Archive for the ‘Global Economy’ Category

 Britain calls for a cut in EU budget, warns on veto

British Prime Minister David Cameron.(AFP Photo / Leon Neal)

“We want a cut in the EU budget,” Chancellor of the Exchequer George Osborne told BBC Radio 4. “We will not accept a deal unless it is good for the British taxpayer. We will veto any deal that is not good for the British taxpayer.” 

Osborne also stressed that a eurosceptic mood is on the rise in the UK as taxpayers are rebelling against increasing spending in Brussels. “Britain has become more eurosceptic over my lifetime. I think people are outraged when they see money being wasted in Europe,” he said.

Meanwhile UK Prime Minister David Cameron has insisted he will veto any increase in the European Union’s budget as he prepares for budget talks at the EU summit in Brussels on 22-23 November.

“This government is taking the toughest line in these budget negotiations of any government since we joined the European Union,” Cameron told the Commons at his weekly question-and-answer session. “At best we would like it cut, at worst frozen and I am quite prepared to use the veto if we don’t get a deal that’s good for Britain.” 

Wednesday Conservatives teamed up with the opposition Labour Party to pressure the Government about the EU budget. The MPs voted 307 to 294 last night in favor of an amendment, though not binding for the government, which calls for a real cut in the bloc’s spending between 2014 and 2020.

The European Commission has already proposed savings 1.03 trillion euros for the years 2014 through 2020, an increase of almost 6 % compared to the 2007- 2013 budget.

The UK is one of 12 EU members which make a net contribution to the EU budget. It means that it pays in more than it gets back in EU funding. The country’s net contribution to the EU budget in 2011 was 10.6 billion euro, according to Treasury. But the European Commission says the UK’s net contribution was 7.25 billion euro.

It’s not the first time Tories have shown their eurosceptic attitude. Last year 81 Tory lawmakers called for a referendum on Britain’s membership of the 27-nation EU.

RT.com

 

David Cameron suffers stinging defeat over EU budget

David Cameron suffered a stinging Commons defeat over Europe as Conservative backbenchers told him he must deliver real reductions in the European Union budget.

The defeat came after more than 50 Conservative rebels were joined by Labour MPs in supporting a demand for real-terms reductions in spending by Brussels.

The Government was defeated by 307 votes to 294, a majority of 13. Commons sources estimated that 51 Tories voted against the Government, with two more acting as tellers.

The vote was Mr Cameron’s second major Commons defeat over Europe and led to warnings that division in the Conservative Party over Europe could hamstring him as it did Sir John Major during the 1990s.

The vote is not binding, but will put Mr Cameron under intense pressure to take a harder line in talks on the EU budget at a summit in Brussels later this month.

Mr Cameron had already promised to veto any significant rise in EU spending and Downing Street last night promised to “take note” of the vote in the coming budget negotiations.

Some Conservative MPs said the vote could strengthen Mr Cameron’s hand in the budget talks, but aides fear the result could create a significant political problem for Mr Cameron.

Government sources insist that it is effectively impossible for Mr Cameron to deliver a cut in EU spending because so many other members want an increase.

Yet any budget deal that falls short of the cuts demanded by the House of Commons could leave Mr Cameron facing a backlash from MPs and the public.

Peter Bone, a Conservative rebel, said many MPs had defied the Government because their constituents will not accept a rise in EU spending.

“Parliament spoke for the people,” Mr Bone said. “It was a very significant victory for the people.”

Ed Balls, the Labour Shadow Chancellor described the vote as “humiliating” for Mr Cameron.

Senior Tories responded by accusing Labour of taking an “opportunistic and hypocritical” position on the budget because of the last government’s record on EU spending.

EU leaders are trying to decide on a budget for 2014 to 2020. The European Commission and several EU countries are calling for an increase in spending.

Mr Cameron has said he wants EU spending to rise in line with inflation, a real-terms freeze. Conservative critics say that would still cost British taxpayers billions of pounds, arguing that at a time of domestic austerity, EU spending should also be cut.

Before the vote, the Prime Minister tried to placate his party by insisting that he too wanted a cut and promising a hard line at the summit.

