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The Ethics of Repudiation

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mises.org / by John P. Cochran / Tuesday, February 26, 2013

Do you ever get the feeling that no one in the Washington power elite is willing to seriously deal with the major economic threat to future prosperity facing the United States today: mounting government debt and the associated deficits? The problem, as pointed out by Murray Rothbard over 20 years ago:

Deficits and a mounting debt, therefore, are a growing and intolerable burden on the society and economy, both because they raise the tax burden and increasingly drain resources from the productive to the parasitic, counterproductive, “public” sector. Moreover, whenever deficits are financed by expanding bank credit—in other words, by creating new money—matters become still worse, since credit inflation creates permanent and rising price inflation as well as waves of boom-bust “business cycles.”

In 1992, when Rothbard wrote the above, the US debt was approaching $4 trillion (now nearing $17 trillion) and Federal Reserve policy was relatively benign compared to the current quantitative easing, which is effectively monetizing a significant portion of newly created government debt. The “peace dividend” from the end of the Cold War and the false prosperity from two Fed-created economic booms made the problem appear less urgent and allowed politicians to kick the can down the road. A solution is now urgent, but not likely. David Henderson’s “Must Default Be Avoided at All Costs?” is a great place to start in order to reinvigorate a serious discussion on a moral approach to shrinking the size of the federal government down to a less destructive level.

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Thanks to BrotherJohnF


The Downward Spiral

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azizonomics.com / By John Aziz / February 28, 2013

There was once a rough and logical correlation between the level of government borrowing, and the rate of interest on government debt. If the government borrowed more money, the cost of borrowing rose and the private market’s appetite for government debt fell. But that correlation totally broke down around the year 2000:

brokencorrelation

During the George W. Bush Presidency we saw interest rates remain low, even while borrowing spiked. And during the post-Bush recession we saw borrowing spike to a 30-year high while interest rates crawled lower. During the Obama Presidency, borrowing has inched downward but only to Bush-era levels, and rates have slunk ever lower.

This is weird, counter-intuitive stuff. My logical intuition is that all things being equal, a higher government demand for credit would tend to result in higher borrowing costs. Certainly, there are all manner of other factors like growth, stock prices, growth expectations and the private appetite for debt that might influence interest rates. But given that the intuitive relationship held roughly up ’til the year 2000, it is rather peculiar that it would suddenly break down.

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Thanks to BrotherJohnF

Europe is Drowning Under Too Much Government

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Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

peakprosperity.com / by Alasdair Macleod / Monday, March 4, 2013, 2:52 PM

The Christmas and New Year break, when Europe shuts down and stops thinking, is now well and truly over, and we are reawakening to the same old problems: Greece, Spain, Cyprus, Portugal, Italy, France…… all with their hands out for money from Germany, Holland, Finland and Austria.

The holiday from the banking crisis, which was the result of the determination of the ECB to put a lid on it, is also over, with yields on the supplicant countries’ debt rising again.

However, joining the bad news list is the United Kingdom. Ominously, the pound is sliding in the foreign exchange markets, providing a very tricky background for Chancellor Osborne’s budget on March 20th. I shall examine the UK’s position later, but first let’s update ourselves on developments in the eurozone.

The reality is that all the problems of the eurozone are still with us, despite the fall in bond yields and their modest subsequent recovery. There is now the likelihood that we are about to enter the final phase of the end of the eurozone experiment, with far wider consequences. So we need to pick up the story where we left off.

First, let’s look at the trend of government debt-to-GDP for selected countries (the numbers are from the ECB):

As we can see government deficits for these countries took off from the time of the banking crisis, and are still increasing beyond the charts’ cut-off point into 2012. They reflect poor economic performance, a lack of desire to slash government spending, and contracting bank credit. Only Spain and France were below Carmen Reinhart and Ken Rogoff’s tipping point of 90% government debt to GDP (see their book, “This time is different”); but in Spain’s case for 2012 if you add in €27bn raised to pay the backlog of bills incurred by regional governments, and the €40bn, so far and rising, to bail out the mortgage banks today Spain is closer to 100% debt to GDP, and France’s is now over 90%.

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Thanks to BrotherJohnF

Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers

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via the economic collapse blog Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The NumbersWhy is the global economy in so much trouble?  How can so many people be so absolutely certain that the world financial system is going to crash?  Well, the truth is that when you take a look at the cold, hard numbers it is not difficult to see why the global financial pyramid scheme is destined to fail.  In the United States today, there is approximately 56 trillion dollars of total debt in our financial system, but there is only about 9 trillion dollars in our bank accounts.  So you could take every single penny out of the banks, multiply it by six, and you still would not have enough money to pay off all of our debts.  Overall, there is about 190 trillion dollars of total debt on the planet.  But global GDP is only about 70 trillion dollars.  And the total notional value of all derivatives around the globe is somewhere between 600 trillion and 1500 trillion dollars.  So we have a gigantic problem on our hands.  The global financial system is a very shaky house of cards that has been constructed on a foundation of debt, leverage and incredibly risky derivatives.  We are living in the greatest financial bubble in world history, and it isn’t going to take much to topple the entire thing.  And when it falls, it is going to be the largest financial disaster in the history of the planet.

The global financial system is more interconnected today than ever before, and a crisis at one major bank or in one area of the world can spread at lightning speed.  As I wrote about yesterday, the entire European banking system is leveraged 26 to 1 at this point.  A decline in asset values of just 4 percent would totally wipe out the equity of many of those banks, and once a financial panic begins we could potentially see major financial institutions start to go down like dominoes.

