
two months, www.survivethecrisis.com was accessed by over 10,000
viewers from 93 countries. Clearly, we had struck a chord and
www.drschoon.com, has been created to
address this interest.
321gold Ltd
Re: DEBT DENIAL- U.S. Worse Risk than China (China Credit Firm)
Chinese Credit Firm says US Worse Risk than China
By JOE McDONALD, AP Business Writer
Joe Mcdonald, Ap Business Writer – Sun Jul 11, 5:50 am ET
BEIJING — A Chinese firm that aims to compete
with Western rating agencies declared Washington a worse credit risk
than Beijing in its first report on government debt Sunday amid efforts
by China to boost its influence in global markets.
Dagong International Credit Rating Co.'s verdict
was a break with Moody's, Standard & Poors and Fitch, which say U.S.
government debt is the world's safest. Dagong said it rated Washington
below China and 11 other countries such as Switzerland and Australia due
to high debt and slow growth. It warned the U.S. is among countries
that might face rising borrowing costs and risks of default.
The report comes amid complaints by Beijing that
Western rating agencies fail to give China full credit for its economic
strength, boosting borrowing costs — a criticism echoed by some foreign
analysts. At June's G-20 summit in Toronto, President Hu Jintao called
for the creation of a more accurate system.
Dagong, founded in 1994 to rate Chinese corporate
debt, says it is privately owned and pledges to make its judgments
impartially. But in a sign of official support, its announcement Sunday
took place at the headquarters of the Xinhua News Agency, the ruling
Communist Party's main propaganda outlet.
Dagong's chairman, Guan Jianzhong, said the
current Western-led rating system is to blame for the global crisis and
Europe's debt woes. He said it "provides the wrong credit-rating
information" and fails to reflect changing conditions.
"Dagong wants to make realistic and fair
ratings," he said.
Beijing has more than $900 billion invested in
U.S. Treasury debt and has appealed to Washington to avoid hurting the
value of the dollar or China's holdings as it spends heavily on its
stimulus.
Dagong's report covered 50 governments and gave
emerging economies such as Indonesia and Brazil better marks than those
given by Western agencies, citing high growth. Along with the United
States, some other developed nations such as Britain and France also
received lower ratings than those of other agencies.
Dagong rated U.S. government debt AA with a
negative outlook, below the firm's top AAA rating. It warned that
Washington, along with Britain, France and some other countries, might
have trouble raising more money if they allow fiscal risks to get out of
control.
"The interest rate on debt instruments will run
up rapidly and the default risk of these countries will grow even
larger," its report said.
Dagong said it hopes to "break the monopoly" of
Moody's Investors Service, Standard & Poors and Fitch Ratings. Their
reputation suffered after they gave high ratings to mortgage-linked
investments that soured when the U.S. housing market collapsed in 2007.
Manoj Kulkarni, head of credit research for SJS
Markets in Hong Kong, said that despite the possibility China's
government might try to influence Dagong's decisions, there is room in
the market for a Chinese agency because Western firms' credibility is
badly tarnished.
"As long as there is another opinion and it is
backed up, I don't really think a China-based company will have an
incentive to rate, say, Indonesia any better than a U.S.-based rating
agency," Kulkarni said.
"If it comes to Chinese government-related
companies, maybe there might be a conflict of interest, and investors
would have to be aware of that fact," he said.
Chinese leaders have appealed repeatedly to
Washington to safeguard their country's U.S. holdings and avoid taking
steps in response to the global crisis that might weaken the dollar or
the value of American assets.
Dagong rated China AA-plus with a stable outlook —
higher than Moody's A1 and S&P's A-plus — due to rapid growth and
relatively low debt.
Ahead of it were seven countries including
Switzerland, Australia and Singapore that received the top rating of
AAA, the same as those from Western agencies. Canada and the Netherlands
also ranked above China.
Dagong's stronger ratings for emerging economies
echoed market sentiment toward some countries such as China and India.
They are seen as better risks than their credit ratings suggest and pay
lower rates.
SJS Markets' Kulkarni noted that Western agencies
give the two Asian giants a lower credit rating than Spain, despite
their strong growth and the Spanish government's debt problems.
Developing countries "tend not to get full
credit" for their economic performance, he said. "Ratings are basically
lagging."
Re: DEBT DENIAL- 13.198 Trillion - U.S. National Debt & growing
Good luck solving this trend!
U.S. NATIONAL
DEBT
CLOCK
The Outstanding Public Debt as of
10 Jul 2010 at 11:59:08 AM GMT is:
The estimated population of the
United States is 308,714,617
so each citizen's share of this debt is
$42,753.94.
The National Debt has continued to
increase an average of
$4.13 billion per day since September 28, 2007!
Concerned? Then
tell Congress
and the White House!
Re: DEBT DENIAL- $166B U.S. Debt increase in1 day - WOW!
Re: DEBT DENIAL- $166B U.S. Debt increase in1 day - WOW!
U.S. marks 3rd-largest, single-day debt increase
$166
billion jump spurs concerns over policy
By Stephen
Dinan
8:36 p.m., Wednesday, July 7, 2010
The nation’s debt leapt $166 billion in a single day last week,
the third-largest increase in U.S. history, and it comes at a time when
Congress is balking over higher spending and debt has become a key
policy battleground.
The one-day increase for June 30 totaled $165,931,038,264.30 –
bigger than the entire annual deficit for fiscal year 2007 and larger
than the $140 billion in savings the new health care bill will produce
over its first 10 years. The figure works out to nearly $1,500 for every
U.S. household, or more than 10 times the median daily household
income.
Daily debt calculations jump and fall, and big shifts are common.
But all three of the biggest one-day debt increases have occurred under
the tenure of President Obama, and all of the top six have been in the
past two years – an indication of just how quickly the pace of deficit
spending has risen under Mr. Obama and President George W. Bush.
"What matters is the overall trend line, and the overall trend
line is shooting up," said Robert Bixby, executive director of the
Concord Coalition, a bipartisan deficit watchdog group, who said it is
one more reason for a fiscal wake-up call.
Fears over red ink have stalled key parts of Mr. Obama’s agenda in
Congress in recent weeks, including his push for another round of
stimulus spending. Just last week, House Democrats had to use a tricky
parliamentary tactic to pass an emergency war-spending bill, aid for
teachers and new spending caps.
More…
Re: DEBT DENIAL- Can U.S. Maintain CONFIDENCE in its DEBT?
U.S. Government Bonds - Can America Maintain Confidence in its Debt?
by Cliff Küle
25 June 2010
Massive, unsustainable government debt - it's everywhere. Especially in America. At some point, will the world begin to lose confidence in America's growing debt? Will interest rates then skyrocket? Will a Greek-style crisis in U.S. Government bonds then ensue? Is there any way out?
America can claim its debt problems are not as bad as some countries. But that ignores some important points:
1. See an interesting chart on how America's financial condition is worse than several other countries.
2. Even the most respected bond manager in the world, Pimco's Bill Gross, believes there are several countries including the U.S. whose financial ratios are in dangerous territory - the "ring of fire".
3. A loss of confidence in the U.S. dollar and U.S. debt could bring a "Greek-style" crisis to the whole world. Consider that the U.S. dollar has been the world's reserve currency since 1945; it has been accumulated by the whole world as a form of trusted and secure savings. There are trillions of dollars of U.S. government debt accumulated as reserve savings by banks around the world (see chart below courtesy of Hugo Salinas Price) and realize that most reserves are held as U.S. Government bonds. A loss of confidence in the U.S. dollar and in the ability of the U.S. to service its growing debt could trigger an epic disaster.
Is there any way for America to maintain the confidence?
One way would be for America to become fiscally prudent, simply stop creating money and debt, let the massive deflationary forces of credit contraction and consumer de-leveraging run their natural course. This would cleanse the system of toxic debt. It would also clearly and immediately cause another Great Depression.
Another way would be for America to simply print more money, create more debt, blindly following Keynesian economics that brought us into this mess in the first place. Attempt to "inflate away" the debt without losing the confidence of investors that buy the U.S. Government bonds. This has been tried many times throughout history with disastrous consequences. The chart below (courtesy of Economic Edge) shows how increases in debt are recently giving less and less “umph” to economic GDP growth to the point now of negative GDP growth. Eric Sprott has produced an excellent study suggesting that 9 cents of "growth" is coming with every dollar we go deeper into debt. Bud Conrad has produced calculations that are equally discouraging. This massive debt-driven money printing would therefore likely lead some form of hyperinflation in a futile attempt to stimulate economic growth.
This leaves one other option.... a direction that is hardly ever considered... a policy tool still waiting to be tried!... America could return to the gold standard... Why? Because the gold standard system would back the U.S. Dollar by real money, and enforce a responsible discipline of fiscal and monetary policy that Congress and the Federal Reserve cannot currently do. In turn this would maintain confidence in America's debt.