“At best we would like it cut, at worst frozen, and I’m quite prepared to use the veto if we don’t get a deal which is good for Britain,” he said.

“But let’s be clear – it is in our interest to try to get a deal because a seven-year freeze would keep our bills down compared to annual budgets.”

Mark Reckless, one of the leaders of the Conservative rebellion, told MPs that Mr Cameron’s plan would increase the UK’s net contribution to the EU from £9.2 billion last year to £13.6 billion in 2020.

“We simply cannot, cannot afford that,” he said.

Mark Pritchard, another rebel leader, said money sent the EU should be spend in the UK instead.

He said: “Are we going to continue to ask families up and down this country to stop putting new shoes on their children’s feet while we fill the very large Mercedes fleet of Brussels?”

No 10 said that Mr Cameron was taking the toughest stance of any EU leader on the budget, but ministers admitted that even his starting position for the talks – inflationary rises in spending – would cost Britons more money.

Greg Clark, the City minister, told MPs: “It is true that the increase we are talking about would involve further contributions.”

Tony Baldry, a senior Tory backbencher who backed the Government, accused the rebels of “self-indulgence” that could take the party back to the internal conflict that undermined Sir John Major’s government.

He said: “If this party hopes to be in government after the next general election, it has just got to get a grip and start supporting the Prime Minister.”

Ed Miliband, the Labour leader, likened Mr Cameron to Sir John, his authority undermined by Tory dissent over Europe.

“He can’t convince European leaders, he can’t even convince his own backbenchers,” Mr Miliband said. “He is weak abroad, he is weak at home: It’s John Major all over again.”

Videos and more at the link:

The Telegraph

 

Tory Euro rebels warned they are damaging David Cameron’s hopes of re-election as Nick Clegg says there is ‘no hope’ of EU budget cut

• Government loses crunch vote by 307 votes to 294 as Commons demands a real terms cut in funding for Brussels
• Nick Clegg says there is ‘absolutely no chance’ of persuading all 26 states for a real-terms cut
  
• George Osborne says he understands the ‘frustration’ of backbenchers
• Rebels say they have spoken for the people but loyalists warn Tory hopes of re-election have been damaged by the revolt
  

The coalition risked descending into political infighting today, after David Cameron suffered his first significant Commons defeat at the hands of Labour and Tory rebels demanding a tougher stance on the EU’s budget.

Tory rebels claimed they had defied the Prime Minister to vote for the British people, while loyalists warned Conservatives must ‘get a grip’ and support Mr Cameron or face defeat at the 20-15 general election.

Chancellor George Osborne refused to say a real-terms reduction in Brussels spending was impossible but Deputy Prime Minister Nick Clegg warned those demanding a cut had ‘absolutely no hope’ of achieving their goal.

David Cameron and Ed Miliband clashed over the government’s stance on the EU budget at Prime Minister’s Questions in the Commons today

Announcement: Commons Speaker reads the result in the House of Commons last night. MPs voted for a cut by 307 votes to 294

Result: The result is announced to the House as MPs watch on

Mr Cameron will go to next month’s European Council summit calling for a real terms freeze in the EU’s seven-year budget.

But MPs instead backed a call for a cut by 307 votes to 294.

Mr Cameron has faced repeated comparisons to John Major, whose premiership was dominated by Tory splits over Europe and endless debates on the Maastricht Treaty which eroded his authority.

Tory MP Tony Baldry warned Mr Cameron’s hopes of winning the next election had been damaged by last night’s vote.

‘Colleagues have got to realise that we’ve got to get a grip and support the Prime Minister.

‘Electors do not vote for parties that they see as being divided. I do not believe that the Conservative Party should be putting itself in the position to lose the next general election,’ he told BBC Radio 4.

The PM yesterday indicated he would use Britain’s veto unless Brussels agreed to limit its budget increases to the level of inflation.

But this did not satisfy the Eurosceptics in his party, who insist on a real-terms reduction.

In the first major defeat of Mr Cameron’s premiership, a total of 53 Tory backbenchers voted with Labour, which was accused of cynically shifting its position on EU spending earlier this week to embarrass the Prime Minister.