We got a small taste of what that is like back in 2008, and it is inevitable that it will happen again.

Anyone that would tell you that the current global financial system is sustainable does not know what they are talking about.  Just look at the numbers that I have posted below.

The following is the global financial pyramid scheme by the numbers…

-$9,283,000,000,000 – The total amount of all bank deposits in the United States.  The FDIC has just 25 billion dollars in the deposit insurance fund that is supposed to “guarantee” those deposits.  In other words, the ratio of total bank deposits to insurance fund money is more than 371 to 1.

-$10,012,800,000,000 – The total amount of mortgage debt in the United States.  As you can see, you could take every penny out of every bank account in America and it still would not cover it.

-$10,409,500,000,000 – The M2 money supply in the United States.  This is probably the most commonly used measure of the total amount of money in the U.S. economy.

-$15,094,000,000,000 – U.S. GDP.  It is a measure of all economic activity in the United States for a single year.

-$16,749,269,587,407.53 – The size of the U.S. national debt.  It has grown by more than 10 trillion dollars over the past ten years.

-$32,000,000,000,000 – The total amount of money that the global elite have stashed in offshore banks (that we know about).

-$50,230,844,000,000 – The total amount of government debt in the world.

-$56,280,790,000,000 – The total amount of debt (government, corporate, consumer, etc.) in the U.S. financial system.

-$61,000,000,000,000 – The combined total assets of the 50 largest banks in the world.

-$70,000,000,000,000 – The approximate size of total world GDP.

-$190,000,000,000,000 – The approximate size of the total amount of debt in the entire world.  It has nearly doubled in size over the past decade.

-$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States.  But those banks only have total assets of about 8.9 trillion dollars combined.  In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.

-$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range.  At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.

Are you starting to get the picture?

Every single day, the total amount of debt will continue to grow faster than the total amount of money until the day that this bubble bursts.

What we witnessed back in 2008 was just a little “hiccup” in the system.  It caused the worst economic downturn since the Great Depression, but global financial authorities were able to get things stabilized.

Next time it won’t be so easy.

The next wave of the economic collapse is quickly approaching.  A full-blown economic depression has already started in southern Europe.  Unemployment is at record highs and economic activity is contracting rapidly.

The major offshore banking centers in Cyprus are on the verge of collapsing.  It was just announced that they will now be closed until Tuesday, but nobody really knows for sure when they will be allowed to reopen.  And there is already talk that when they do reopen that there will be strict limits on how much money people can take out.

And now the IMF is warning that the three biggest banks in Slovenia are failing and that a billion euros will be needed to bail them out.

The dominoes are starting to tumble, and the United States won’t be immune.  In fact, the greatest financial problems that the United States has ever seen are on the horizon.

But you can just have faith that Ben Bernanke, Barack Obama and the U.S. Congress know exactly what they are doing and will be able to save us from the coming financial collapse if you want.

The mainstream media will provide you with all of the positive economic news that you could possibly want.  They are giddy about the fact that the Dow keeps hitting all-time highs and they would have us all believe that we are in the midst of a robust economic recovery.  You can listen to them if you want to.

But when you are tempted to believe that everything is going to be “okay” somehow, just go back and look at the numbers there were posted above one more time.

There is no way that the global financial pyramid scheme is going to be able to hold up for too much longer.  At some point it is going to totally collapse.  When that happens, will you be ready?

The New World Order Is Coming

Japanese Money Flooding European Bond Markets

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traderdannorcini.blogspot.ca / By Trader Dan / Tuesday, April 9, 2013

The mystery, at least in my mind, of the rising Euro is now clear. Outflows of Japanese institutional money is pouring into the European bond markets in search of higher yield.

Consider the following – the yield on a 10 year Japanese government bond has fallen to 0.525%. Yes, that is not a typographical error. If you buy one of those things, you are locking money up in an IOU for TEN YEARS to obtain a half a percentage point of interest. If that is not bad enough, the underlying currency is also freefalling in value. Now, who in the world would want to do that besides the monetary authorities in Japan who are becoming and likely are going to end up staying that way, as the largest, if not sole buyer of Japanese government debt?

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Thanks to BrotherJohnF

Japan Steps into the Void

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europac.net / By Peter Schiff / Friday, April 19, 2013

In the years following the global financial crisis, economists and investors have gotten very comfortable with very high, and seemingly persistent, government debt. The nonchalance may be underpinned by the assumption that globally significant countries that can print their own currencies can’t get trapped in a sovereign debt crisis. However, it now appears that Japan is preparing to put this confidence to the ultimate stress test.

For the better part of 20 years, successive Japanese governments and central bankers have been trying, unsuccessfully, to use quantitative easing strategies to pump up a deflated asset bubble. The economy has by and large not responded. The sustained and impressive growth that Japan delivered during the 45 years following the Second World War (which had made the country one of the most successful economic stories in world history), has never returned. For the last 20 years Japan has offered a “zombie” economy characterized by low growth, stagnation, and exploding government debt. The Japanese government now owes approximately $12 trillion, a figure representing more than 200% of GDP. The IMF expects that this figure will reach 245% by the end of this year. This gives Japan the unenviable title of having the world’s highest government debt-to-GDP ratio. But Shinzo Abe, the newly elected Prime Minister of Japan, and Haruhiko Kuroda, his newly-appointed Governor of the Bank of Japan, feel much, much more debt needs to be issued to turn the economy around.

