FedUpUSA

Archive for March 19th, 2011

“It’s the DEBT, Stupid!”
We’re Doing Something About it! Come Join the Swarm!

Is the U.S. government on the verge of a massive debt problem?  For years, the U.S. government has been able to borrow all the money that it has wanted to at extremely low interest rates.  But now many of the lending sources that the U.S. government has been depending on are drying up.  Even before this recent crisis in Japan, a number of big players were moving away from U.S. Treasuries and the U.S. Federal Reserve was having to step in to pick up the slack.  But now this debt crunch is about to get a whole lot worse.  For years, many had feared that it would be China that would start dumping U.S. government debt, but now it turns out that Japan is going to be the real problem.  Right now, Japan is the second largest foreign holder of U.S. government debt.  Japan currently holds about $882 billion in U.S. Treasury bonds and they are likely going to have to liquidate much of that in order to fund the rebuilding of their nation.  So needless to say they won’t be accumulating any more U.S. government debt.  But the U.S. government still needs to borrow a trillion and a half dollars from someone every single year.  So where in the world are they going to get it?

This is called a debt problem.  Have you ever gotten to the point where you are in debt up to your eyeballs and nobody wants to lend you any more money?

Well, the U.S. government is rapidly reaching that point.

Even before the crisis in Japan, several of the big boys had starting moving away from U.S. government debt.

PIMCO, the biggest bond fund on the entire globe, recently acknowledged that they are dumping all of their U.S. Treasuries.

So if foreign nations like Japan are not gobbling up U.S. government debt and big bond funds like PIMCO are not buying any of it, then who in the world is going to be purchasing the massive amounts of debt that the U.S. government is constantly pumping out?

Well, many of you already know that answer.

The Federal Reserve is going to step in of course.  The Federal Reserve knows that if the U.S. government cannot borrow gigantic quantities of money at super low interest rates it will go broke.  So the Federal Reserve is just going to keep buying up most new U.S. government debt.  It is just that simple.

But isn’t that a Ponzi scheme?

Of course it is.  Let’s not mince words here.  It is a total scam.

And it is a scam that cannot go on indefinitely.

The truth is that the Ponzi Scheme of the U.S. Treasury issuing bonds and the Federal Reserve buying them up cannot last forever as PIMCO’s Bill Gross noted in his March newsletter….

“Basically, the recent game plan is as simple as the Ohio State Buckeyes’ “three yards and a cloud of dust” in the 1960s. When applied to the Treasury market it translates to this: The Treasury issues bonds and the Fed buys them. What could be simpler, and who’s to worry? This Sammy Scheme as I’ve described it in recent Outlooks is as foolproof as Ponzi and Madoff until… until… well, until it isn’t.”

Gross also noted in his recent newsletter that the Federal Reserve is currently buying up about 70 percent of all new U.S. government debt.

So now that Japan is out of the picture, how high will that figure go now?

80 percent?

90 percent?

Over the past several weeks there has been all kinds of speculation about whether “quantitative easing” will be extended past June or not.

Well, whether they call it “quantitative easing” or not, the truth is that the Federal Reserve is going to have to continue to “buy” most new U.S. government debt or the system will crash.

We have gotten to the point where the U.S. federal government cannot continue to function without Federal Reserve monetization of the debt.

This is a sign that we are rapidly approaching the financial endgame.

So why doesn’t the U.S. government just stop spending so much stinking money and stop getting us all into so much debt?

Well, because there isn’t enough political will in Washington D.C. to do any real budget cuts, and if our politicians did balance the budget at this point it would crash the economy.

Just the other day, the U.S. House of Representatives passed a continuing resolution to fund the federal government that would cut 6 billion dollars from U.S. government spending.

On that exact same day, the official U.S. national debt figure rose by 72 billion dollars.

Now the debt normally does not go up that much on a typical day.  But what this example does show is the losing battle that our politicians are fighting.

On Wednesday, U.S. Treasury Secretary Timothy Geithner warned a House of Representatives appropriations subcommittee that they should not even think about not raising the debt ceiling….

“Congress has to do it. There’s no alternative.”

The truth is that the U.S. government has to keep going into more debt.  Under the current system the alternative would be to collapse the economy.

But the debt that we have already piled on to the backs of future generations is absolutely criminal.

How mad do you think future generations are going to be with us for heaping 14 trillion dollars of debt on to their shoulders?

Talk about a debt problem!

But this is what we get for allowing a private central bank to run our financial system.  This debt-based system was designed to fail from its very inception.

The man supposedly “in charge” over at the Federal Reserve, Ben Bernanke, has a track of record of incompetence that is absolutely staggering.  It is a mystery why our representatives in Washington D.C. are not howling for his resignation.

Instead, most of our politicians continue to express blind faith in our current financial system and they continue to insist that everything is going to be okay.

Well, everything is not going to be okay.  The Obama administration is projecting that the federal budget deficit for this fiscal year will be an all-time record 1.65 trillion dollars.