Senior government figures had spent the day pleading with rebel Tories to accept that a real-terms budget freeze was the best possible outcome from a crunch EU summit next week.

Today Mr Osborne sought to placate the rebels, saying he understood the ‘frustration’ of MPs over ‘outrageous’ rises in EU spending.

He declined to say whether he believed a real-terms cut was possible and played down the significance of last night’s vote as a ‘debate about tactics’.

Deputy PM Nick Clegg said those calling for a cut in the EU budget had ‘absolutely no hope’ of achieving their goal

‘What we have got to do is come to a position that is agreed by the other countries and that the House of Commons accepts. That’s the circle we’ve got to square,’ Mr Osborne told BBC Radio 4.

‘What you saw last night was a debate about tactics, about the start of a negotiation, understandable frustration from MPs on all sides of the Conservative Party and the House of Commons that the European Union is spending too much.’

He also attacked Labour, claiming its tactics reminded him of the ‘unprincipled’ stances taken by Conservatives in the wake of the Labour landslide in 1997.

Foreign Secretary William Hague earlier said ministers would ‘hear and take notice’ of what Parliament had said.

But Deputy Prime Minister Nick Clegg aimed insisted the Coalition Government’s position remains the same.

‘We will not accept an increase, above inflation, to the EU Budget.  That is a real terms freeze. And we will protect the British rebate in full. That is the toughest position of any European country.’

In a speech to be delivered to the Chatham House international affairs think-tank, he also turned his fire on Labour, angrily accusing them of a ‘dishonest’ and ‘hypocritical’ change of policy for short-term political advantage.

‘In pushing a completely unrealistic position on the EU budget – one that is miles away from any other country’s position – Labour would have absolutely no hope of getting a budget deal agreed.’

Ministers insist there is no chance of persuading all other 26 EU member states to accept a real-terms cut in spending, since 17 of them get more out of Brussels spending than they put in.

However, they believe that with most governments being forced to tighten their belts at home in an age of austerity, there is scope for an agreement on a freeze.

At Prime Minister’s Questions yesterday, Mr Cameron told MPs: ‘This Government is taking the toughest line in these budget negotiations of any government since we joined the European Union.

‘At best we would like it cut, at worst frozen, and I’m quite prepared to use the veto if we don’t get a deal which is good for Britain. But let’s be clear – it is in our interest to try to get a deal because a seven-year freeze would keep our bills down compared to annual budgets.’

If Mr Cameron does wield Britain’s veto, no deal will be reached – and under the EU’s rules, the current year’s budget is rolled forward, plus inflation. Annual budgets can be agreed by a majority of member states, rather than the unanimity required for a longer seven-year agreement.

But last night’s vote will increase the pressure on the Prime Minister, who last year became the first to deploy the veto when he refused to sign up to a treaty on ‘fiscal union’, to repeat the exercise at a summit next month.

Financial Secretary to the Treasury Greg Clark said in yesterday’s debate: ‘We want to see the EU budget cut. Part of the negotiating mandate that the Prime Minister has agreed is that the very most that we would accept would be a real-terms freeze.

‘If there is no cut or no real freeze, there is no deal. The framework will be vetoed. The Prime Minister has a formidable task in persuading other countries of this, many of whom were looking forward to a seven-year payout.’

Rebel Douglas Carswell said: ‘This is not about Tory divisions or Labour hypocrisy, it’s the moment the House of Commons finally said, “Enough is enough”. Enough to the Whitehall elite and the Eurocrats. We will not put up with it any more.’

Peter Bone, another Eurosceptic MP, hailed what he called a ‘remarkable victory’. ‘Parliament spoke for the people,’ he said. ‘There was enormous pressure on colleagues to vote with the Government. It was a very significant victory for the people. It was because MPs have to face their constituents.’

There were bizarre scenes in the Commons as backbench Tories clashed with each other and with Labour members.

Veteran MP Edward Leigh compared his colleague Sir Tony Baldry to wartime prime minister Neville Chamberlain, who was accused of selling out to Hitler, after Sir Tony warned it would be an act of supreme ‘self-indulgence’ to defy the Prime Minister.