The hope that Abe would be a new kind of prime minister with a bold economic formula helped revive the long dead Japanese stock market. Between May and November of 2012, the Nikkei traded within a range of 8200-9400. As Abe’s victory began to be expected, the Nikkei started moving up, reaching 10,000 by the time he was sworn in on December 26 of last year. The euphoria continued throughout the spring and by April 2 the Nikkei stood at 12,003 points. Then on April 4, BOJ Governor Kuroda made good on Abe’s dovish rhetoric and announced a plan to end years of mildly declining prices by doing whatever necessary to create 2% inflation (in reality these price declines have  been one of the few consolations to Japanese consumers). To achieve its goals, the government is prepared to double the amount of Yen in circulation. Stocks immediately rallied, and in less than a week the Nikkei had breached 13,000 points, taking the index to a 4 1/2-year high. It is rare that any major stock market can achieve a 50% rally in less than a year. But the rally will be costly.

The Japanese government already spends 25% of tax revenue to service outstanding debt (compared to 6% in the US). These costs become even more astonishing when one considers the extremely low rates Japan pays. Ten-year Japanese government bonds now pay less than 0.6%, and five-year yields are now a little more than 0.20%. How much will debt service costs increase if Abe succeeds in pushing inflation to 2.0%? Two percent rates would triple long term borrowing costs. Given the size of its debts, increases of such magnitude could hit Japan with the force of 10 Godzillas.

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Thanks to BrotherJohnF

The More Illegal Immigrants That Go On Food Stamps The More Money JP Morgan Makes

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via the economic collapse blog Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Greed - Photo by J. Solana from Madrid, SpainRecently uncovered documents prove that the Obama administration has been working with the Mexican government to increase the number of illegal immigrants on food stamps, and when more illegal immigrants go on food stamps JP Morgan makes more money.  As you will read about below, JP Morgan has made at least 560 million dollars processing Electronic Benefits Transfer cards.  Each month, JP Morgan makes between $.31 and $2.30 for every single person on food stamps (and that does not even include things like ATM fees, etc).  So JP Morgan has a vested interest in seeing poverty grow and the number of people on food stamps increase.  Meanwhile, the Obama administration has been aggressively seeking to expand participation in the food stamp program.  Under Obama, the number of people on food stamps has grown from 32 million to more than 47 million.  And even though poverty in America is absolutely exploding, that apparently is not good enough for the Obama administration.  It has now come out that the U.S. Department of Agriculture has provided the Mexican government with literature that actively encourages illegal immigrants to enroll in food stamps.  One flyer contains the following statement in Spanish: “You need not divulge information regarding your immigration status in seeking this benefit for your children.”  The bold and the underlining are in the original document in case you were wondering.  Overall, federal spending on food stamps increased from 18 billion dollars in 2000 to 85 billion dollars in 2012, and at this point one out of every five U.S. households in now enrolled in the food stamp program.  When people illegally or fraudulently enroll in the food stamp program, it makes it harder for those that desperately need the help to be able to get it.

It is certainly a good thing to help fellow Americans that are suffering.  It is a crying shame that more than a million public school students in America are homeless.  That should not be happening in the “wealthiest nation on earth”.

But today we have a system that has turned poverty into big business.  According to an article posted on Breitbart.com, JP Morgan has made at least 560 million dollars (and probably much more) processing EBT cards…

A new report by the Government Accountability Institute finds that JP Morgan has made at least $560,492,596 since 2004 processing the Electronic Benefits Transfer (EBT) cards of 18 of the 24 states it has under contract for the food stamp program.

A Daily Beast article provided some more specifics about the monster profits that JP Morgan is making…

Just how lucrative JP Morgan’s EBT state contracts are is hard to say, because total national data on EBT contracts are not reported. But thanks to a combination of public-records requests and contracts that are available online, here’s what we do know: 18 of the 24 states JP Morgan handles have been contracted to pay the bank up to $560,492,596.02 since 2004. Since 2007, Florida has been contracted to pay JP Morgan $90,351,202.22. Pennsylvania’s seven-year contract totaled $112,541,823.27. New York’s seven-year contract totaled $126,394,917.

These contracts are transactional contracts, meaning they are amendable based on changes in program participation. Each month, the three companies that administer EBT receive a small fee that can range from $.31 to $2.30 (or higher depending upon the number of welfare services on an EBT card and state contractual requirements) for each SNAP recipient.

So the more people that are out of work and that need to turn to the government for food, the bigger profits that JP Morgan makes.

What makes all of this even more insulting is that many of the jobs that JP Morgan could be providing to Americans to help alleviate this poverty are being shipped overseas instead.  As I noted in a previous article, many EBT card customer service calls are being routed to call centers in India by JP Morgan.

So why doesn’t anyone do anything about this?

Well, it turns out that JP Morgan has the politicians that oversee the food stamp program in their back pocket.  The following is from a recent Money Morning article

And the bank has taken steps to make sure the SNAP program remains a growing source of revenue. JPMorgan’s political donations to the members of House and Senate agricultural committees, the ones with legislative responsibility for the program, soared from just over $82,000 in 2002 to nearly $333,000 as of 2010.

What a wonderful system we have, eh?

And surely JP Morgan just loves the fact that the Obama administration is actively encouraging illegal immigrants to apply for food stamps.

What you are about to read should absolutely shock you.  At a time when the U.S. government is absolutely drowning in debt, the Obama administration is making it abundantly clear to illegal immigrants that their immigration status will not be checked when they apply for food stamps.  The following is from a recent Judicial Watch press release

Judicial Watch today released documents detailing how the U.S. Department of Agriculture (USDA) is working with the Mexican government to promote participation by illegal aliens in the U.S. food stamp program.

