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Archive for July, 2011
The Coming Global Instability, Part I
July 28th, 2011 | 
Author:
The root causes of global financial instability cannot be wished away or “solved” with modest policy tweaks: they are systemic.
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Federal Reserve, Financial System, Fraud, GDP, Government, Gross Domestic Product, Money | 
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Numbers On The Debt
| Current | Debt Held by the Public | Intragovernmental Holdings | Total Public Debt Outstanding |
|---|---|---|---|
| 07/26/2011 | 9,747,272,360,004.06 | 4,595,557,756,547.22 | 14,342,830,116,551.28 |
This is as of today.
Ok. Let’s put some perspective on this.
Total tax revenues for the Federal Government last year were about $2.1 trillion dollars. This means the Federal Government has seven times their revenue outstanding in debt. Reasonable?
Total budgeted spending for this year is about $3.8 trillion dollars. This means the Federal Government has about four times the entire budget outstanding in debt. Reasonable?
The Federal Government borrows about 43 cents of every dollar it spends. This is, approximately, what you would be doing if you made $100,000 a year but spent about $175,000, each and every year for the last three years. Would you be able to get away with that?
Oh, I know there are people who argue that the government cannot actually “go broke” in the traditional sense, since it can “print money” through the Fed. Ok.
But if it does, then the value of every dollar goes down as the divisor changes. If there are twice as many of something all other things being equal each is worth half as much, right? Hmmmm… how’s that working out with gas prices, among other things? Somehow that doesn’t seem to be something we can actually do.
The real problem is the debt coverage ratio, or how much interest the government must pay compared to the tax revenue it takes in. See, when you stop the deficit spending (going from $175,000 in spending to $100,000) that car, bigscreen TV, cruise and other things you bought don’t get bought any more. This means that people lose their jobs, because nobody is needed to make those things. And that in turn means the government’s tax revenue goes down, which means the debt coverage ratio, or the amount of interest paid as a percentage of tax revenue, goes the wrong way – up.
Now this is a problem, because obviously the debt coverage cannot go over 100%. But as in your household, you can’t pay all of your income in interest. You need to pay the rent, you need to buy food, you need to buy electricity and water. And, of course, you need to pay taxes. “Or else” (you live in a box under the nearest freeway overpass.) So the maximum debt coverage ratio you can sustain is a lot less than 100%.
Such it is with government. Government must pay something for defense, it must pay the light bill in the Capitol, and then there are all these political promises we made to people. The amount of political pain in not fulfilling those promises varies, but this much is certain: Some amount of government spending cannot be avoided. We can, however, argue over what that amount is.
So here we are, with about 20% of tax revenues going to pay interest at the present time. That doesn’t sound all that bad when you compare against people’s mortgages, but in fact it is a far more serious problem for a government that is deficit spending than it is a household.
The reason is that when you stop the deficit spending in a household you simply go without. Your singular cessation probably doesn’t cost people jobs. But when you do it as a government due to the scale involved some people lose their jobs, as I noted earlier. The bad news is that those people stop paying taxes, since the unemployed don’t generate taxable income. This means that tax revenues fall, and the percentage of revenue (taxes) that goes to interest payments goes up, even if there are no more deficits added to the debt!
In addition those newly-laid off scream for more government benefits, twisting the handle of the vise on the other side of the equation and demanding that deficits increase!
If from this you deduce that there’s a “coffin corner” problem that can easily develop, you’re right. There is. The problem is that nobody knows exactly where it is, and anyone who says they do is lying. The exact amount of follow-through effect from eliminating or reducing deficit spending (beyond the direct impact on demand and thus jobs and output) cannot be determined in advance. The “multiplier”, however, is something that economists write big masters theses on and fight over the validity of complex equations, all of which are, in fact, nothing more than a raw guess.
If we dance too close to the edge then as the layoffs and short-term job dislocation happen from withdrawing the false 12% of GDP that the government is generating as “economic demand” (that really does not exist but for their deficit spending) the interest coverage ratio against tax revenues rises enough that the people who buy Treasuries believe there is actual credit or currency devaluation risk and price that into the new auctions for debt.
This, in turn, changes the equation instantly as what used to be a “pay the interest only” situation changes to a demand for full principal payment instead as you cannot afford to pay the demanded coupon for the rolled-over bonds! But the principal payment, in the case of a blended 3% interest rate you were formerly paying, is suddenly a full thirty times larger!
Needless to say the government doesn’t have it.
The only alternative for a nation that runs into this and has its own currency is to print it – literally. But if you do that the same outcome immediately occurs as bondholders adjust their demanded coupon (interest) to account for the currency devaluation – which incidentally happens to be almost identical in impact to the above.