Remarkable victory: Peter Bone, left, said that the defeat was the day Parliament spoke for the people while Douglas Carswell added that it was the moment the House of Commons said ‘enough is enough’

Sir Tony denounced claims by the rebels that defeat strengthens Mr Cameron’s position at next month’s summit as ‘cobblers’.

He warned that failure to back Mr Cameron would cause the Tories to lose the next election. ‘If colleagues are not prepared to support the Prime Minister, every time they go into a division lobby different from that of the Prime Minister, they are weakening the Prime Minister’s negotiating hand in Europe,’ he said.

Abstained: Senior Right-wingers such as former defence secretary chose not to vote rather than side with Labour

‘We simply cannot carry on with this sort of self-indulgence. If this party hopes to be in government after the next general election, it has just got to get a grip and start supporting the Prime Minister.’

Labour’s Treasury spokesman Chris Leslie, meanwhile, was jeered by Tories who accused Labour, which gave away a huge chunk of Britain’s budget rebate and waved through inflationary increases while in power, of a cynical stunt.

Mr Leslie repeatedly refused to say whether Labour would use a budget veto, though his fellow Treasury frontbencher Rachel Reeves had earlier suggested the party might.

Mr Leslie said: ‘A real-terms reduction is possible but it requires persuasive diplomacy, careful alliance building and, above all, leadership.’

Senior Right-wingers such as former defence secretary Liam Fox abstained rather than vote on the same side as Labour. But in a hard-hitting speech yesterday Dr Fox warned Mr Cameron that he must threaten to leave the EU or he ‘cannot achieve’ his pledge to renegotiate the UK’s relationship with Brussels.

‘If you’re not willing to cross the Rubicon on that point you cannot achieve what we’re trying to achieve,’ he told the Institute of Economic Affairs. Dr Fox said the Tories should enter the next election on a pledge to go ‘back to the Common Market’, stressing economic not political links with Europe and then offer a referendum on the new deal or exit.

A source close to the Prime Minister said: ‘We were expecting to lose this vote. Everyone agrees we want to keep down EU spending. The only difference is how you do that.

‘The Prime Minister has made it very clear that a cut is the best case scenario and a freeze is the worst case scenario. He will keep fighting to get the best deal for taxpayers. David Cameron is the only Prime Minister in history to use the veto and our backbenchers understand that. Parliament is absolutely right to express its view. It’s a “take note” motion and we will take note.’

The Daily Mail

It has been said that there are two ways to conquer and enslave a nation.  One way is by using the sword, and the other is by using debt.  Fortunately, America is not in danger of being conquered by the sword right now, but America is being conquered by debt.  The borrower is the servant of the lender, and today we owe China more than a trillion dollars.  By running a gigantic trade deficit with us, China has been able to become incredibly wealthy.  We have begged them to lend us back some of the money that we have sent them and this has made them even wealthier.  Now China is gobbling up U.S. real estate and U.S. assets at an astounding pace.  In fact, some cities are in danger of becoming completely dominated by Chinese ownership.  One of those cities is Toledo, Ohio.  In many “rust belt” areas, real estate can be had for a song, and the Chinese are taking full advantage of this.  America was once the wealthiest nation on earth, but now we are drowning in debt and we are being sold off in chunks to the highest bidder.  Is this the legacy that we are going to leave for future generations?

According to a recent Fortune article, Chinese investors have been very busy purchasing distressed commercial real estate in Toledo lately….

In March 2011, Chinese investors paid $2.15 million cash for a restaurant complex on the Maumee River in Toledo, Ohio. Soon they put down another $3.8 million on 69 acres of newly decontaminated land in the city’s Marina District, promising to invest $200 million in a new residential-commercial development. That September, another Chinese firm spent $3 million for an aging hotel across a nearby bridge with a view of the minor league ballpark.

Toledo is being promoted to Chinese investors as a “5-star logistics region“.  From Toledo it is very easy to get to Chicago, Detroit, Cleveland, Pittsburgh, Columbus and Indianapolis.