The promotion of the food stamp program, now known as “SNAP” (Supplemental Nutrition Assistance Program), includes a Spanish-language flyer provided to the Mexican Embassy by the USDA with a statement advising Mexicans in the U.S. that they do not need to declare their immigration status in order to receive financial assistance.  Emphasized in bold and underlined, the statement reads, “You need not divulge information regarding your immigration status in seeking this benefit for your children.”

The documents came in response to a Freedom of Information Act (FOIA) request made to USDA on July 20, 2012.  The FOIA request sought: “Any and all records of communication relating to the Supplemental Nutrition Assistance Program (SNAP) to Mexican Americans, Mexican nationals, and migrant communities, including but not limited to, communications with the Mexican government.”

The documents obtained by Judicial Watch show that USDA officials are working closely with their counterparts at the Mexican Embassy to widely broaden the SNAP program in the Mexican immigrant community, with no effort to restrict aid to, identify, or apprehend illegal immigrants who may be on the food stamp rolls.

You can see a copy of the flyer right here.

So who pays for all of this?

You do of course.

The Obama administration is doing all that it can to promote illegal immigration, and big banks such as JP Morgan just make bigger profits the more illegal immigration that we see, but it is you and I that end up with the bill.  This was put beautifully in a recent article by Mike Adams of NaturalNews.com

Nearly $75 billion of taxpayer money is spent each year on federal food stamps, and it turns out some of that is alarmingly being handed out to illegal immigrants — people who contribute nothing to the federal tax base in America but who seem to be experts on collecting social welfare benefits of all kinds. If you are working for a living, you are buying food for illegals who are being actively recruited by Obama and the democratic party so that they will vote more democrats into office.

When we reward illegal immigration, what happens?

That’s right – we are just going to get even more illegal immigration.

According to WND, we have already started seeing a huge increase in illegal immigrants coming across the border since Congress began debating the amnesty bill…

Illegal border crossings have doubled, and possibly even tripled, since the latest congressional push began toward comprehensive immigration reform.

In reporting first published by Townhall.com’s Katie Pavlich, border patrol agents in the Tucson/Nogales sector claim illegals are coming here in much higher numbers in just the past few months.

“We’ve seen the number of illegal aliens double, maybe even triple since amnesty talk started happening,” an unnamed border agent said to Townhall. The data from Customs and Border Protection cited in the report shows 504 illegals were detected crossing in that sector between Feb. 5 and March 1. Only 189 were caught on camera, and just 174 of the 504 were apprehended. Of those spotted on camera, 32 were carrying huge packs believed to contain drugs and several were heavily armed.

If that bill is passed, it is being projected that it will bring 33 million more people into this country…

The pending Senate immigration bill would bring a minimum of 33 million people into the country during its first decade of operation, according to an analysis by NumbersUSA, a group that wants to slow the current immigration rate.

By 2024, the inflow would include an estimated 9.2 million illegal immigrants, plus 2.5 million illegals who arrived as children — dubbed ‘Dreamers’ — plus roughly 3.4 million company-sponsored employees with university degrees, said the unreleased analysis.

The majority of the inflow, or roughly 17 million people, would consist of family members of illegals, recent immigrants and of company-sponsored workers, according to the NumbersUSA analysis provided to The Daily Caller.

We have made legal immigration a complete and total nightmare while leaving the back door completely wide open at the same time.

We greatly punish those who are trying to do things legally while at the same time we are greatly rewarding those that are cheating the system.

What kind of sense does that make?

Shouldn’t we insist that everyone come in through the front door?

Those that are coming over our borders illegally know what the score is

Linda Vickers, who owns a ranch in Brooks County, which is Ground Zero for the immigration debate, pins the blame directly on talk of ‘amnesty’ and a ‘path to citizenship’ for people who entered the U.S. illegally.

She recalls one man being arrested on her ranch not long ago.

“The Border Patrol agent was loading one man up, and he told the officer in Spanish, ‘Obama’s gonna let me go’.”

Border Patrol agents report that immigrants are crossing the border, and in some cases surrendering while asking, “Where do I go for my amnesty?”

We are already becoming a poverty-stricken nation.  We simply can’t afford to feed millions upon millions of illegal immigrants as well.

As I write this, the U.S. national debt is $16,758,107,082,298.63.

We now have a debt to GDP ratio of about 105 percent.

In the United States today, the amount of money that is deposited in our banks is about 9.3 trillion dollars.  If we took every penny of that and used it to pay off the national debt, we would still owe more than 7 trillion dollars.

We are stealing more than 100 million dollars from future generations of Americans every single hour of every single day to pay our bills, and yet everyone seems to think that this is “normal” somehow.

The truth is that what we are doing is absolutely criminal, and we should all be ashamed.

For much more on our exploding national debt, please see the following article: “55 Facts About The Debt And U.S. Government Finances That Every American Voter Should Know“.

In the end, it should be apparent to everyone that our system is failing.  Our government is corrupt, our big banks are consumed with greed and most average Americans are so addicted to entertainment that they have absolutely no idea what is going on.

What would those that bled and died for this country think about what we have become today?

JP Morgan Chase Tower - Photo by Krzykol

Are Treasurys Falling Out of Favor With China?