Of course they are also trying to convince us that budget deficits will go down in future years, but by now we should all know not to trust the rosy future projections of government officials.

After all, it was only a few short years ago that Bush administration officials were promising that we would be swimming in huge budget surpluses by now.

The truth is that the government has been lying about all of this for a long time.  For now, the Federal Reserve is just going to keep monetizing U.S. government debt for as long as it can.

This Ponzi scheme will keep on working and working and working until someday it simply doesn’t anymore.

When that day arrives, the U.S. government debt problem is going to unleash hell on world financial markets.

The Economic Collapse

From November to December of 2010 487,000 Americans were added to the food stamp program.  Keep in mind this all occurred while the stock market continued to soar and has rallied nearly 100 percent from the lows reached in March of 2009.  Working and middle class Americans barely have enough to pay for the monthly bills so speculating in Wall Street is likely the least of their concerns.  The data on food stamp usage usually trails the current calendar date by one quarter.  The latest data we have is from December of 2010.  However, we are adding roughly 300,000 people per month to the food stamp program called SNAP.  If that is the case, as of today we now have 45,000,000 Americans participating in the food stamp program.  We’ve noted trends in the economy where people line up at mid-night during certain key dates in the month at Wal-Mart locations waiting for their debit cards to refill so they can purchase food for their families.

One of the troubling aspects of this recession is the hidden aspect of the financial pain that it is causing.  Many people have no idea their neighbor is in foreclosure until the home is taken back by the bank.  It is hard to see this in action and people don’t speak up because of embarrassment.  Also with the media thumping its chest about recovery many blame their own failings for their misery.  And with the movement of food stamps from embarrassing paper coupons to debit cards, many have no idea how many of their fellow Americans are receiving food assistance.  The debit cards blend in with most any other piece of plastic Americans carry in their wallets.   The reality however is that 14 percent of our entire population (man, woman, or child) is on SNAP.  There has been little stopping this trend.  And this is something that has been going on for well over a decade but not many were paying attention because of the massive credit induced housing bubble and the lack of a voice for this group:

Source:  SNAP

This is the highest percent of Americans on food assistance since the Great Depression when there was no food assistance early on aside from local charities.  Yet this is somehow an economic recovery.  A Wal-Mart executive was quoted as saying:

“(NY Times) There are families not eating at the end of the month,” said Stephen Quinn, executive vice president and chief marketing officer at Wal-Mart Stores, and “literally lining up at midnight” at Wal-Mart stores waiting to buy food when paychecks or government checks land in their accounts.”

Even in more affluent neighborhoods and in states like California where the impression is that everyone is flush with money food stamp usage is on the rise:

“(NC Times) More than 218,000 San Diego County residents were receiving food stamps as of mid-February, a whopping 70 percent increase from just two years ago.

Since January 2010, the number has gone up by about 49,040, county supervisors were told Tuesday as they adopted a 58-point blueprint to speed up delivery of food assistance.

The increase in recipients stems from a continuing sluggish economy and what managers of the county’s food stamp program and advocacy groups said are improvements in the application system that resulted from talks between the two.

“We’ve seen dramatic increases in demand,” said Dale Fleming, who oversees the food stamp program for the county. “We’ve also changed the way we do business.”

But despite the higher numbers, advocacy group representatives say the county still has a long way to go to make sure people aren’t going hungry.”

This trend hasn’t shown any signs of slowing down.  And this is also a reason dollar stores have done so well during this recession as people shift from wants to absolute necessities:

Family Dollar and The 99 Cent store are up 89 and 54 percent respectively in the last five years.  These dollar stores have also shifted the inventory they carry from random plastic goods to having much more food to reflect the needs of the community.  And many people who never thought about shopping frugally are now being forced to:

“(Sign on San Diego) John Sanchez had never stepped foot inside a dollar store until last April. That’s when he was laid off from his job and was forced to make some drastic budget cuts, including getting back to basics for a buck. Now, even though he’s returned to work, it’s hard to get him to shop anywhere else.

“I always thought dollar stores just sold junk and were for the really low-income (consumer). I was shocked when I saw that they sell a lot of the same stuff as the grocery store or drugstores. And it’s all just a dollar,” said the 61-year-old San Diego resident, as he exited the 99 Cents Only store in Clairemont pushing a cart filled with produce, bakery items, toiletries and a variety of cleaning products. “Why would anyone want to pay more for the same thing?”

Many working and middle class Americans are now confronting the realities of a shrinking middle class. Decades of complacency and Wall Street corruption and government assistance has allowed the core of our economy to be gutted out.  When does the media ever bring up the fact that 45 million Americans are on food assistance?  This is never brought up even though it truly reflects the health of our working class economy.  In other words, the media does not care about working and middle class Americans.  Many are owned by large corporations that want to continue selling the message that everything is fine and dandy.  If you really look at the data this recession is still going on even though it ended officially a long time ago.  Austerity is on the rise and it won’t be televised.

My Budget360