“The gold standard has one tremendous virtue: the quantity of the money supply, under the gold standard, is independent of the policies of governments and political parties. This is its advantage. It is a form of protection against spendthrift governments.” Ludwig von Mises (1881-1973)
Monetary systems on a gold standard system cannot increase money supply as needed. Under a gold standard system, paper money is backed by something of real tangible value. The total amount of gold limits the total amount of paper money that can be created. New money must be backed by additional gold. Omnis’ Jim Rickards suggests this possible solution: a “gold backed currency at a non-deflationary price… sound money leads to sound growth and the creation of real, not illusory, wealth.”
In 1971, President Nixon simply severed the tie between gold and U.S. Dollars. As he closed the gold “window,” Nixon proclaimed “We are all Keynesians now” (referring to the Keynesian economic school of thought where gold has no function). Austrian School economists and Cliff Küle would like to say – We are not all Keynesians.
Did severing the link between the dollar and gold work to strengthen confidence in the U.S.? Please consider: 1) within a generation of that move, the U.S. went from being the world’s largest creditor nation to the world’s largest debtor. 2) TIME magazine of 1979 said “until the greenback is once again made as good as gold, many millions of people will persist in believing that the barbarous relic is still a better bet."
Recently speaking about Goldman Sachs’ problems at the Peter G. Peterson Foundation, former President Bill Clinton said, “There is a bigger problem here… too much of our growth was in finance ever since went off the gold standard.”
The dollar “tie” to gold might be “re-tied” just as simply as it was untied. In a certain respect, America never really went off the gold standard. The tie between gold and U.S. dollar was simply adjusted to 0%. So, simply adjust it back. What tie would be needed today to restore America back to the gold standard? Let’s do the simple math.
Official figures for the total amount of gold reserves held by the U.S. Treasury are 8133.5 tonnes of gold. This gold is owned by all Americans and is held in trust by the government for the people. Given that 1 metric tonne is 32150.746 ounces, that amounts to:
8133.5 tonnes x 32150.746 ounces/tonne = 261498092.591 ounces
If we look at recent Federal Reserve data, we note that the total U.S. M1 seasonally adjusted money supply is at $1712.2 Billion of currency. Therefore if we were to take the total currency and back it by the total amount of gold, this would give:
$1712.2 Billion divided by 261498092.591 =
US$6547 per ounce
There you have it – if the U.S. were to devalue the U.S. Dollar, setting gold at 6550 U.S. Dollars per ounce of gold, the country could position to go back on the gold standard. Global confidence in the U.S. dollar and in America's debt would be maintained. It may be as simple as finding the right price for the government gold holdings to give "backing" to every dollar in circulation.
$6550/ounce is approximately the current value necessary to give "gold backing" to the current level of M1 money supply. If the U.S. wanted to expand the money supply further to stimulate the economy, it would need to set a new price for its gold holdings which is even higher than $6550/ounce or somehow get more gold. The U.S. could then be in a position to expand money supply as necessary to stimulate growth and able to extend credit to other nations. This is an essential ingredient to restoring confidence and keeping the title of reserve currency. After all, a reserve currency should be able to extend credit to nations in need, not be in need of credit from other nations.
As Jim Rickards states, this one-to-one ratio backing of gold with the U.S. Dollar “would comfortably support a broader U.S. money supply on a one-to-one ratio and maintain confidence in the dollar and U.S. sovereign debt.” Perhaps only then could global confidence in the U.S. Dollar and in U.S. debt be maintained – if not, either a deflationary depression or a hyperinflationary depression could be in store as confidence wanes with increasing levels of public debt.
Back to the Future
Nick Barisheff, President and CEO of Bullion Management Group, emphasizes gold is money: “Gold is not and never has been a currency. Gold is something entirely different and far more valuable. It is money.” Cliff Küle suggests that to maintain confidence in its debt, America must bring back the gold standard, anchoring the U.S. dollar back to real money - gold, as Article 1 of the Constitution of the United States commits it to be.
© 2010 Cliff Küle
Special thanks to Nick Barisheff for his review of this article.
Re: DEBT DENIAL- Double-dip drama - the housing market
The housing market
Double-dip drama
Feeble figures fuel fears
Jun 24th 2010 | Washington, dc
MORE than the European debt crisis is keeping American economic policymakers awake at night just now. Despite a year of government effort, a tentative recovery in the housing market appears to be on the verge of stalling.
Home prices have now fallen for the past six months, according to the Case-Shiller home-price index, after rising from their nadir for the five months before that. (Another index, from the Federal Housing Finance Agency, has, however, shown a slight uptick in March and April.) As for sales volumes, last September home sales soared in anticipation of the planned expiry of a government housing-tax credit, only to tumble thereafter, despite the extension of the deadline to April this year. As the new deadline approached sales duly climbed again. But the latest data show that even before the credit window closed, fewer sales were going through (see chart). Sales of new homes fell 33% from April to May, nearly the worst performance since the bust began.
It is not as if the government has not tried. After the housing crash, millions of homeowners—a full quarter of those with mortgages—had loans larger than the value of their homes. Barack Obama hoped to prevent defaults with a plan designed to encourage banks to refinance the mortgages of those unable to pay. On the demand side, the Federal Reserve held down mortgage rates by buying up mortgage-backed securities, while Congress offered a generous tax credit to qualifying buyers.
These programmes have not worked as well as had been hoped. Affordability is no longer the driving factor behind foreclosures; borrowers who took on more debt than they could handle defaulted on their loans long ago. Instead, the problem is negative equity. A borrower deeply underwater on his mortgage may have no choice but to default if he loses his job, since a sale would entail a huge loss. And a growing number of underwater borrowers are opting simply to walk away from mortgages that they can in fact afford.
Banks are balking at rewriting mortgages, despite incentives to do so. Too often borrowers default later on. The latest data on the government’s programme show that 400,000 loans have been renegotiated—far less than the goal of 3m-4m. Neither have government incentives to buy houses helped much. Credits may have done little more than move sales around.
The steady drumbeat of foreclosures has continued; they have been running at a rate of over 300,000 filings a month for the past 15 months. By some estimates, it will take more than eight years of normal sales to clear the stock of houses now held by banks. This overhang holds down prices, meaning that the road out of negative equity is a long one.
Yet policy failures can be blamed only so much. A new report from Harvard University’s Joint Centre for Housing Studies notes that, historically, sustained housing recoveries are far more dependent on job growth than on factors like the level of interest rates. So May’s disappointing jobs figures, showing that the private sector added just 41,000 workers, was doubly bad news. With nearly 15m Americans still out of work, a real turnaround could be a long time coming.
United States
Re: DEBT DENIAL- Funny story - "spending to get out of debt"
Southpen - Stagflation seems to be appropriate here doesn't it? If not, very soon!
By definition stagflation is a period of slow economic growth and high unemployment (stagnation) while prices rise (inflation)
Are there any world countries to-day who can claim 'No DEBT?" I don't think so. Debt & complacency have been the norm but that is dramatically changing - at long last. Also, wouldn't want to be that hotel owner, would you -haha?
Re: DEBT DENIAL- Funny story - "spending to get out of debt"
Thats a great little story,Fastfoot Correct me if I am wrong but is the moral of story Stagflation? There cant be any growth because in the end the hotel owner doesnt have any money,unless he had no debt but the problem is there is debt ALMOST everywhere. ??????????????????
Re: DEBT DENIAL- Funny story - "spending to get out of debt"
In a small town on the South Coast of France, the holiday season is in full swing, but it is raining so there is not too much business taking place.
Everyone is heavily in debt.
Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and puts a Euro100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.
• The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes E100.
• The butcher takes the money and races to his supplier to pay his debt.
• The wholesaler rushes to the farmer to pay E100 for pigs he purchased some time ago.
• The farmer triumphantly gives the E100 note to a local prostitute who gave him her services on credit.
• The prostitute quickly goes to the hotel, as she was owing the hotel for her hourly room used to entertain clients.
At that moment, the rich Russian comes down to reception and informs the hotel owner that the room is unsatisfactory and takes his E100 back and departs.
There was no profit or income. But everyone no longer has any debt and the small town’s people look optimistically towards their future.
Could this be the solution to the global financial crisis?
Re: DEBT DENIAL- Why run to gold & silver for several years?
Run to Gold and Silver ...World Economy Going Nowhere For Many Years
Tue 11 May 2010, 18:06
By Hubert Moolman
6 May 2010
The worst part of the world’s current financial crisis is still on its way. The enormous debt levels present in our financial system is central to this crisis. This huge debt levels could cause the world’s monetary system to collapse, starting with the weaker currencies and quickly making its way to the major ones. Day by day the premier signal (gold price) of this collapse is getting clearer and should encourage more people to run for cover.
The world economy cannot recover and make progress until the gigantic debt burden is lifted. This can still take more than 10 years. If we have a deep and extreme collapse (in debt) much like the stock market crash in 1929, then it could be 10 years, and off course longer should the crash be less extreme but more distributed. I think 10 years is more likely, since major crashes tend to end in an extreme collapse. A peak in the gold price could be a good signal that we are at or close to a bottom of this debt crisis, and we are still far from a peak in gold.
There are various signs that indicate that we have reached the end of the prosperity part of the debt bubble. Some of these signs I have mentioned before, like the top in the Dow/gold ratio. The gold’s price is also another, it has increased 4.72 fold since beginning of this decade. You can also just look at headlines around the world of countries like Greece having a debt crisis. You can also go and find the following charts (which could be considered a good proxy for debt levels) and you will notice how these levels have consistently increased at least the last 50 years:
You could probably look at your own finances as well as your neighbour’s for evidence of extreme debt levels compared to just a few decades ago.