In other words you are instantly shut out of the market, and now you have a very, very big problem. Continued “printing” via QEx or whatever other sort of game you try to play can, under such a circumstance, technically avert default but it doesn’t matter. Wages will not rise in a system with “open borders” and “free trade” (with nations that pay their employees $2/day) and as a consequence the lower and middle class get destroyed as commodities and essential imports (energy anyone?) skyrocket in price. As they lose the ability to buy discretionary items and then essentials they lose their jobs too, tightening the spiral. Down this road lies certain monetary ruin and probable political collapse.
This, my friends, is why we must stop the deficit spending now. I know doing so will suck. But it was going to suck in 2003, but we refused to stop. It was going to suck worse in 2007, and we were told this was a “short term” thing to “help the economy.” We’re now almost four years into this and there has been no cessation or slowdown in the deficits.
The problem is that all this “charging it” hasn’t actually helped the economy, and if we don’t stop it now we’re taking the very real risk that we will lose the ability to control the outcome as the market will call “BS!”
Once it happens it’s too late to change course.
Are you willing to risk that? Because if you’re not, then you cannot let either the Democrat or Republican “path forward” that is being debated on this issue come to pass.
Period.
Posted in Budget Deficit, Debt, Debt Ceiling, Economic Crisis, Economy, Government, Money |
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Boehner: GET REAL!
Posted by Speaker Boehner’s Press Office on July 27, 2011
The Congressional Budget Office (CBO) has released its analysis of the revised Budget Control Act of 2011 today, and CBO’s analysis confirms that the spending cuts are greater than the debt hike – affirming that the House GOP bill meets the critical test House Republicans have said they will insist upon for any bill to raise the nation’s debt ceiling. Specifically, the CBO analysis confirms the Republican plan will:
- Cut and cap spending by $917 billion over 10 years – that’s more than the $900 billion debt hike;
- Cut $22 billion in spending for FY2012 and hold spending below FY2010 levels until FY2016;
- Continue reducing discretionary spending each year compared to President Obama’s budget (by $96 billion in 2012, $118 billion in 2013, $115 billion in 2014, $117 billion in 2015, and so on); and
- Require Congress to draft proposals that produce reductions of at least $1.8 trillion that help protect programs like Medicare and Social Security from bankruptcy.
Republicans adjusted their spending cut bill after a lower-than-expected score from CBO. This updated analysis confirms what others are saying: the Republican plan “changes the trajectory of spending” and “would keep the debt cutting process going.” Unlike Senator Reid’s gimmick-filled plan, the Republican proposal includes real spending cuts and reforms that will restrain future spending – and the spending cuts are larger than the debt limit increase.
This bill is far from perfect, but it’s a positive step forward that denies President the $2.4 trillion blank check that lets him continue his spending binge through the next election. Learn more about it here.
Uh huh.
Let’s go through it, point-by-point.
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Any spending “cut” projections 10 years out are a fantasy. 30 years of history says the tax increases (if any) come immediately, the cuts come never. Go ask Bush 1 or Reagan, among others.
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$22 billion is 1.3 percent of $1,700 billion in deficits. This is otherwise called a bad joke. Oh hell, let’s just cut the crap – it’s public fraud to call this a “cut.”
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Holding spending at 2010 levels is not a cut at all. But you call it one. This is the common fraudulent (outrageously so) accounting commonly done by a con man. In this case, 535 con men and women in the properly-named CONgress.
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Require CONgress to draft “proposals” to reduce spending by $1.8 trillion more? And if you don’t? What’s the penalty?
Oh, don’t believe me that it’s bullcrap and in fact includes no actual cuts.
Never mind that the ever-optimistic CBO, which said we’d add approximately $9 trillion (and quite possibly more) in new debt over the next ten years, themselves says this will “save” 1/10th of that. Maybe.
This is our outrageously-fraudulent “baseline” budgeting once again. That is, the “savings” are not actual spending reductions, but instead are simply “holding it steady” (except for entitlements and wars, you see.)
What has this little ditty told us? Simple: The odds have just gone up – a lot – that we’re going to get an actual balanced budget.
Right here, right now.
Be ready for it.
Posted in budget, Budget Deficit, Debt, Debt Ceiling, Default Probability, Economic Crisis, Economy, Government, John Boehner, Liars |
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Broke! 10 Facts About The Financial Condition Of American Families That Will Blow Your Mind
The crumbling U.S. economy is putting an extraordinary amount of financial stress on American families. For many Americans, “flat broke” has become a permanent condition. Today, over half of all American families live paycheck to paycheck. Unemployment is rampant and those that do actually have jobs are finding that their wages are rising much more slowly than prices are. The financial condition of average American families continues to decline and this is showing up in all of the recent surveys. For example, according to a new Gallup poll, “lack of money/low wages” is the number one financial concern for American families. To make ends meet, many American families are going into even more debt and more American families than ever are turning to government assistance. Right now, more Americans than at any other point since World War II are flat broke and have lost hope. Until this changes, the frustration level in this country is going to continue to grow.