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cnbc.com / By Dhara Ranasinghe / Monday, 20 May 2013 | 10:38 PM ET

Reports that China may step up the diversification of its huge foreign exchange

reserves is not great news for U.S. Treasurys, already under pressure from talk about an easing in the Federal Reserve’s bond-buying program. But, the fall-out from such a move is likely to be limited, analysts say.

The body that manages China’s currency reserves has set up an operation in New York to invest in private equity, real estate and other assets as it steps up its diversification away from U.S. government bonds, the Wall Street Journal reported late Monday, citing sources familiar with the move.

China has the biggest currency reserves in the world, worth more than $3 trillion. It’s also the biggest holder of U.S. government debt – no surprise then that in recent years any talk that it might unwind some of those bond holdings has led to some nervousness in markets.

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Thanks to BrotherJohnF


40 Statistics About The Fall Of The U.S. Economy That Are Almost Too Crazy To Believe

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via the economic collapse blog Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

40 Statistics About The Fall Of The U.S. Economy That Are Almost Too Crazy To BelieveIf you know someone that actually believes that the U.S. economy is in good shape, just show them the statistics in this article.  When you step back and look at the long-term trends, it is undeniable what is happening to us.  We are in the midst of a horrifying economic decline that is the result of decades of very bad decisions.  30 years ago, the U.S. national debt was about one trillion dollars.  Today, it is almost 17 trillion dollars.  40 years ago, the total amount of debt in the United States was about 2 trillion dollars.  Today, it is more than 56 trillion dollars.  At the same time that we have been running up all of this debt, our economic infrastructure and our ability to produce wealth has been absolutely gutted.  Since 2001, the United States has lost more than 56,000 manufacturing facilities and millions of good jobs have been shipped overseas.  Our share of global GDP declined from 31.8 percent in 2001 to 21.6 percent in 2011.  The percentage of Americans that are self-employed is at a record low, and the percentage of Americans that are dependent on the government is at a record high.  The U.S. economy is a complete and total mess, and it is time that we faced the truth.

The following are 40 statistics about the fall of the U.S. economy that are almost too crazy to believe…

#1 Back in 1980, the U.S. national debt was less than one trillion dollars.  Today, it is rapidly approaching 17 trillion dollars…

National Debt

#2 During Obama’s first term, the federal government accumulated more debt than it did under the first 42 U.S presidents combined.

#3 The U.S. national debt is now more than 23 times larger than it was when Jimmy Carter became president.

#4 If you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 184,000 years to pay it off.

#5 The federal government is stealing more than 100 million dollars from our children and our grandchildren every single hour of every single day.

#6 Back in 1970, the total amount of debt in the United States (government debt + business debt + consumer debt, etc.) was less than 2 trillion dollars.  Today it is over 56 trillion dollars…

Total Debt

#7 According to the World Bank, U.S. GDP accounted for 31.8 percent of all global economic activity in 2001.  That number dropped to 21.6 percent in 2011.

#8 The United States has fallen in the global economic competitiveness rankings compiled by the World Economic Forum for four years in a row.

#9 According to The Economist, the United States was the best place in the world to be born into back in 1988.  Today, the United States is only tied for 16th place.

#10 Incredibly, more than 56,000 manufacturing facilities in the United States have been permanently shut down since 2001.

#11 There are less Americans working in manufacturing today than there was in 1950 even though the population of the country has more than doubled since then.

#12 According to the New York Times, there are now approximately 70,000 abandoned buildings in Detroit.

#13 When NAFTA was pushed through Congress in 1993, the United States had a trade surplus with Mexico of 1.6 billion dollars.  By 2010, we had a trade deficit with Mexico of 61.6 billion dollars.

#14 Back in 1985, our trade deficit with China was approximately 6 million dollars (million with a little “m”) for the entire year.  In 2012, our trade deficit with China was 315 billion dollars.  That was the largest trade deficit that one nation has had with another nation in the history of the world.

#15 Overall, the United States has run a trade deficit of more than 8 trillion dollars with the rest of the world since 1975.

#16 According to the Economic Policy Institute, the United States is losing half a million jobs to China every single year.

#17 Back in 1950, more than 80 percent of all men in the United States had jobs.  Today, less than 65 percent of all men in the United States have jobs.

#18 At this point, an astounding 53 percent of all American workers make less than $30,000 a year.

#19 Small business is rapidly dying in America.  At this point, only about 7 percent of all non-farm workers in the United States are self-employed.  That is an all-time record low.

#20 Back in 1983, the bottom 95 percent of all income earners in the United States had 62 cents of debt for every dollar that they earned.  By 2007, that figure had soared to $1.48.

#21 In the United States today, the wealthiest one percent of all Americans have a greater net worth than the bottom 90 percent combined.

#22 According to Forbes, the 400 wealthiest Americans have more wealth than the bottom 150 million Americans combined.

#23 The six heirs of Wal-Mart founder Sam Walton have as much wealth as the bottom one-third of all Americans combined.

#24 According to the U.S. Census Bureau, more than 146 million Americans are either “poor” or “low income”.

#25 According to the U.S. Census Bureau, 49 percent of all Americans live in a home that receives direct monetary benefits from the federal government.  Back in 1983, less than a third of all Americans lived in a home that received direct monetary benefits from the federal government.

#26 Overall, the federal government runs nearly 80 different “means-tested welfare programs”, and at this point more than 100 million Americans are enrolled in at least one of them.

#27 Back in 1965, only one out of every 50 Americans was on Medicaid.  Today, one out of every 6 Americans is on Medicaid, and things are about to get a whole lot worse.  It is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

#28 As I wrote recently, it is being projected that the number of Americans on Medicare will grow from 50.7 million in 2012 to 73.2 million in 2025.