Debts levels have become a huge burden and it will strangle the world economy for at least the next 10 years. The debt will have to be settled eventually, voluntarily (unlikely) or by force (death of all fiat denominated debt). All future production will be severely reduced by the debt obligation and the effects will be a world economy in chaos and possibly with life threatening phenomena like starvation being the order of the day.
That is just how it works when you have huge debt – you will have less of your future income/production available due to the debt obligation that has to be met every month.
This crisis cannot be stopped, but you do not have to be caught up in its worst effects. You have to educate yourself by seeking the right knowledge that will help you prepare for its worst effects.
Re: DEBT DENIAL- Repent at leisure (Economist - P. Coggan)
A special report on debt
Repent at leisure
Borrowing has been the answer to all economic troubles in the past 25 years. Now debt itself has become the problem, says Philip Coggan
Jun 24th 2010
MAN is born free but is everywhere in debt. In the rich world, getting hold of your first credit card is a rite of passage far more important for your daily life than casting your first vote. Buying your first home normally requires taking on a debt several times the size of your annual income. And even if you shun the temptation of borrowing to indulge yourself, you are still saddled with your portion of the national debt.
Throughout the 1980s and 1990s a rise in debt levels accompanied what economists called the “great moderation”, when growth was steady and unemployment and inflation remained low. No longer did Western banks have to raise rates to halt consumer booms. By the early 2000s a vast international scheme of vendor financing had been created. China and the oil exporters amassed current-account surpluses and then lent the money back to the developed world so it could keep buying their goods.
Those who cautioned against rising debt levels were dismissed as doom-mongers; after all, asset prices were rising even faster, so balance-sheets looked healthy. And with the economy buoyant, debtors could afford to meet their interest payments without defaulting. In short, it paid to borrow and it paid to lend.
In this special report
Like alcohol, a debt boom tends to induce euphoria. Traders and investors saw the asset-price rises it brought with it as proof of their brilliance; central banks and governments thought that rising markets and higher tax revenues attested to the soundness of their policies.
The answer to all problems seemed to be more debt. Depressed? Use your credit card for a shopping spree “because you’re worth it”. Want to get rich quick? Work for a private-equity or hedge-fund firm, using borrowed money to enhance returns. Looking for faster growth for your company? Borrow money and make an acquisition. And if the economy is in recession, let the government go into deficit to bolster spending. When the European Union countries met in May to deal with the Greek crisis, they proposed a €750 billion ($900 billion) rescue programme largely consisting of even more borrowed money.
Debt increased at every level, from consumers to companies to banks to whole countries. The effect varied from country to country, but a survey by the McKinsey Global Institute found that average total debt (private and public sector combined) in ten mature economies rose from 200% of GDP in 1995 to 300% in 2008 (see chart 1 for a breakdown by country). There were even more startling rises in Iceland and Ireland, where debt-to-GDP ratios reached 1,200% and 700% respectively. The burdens proved too much for those two countries, plunging them into financial crisis. Such turmoil is a sign that debt is not the instant solution it was made out to be. The market cheer that greeted the EU package for Greece lasted just one day before the doubts resurfaced.
From early 2007 onwards there were signs that economies were reaching the limit of their ability to absorb more borrowing. The growth-boosting potential of debt seemed to peter out. According to Leigh Skene of Lombard Street Research, each additional dollar of debt was associated with less and less growth (see chart 2).
Stopping the debt supercycle
The big question is whether this rapid build-up of debt—a phenomenon which Martin Barnes of the Bank Credit Analyst, a research group, has dubbed the “debt supercycle”—has now come to an end. Debt reduction has become a hot political issue. Rioters on the streets of Athens have been protesting against the “junta of the markets” that is imposing austerity on the Greek economy, and tea-party activists in America, angry about trillion-dollar deficits and growing government involvement in the economy, have been upsetting the calculations of both the Democratic and Republican party leaderships.
To understand why debt may have become a burden rather than a boon, it is necessary to go back to first principles. Why do people, companies and countries borrow? One obvious answer is that it is the only way they can maintain their desired level of spending. Another reason is optimism; they believe the return on the borrowed money will be greater than the cost of servicing the debt. Crucially, creditors must believe that debtors’ incomes will rise; otherwise how would they be able to pay the interest and repay the capital?
But in parts of the rich world such optimism may now be misplaced. With ageing populations and shrinking workforces, their economies may grow more slowly than they have done in the past. They may have borrowed from the future, using debt to enjoy a standard of living that is unsustainable. Greece provides a stark example. Standard & Poor’s, a rating agency, estimates that its GDP will not regain its 2008 level until 2017.
Rising government debt is a Ponzi scheme that requires an ever-growing population to assume the burden—unless some deus ex machina, such as a technological breakthrough, can boost growth. As Roland Nash, head of research at Renaissance Capital, an investment bank, puts it: “Can the West, with its regulated industry, uncompetitive labour and large government, afford its borrowing-funded living standards and increasingly expensive public sectors?”
Sovereign default is far from inconceivable. Many people are forecasting that Greece, despite its bail-out package from the EU and the IMF, will be unable to repay its debts in full and on time. Faced with the choice between punishing their populations with austerity programmes and letting down foreign creditors, countries may find it easier to disappoint the foreigners. Defaults have been common in the past, as Carmen Reinhart and Ken Rogoff showed in their book, “This Time is Different”. Adam Smith, a founding father of economics, noted in “The Wealth of Nations” that “when national debts have once been accumulated to a certain degree, there is scarce, I believe, a single instance of their having being fairly and completely paid.”
Governments now face a tricky period when they have to deal with the debt overhang, decide how quickly to cut their deficits (and risk undermining growth), and try to distribute the pain of doing so as equitably as possible.
Debt is often treated as a moral issue as well as an economic one. Margaret Atwood, in her book of essays, “Payback: Debt and the Shadow Side of Wealth”, notes that the Aramaic words for debt and sin are the same. And some versions of the Lord’s Prayer say “Forgive us our debts” rather than “Forgive us our trespasses”.
The Live 8 campaign in 2005 tried to shame developed nations into forgiving the debts of poor countries, particularly in sub-Saharan Africa. Economists have developed the concept of “odious debt” in which citizens should not be forced to repay money borrowed by tyrannical or kleptocratic rulers. Interest payments on debt are often regarded as an onerous burden placed on the poor; interest is seen as an unjustified reward for capital, a concept that goes back to Aristotle and is implicit in the Christian idea of usury. Islam forbids it altogether. The book of Deuteronomy suggested a debt amnesty every seven years, which survived into later Jewish custom.
But conventional morality has not always been on the side of the borrowers. Some regard debt as the road to ruin and the failure to repay as a breach of trust. In the 18th and 19th century debtors in Britain were often thrown into jail (as in Charles Dickens’s “Little Dorrit”), though Samuel Johnson spotted the flaws of the practice: “We have now imprisoned one generation of debtors after another, but we do not find that their numbers lessen. We have now learned that rashness and imprudence will not be deterred from taking credit; let us try whether fraud and avarice may be more easily restrained from giving it.”
Movable morals
In the past 100 years the moral battle has moved in favour of the debtors. Bankruptcy is no longer stigmatised but simply regarded as bad luck. When consumers borrow beyond their means, the blame is laid on lax lending practices rather than irresponsible borrowing. Governments have encouraged more people to become homeowners and thus to take on debt. And defaulting on one’s debts has become much less cumbersome; in the current housing slump many American homeowners have resorted to “jingle mail”, dropping their keys through the lender’s letterbox and walking away from their property.
In business, a few failed directorships are a sign of entrepreneurship rather than incompetence. America’s Chapter 11 process allows the managers of companies to remain in place and the business to be protected from its creditors. The number of companies with safe AAA credit ratings has collapsed as more have acted on the theory that a debt-laden balance-sheet is more efficient (because interest payments are tax-deductible in most countries).
The recent crisis has also diminished belief in the judgment of the financial markets. The role of banks in the credit crunch and the cost of the financial sector bail-out has undermined the idea that the markets assess risk fairly and rationally. Instead, higher borrowing costs are seen as the result of unscrupulous speculation.
The role of sovereign credit-default swaps (CDS), a way of betting on the likelihood of a country’s failure to repay the money it has borrowed, has proved particularly controversial. Southern European nations, which have been at the heart of the recent market turmoil, have been quick to blame an Anglo-Saxon conspiracy, brewed up by hedge funds, credit-rating agencies and even newspapers like this one, for unfairly pushing up their borrowing costs. The German government moved to ban short-selling of government bonds and some CDS transactions last month. As Charles Stanley, a stockbroking firm, cynically puts it, EU nations are saying: “Please fund our lifestyles, but don’t hold us to any commitments.”
Why it matters
If a husband borrows money from his wife, the family is no worse off. By extension, just as every debt is a liability for the borrower, it is an asset for the creditor. Since Earth is not borrowing money from Mars, does the debt explosion really matter, or is it just an accounting device?