The following are 10 facts about the financial condition of American families that will blow your mind…..
#1 Only 58 percent of Americans have a job right now.
#2 Only 56 percent of Americans are currently covered by employer-provided health insurance.
#3 The median yearly wage in the United States is $26,261.
#4 The average American household is carrying $75,600 in debt.
#5 Only the top 5 percent of U.S. households have earned enough additional income to match the rise in housing costs since 1975.
#6 At this point, American families are approximately 7.7 trillion dollars poorer than they were back in early 2007.
#7 The poorest 50% of all Americans now own just 2.5% of all the wealth in the United States.
#8 According to one study, approximately 21 percent of all children in the United States were
living below the poverty line in 2010.
#9 Today, there are more than 44 million Americans on food stamps, and nearly half of them are children.
#10 According to Newsweek, close to 20 percent of all American men between the ages of 25 and 54 do not have a job at the moment.
So what is causing all of this?
Where in the world did all of the good jobs go?
Well, the truth is that millions of them have been shipped overseas.
Our politicians promised us that merging our economy with the economies of other nations where it is legal to pay slave labor wages to workers would not create more unemployment inside America.
They were dead wrong.
Now we are being told that we just need to accept a lower standard of living.
For example, billionaire Howard Marks says that it is time for all of us to just accept that the standard of living of American workers is inevitably going to decline to the level of the rest of the world….
“In addition to balancing the budget and growing the economy, I think we have to accept that the coming decades are likely to see U.S. standards of living decline relative to the rest of the world. Unless our goods offer a better cost/benefit bargain, there’s no reason why American workers should continue to enjoy the same lifestyle advantage over workers in other countries. I just don’t expect to hear many politicians own up to this reality on the stump.”
Are you willing to accept that?
Well, most Americans appear to be willing to accept this “new reality” because they keep sending most of the exact same bozos back to Washington D.C.
Meanwhile, the job losses continue to get worse. As I wrote about the other day, as the U.S. economy has started to slow down again we are starting to see another huge wave of layoffs all over America.
It doesn’t take a genius to figure out where all of our jobs are going. But unfortunately, most Americans don’t understand what is happening because neither the mainstream media nor our politicians are telling them the truth.
For much more on how millions of our good jobs are being shipped out of the country, please see another article I recently published entitled “How Globalism Has Destroyed Our Jobs, Businesses And National Wealth In 10 Easy Steps“.
But it is not just the globalization of the economy that is destroying our jobs.
The federal government bureaucracy has become so oppressive that it is amazing that anyone is still willing to hire workers in this day and age.
Hiring workers has become so complicated and so expensive that many small business owners want to avoid it at all cost.
For example, a small business owner identified as “007″ recently left the following comment on
one of my recent articles….
Speaking as a small employer, I would rather have a root canal than another employee. Let’s see. You first have to hire someone you trust without some labor lawyer suing you for some type of discrimination. Then you have OSHA to make sure your work place is safe. Then you have workmans compensation insurance, unemployment taxes, health insurance, liability insurance, now Obamacare. Oh be careful not to be deemed to have a “hostile work environment”. Then you have to negotiate the labor laws. The Department of Labor is constantly cranking out regulation.
Then you get the pleasure of paying payroll taxes both state and federal along with the required filing of a multitude of payroll forms. Miss filing or paying these taxes and you will be crushed with interest and penalties.
Of course, you are competing with businesses that can hire at a fraction of the cost of American Labor and with very little regulations. In this economy, no one in their right mind is hiring into this unstable and declining economy.
If business turns down all you have to worry about is laying off workers. Of course your unemployment insurance tax will go up 200% for years. Then you only have to then worry about a wrongful termination law suit.
The entire system is stacked against American workers.
If you are a blue collar worker, you should give up hope that things are going to get better. The system has failed you.
You can stop waiting for the “good jobs” to come back.
They aren’t coming back.
That is one reason why I try to encourage everyone to become more independent of the system.
As our economic system continues to degenerate, Americans are going to become increasingly desperate.
Sadly, desperate people do desperate things. Already we are starting to see signs that the fabric of American society is starting to be ripped to shreds.
So what is going to happen if the economy gets even worse?
There is a limit to how many people we can actually put in prison. The reality is that the number of Americans in prison has nearly tripled since 1987.