With a population of 287,000, Toledo is only the fourth largest city in Ohio, but it lies at the junction of two important highways — I-75 and I-80/90. “My vision is to make Toledo a true international city,” Toledo’s Mayor Mike Bell told the Toledo Blade.

For some reason the Chinese seem to be very interested in that area of the country.  Last month, I wrote about how one Chinese group plans to develop a 200 acre “China city” just 40 minutes away from Toledo….

A Chinese group known as “Sino-Michigan Properties LLC” has bought up 200 acres of land near the town of Milan, Michigan.  Their plan is to construct a “China City” with artificial lakes, a Chinese cultural center and hundreds of housing units for Chinese citizens.  Essentially, it would be a little slice of communist China dropped right into the heartland of America.  This “China City” would be located about 40 minutes from both Detroit and Toledo, and it would be marketed to Chinese business people that want to start businesses in the United States.

But it is not just the rust belt that is being bought up by the Chinese.  A recent Forbes article documented several of the huge real estate deals that the Chinese are doing in New York right now….

According to a recent report in the New York Times, investors from China are “snapping up luxury apartments” and are planning to spend hundreds of millions of dollars on commercial and residential projects like Atlantic Yards in Brooklyn. Chinese companies also have signed major leases at the Empire State Building and at 1 World Trade Center, the report said.

In addition to real estate, the Chinese are also buying up businesses and natural resources all over the United States.

For example, the Dalian Wanda Group recently bought U.S. movie theater chain AMC Entertainment for 2.6 billion dollars.

Also, the Obama administration has been allowing companies owned by the Chinese government to gobble up U.S. oil and gas deposits worth billions of dollars.

On top of all that, the Federal Reserve recently announced that it will now allow Chinese banks to start buying up American banks.

So how in the world did we come to be so completely and totally dominated by China?

Well, the key to all of this is the trade deficit.

Most Americans can’t even tell you what a trade deficit is, but it is at the very heart of our economic problems.

Basically, we buy far, far more from other countries than they buy from us.

Most Americans don’t realize this, but the truth is that the United States has a trade imbalance that is more than 5 times larger than any other nation on earth has.

Overall, the U.S. has run a trade deficit of more than 8 trillion dollars with the rest of the globe since 1975.

If you go into a Wal-Mart of a dollar store today and you start looking at product labels, you will notice that hundreds of products say “made in China” and very few of them say that they were made in this country.

Every single month, China sends us gigantic mountains of plastic crap to sell in our stores and we send them gigantic mountains of our money.

The U.S. trade deficit with China during 2011 was $295.4 billion.  That was the largest trade deficit that one country has had with another country in the history of the planet.

Sadly, so far our trade deficit with China in 2012 is about 12 percent larger than it was last year.

So things are getting even worse.

To get an idea of how far things have come, let us take a look back at the 1980s for a moment.

Back in 1985, the U.S. trade deficit with China was only 6 million dollars for the entire year.

All of this imbalanced trade is absolutely killing us.

Today, the United States spends about 4 dollars on goods and services from China for every one dollar that China spends on goods and services from the United States.

So why doesn’t China buy more stuff from us?

Well, there are a whole lot of reasons.  One of the main reasons is that they slap huge tariffs on many American-made goods.

For example, according to the New York Times a Jeep Grand Cherokee that costs $27,490 in the United States costs about $85,000 in China thanks to all the tariffs.

So why do we allow China to keep doing this to us?

That is a very good question.

Meanwhile, China is continually getting wealthier and we are continually getting poorer.

All of the money that is leaving this country and going to China could be going to U.S. businesses and U.S. workers instead.  In turn, those businesses and workers would pay taxes on that money to support the government.

Instead, we have to go beg China to lend us the money that we just sent to them.

At this point, China now holds approximately 1.17 trillion dollars of U.S. government debt.

None of this ever had to happen.

But it did happen because we were stupid.

Now China has mountains of money to literally buy us up.

But China is not the only country that we have an imbalanced trading relationship with.

For example, the new “free trade agreement” between the United States and South Korea that Barack Obama has been touting went into full effect on March 15, 2012.

So how has that “free trade agreement” turned out so far?  The following is from a recent article by Pat Buchanan….