During the credit boom of the early 1990s and 2000s the conventional view was that it did not matter. Not only were asset prices rising even faster than debt but the use of derivatives was spreading risk across the system and, in particular, away from the banks, which had capital ratios well above the regulatory minimum.
The problem with debt, though, is the need to repay it. Not for nothing does the word credit have its roots in the Latin word credere, to believe. If creditors lose faith in their borrowers, they will demand the repayment of existing debt or refuse to renew old loans. If the debt is secured against assets, then the borrower may be forced to sell. A lot of forced sales will cause asset prices to fall and make creditors even less willing to extend loans. If the asset price falls below the value of the loan, then both creditors and borrowers will lose money.
This is particularly troublesome if the economy slips into deflation, as happened globally in the 1930s and in Japan in the 1990s. Debt levels are fixed in nominal terms whereas asset prices can go up or down. So falling prices create a spiral in which assets are sold off to repay debts, triggering further price falls and further sales. Irving Fisher, an economist who worked in the first half of the 20th century, called this the debt deflation trap.
Another reason why debt matters is to do with the role of banks in the economy. By their nature, banks borrow short (from depositors or the wholesale markets) and lend long. The business depends on confidence; no bank can survive if its depositors (or its wholesale lenders) all want their money back at once. If banks struggle to meet their own debts, they have no choice but to reduce their lending. If this happens on a large scale, as it did in the 1930s, the ripple effect for the economy as a whole can be devastating.
Both of these effects were seen in the debt crisis of 2007-08. Falling property prices caused defaults and a liquidity crisis in the banking system so severe that the authorities feared the cash machines would stop working. Hence the unprecedented largesse of the bank bail-out.
Hyman Minsky, an American economist who has become more fashionable since his death in 1996, argued that these debt crises were both inherent in the capitalist system and cyclical. Prosperous times encourage individuals and companies to take on more risk, meaning more debt. Initially such speculation is successful and encourages others to follow suit; eventually credit is extended to those who will be able to repay the debt only if asset prices keep rising (a succinct description of the subprime-lending boom). In the end the pyramid collapses.
In the aftermath of the latest collapse it is clear that the distinction between debt in the private and public sector has become blurred. If the private sector suffers, the public sector may be forced to step in and assume, or guarantee, the debt, as happened in 2008. Otherwise the economy may suffer a deep recession which will cut the tax revenues governments need to service their own debt.
If the Western world faces an era of austerity as debts are paid down, how will that affect day-to-day life? Clearly a society built on consumption will have to pay more attention to saving. The idea that using borrowed money to buy assets is the smart road to riches might lose currency, changing attitudes to home ownership as well as to parts of the finance sector such as private equity.
This special report will argue that, for the developed world, the debt-financed model has reached its limit. Most of the options for dealing with the debt overhang are unpalatable. As has already been seen in Greece and Ireland, each government will have to find its own way of reducing the burden. The battle between borrowers and creditors may be the defining struggle of the next generation.
An interactive chart allows you to compare how the debt burden varies across 14 countries and to examine different types of borrowing.
Listen to an interview with the author of this special report.
Special reports
Re: DEBT DENIAL- U.S.Debt & the Greece Analogy (Greenspan)
Great article to put up!
What I got from that is simply this:
Only politically toxic cuts or rationing of medical care, a marked
rise in the eligible age for health and retirement benefits, or
significant inflation, can close the deficit. I rule out large tax
increases that would sap economic growth (and the tax base) and
accordingly achieve little added revenues.
It is our move.. what to do what to do!!!
cheerio mate and great post!
Re: DEBT DENIAL- Obama on Hotseat - Spend LESS vs. MORE
Germany Rejects Obama's Call on Growth, Stoking G-20 ConflictBy Rainer Buergin - Jun 21, 2010
- Email
- Share
- Print
- Email
- Share
- Print
Five days before G-20 leaders meet in Toronto, the economic-policy divide between Europe and the U.S. is hardening. Photographer: Michele Tantussi/Bloomberg
Chancellor Angela Merkel’s government rebuffed U.S. calls to focus on bolstering growth over debt reduction, setting a course for conflict at the Group of 20 summit in Canada this week.
“Nobody can seriously dispute that excessive public debts, not only in Europe, are one of the main causes of this crisis,” Finance Minister Wolfgang Schaeuble told reporters in Berlin today alongside Merkel. “That’s why they have to be reduced.”
Germany is holding to G-20 commitments on exit strategies from fiscal stimulus, and “not violating international requirements for a coordinated strategy for sustainable growth,” Schaeuble said. “We will face up to the international debate and I think we can do that with a great deal of self- confidence,” he said.
Five days before G-20 leaders meet in Toronto, the economic-policy divide between Europe and the U.S. is hardening. President Barack Obama, in a letter to his G-20 counterparts dated June 16, urged a focus on economic growth, saying order to public finances should be restored in the “medium term.”
German Economy Minister Rainer Bruederle, at a separate press conference earlier today, said the U.S. must join Europe in “urgently” cutting spending.
“It’s urgently necessary for monetary stability that public budgets return to balance,” Bruederle said. “This is something we should also tell our American friends.”
Canada’s ‘Minimum’
Canadian Prime Minister Stephen Harper, in his own letter to G-20 counterparts, said June 18 that he wants leaders to agree to a target of reducing their deficits by half by 2013, and to stabilize or begin reducing their ratios of debt-to- output by 2016.
The European Union is “somewhat wary” of these targets because Europe’s goals are more ambitious, according to a senior EU finance official, who said the proposals by Canada should be the “minimum.”
“A number of advanced countries will have to go further,” said the official, who spoke to reporters in Brussels today on the condition of anonymity. “For us, it has to be absolutely clear that this is a minimum.”
European G-20 members will make deficit reduction a central theme in Toronto, Merkel said June 19 in a video message on the Internet.
“We will talk about when we’ll switch from the phase of economic stimulus programs toward lasting budget consolidation,” Merkel said. “In the opinion of Europe’s participants, and especially Germany, this is urgently necessary.”
‘Unity of Purpose’
Whereas Obama called on the G-20 to reaffirm its “unity of purpose to provide the policy support necessary to keep economic growth strong,” Merkel said that “it’s not about growth at any price, it’s about sustainable” growth.
She said June 11 that she expects to have a “hard time” at the summit, with pressure from fellow leaders to spend to boost growth while she sees “no alternative” to budget savings.
Nobel prize-winning economist Paul Krugman said the U.S. isn’t worried about “loose monetary policy” and said it would be a risk for the euro region to allow Axel Weber, president of the Bundesbank, to succeed Jean-Claude Trichet as head of the European Central Bank, German newspaper Handelsblatt reported
“If you’re looking for somebody who aims at an inflation rate of zero percent while unemployment rises to 13 percent, then Weber is certainly the right man,” the newspaper quoted Krugman as saying.
To contact the reporter on this story: Rainer Buergin in Berlin at rbuergin1@bloomberg.net
Re: DEBT DENIAL- U.S.Debt & the Greece Analogy (Greenspan)
U.S. Debt and the Greece Analogyby Alan Greenspan
Friday, June 18, 2010
provided by
Don't be fooled by today's low interest rates. The government could very quickly discover the limits of its borrowing capacity.
More from WSJ.com:
• BP Chief on Hot Seat
• Spending Measure Snagged By GOP Filibuster
• Consumer Price Drop Squeezes Profits
An urgency to rein in budget deficits seems to be gaining some traction among American lawmakers. If so, it is none too soon. Perceptions of a large U.S. borrowing capacity are misleading.
Despite the surge in federal debt to the public during the past 18 months—to $8.6 trillion from $5.5 trillion—inflation and long-term interest rates, the typical symptoms of fiscal excess, have remained remarkably subdued. This is regrettable, because it is fostering a sense of complacency that can have dire consequences.
The roots of the apparent debt market calm are clear enough. The financial crisis, triggered by the unexpected default of Lehman Brothers in September 2008, created a collapse in global demand that engendered a high degree of deflationary slack in our economy. The very large contraction of private financing demand freed private saving to finance the explosion of federal debt. Although our financial institutions have recovered perceptibly and returned to a degree of solvency, banks, pending a significant increase in capital, remain reluctant to lend.
More from Yahoo! Finance:
• Countries with the Most Millionaires
• BP's $20 Billion Drop in the Bucket
• Why American Workers Need To Toughen Up
Visit the Banking & Budgeting Center
Beneath the calm, there are market signals that do not bode well for the future. For generations there had been a large buffer between the borrowing capacity of the U.S. government and the level of its debt to the public. But in the aftermath of the Lehman Brothers collapse, that gap began to narrow rapidly. Federal debt to the public rose to 59% of GDP by mid-June 2010 from 38% in September 2008. How much borrowing leeway at current interest rates remains for U.S. Treasury financing is highly uncertain.
The U.S. government can create dollars at will to meet any obligation, and it will doubtless continue to do so. U.S. Treasurys are thus free of credit risk. But they are not free of interest rate risk. If Treasury net debt issuance were to double overnight, for example, newly issued Treasury securities would continue free of credit risk, but the Treasury would have to pay much higher interest rates to market its newly issued securities.