Our prisons are already dangerously overcrowded. As society falls apart, many communities will simply not be able to shove more people behind bars.
Even with our prisons stuffed to the gills, many of our largest cities continue to be transformed into absolute hellholes.
Detroit is now the 3rd most dangerous city on the entire planet and New Orleans is now the 9th most dangerous city on the entire planet.
So what are our leaders doing about all of this?
Well, they appear to be too busy fighting with each other and cheating on their wives to do much about our problems.
According to Politico, U.S. Representative David Wu is the latest member of Congress to be accused of a sex scandal….
Rep. David Wu has been accused of an “unwanted sexual encounter” with the teenage daughter of a longtime friend, the latest scandal to engulf the troubled Oregon Democrat.
This country is a complete and total mess. Tens of millions of American families are flat broke and are about to slip into poverty. Meanwhile, our politicians continue to prove that they are some of the most corrupt on the planet.
There are many out there that still believe that America has a bright future ahead.
It is getting really hard to see why anyone could possibly believe that.
Posted in Banks, Corruption, Debt, Economic Crisis, Economy, Federal Reserve, Financial System, Fraud, Government, Money, politicans, Poverty, Unemployment, welfare |
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Chris Christie on Obama’s Unwillingness to Submit a Deficit Plan “You Can’t Lead From Behind”
Chris Christie takes on Republicans and Democrats in a blast at both party’s unwillingness to compromise. Christie also takes Obama to task for failure to produce a plan at all.
Link if above video does not play: Governor Christie on National Debt Talks: The Need for Bipartisan Compromise
Select Quotes
- When you take these jobs, and you have to exert executive leadership, you have to put your cards on the table. The fact of the matter is the president has spoken in platitudes, but we have not seen a plan in writing form the president. That does not give an excuse to Republicans or Democrats to not come to an agreement.
- There is no substitute to executive leadership. That means taking risks. We did it here [reducing entitlements and spending], but that only happened because I took risks first. I put a plan out there in writing.
- Republicans and Democrats in Congress, and the president of the united states has to put his plan in writing and show it to people. And let’s have a great debate about it. But you can’t lead from behind.
- I will put up our record of accomplishment, in divided government, with bipartisan work together against anybody in the country.
Chris Christie would make a tremendous president. I hope he reconsiders.
Mike “Mish” Shedlock
Posted in Budget Deficit, Chris Christie, Debt, Debt Ceiling, Default Probability, Deficit Spending, Deficits, Economic Crisis, Economy, Government |
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More Idiocy From Democrats
The Democrats are on TV right now trying to crash the markets.
The facts are this:
- Their plan has a CBO score of $2 trillion in deficit reduction over 10 years.
- S&P says it must be FOUR TRILLION. Four is greater than two – by 100%.
Therefore, no matter what sort of crap the Democrats spew, until and unless they put a credible plan on the table that achieves four trillion in actual deficit reduction neither party is serious.
No, this is not a pass for the Republicans. They haven’t put forward a credible plan either.
The fact of the matter is that both parties are well-aware that addressing the problem will cause an immediate contraction in GDP. If you get rid of deficit spending it’s an immediate 12%+ hit. If you cut in half it’s 6%.
Pick one – there’s no resolution that actually fixes the problem and avoids this.
Either come up with a $4+ trillion plan which is still going to produce a monstrous amount of damage and will only extend the time before we blow up – not fix it – or shut up and go home.
The markets are done with the bullcrap – they know the Democrats and Republicans are lying and they’re not going to believe either of you any more. Either cut it out Reid – and Boehner – or watch the markets crash and, once the downgrades come, you will risk getting too close to the critical point in the gravity well at which point disaster is inevitable.
From David Beers on Kudlow, who puts it in pretty-clear language. Argue with him if you wish – S&P only asked for half of the problem to get resolved (which gives enough time to find a political solution to the rest.) I don’t think that’s going to do it, but they’ll pass on that – at least for now.
Discussion (registration required to post)
Posted in Banks, Budget Deficit, Debt, Debt Ceiling, Default Probability, Economic Crisis, Economy |
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proudly supports:
Bill Still For President
for Congress
Michigan 11th District
By Bill Still
There is only one answer for the world economic situation; monetary reform.
1. No More National Debt
2. No More Fractional Lending
PDF PowerPoint Congressional Patriots Federal Reserve Balance Sheet Paulson's Lies Bernanke's Lies FedUpUSA Archive Mathematics of Failure Media Kit Door Hanger Corruption Flier Bank Flier Made In America A list of products and services made right here in the USA. Choosing to buy American made products preserves and creates American jobs.