Bob Chapman: This has Been Done By Design, There Is No Such Thing As Coincidence

At the same time the Fed and Wall Street are trying to cover-up, as they did 2-1/2 years ago what became a credit crisis. Last time they ramped up the stock market and they are attempting to do the same thing again. It is a masking of two underlying problems. They are doing what they did before, pushing up the value of shares, of companies that are on the edge of serious problems. In this process they have virtually nationalized banks and given them the funds to re-leverage in the market and take it again to today’s heights. The market has again become divorced from economic reality. They are again about to find out printing money and taxing is not going to solve the problem. On the way to the printing press and along the path of monetization the government has forgotten that they are in serious financial conditions and in the coming year will not be able to fund their deficit. The revenues are not to be had and foreigners are more and more reluctant to shoulder America’s debt. That means another credit crisis and further monetization of debt. Very simply, the US government is bankrupt. They can either default or lay the burden on future generations. The immediate answer is for government to cut spending on such trivialities, such as Medicaid, Medicare and Social Security. Allow the citizens to live in penury and poverty. These are the people who helped build America into what it is and they are to be cast aside as the Fed rescues its owners, the bankers, who deliberately caused the problem in the first place.
The deficit for fiscal 2010 should be close to $2 trillion, up from $1.4 trillion in 2009. The projection for the next ten years is at least $10 trillion. That means an increase of 150% to be serviced by 60% increase in tax revenue in a world where current receipts are off 30%. Even in better times recently tax revenues only increased by 12% during the biggest real estate and stock booms ever. We are about to find out that the muddle through theory does not work. Just for good measure we will add that unfunded liabilities increased by $9 trillion last year alone. That is ten years of deficits in just one year. Who in their right mine is going to fund and support such profligacy?

Sent to me by Tom (with thanks)— VERY INTERESTING
Reader Walter passed along this distressing sighting from Chris Floyd’s blog. American civil liberties were gutted last week, and the media failed to take note of it.

The development? If the president or one of his subordinates declares someone to be an “enemy combatant” (the 21st century version of “enemy of the state”) he is denied any protection of the law. So any trouble-maker (which means anyone) can be whisked away, incarcerated, tortured, “disappeared,” you name it. Floyd’s commentary:


Crushing Burden of Debt

A crushing burden of debt threatens to sap America’s growth for years to come. Please consider Trillions Of Troubles Ahead.

Not too long ago, a billion dollars in a governmental budget was a lot of money. Then we got into hundreds of billions. People understood that this was a lot, just because of all the zeros. Now, unfortunately, the number has become small: the world “trillion,” as in $1.2 trillion for health care reform, seems so tiny. But it has 12 zeroes behind it, which is so easy to forget.

The total public debt is now at 141% of GDP. That puts the United States in some elite company–only Japan, Lebanon and Zimbabwe are higher. That’s only the start. Add household debt (highest in the world at 99% of GDP) and corporate debt (highest in the world at 317% of GDP, not even counting off-balance-sheet swaps and derivatives) and our total debt is 557% of GDP. Less than three years ago our total indebtedness crossed 500% of GDP for the first time.”

Add the unfunded portion of entitlement programs and we’re at 840% of GDP.

The world has not seen such debt levels in modern history. This debt is not serviceable. Imagine that total debt is 557% of GDP, without considering entitlements. The interest on the debt will consume all the tax revenues of the country in the not-too-distant future. Then there will be no way out but to create more debt in order to finance the old debt.

It assures a period of economic devastation. In a last, desperate attempt, politicians at the federal and local levels will raise taxes to astronomical heights to raise revenues. And that only assures destruction of the economy. Forget the fable of economic recovery. Unless there is a change in Washington by next year’s election, there will be no way to turn back.

Japan’s recession is now 19 years old. It has the highest debt-to-GDP level (227%) of any industrialized country. The Fitch rating agency is talking about a potential downgrade of Japan’s debt. Japan’s stock market is still down 75% from the high in 1990. We predict it will make new bear market lows next year. That will make it a 20-year-long bull market [bear market makes more sense – Mish] on the way to 25 years. The bulls in the U.S. should consider that possibility in the formerly great United States of America.

I do not believe the bullish theory that the U.S. situation is different than Japan’s. Ours is so much worse.

Bank Of Japan Will Not Tolerate Deflation

Amazingly, the nation that has been in and out of deflation for 18 years says BOJ Will Not Tolerate Deflation

The Bank of Japan held interest rates at 0.1 percent and policy makers said they are intolerant of price declines amid signs deflation may undermine the economic recovery.

The policy board “does not tolerate a year-on-year rate of change in the CPI equal to or below zero percent,” the central bank said in a statement in Tokyo today after the unanimous rate decision.

Japan’s CPI Negative

Given Japan will not tolerate a negative, inquiring minds might be wondering why the CPI is negative. Please consider Japan’s Notes Rise Most in 13 Months on Central Bank Loan Plan.

Deflation blighted Japan during its so-called lost decade of stagnation after an asset bubble burst in the early 1990s. The government has stepped up calls on the BOJ to prop up growth since it declared the economy was in deflation on Nov. 20.

Consumer prices excluding fresh food slid 2.2 percent in October from a year earlier after dropping a near-record 2.3 percent in September.

“Japan’s CPI will stay negative for some time,” said Yasutoshi Nagai, chief economist at Daiwa Securities SMBC Co. in Tokyo. “Japanese real interest rates are higher than U.S. real yields, which make Japanese bonds attractive. I recommend buying 10-year Japanese bonds.”

OK Japan what are you going to do?

Going deeper in debt with ridiculous Quantitative Easing and Keynesian stimulus efforts did not cure deflation in Japan and it will not cure deflation in the US either. Instead, it will drag the problem out, while increasing national debt.

I find it amusing that people believe debt can be inflated away. They ignore the fact that an increasing amount of interest is needed to service that debt. You can see concerns in the US already with tax increases by Obama.

As the Forbes article notes, eventually interest on the debt will consume all the tax revenues. That holds for both Japan and the US. Both countries will be in real trouble when interest rates rise.

Mike “Mish” Shedlock
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