In the wake of recent massive budget deficits, the difference between the 10-year swap rate and 10-year Treasury note yield (the swap spread) declined to an unprecedented negative 13 basis points this March from a positive 77 basis points in September 2008. This indicated that investors were requiring the U.S. Treasury to pay an interest rate higher than rates that prevailed on comparable maturity private swaps.
(A private swap rate is the fixed interest rate required of a private bank or corporation to be exchanged for a series of cash flow payments, based on floating interest rates, for a particular length of time. A dollar swap spread is the swap rate less the interest rate on U.S. Treasury debt of the same maturity.)
At the height of budget surplus euphoria in 2000, the Office of Management and Budget, the Congressional Budget Office and the Federal Reserve foresaw an elimination of marketable federal debt securities outstanding. The 10-year swap spread in August 2000 reached a record 130 basis points. As the projected surplus disappeared and deficits mounted, the 10-year swap spread progressively declined, turning negative this March, and continued to deteriorate until the unexpected euro-zone crisis granted a reprieve to the U.S.
The 10-year swap spread quickly regained positive territory and by June 14 stood at a plus 12 basis points. The sharp decline in the euro-dollar exchange rate since March reflects a large, but temporary, swing in the intermediate demand for U.S. Treasury securities at the expense of euro issues.
The 10-year swap spread understandably has emerged as a sensitive proxy of Treasury borrowing capacity: a so-called canary in the coal mine.
I grant that low long-term interest rates could continue for months, or even well into next year. But just as easily, long-term rate increases can emerge with unexpected suddenness. Between early October 1979 and late February 1980, for example, the yield on the 10-year note rose almost four percentage points.
In the 1950s, as I remember them, U.S. federal budget deficits were no more politically acceptable than households spending beyond their means. Regrettably, that now quaint notion gave way over the decades, such that today it is the rare politician who doesn't run on seemingly costless spending increases or tax cuts with borrowed money. A low tax burden is essential to maintain America's global competitiveness. But tax cuts need to be funded by permanent outlay reductions.
The current federal debt explosion is being driven by an inability to stem new spending initiatives. Having appropriated hundreds of billions of dollars on new programs in the last year and a half, it is very difficult for Congress to deny an additional one or two billion dollars for programs that significant constituencies perceive as urgent. The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms. This is not new. For at least a quarter century analysts have been aware of the pending surge in baby boomer retirees.
We cannot grow out of these fiscal pressures. The modest-sized post-baby-boom labor force, if history is any guide, will not be able to consistently increase output per hour by more than 3% annually. The product of a slowly growing labor force and limited productivity growth will not provide the real resources necessary to meet existing commitments. (We must avoid persistent borrowing from abroad. We cannot count on foreigners to finance our current account deficit indefinitely.)
Only politically toxic cuts or rationing of medical care, a marked rise in the eligible age for health and retirement benefits, or significant inflation, can close the deficit. I rule out large tax increases that would sap economic growth (and the tax base) and accordingly achieve little added revenues.
With huge deficits currently having no evident effect on either inflation or long-term interest rates, the budget constraints of the past are missing. It is little comfort that the dollar is still the least worst of the major fiat currencies. But the inexorable rise in the price of gold indicates a large number of investors are seeking a safe haven beyond fiat currencies.
The United States, and most of the rest of the developed world, is in need of a tectonic shift in fiscal policy. Incremental change will not be adequate. In the past decade the U.S. has been unable to cut any federal spending programs of significance.
I believe the fears of budget contraction inducing a renewed decline of economic activity are misplaced. The current spending momentum is so pressing that it is highly unlikely that any politically feasible fiscal constraint will unleash new deflationary forces. I do not believe that our lawmakers or others are aware of the degree of impairment of our fiscal brakes. If we contained the amount of issuance of Treasury securities, pressures on private capital markets would be eased.
Fortunately, the very severity of the pending crisis and growing analogies to Greece set the stage for a serious response. That response needs to recognize that the range of error of long-term U.S. budget forecasts (especially of Medicare) is, in historic perspective, exceptionally wide. Our economy cannot afford a major mistake in underestimating the corrosive momentum of this fiscal crisis. Our policy focus must therefore err significantly on the side of restraint.
Mr. Greenspan, former chairman of the Federal Reserve, is president of Greenspan Associates LLC and author of "The Age of Turbulence: Adventures in a New World" (Penguin, 2007).
Re: DEBT DENIAL- Bank of Japan offers 3 Trillion yen
3 trillion lending facility in JAPAN??!! Sweet lord that is alot of money to make available. I'm not sure Japan's debt I know it is one of the highest in the world.. but that sounds crazy. Obviously things have not gotten good over there yet.
Re: DEBT DENIAL- Dr. Doom buys Gold - predicts worse crisis
Marc Faber: "I Buy Gold, I Don't Know What Else To
Buy"
Another fantastic interview and some typically
outspoken observations from everyone's favorite Doom and Gloomer:"I
think that governments have become like a cancer, they have expanded in
the financial system...The biggest problem is too much intervention.
Whatever the government touches is usually done worse than in the
private sector. I think any government intervention has unintended
consequences and is negative. Eventually the market will break the
intervention and things will blow out...People who tell me about the big
deflation in Japan, why don't they spend a day in Tokyo? It's still the
most expensive city in the world. At this level I'm not particularly
interested in buying anything. I buy gold, I don't know what
else to buy." Faber expects another worse crisis to happen in
five to ten years, "when the whole financial system collapses"
- the reason: the debt problem has been kicked down the road without
actually being sold. "I think US Fed, ECB and other central banks have
no other option, they will continue to monetize and buy bad paper,
period. The central bankers are precisely the ones that don't know that
excessive money creation and excessive debt creation leads to a crisis
down the road. The ECB will talk hawkishly, but act dovish, like
the Fed in the US." Must watch 20 minutes.
http://www.cnbc.com/id/37747651
http://www.cnbc.com/id/15840232/?video=1524011146&play=1
Re: DEBT DENIAL- Bank of Japan offers 3 Trillion yen
Bank of Japan offers 3 trillion yen in new lending
By Michael Kitchen LOS
ANGELES (MarketWatch) -- The Bank of Japan said Tuesday it would offer
financial institutions up to 3 trillion yen ($32.8 billion) in new
lending, while also leaving its key policy rate unchanged at 0.1% as
widely expected. The new lending facility will be temporary, with funds
possibly available by "about" the end of August, the central bank said.
Each counterparty will be allowed to borrow up to 150 billion yen on a
one-year basis and will be able to roll over the loans up to three
times, it said. The BOJ also said the economy "shows further signs of a
moderate recovery, induced by improvement in overseas economic
conditions."
http://www.marketwatch.com/story/bank-of-japan-offers-3-trillion-yen-in-new-lending-2010-06-15?siteid=bnbh
Re: DEBT DENIAL- More bailout money to sustain fragile recovery
Obama Urges New Job Aid to Maintain Economic Recovery (Update2)
Share
Business ExchangeTwitterFacebook|
Email |
Print |
A A A
By Roger Runningen
June 13 (Bloomberg) -- President Barack Obama
is urging
Congress to pass a jobs bill to avoid layoffs of teachers,
firefighters and police and maintain the U.S. economic recovery.
“We cannot afford to slide backward,” Obama said in a
letter to Congress yesterday. “We must take these emergency
measures.”
Obama is supporting a measure pending in the Senate that
also would increase taxes on buyout fund managers and take other
steps to shore up the economy. He is requesting $23 billion for
teachers and other public-service workers and $25 billion for
additional federal Medicaid funding for the states, said Ken
Baer, a spokesman for the Office of Management and budget.
The president cited strains on state budgets brought on by
unemployment, foreclosures and declining revenue. About 84,000
jobs have been lost at state and local levels so far as
governments try to balance budgets.
“If additional action is not taken, hundreds of thousands
of additional jobs could be lost,” he said in the letter.
Such conditions leave a “mounting employment crisis at the
state and local level that could set back the pace of our
economic recovery,” Obama said.
The Senate package under consideration calls for trimming a
House-passed tax increase on investment fund managers,
quintupling a levy on oil companies and sending an additional
$24 billion to state governments to help fill holes in their
budgets.
Unemployment Benefits
Other provisions would extend unemployment
benefits,
restore a series of tax cuts, extend municipal bond subsidies
and increase Medicare
payments to doctors.
Senate Republican Leader Mitch McConnell
of Kentucky, one
of the recipients of Obama’s letter, issued a statement last
night saying the president is failing to address the need to
bring federal spending under control.
“We have a debt crisis, a jobs crisis, a housing crisis, a
financial crisis, and an oil spill that the American people
clearly don’t believe government is effectively responding to,”
McConnell said. “So you can understand the American people’s
skepticism when they’re told that simply adding more government
is the solution to government’s previous failures.”
House Majority Leader Steny Hoyer, a
Maryland Democrat,
said there is “spending fatigue” in Congress, though he also
said money is available from the $862 billion stimulus program
passed by Congress last year.