#29 At this point, Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years.  That comes to approximately $328,404 for every single household in the United States.

#30 Right now, there are approximately 56 million Americans collecting Social Security benefits.  By 2035, that number is projected to soar to an astounding 91 million.

#31 Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.

#32 Today, the number of Americans on Social Security Disability now exceeds the entire population of Greece, and the number of Americans on food stamps now exceeds the entire population of Spain.

#33 According to a report recently issued by the Pew Research Center, on average Americans over the age of 65 have 47 times as much wealth as Americans under the age of 35.

#34 U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent.

#35 As I mentioned recently, the homeownership rate in America is now at its lowest level in nearly 18 years.

#36 There are now 20.2 million Americans that spend more than half of their incomes on housing.  That represents a 46 percent increase from 2001.

#37 45 percent of all children are living in poverty in Miami, more than 50 percent of all children are living in poverty in Cleveland, and about 60 percent of all children are living in poverty in Detroit.

#38 Today, more than a million public school students in the United States are homeless.  This is the first time that has ever happened in our history.

#39 When Barack Obama first entered the White House, about 32 million Americans were on food stamps.  Now, more than 47 million Americans are on food stamps.

#40 According to one calculation, the number of Americans on food stamps now exceeds the combined populations of “Alaska, Arkansas, Connecticut, Delaware, District of Columbia, Hawaii, Idaho, Iowa, Kansas, Maine, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Oklahoma, Oregon, Rhode Island, South Dakota, Utah, Vermont, West Virginia, and Wyoming.”

EU threatens France over economic failings

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Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

France, the eurozone’s second biggest economy, has already been singled out for harsh criticism by the commission with a warning last month that low French competitiveness and high government debt threaten the EU’s single currency.

telegraph.co.uk / By Bruno Waterfield / 9:45PM BST 25 May 2013

The European Commission will use sweeping new powers backed by sanctions to impose controversial social and economic reforms on European countries later this week.

France, Spain and Slovenia are set to be criticised in a major commission report on Wednesday as countries that have failed, amid recession and the financial crisis, to cut public debt and to implement structural reforms of their economies.

The commission is also expected to express concern over Britain, with a warning that the continuing credit crunch is jeopardising growth and attempts to cut public debt, although the Government, outside the eurozone, can escape the humiliation of having sanctions imposed.

European Union studies on “macroeconomic imbalances” have been given new teeth this year under eurozone “governance” legislation that gives the commission powers, backed by substantial fines, to override national sovereignty to impose reforms.

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Thanks to BrotherJohnF

Belgian Central Bank Says 25 Tons Or 10% of Gold Reserves on Loan

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Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

goldcore.com / By Mark O’Byrne / May 28, 2013

During the 1990’s, Belgium sold some 1,000 tons of gold into the market – more than three quarters of its remaining holdings. The Belgian gold reserves, which had already seen sizeable liquidation in late 1978, fell from 33.7 million ounces on 12/31/88, to just 5.7 million ounces on 03/31/98, or a fall of 83% in less than 10 years (see chart).

Since the start of 1996, when gold prices trended downward, some of the sharpest falls in prices coincided with central bank announcements of sales.

All except the UK announced their gold sales only after completion of their gold sales programmes.

This is in marked contrast to the Bank of England’s very public gold auctions and Gordon Brown announcing the sale of the UK gold reserves prior to the auctions thereby depressing the gold price and pushing it to multi year lows.

The Gold Anti-Trust Action Committee (GATA) allege that the gold sales were not simply about foreign exchange diversification, rather they were designed to manipulate gold prices lower and reduce public confidence in gold as a store of value so that there would be increased trust in the dollar, the coming euro and other fiat currencies.

The National Bank of Belgium sold gold on five occasions since 1989. Belgium announced on March 22, 1989, that it had sold 127 tons of gold. On June 17, 1992, it announced it had sold 202 tons of gold.

On April 24, 1995, it said it had sold 175 tons in order to increase its foreign exchange holdings.

Belgium announced another sale of 203 tons of gold on March 27, 1996, stating that the sale had reduced the share of gold in total reserves to a level which would facilitate the participation of the National Bank of Belgium in the process of European unification and which, corresponded to the proportion of gold in the total reserves of the Member States of the European Union.

Further sales of 299 tons of gold were announced on March 18, 1998 just prior to the introduction of the euro and the monetary union. The bank said at the time that the capital gain from the gold sales was used to repay government debt in foreign currencies.

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Thanks to BrotherJohnF

Primary Dealers – the Truth About Their Iron Grip

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Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

armstrongeconomics.com / By Martin Armstrong / June 1, 2013

QUESTION: 

Martin,

On Page A11 of the IBD today (5/29) a statement was made that seems to fit your claims.  It is something that having been in the business for 24 years I was unaware of.  The entire article is actually quite interesting.

Please clarify the following, made in the 4th paragraph;

…..BNP Paribas in New York, one of 21 Primary dealers that are obligated to bid at U.S. Government debt offerings.

Is this factual???

Are they “obligated”?

Will they be “obligated” when government debt is in free-fall?

You have become my primary source for applying history in today’s world and common sense thinking globally.

I often try to tell my 14 yr old son…if you listen- you can take advantage of the ACCUMULATED wisdom of your grandparents knowledge passed onto me, and my knowledge passed onto you, to learn life lessons  You have to be able to put your ego aside and learn…you have 70-100 years of life’s experience to take advantage of. Not many 14 year old boys are capable of grasping that, and if you can, you are way ahead of the game.