The U.S. trade deficit with Korea tripled in one month. Imports from South Korea jumped 15 percent to $5.5 billion in April, while U.S. exports to South Korea fell 12 percent to $3.7 billion. Suddenly, the U.S. trade deficit with Seoul surged to an annual rate of $22 billion.

Shades of NAFTA. When it passed in 1993, we had a $1.6 billion trade surplus with Mexico. By 2010, our trade deficit with Mexico had reached $61.6 billion.

Ouch.

The truth is that these free trade agreements are not fair and balanced.

U.S. workers end up competing for jobs with workers in countries where it is legal to pay slave labor wages.  And other countries often have far fewer rules and regulations to follow as well.  In his recent article, Buchanan described why all Americans should be economic nationalists….

Global free trade means U.S. workers compete with Asian and Latin American workers whose wages are a fraction of our own and whose benefits may be nonexistent. Global free trade means U.S factories that relocate to Indonesia or India need not observe U.S. laws on health, safety, pollution or paying a minimum wage.

Global free trade means that companies that move factories outside the United States can send their products back to the United States free of charge and undercut businessmen who retain their American workers and live within American laws.

Free trade makes suckers and fools out of patriots.

Unfortunately, both major political parties in the United States are absolutely married to the one world economic agenda that the elite are pushing.

So we will continue to bleed wealth, businesses and jobs at an astounding pace.

You can get a really good idea of the horrific manufacturing job losses in the United States over the past 40 years by checking out this map right here.

Overall, the United States has lost a total of more than 56,000 manufacturing facilities since 2001.

According to the Economic Policy Institute, since 2001 America has lost approximately 2.8 million jobs due to our trade deficit with China alone.

There seems to be absolutely no concern with protecting American jobs these days.

If you can believe it, Chinese corporations are even building our bridges.  The following is a brief excerptfrom a recent ABC News article….

In New York there is a $400 million renovation project on the Alexander Hamilton Bridge.

In California, there is a $7.2 billion project to rebuild the Bay Bridge connecting San Francisco and Oakland.

In Alaska, there is a proposal for a $190 million bridge project.

These projects sound like steps in the right direction, but much of the work is going to Chinese government-owned firms.

“When we subsidize jobs in China, we’re not creating any wealth in the United States,” said Scott Paul, executive director for the Alliance for American Manufacturing.

Americans need to start understanding that our trade deficit is causing us to lose massive numbers of businesses and jobs and that this is making us poorer as a nation.

As I wrote about the other day, the median net worth of families in the United States declined “from $126,400 in 2007 to $77,300 in 2010” according to the Federal Reserve.

Even if you take away the effect of the housing collapse, household net worth still declined by 25 percentbetween 2005 and 2010.

A lot of that decline in wealth was due to the recent recession, but the point I am trying to make is that we are getting poorer as a nation.

A decade ago, the United States was ranked number one in average wealth per adult.  By 2010, the United States had fallen to seventh.

And when you factor in our debts, we are a complete and total mess.  U.S. consumers are more than 11 trillion dollars in debt and the federal government is nearly 16 trillion dollars in debt.

We are getting deeper in debt at the same time that our ability to service that debt is declining.

The reality is that our economy is completely falling apart and it no longer produces enough jobs for everyone.

In fact, it isn’t even close.

Right now there are about 3.7 workers that are “officially” unemployed for every single job opening.

So what we are doing right now is clearly not working.

We need to fundamentally change direction as a nation.

Unfortunately, that is not going to happen any time soon.

So where do we go from here?

The Economic Collapse

One of the conclusions that I try to coax, lead, and/or nudge people towards is acceptance of the fact that the economy can’t be fixed.  By this I mean that the old regime of general economic stability and rising standards of living fueled by excessive credit are a thing of the past.  At least they are for the debt-encrusted developed nations over the short haul — and, over the long haul, across the entire soon-to-be energy-starved globe.

The sooner we can accept that idea and make other plans the better.  To paraphrase a famous saying, Anything that can’t be fixed, won’t. 