‘Deep Ditch’
“You cannot not continue to stimulate an economy that is
still struggling to get out of the deep ditch that we found it
in about 18 months ago,” Hoyer said today on ABC’s “This
Week” program. “Nobody wants to see 300,000 teachers or fire
or police laid off.”
Representative John Boehner
of Ohio, the Republican leader
in the House, said the money shouldn’t be approved without cuts
elsewhere in the budget.
“The spending spree in Washington is continuing to run
unabated,” Boehner said on ABC. “To move this without finding
other offsets in spending, I think, is irresponsible. It’s just
putting more debt on the backs of our kids and our grandkids.”
To contact the reporters on this story:
Roger Runningen
in Washington at
rrunningen@bloomberg.net
Last Updated: June 13, 2010 12:58 EDT
Re: DEBT DENIAL - Unrepayable U.S Debt - no plan to reduce it!
A great report indeed mates!!
America needs to fix its debt before our world and most importantly the west can flourish!
Taxing the rich is his game plan. I read a report that explains he is going after the top 1%. Time doesn't seem to be on America's side as it once was.
Goodluck mates
cheerio
Re: DEBT DENIAL - $50 Billion Bailout for U.S States?
Obama
Pushes for $50 Billion in State Aid
by CalculatedRisk on 6/13/2010 08:13:00
AM
From Jackie Calmes and Sheryl Gay Stolberg at the NY Times: Obama
Presses for Aid to Cities and States
President
Obama on Saturday implored Congress to provide more aid to states and
cities to blunt “the devastating economic impact of budget cuts” by
local governments that imperil the jobs of teachers, the police,
firefighters and other public employees.
In a letter to
Democratic and Republican Congressional leaders, Mr. Obama said the
“mounting employment crisis” in the states “could set back the pace of
our economic recovery.” ... education secretary, Arne Duncan, has said
that without federal aid, up to 300,000 fewer teachers would be in
classrooms this fall ...
The WaPo quotes
Obama as writing there will be "massive layoffs of teachers, police and
firefighters" without the additional funds.
Re: DEBT DENIAL - Debt Spreading "Like a Cancer" -Black Swan
Debt Spreading 'Like a Cancer': Black Swan Author
Published: Thursday, 10 Jun 2010 |
5:39 AM ET
By: Barbara
Stcherbatcheff
Writer, CNBC
The economic situation today is drastically
worse than a couple years ago, and the euro is doomed as a concept,
Nassim Taleb, professor and author of the bestselling book "The Black
Swan," told CNBC on Thursday.
CNBC.com
Nassim Taleb
"We had less debt cumulatively (two years ago),
and more people employed. Today, we have more risk in the system, and a
smaller tax base," Taleb said.
"Banks balance sheets are just as bad as they
were" two years ago when the crisis began and "the quality of the risks
hasn't improved," he added.
The root of the crisis over the past couple of
years wasn't recession, but debt, which has spread "like a cancer,"
according to Taleb, who is now relived that public attention has shifted
to debt, instead of growth.
The world needs to prepare itself for austerity,
he warned. "We need to slash debt. Unfortunately, that's the only
solution," Taleb said.
Other analysts warned
about austerity programs spreading from the euro zone to the US
where the growth in debt will become unsustainable over the longer
term.
Obama administration's efforts to pull the US out
of recession haven't succeeded, according to Taleb. "It's not that they
make mistakes, it's that they almost get nothing right." Moreover, a
second major stimulus package may be futile, he warned.
"Obama promised us 8 percent unemployment
through stimulus. It hasn't worked." There are significantly more
liabilities in the US than in other countries around the world, he said.
"Don't give a junkie more drugs, don't give a
debt junkie more debt."
the Nassim Taleb interview above and the second section here >>>
Hedge Against Inflation
Investors should avoid Treasurys and other bonds
and place their money in instruments that will hedge them against
looming inflation.
Commodities are one
place where a bull market may form over the coming years,
as people try to protect their cash from price rises, famous investor
Jim Rogers told CNBC earlier Thursday.
The "Black Swan" metaphor is used to describe
those rare, unexpected but consequential events that people cannot
predict because they view the world through a sort of tunnel vision - as
something structured, ordinary, and comprehensible.
"I want to live in a society that is robust to
adverse events. We don't live in that world," Taleb said.
"A bridge that's very poorly constructed will
eventually break. A white swan for the butcher is a black swan for the
turkey," he added. The "Black Swan" reference has become ubiquitous
within popular and business culture over the past couple of years.
As recently as Wednesday, a top authority on
oil reservoir management and upstream technology called the BP
[BP-LN
391.90
26.40 (+7.22%)]
oil spill in the Gulf of Mexico a "Black Swan"
event that, however
catastrophic, has the potential to improve drilling practices in
particular and the industry in general.
Taleb expressed reservations about the future of
BP, given the catastrophic fall in its market capitalization since the
oil spill on April 20th.
He suggested that incentives in corporate culture
are inherently flawed.
"Size is bad for companies," he said. "We
shouldn't give a manager of a nuclear plant an incentive bonus. People
are given bonuses to hide risk, to cut corners. The same thing happens
with every large corporation. It permeates the entire economic system."
http://www.cnbc.com/id/37610064
Re: DEBT DENIAL - Unrepayable U.S Debt - no plan to reduce it!
June 10, 2010
America's Predicament
By Vasko
Kohlmayer
America's public debt recently
exceeded 13 trillion. This is more than 90 percent of the country's GDP.
Public
debts of more than 60 percent of GDP are considered unhealthy. Public
debts above 90 percent of GDP cause severe disruptions in the country's
financial framework and the economy at large.
According to
the Obama administration, America's public debt will exceed 100 percent
of GDP in the next fiscal year. History shows that most countries whose
debt exceeds this mark are rarely able to control it. This level of
indebtedness usually leads to currency debasement.
There
are a few historical examples whereby countries were able to contain
debts of more than 100 percent of GDP. But in those instances, the debts
were almost always contracted as a result of extraordinary one-time
expenditures, usually war.
America's debt, on the other
hand, is a result of decades of structural deficits. This means that we
have grown accustomed to spending more than we can afford. If we want to
solve our debt problem, we must slash spending and start running
surpluses. The problem is that it may prove impossible to break the
spending habit.
Our government is like a drug addict who
cannot quit because the dope is too easy to get. Bonds are the dope of
the American government. But the price of the dope will eventually rise,
since low bond yields will not persist forever. When this happens, the
addict will go into seizures. But he will not lie down and sweat it out.
He will go on a rampage to get his fix. He will loot people's
retirement accounts; he will confiscate their gold. Things will turn
ugly.
It has long been impossible to cut anything in
Washington. Every proposal for a reduction is met with hysteria from
some special interest. The hysteria is then amplified by the media.
There is wailing, there are tears. The final appeal is always made for
the children. It always works. They will suffer, goes the refrain. What
can politicians do? They back out while the rent-seekers lick their
chops. In the meantime, the debt just keeps growing.
Many
people thought Barack Obama would save America from its troubles.
Unfortunately, they were wrong. When it comes to America's finances, the
president is doing exactly the wrong thing. We are headed toward an
abyss, and instead of braking, he has slammed down the accelerator. He
is behaving like a perfect madman. And like Emperor Nero, Barack fiddles while the
Treasury burns.
Paul McCartney thinks Obama is a very
smart man. The president, however, does not seem to realize that one
cannot borrow his way out of debt. Not even the American federal
government can do that. The American government has more leeway than the
rest, because the dollar is the world's reserve currency. But no one
can defy the laws of finance forever. When the day of reckoning finally
arrives, the dollar will collapse.
It would be wrong to
think that America's debt problem has been caused Obama. Obama is not
the root cause. He is merely a symptom. He could not do what he is doing
if the ground had not been prepared beforehand. This was done by the
decades of fiscal recklessness. The problem began long before Barry
Soetoro started attending
a madrassah in Indonesia.
Both parties are responsible.
Do you still remember who started us down the never-ending road to
bailoutville? That president even called himself a conservative. He was a
good man, but he left a mess behind. He went about his saving work in
the wrong way. He should never have tried to save capitalism from
itself. Instead, he should have tried to save capitalism from
government.
Like Bush, Obama does not mean any harm. He is
convinced that what he is doing is good and right. He is just badly
misguided -- too bad so many people fell for his pretty words. They
thought Barack was a great leader, and they said he would lead us toward
better days. Those prophets were wrong. Barack is leading us toward
disaster. John McCain, however, would not have done much better; he
would also be bailing out right and left. We have a problem in this
country: Neither of the two major parties is any good.
Sir
Paul told
us that Barack knows what a library is. That's good. Barack should
visit one and check out a book called Economics
in One Lesson by Henry Hazlitt. Beautifully written and full
of common sense, it is the best introduction to economics one can find.
An average person can get through it in a few hours. Since Barack is so
smart, he can do it even faster. If he read it and took it to heart, we
would all be better off.
We should all read this book.
It could help to set us straight. We conservatives have lost our way. We
like to think of ourselves as heirs to the founders' legacy of limited
government, but most of us do not realize what that implies. The
founders' America had no Department of Education or Department of
Commerce or Department of Labor or Department of Housing and Urban
Development. In had almost none of today's countless federal
departments, agencies, and boards that waste money and make our lives
miserable. The founders' America had no income tax or corporate tax. The
founders' America had no central bank. In the founders' America, the
dollar was backed by precious metals. That is what limited government
looks like.