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Thanks to BrotherJohnF

Rotting, Decaying And Bankrupt – If You Want To See The Future Of America Just Look At Detroit

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via the economic collapse blog Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

The Future Of The United States - Photo by Albert DuceEventually the money runs out.  Much of America was shocked when the city of Detroit defaulted on a $39.7 million debt payment and announced that it was suspending payments on $2.5 billion of unsecured debt, but those who visit my site on a regular basis were probably not too surprised.  Anyone with half a brain and a calculator could see this coming from a mile away.  But people kept foolishly lending money to the city of Detroit, and now many of them are going to get hit really hard.  Detroit Emergency Manager Kevyn Orr has submitted a proposal that would pay unsecured creditors about 10 cents on the dollar.  Similar haircuts would be made to underfunded pension and health benefits for retirees.  Orr is hoping that the creditors and the unions that he will be negotiating with will accept this package, but he concedes that there is still a “50-50 chance” that the city of Detroit will be forced to formally file for bankruptcy.  But what Detroit is facing is not really that unique.  In fact, Detroit is a perfect example of what the future of America is going to look like.  We live in a nation that is rotting, decaying, drowning in debt and racing toward insolvency.  Already there are dozens of other cities across the nation that are poverty-ridden, crime-infested hellholes just like Detroit is, and hundreds of other communities are rapidly heading in that direction.  So don’t look down on Detroit.  They just got there before the rest of us.

The following are some facts about Detroit that are absolutely mind-blowing…

1 – Detroit was once the fourth-largest city in the United States, and in 1960 Detroit had the highest per-capita income in the entire nation.

2 – Over the past 60 years, the population of Detroit has fallen by 63 percent.

3 – At this point, approximately 40 percent of all the streetlights in the city don’t work.

4 – Some ambulances in the city of Detroit have been used for so long that they have more than 250,000 miles on them.

5 – 210 of the 317 public parks in the city of Detroit have been permanently closed down.

6 – According to the New York Times, there are now approximately 70,000 abandoned buildings in Detroit.

7 – Approximately one-third of Detroit’s 140 square miles is either vacant or derelict.

8Less than half of the residents of Detroit over the age of 16 are working at this point.

9 – If you can believe it, 60 percent of all children in the city of Detroit are living in poverty.

10 – According to one very shocking report, 47 percent of the residents of Detroit are functionally illiterate.

11 – Today, police solve less than 10 percent of the crimes that are committed in Detroit.

12 – Ten years ago, there were approximately 5,000 police officers in the city of Detroit.  Today, there are only about 2,500 and another 100 are scheduled to be eliminated from the force soon.

13 – Due to budget cutbacks, most police stations in Detroit are now closed to the public for 16 hours a day.

14 – The murder rate in Detroit is 11 times higher than it is in New York City.

15 – Crime has gotten so bad in Detroit that even the police are telling people to “enter Detroit at your own risk“.

16 – Right now, the city of Detroit is facing $20 billion in debt and unfunded liabilities.  That breaks down to more than $25,000 per resident.

As Detroit Emergency Manager Kevyn Orr noted last week, it took a very long time for Detroit to get into this condition…

“What the average Detroiter needs to understand is that where we are right now is a culmination of years and years and years of kicking the can down the road,” said Orr, adding that his proposal should not be seen as a “hostile act” but as a step in the right direction.

Does that sound familiar?

It should.

U.S. politicians have also been kicking the can down the road for “years and years and years”.

But eventually you can’t kick the can down the road anymore.

Sometimes it is helpful to step back and look at what we have done to ourselves over the past several decades.

For example, back in 1980 the U.S. national debt was less than one trillion dollars.  Today, it is rapidly approaching 17 trillion dollars.

And our debt binge has greatly accelerated under Barack Obama.

During Barack Obama’s first term, the federal government accumulated more debt than it did under the first 42 U.S presidents combined.

Isn’t that insane?

In fact, if you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 184,000 years to pay it off.

The following are a lot more facts about our exploding national debt from one of my previous articles entitled “55 Facts About The Debt And U.S. Government Finances That Every American Voter Should Know“…

#1 While Barack Obama has been president, the U.S. government has spent about 11 dollars for every 7 dollars of revenue that it has actually brought in.

#2 During the fiscal year that just ended, the U.S. government took in 2.449 trillion dollars but it spent 3.538 trillion dollars.

#3 During fiscal year 2011, over a trillion dollars of government money was spent on 83 different welfare programs, and those numbers do not even include Social Security or Medicare.

#4 Over the past four years, welfare spending has increased by 32 percent.  In inflation-adjusted dollars, spending on those programs has risen by 378 percent over the past 30 years.  At this point, more than 100 million Americans are enrolled in at least one welfare program run by the federal government.  Once again, these figures do not even include Social Security or Medicare.

#5 Over the past year, the number of Americans getting a free cell phone from the federal government has grown by 43 percent.  Now more than 16 million Americans are enjoying what has come to be known as an “Obamaphone”.

#6 When Barack Obama first entered the White House, about 32 million Americans were on food stamps.  Now, 47 million Americans are on food stamps.  And this has happened during what Obama refers to as “an economic recovery”.

#7 The U.S. government recently spent 27 million dollars on pottery classes in Morocco.

#8 The U.S. Department of Agriculture recently spent $300,000 to encourage Americans to eat caviar at a time when more families than ever are having a really hard time just trying to put any food on the table at all.