The basis for this view stems from understanding that debt-based money systems operate best when they can grow exponentially forever. Of course, nothing can, which means that even without natural limits, such systems are prone to increasingly chaotic behavior, until the money that undergirds them collapses into utter worthlessness, allowing the cycle to begin anew.

All economic depressions share the same root cause. Too much credit that does not lead to enhanced future cash flows is extended.  In other words, this means lending without regard for the ability of the loan to repay both the principal and interest from enhanced production; money is loaned for consumption, and poor investment decisions are made. Eventually gravity takes over, debts are defaulted upon, no more borrowers can be found, and the system is rather painfully scrubbed clean. It’s a very normal and usual process.

When we bring in natural limits, however, (such as is the case for petroleum right now), what emerges is a forcing function that pushes a debt-based, exponential money system over the brink all that much faster and harder. 

But for the moment, let’s ignore the imminent energy crisis.  On a pure debt, deficit, and liability basis, the US, much of Europe, and Japan are all well past the point of no return.  No matter what policy tweaks, tax and benefit adjustments, or spending cuts are made — individually or in combination — nothing really pencils out to anything that remotely resembles a solution that would allow us to return to business as usual.

At the heart of it all, the developed nations blew themselves a gigantic credit bubble, which fed all kinds of grotesque distortions, of which housing is perhaps the most visible poster child.  However, outsized government budgets and promises, overconsumption of nearly everything imaginable, bloated college tuition costs, and rising prices in healthcare utterly disconnected from economics are other symptoms, too. This report will examine the deficits, debts, and liabilities in such a way as to make the case that there’s no possibility of a return of generally rising living standards for most of the developed world.  A new era is upon us.  There’s always a slight chance , should some transformative technology come along, like another Internet, or perhaps the equivalent of another Industrial Revolution, but no such catalysts are on the horizon, let alone at the ready.

At the end, we will tie this understanding of the debt predicament to the energy situation raised in my prior report to fully develop the conclusion that we can — and really should – seriously entertain the premise that there’s just no way for all the debts to be paid back.  There are many implications  to this line of thinking, not the least of which is the risk that the debt-based, fiat money system itself is in danger of failing.

Too Little Debt! (or, Your One Chart That Explains Everything)

[Note: this next section is an excerpt from a recent Martenson Blog entry, so if this seems familiar to any site members, it's because you've seen it before.]

If I were to be given just one chart, by which I had to explain everything about why Bernanke’s printed efforts have so far failed to actually cure anything and why I am pessimistic that further efforts will fall short, it is this one:

There’s a lot going on in this deceptively simple chart so let’s take it one step at a time.  First, “Total Credit Market Debt” is everything – financial sector debt, government debt (federal, state, and local), household debt, and corporate debt – and that is the bold red line (data from the Federal Reserve). 

Next, if we start in January 1970 and ask the question, “How long before that debt doubled and then doubled again?” we find that debt has doubled five times in four decades (blue triangles).  

Then if we perform an exponential curve fit (blue line) and round up, we find a nearly perfect fit with a R² of 0.99.  This means that debt has been growing in a nearly perfect exponential fashion through the 1970′s, the 1980′s, the 1990′s and the 2000′s.  In order for the 2010 decade to mirror, match, or in any way resemble the prior four decades, credit market debt will need to double again, from $52 trillion to $104 trillion. 

Finally, note that the most serious departure between the idealized exponential curve fit and the data occurred beginning in 2008, and it has not yet even remotely begun to return to its former trajectory.

This explains everything.

It explains why Bernanke’s $2 trillion has not created a spectacular party in anything other than a few select areas (banking, corporate profits), which were positioned to directly benefit from the money.  It explains why things don’t feel right, or the same, and why most people are still feeling quite queasy about the state of the economy.  It explains why the massive disconnects between government pensions and promises, all developed and doled out during the prior four decades, cannot be met by current budget realities.

Our entire system of money, and by extension our sense of entitlement and expectations of future growth, were formed during and are utterly dependent on exponential credit growth.   Of course, as you know, money is loaned into existence and is therefore really just the other side of the credit coin.  This is why Bernanke can print a few trillion and not really accomplish all that much, because the main engine of growth expects, requires, and is otherwise dependent on credit doubling over the next decade.