The idea that we should go back to this kind
of government would scandalize many present-day conservatives. They say
things have moved on, and we need more government now. This is a lie
straight from statism's darkest pit. Too bad so many of us have fallen
for it. Today we are reaping the fruit of that error: an oppressive
government, debts that cannot be paid, a rapacious political class, a
disintegrating currency, and a smug president who makes bad things
worse.
Page Printed from:
http://www.americanthinker.com/2010/06/americas_predicament.html at
June 10, 2010 - 06:20:55 PM CDT
Re: DEBT DENIAL - U.S. Debt to Rise to $19.6 Trillion by 2015
U.S Debt to Rise to $19.6 Trillion by 2015
June 8
(Reuters) - The U.S. debt will top $13.6 trillion this year and climb to
an estimated $19.6 trillion by 2015, according to a Treasury Department
report to Congress.
Tue Jun 8, 2010 6:19pm EDT
The report that was sent to lawmakers Friday
night with no fanfare said the ratio of debt to the gross domestic
product would rise to 102 percent by 2015 from 93 percent this year.
"The president's economic experts say a 1 percent
increase in GDP can create almost 1 million jobs, and that 1 percent is
what experts think we are losing because of the debt's massive drag on
our economy," said Republican Representative Dave Camp, who publicized
the report.
He was referring to recent testimony by
University of Maryland Professor Carmen Reinhart to the bipartisan
fiscal commission, which was created by President Barack Obama to
recommend ways to reduce the deficit, which said debt topping 90 percent
of GDP could slow economic growth.
The U.S. debt has grown rapidly with the economic
downturn and government spending for the Wall Street bailout, the wars
in Afghanistan and Iraq and the economic stimulus. The rising debt is
contributing to voter unrest ahead of the November congressional
elections in which Republicans hope to regain control of Congress.
The total U.S. debt includes obligations to the
Social Security retirement program and other government trust funds. The
amount of debt held by investors, which include China and other
countries as well as individuals and pension funds, will rise to an
estimated $9.1 trillion this year from $7.5 trillion last year.
By 2015 the net public debt will rise to an
estimated $14 trillion, with a ratio to GDP of 73 percent, the Treasury
report said. (Reporting by Donna Smith; Editing by Kenneth Barry)
http://www.reuters.com/article/idUSN088462520100608
U.S Debt to Rise to $19.6 Trillion by 2015
posted on
Jun 09, 10 09:20AM
Use the IP Check
tool
[?]
June 8
(Reuters) - The U.S. debt will top $13.6 trillion this year and climb to
an estimated $19.6 trillion by 2015, according to a Treasury Department
report to Congress.
Tue Jun 8, 2010 6:19pm EDT
The report that was sent to lawmakers Friday
night with no fanfare said the ratio of debt to the gross domestic
product would rise to 102 percent by 2015 from 93 percent this year.
"The president's economic experts say a 1 percent
increase in GDP can create almost 1 million jobs, and that 1 percent is
what experts think we are losing because of the debt's massive drag on
our economy," said Republican Representative Dave Camp, who publicized
the report.
He was referring to recent testimony by
University of Maryland Professor Carmen Reinhart to the bipartisan
fiscal commission, which was created by President Barack Obama to
recommend ways to reduce the deficit, which said debt topping 90 percent
of GDP could slow economic growth.
The U.S. debt has grown rapidly with the economic
downturn and government spending for the Wall Street bailout, the wars
in Afghanistan and Iraq and the economic stimulus. The rising debt is
contributing to voter unrest ahead of the November congressional
elections in which Republicans hope to regain control of Congress.
The total U.S. debt includes obligations to the
Social Security retirement program and other government trust funds. The
amount of debt held by investors, which include China and other
countries as well as individuals and pension funds, will rise to an
estimated $9.1 trillion this year from $7.5 trillion last year.
By 2015 the net public debt will rise to an
estimated $14 trillion, with a ratio to GDP of 73 percent, the Treasury
report said. (Reporting by Donna Smith; Editing by Kenneth Barry)
http://www.reuters.com/article/idUSN088462520100608
Re: DEBT DENIAL - Countries start to Scrutinize U.S. DEBT TRAP
‘Debt Trap’ Makes Edinburgh Investors Scrutinize U.S. (Update1)
Share
Business ExchangeTwitterFacebook|
Email |
Print |
A A A
By Rodney Jefferson
June 9 (Bloomberg) -- Edinburgh’s two biggest fund
companies have a warning to investors: don’t overlook the U.S.
when scouring the world for nations with too much debt.
Standard
Life Investments is questioning when President
Barack Obama’s
administration can reduce borrowings, said Andrew
Milligan, the company’s head of global strategy. Scottish Widows
Investment Partnership sold U.S. stocks in March on concern an
eventual reduction in spending would weigh on economic growth.
The amount of total marketable
U.S. debt outstanding has risen
to $7.96 trillion from $4.4 trillion in mid-2007.
“I don’t know how long the U.S. can afford not to focus on
the issue and take action,” Ken Adams, the
top strategist at
Scottish Widows, said in an interview. “It’s like Greece. It’s
very hard to pick the point at which confidence suddenly goes.”
The companies, which together oversee about 300 billion
pounds ($436 billion), are trying to fathom where risks could
next unnerve markets in what Milligan called the “aftershocks”
of the financial crisis.
The euro lost 17 percent against the dollar this year amid
speculation a possible default in Greece might trigger debt
crises in other parts of Europe, such as in Spain and Portugal.
A Hungarian government spokesman last week warned his
country was in a “very grave situation,” roiling markets and
sending the euro to a four-year low before officials in Budapest
came out and reversed the comments.
‘Under-Estimating’
Credit default swap rates, a gauge of how investors view
debt risks, may be “under-estimating” potential fiscal
problems in the U.S., according to Adams.
The U.S. budget
deficit stood at 9.3 percent of gross
domestic product at the end of March, compared with 3.3 percent
for Germany, an average of 6.3 percent for the euro area and 7.4
percent for Japan, data compiled by Bloomberg show.
Default swaps protecting against losses on U.S. government
debt for 10 years cost 48.5 basis points, less than half that of
Japan and France and lower than Germany, according to prices
from CMA DataVision.
“Yes, the U.S. has the benefit of the dollar, and yes, the
U.S. is a slightly faster-growing economy, but does this mean it
can escape the debt trap which so many people are talking about
in Japan and Europe?” Milligan said at his office in the
Scottish capital. “The arithmetic is really very similar.”
GDP
in the U.S. grew an annual 2.5 percent in the first
quarter versus 0.6 percent for the 16 nations sharing the euro.
‘Least Dirty Shirt’
Bill Gross,
manager of the world’s biggest bond fund and
co-chief investment officer at Newport Beach, California-based
Pacific Investment Management Co., called the U.S. the world’s
“least dirty shirt” in a June 4 Bloomberg Radio interview.
Obama is starting to scale back borrowing. The government
is selling $70 billion of notes and bonds this week, down from
$78 billion at the last sale of similar securities. The drop in
the total amount is the most since credit markets collapsed.
The debt crisis and the lowest inflation rate in four
decades in the U.S. has driven investors to buy government
bonds, making them expensive compared with other investments,
Milligan and Adams said.
The 10-year yield was one basis point higher at 3.2 percent
as of 9 a.m. in London, down from this year’s high of 4.01
percent reached on April 5.
U.S. Treasuries have returned 4.7 percent this year,
compared with 7.3 percent for German bonds, according to indexes
compiled by Bloomberg and the European Federation of Financial
Analysts Societies. The Standard
& Poor’s 500 Index has lost
investors 3.9 percent, while the Stoxx
Europe 600 Index posted a
negative return of 3.1 percent, or 19 percent in dollar terms.
Scottish Widows cut its holding of U.S. stocks to
“neutral” from “overweight,” meaning it holds an amount
equivalent to the proportion of the securities in the indexes
where it measures its performance. The money went into cash and
was then reinvested in U.K. stocks in the final week of May,
Adams said. He didn’t give details on his bond holdings.
To contact the reporter on this story:
Rodney Jefferson
in Edinburgh at
r.jefferson@bloomberg.net
Last Updated: June 9, 2010 04:25 EDT
Re: DEBT DENIAL - Spain's civil servants strike re 5% pay cut!
Spanish public sector on strike against austerity plan
Page last updated at 18:41
GMT, Tuesday, 8 June 2010 19:41 UK
Spanish firemen were among those taking part in the strike
Spanish public sector
workers have held a day-long strike in protest against an average 5% cut
in pay that comes into effect this month.
The cuts are part of a government austerity package aimed at
reducing the country's budget deficit, swollen by almost two years of
recession.
Earlier, several thousand protesters gathered at Madrid's
finance ministry blowing horns and chanting slogans.
Heavy rain hampered an evening rally through the city's
streets.
Spanish unions said 75-80% of public sector workers had joined
the day-long strike.
The labour ministry, however, put the figure at 16%.