To put this into perspective, a doubling will take us from $52 to $104 trillion, requiring close to $5 trillion in new credit creation each year of that decade.  Nearly three years has passed without any appreciable increase in total credit market debt, which puts us roughly $15 trillion behind the curve.

What will happen when credit cannot grow exponentially?  We already have our answers; it’s been the reality for the past three years.  Debts cannot be serviced, the weaker and more highly leveraged participants get clobbered first (Lehman, Greece, Las Vegas housing, etc.), and the dominoes topple from the outside in towards the center.  Money is dumped in, but traction is weak.  What begins as a temporary program of providing liquidity becomes a permanent program of printing money needed in order for the system to merely function.

Debt and Europe

The debt situation in Europe is fairly typical of the developed world and mirrors the debt chart of the US seen above.  There’s entirely too much debt, and most of the unserviceable amounts are concentrated in certain spots (i.e., PIIGS), while the amounts owed are concentrated in the German, French, and British banks.

This New York Times graphic did an excellent job of summing everything up:

(Source - click to view larger graphic at source) 

Here is a slightly less-complicated image that expresses the same dynamic:

If everybody owes everybody else, then kicking the can down the road only works if there’s more wealth, more growth, and sufficient economic activity down that road to service the past debts. If any one participant drops the baton in the debt relay race, the absurdity of the situation becomes unavoidable and the cause is lost.

When we hold this view, it is abundantly clear that adding more debt along the way only increases the burdens and is therefore ultimately counterproductive, although it does grant the gift of additional time to avoid facing the truth.  

When all of the most indebted countries are stacked up, we see that all but Russia carry a total indebtedness greater than 100% of GDP and that nine are carrying debt levels higher than any that have ever been repaid historically.

(Source) Note: 260% debt-to-GDP is the all time record for repayment, accomplished by England between 1815 and 1900, but required both massive cuts in spending and an industrial revolution. 

Without mincing words, the world does not face a crisis of liquidity, nor a crisis of insufficient debt, but one of entirely too much debt.  That’s the entire predicament in three words:  too much debt. 

More debt is only going to compound the predicament, yet that is what the world’s central banks and political structures are busy manufacturing.  More debt.

Of course, debt is only one component of the story; there are also liabilities to consider.  The above chart merely graphs the legally defined debts involved.  If we bother to add back in the liability components, which are pensions, social security and government medical plans, the predicament is seen to be three to six times larger: 

Whereas the prior chart showed all debts incurred by all sectors of each nation, the above chart only displays government debt and liabilities.  For reference, the red bars, above, are the amounts that you read about in the paper when commentators note that the US, for example, still has a debt-to-GDP ratio that is under 100%. It’s a comforting tale, but not an accurate description of the situation.

Again, there are no historical examples of any country ever digging itself out from so deep a hole, and yet we find that the entire developed world has bravely pushed itself deep into unknown territory, seemingly without any serious discussions about whether or not this made sense.

Where We Are Now

So here we are, just a few weeks away from the end of the second round of quantitative easing (QE II) , with massive public debts and liabilities having only grown larger instead of shrinking during the Great Recession, everybody in nearly the same boat, and no clear plan for how all the sovereign debts will be funded from current productive cash flows (i.e., existing GDP).

This is why so many commentators, myself included, are convinced that more thin-air money printing is on the way. My thesis, laid out back in early March is that the Fed will stop QE II on schedule and that the financial markets will react exceptionally poorly to this loss of support. Commodities will tank first, then stocks, then bonds; from riskiest and most-leveraged to least.

It is time to face the music; the levels of indebtedness now require permanent support from thin-air money in order to avoid a deflationary collapse. Given this reality, we explore key questions in detail in Part II of this report: Understanding the Endgame:

• How will the global debt crisis play out?
• What does a world economy without growth look like?
• What steps should we, as individuals, need to take in preparation?
• How can investors safeguard their purchasing power during the coming rout in the finanical markets?

Click here to access Part II of this report (free executive summary; paid enrollment required)  

Chris Martenson