AT THE SCENE
Continue
reading the main story
Gavin Hewitt,
BBC Europe editor
Today's action was a trial of strength between a government
under extreme pressure to reduce its deficit and unions who say the
public sector is having to pay for the mistakes of others.
Unions are threatening a general strike if the government goes
ahead with other reforms, including making it easier to hire and fire
workers.
Amongst the younger generation, unemployment is running at 40%
and now the public sector is being cut back.
But what is happening in Spain is being repeated across much of
Europe in what some are calling a new age of austerity.
Countries are slimming their public sectors as a way to
reducing their debts.
A large welfare state has been one of Europe's defining
features. Now the good times are over and for some this amounts to a
revolution, challenging what many regard as the European way of life.
In
pictures: Spain pay cut protests
Spain PM
gets serious on debt
Spain
strikes - your stories
"We are very angry because this is not only an attack to our
rights and to our salaries - there is an attack to the welfare,"
protester Elisia Deoran told the BBC.
"It's an attack on all the public services."
Spain has suffered one of the toughest recessions in the EU,
and has its highest unemployment rate. It recently had its credit rating
downgraded, amid fears it could follow Greece into a debt crisis.
More than 2.5 million Spaniards work in the public sector, and
the strikes were reported to be affecting hospitals and schools, fire
stations and local government. Emergency responders were providing
minimum services.
With a budget deficit currently running over 11%, the
government is under pressure from the EU to slash spending.
In May, Spanish Prime Minister Jose Luis Rodriguez Zapatero
announced a 5% cut in public sector pay, starting this month. Salaries
will be frozen in 2011, pensions will no longer be adjusted for
inflation and tax breaks for new parents will be dropped.
There were also big cuts in public investment and development
aid. Some pensions were frozen.
The cuts are part of a 15bn euro (£12bn; $18bn) package of
austerity measures also meant to reassure the financial markets that
Spain will meet its debts.
Testing public mood
Trade unions are angry that public sector workers are being
penalised.
Advertisement
The BBC's Sarah Rainsford reports from the
streets of Madrid as crowds grow
They accuse the Socialist Party of reneging on previous
promises, and taking desperate measures now - after insisting for months
that Spain would be relatively unaffected by the economic crisis.
The government is due to unveil on Wednesday plans to free up
the labour market, by making it easier to hire and fire workers, in an
attempt to stimulate growth.
SPAIN'S AUSTERITY MEASURES
Continue
reading the main story
EU
austerity: country-by-country
The unions have threatened a general strike if those measures
go ahead.
In recent months, Greece has been hit by mass strikes and
protests over austerity measures imposed to combat a debt crisis that
has shaken the 16-member eurozone.
Germany on Monday announced 86bn euros in cuts by 2014 - its
biggest budget cut since World War II, and the latest in a series of
austerity plans being hatched across the eurozone.
Britain, the Republic of Ireland, Portugal and Italy have also
announced austerity programmes.
Re: DEBT DENIAL - Why Gov'ts Hate Gold (Congressman Paul)
Congressman Paul: Why Governments Hate Gold
Congressman Paul's Texas Straight Talk
This past week several emerging and ongoing
crises took attention away from the ongoing sovereign debt problems in
Greece. The bailouts are merely kicking the can down the
road and making things worse for taxpaying citizens, here and abroad.
Greece is unfortunately not unique in its irresponsible
spending habits. Greek-style debt explosions are quickly
spreading to other nations one by one, and yes, the United States is one
of the dominoes on down the line.
Time and again it has been proven that the
Keynesian system of big government and fiat paper money are abject
failures in the long run. However, the nature of
government is to ignore reality when there is an avenue that allows
growth in power and control. Thus, most politicians and economists will
ignore the long-term damage of Keynesianism in the early stage of a
bubble when there is the illusion of prosperity, suggesting that the
basic laws of economics had been repealed. In fact, one
way to tell if a bubble is about to burst is if economists start talking
about how the government and the Central Bank have repealed the
business cycle.
The truth is the laws of economics are
constant and real, no matter how inconvenient they might be to
politicians and bankers. This reality is setting in and
the bills are coming due. In the mean time, countries that
have no money have bailed out other countries that have no money,
except for the phony money created by politicians, bureaucrats, and
their partners-in-crime at the central banks. This may be
preventing big well-connected banks from having to take on massive
losses, but it is all at the expense of the taxpaying citizen.
As governments and central banks continue the
cycle of spending and inflating, the purchasing power of their
currencies is constantly being degraded. These currencies
are what the people are working for and saving. This
inflation guts the savings and earnings of the people, who have very
limited options for protecting themselves against these ravages. One
option is to convert their fiat currency into something out of reach of
central banks and government spending, such as gold or silver.
It is fairly typical in the midst of economic
crises like these for gold to come under attack from Keynesians
economists and their amen corner in the media. The
arguments against gold are usually straw men, based on a fundamental
misunderstanding of the purpose of buying gold. Gold is
not a typical investment. It is a defense against the
predictable behavior of governments to debase a fiat currency under its
absolute control. The people who run the printing presses
have trouble shutting them off. In order to limit one’s
exposure to this reckless behavior, it is wise to exchange unsound
assets for sound ones.
As the foundation of their power, their fiat
currency, is rejected or avoided, government power is compromised.
Fiat currencies trade the people’s freedom and security for the
government’s freedom to squander the wealth of the nation on wasteful
pet programs, wars, and corruption. This is why the
freedom of the people is so intertwined with a sound monetary unit.
This is also why the founders liked gold and silver, and
supporters of big government hate them.
Posted by Ron Paul (06-07-2010, 01:47 PM) filed
under Monetary Policy
Re: DEBT DENIAL - Britain's Deficit worse than 1st thought
Cameron: UK Deficit 'Even
Worse Than We Thought'
Published June 07, 2010
| Associated Press
LONDON -- The pain of cutting Britain's
national deficit will be worse than previously feared and will affect
everyone in the country, Prime Minister David Cameron said Monday.
Laying out the reasons for squeezing
spending, Cameron said the nation cannot avoid cutting a deficit which
rose to 156 billion pounds ($225 billion) in the last fiscal year.
He has suggested that welfare programs and
expenditure for civil servants are high on the list of possible cuts and
confirmed that the capital gains tax would go up, but otherwise gave no
fresh details.
Instead, he concentrated on explaining why
he believes drastic action is required -- and placing the blame on the
Labour Party governments of the previous 13 years.
"The overall scale of the problem is even
worse than we thought ...," said Cameron, who came to power last month
at the head of Conservative-Liberal Democrat coalition.
"Its potential consequences are therefore
more critical than we feared," he added.
His government intends to announce an
emergency budget on June 22 that will lay out the first steps in cutting
the deficit, with more decisions to come later in the year.
"How we deal with these things will affect
our economy, our society -- indeed our whole way of life," Cameron said
in his speech in Milton Keynes, 50 miles (80kms) north of London.
"The decisions we make will affect every
single person in our country. And the effects of those decisions will
stay with us for years, perhaps decades to come."
Cameron said action is needed now to prevent
interest rates from rising, hitting every mortgage holder in the
country. Higher interest rates would also divert more tax money into
repaying debt rather than providing services, he
says.
"I think people understand by now that the
debt crisis is the legacy of the last government. But exactly the same
applies to the action we will need to take to deal with it. If there are
cuts they are part of that legacy," Cameron said.
"Because the legacy we have been left is so
bad, the measures to deal with it will be unavoidably tough. But
people's lives will be worse unless we do something now."
Cameron said public spending had increased
by 15 percent since 2007, and public sector employment rose which private sector
employment shrank.
"So while the people employed by the
taxpayer were insulated from the harsh realities of the recession
everyone else in the economy was paying the price," Cameron said.
Re: DEBT DENIAL - 3 Signs of Euro Bailout FAILURE
Three Signs That Europe's Enormous Bailout Has Already Failed
x
Email Article
From
To
Message
Email Sent!
You have successfully shared the post.
Vincent
Fernando, CFA
|
Jun. 2, 2010, 9:22 AM
|
3,535
|
8
from both the Eurozone and IMF may have stemmed the previous Eurozone
credit rout, but it seems that its effects are fading.
1) Yesterday credit default swap spreads exploded
higher for Europe's periphery 'PIIGS' economies, approaching
the dangerous record highs pre-Eurozone bailout.
Those spreads continued to expand today, reflecting even higher
default risk.
2) Moreover, the Wall Street Journal reports today
that ECB overnight deposits have
hit a record high. Usually banks just park a few hundred million
euros with the Central Bank using this facility, since they get subpar
interest on their capital. They have now chosen to place 316.4 billion
euros in
ECB deposits, as perceived counterparty risk (the risk between banks) is
soaring.
3) The euro is now breaking
below $1.22.
All three of the above three measures are looking about as ugly as
they ever did. It seems the market has now deemed Europe's tough talk
and enormous bailout plan as insufficient.
The crazy thing is, if Europe has already fired the big guns, and
still wants to stubbornly defend every nation within the Eurozone, then
what does it have left to use?
Read more: http://www.businessinsider.com/european-overnight-lending-2010-6#ixzz0q1qaXBnW