#9 During 2012, the National Science Foundation spent $516,000 to support the creation of a video game called “Prom Week”, which apparently simulates “all the social interactions of the event.

#10 The U.S. Department of Agriculture gave the largest snack food maker in the world (PepsiCo Inc.) a total of 1.3 million dollars in corporate welfare that was used to help build “a Greek yogurt factory in New York.

#11 The National Science Foundation recently gave researchers at Purdue University $350,000.  They used part of that money to help fund a study that discovered that if golfers imagine that a hole is bigger it will help them with their putting.

#12 If you can believe it, $10,000 from the federal government was actually used to purchase talking urinal cakes up in Michigan.

#13 The National Science Foundation recently gave a whopping $697,177 to a New York City-based theater company to produce a musical about climate change.

#14 The National Institutes of Health recently gave $666,905 to a group of researchers that is studying the benefits of watching reruns on television.

#15 The National Science Foundation has given 1.2 million dollars to a team of “scientists” that is spending part of that money on a study that is seeking to determine whether elderly Americans would benefit from playing World of Warcraft or not.

#16 The National Institutes of Health recently gave $548,731 to a team of researchers that concluded that those that drink heavily in their thirties also tend to feel more immature.

#17 The National Science Foundation recently spent $30,000 on a study to determine if “gaydar” actually exists.  This is the conclusion that the researchers reached at the end of the study…

“Gaydar is indeed real and… its accuracy is driven by sensitivity to individual facial features”

#18 Back in 2011, the National Institutes of Health spent $592,527 on a study that sought to figure out once and for all why chimpanzees throw poop.

#19 The U.S. government spends more on the military than China, Russia, Japan, India, and the rest of NATO combined.  In fact, the United States accounts for 41.0% of all military spending on the planet.  China is next with only 8.2%.

#20 In a previous article, I noted that close to 500,000 federal employees now make at least $100,000 a year.

#21 In 2006, only 12 percent of all federal workers made $100,000 or more per year.  Now, approximately 22 percent of all federal workers do.

#22 If you can believe it, there are 77,000 federal workers that make more than the governors of their own states do.

#23 During 2010, the average federal employee in the Washington D.C. area received total compensation worth more than $126,000.

#24 The U.S. Department of Defense had just nine civilians earning $170,000 or more back in 2005.  When Barack Obama became president, the U.S. Department of Defense had 214 civilians earning $170,000 or more.  By June 2010, the U.S. Department of Defense had 994 civilians earning $170,000 or more.

#25 During 2010, compensation for federal employees came to a grand total of approximately 447 billion dollars.

#26 If you can believe it, close to 15,000 retired federal employees are currently collecting federal pensions for life worth at least $100,000 annually.  That list includes such names as Newt Gingrich, Bob Dole, Trent Lott, Dick Gephardt and Dick Cheney.

#27 During 2010, the federal government spent $33,387 on the hair care needs of U.S. Senators.

#28 During 2010, U.S. Senators pulled $72,370 out of the “Senate Restaurant Fund”.

#29 During 2010, an average of $4,005,900 of U.S. taxpayer money was spent on “personal” and “office” expenses per Senator.

#30 In 2013, 3.7 million dollars will be spent to support the lavish lifestyles of former presidents such as George W. Bush and Bill Clinton.

#31 During 2011, the federal government spent a total of 1.4 BILLION dollars just on the Obamas.

#32 When you combine all federal government spending, all state government spending and all local government spending, it comes to approximately 41 percent of U.S. GDP.  But don’t worry, all of our politicians insist that this is not socialism.

#33 As I have written about previously, less than 30 percent of all Americans lived in a home where at least one person received financial assistance from the federal government back in 1983.  Today, that number is sitting at an all-time high of 49 percent.

#34 Back in 1990, the federal government accounted for just 32 percent of all health care spending in America.  This year, it is being projected that the federal government will account for more than 50 percent of all health care spending in the United States.

#35 The number of Americans on Medicaid soared from 34 million in 2000 to 54 million in 2011, and it is being projected that Obamacare will add 16 million more Americans to the Medicaid rolls.

#36 In one of my previous articles, I discussed how it is being projected that the number of Americans on Medicare will grow from 50.7 million in 2012 to 73.2 million in 2025.

#37 If you can believe it, Medicare is facing unfunded liabilities of more than 38 trillion dollars over the next 75 years.  That comes to approximately $328,404 for each and every household in the United States.

#38 In the United States today, more than 61 million Americans receive some form of Social Security benefits.  By 2035, that number is projected to soar to a whopping 91 million.

#39 Overall, the Social Security system is facing a 134 trillion dollar shortfall over the next 75 years.

#40 When Barack Obama first took office, the U.S. national debt was about 10.6 trillion dollars.  Now it is about 16.7 trillion dollars.  That is an increase of 6.1 trillion dollars in a little more than 4 years.

#41 The federal government has now run a budget deficit of more than a trillion dollars for four years in a row.

#42 If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

#43 If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

#44 Some suggest that “taxing the rich” is the answer.  Well, if Bill Gates gave every single penny of his entire fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.

#45 If the federal government used GAAP accounting standards like publicly traded corporations do, the real federal budget deficit for 2011 would have been 5 trillion dollars instead of 1.3 trillion dollars.

#46 The United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain does.

#47 At this point, the United States government is responsible for more than a third of all the government debt in the entire world.

#48 The amount of U.S. government debt held by foreigners is about 5 times larger than it was just a decade ago.

#49 Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period.

#50 The U.S. national debt is now more than 37 times larger than it was when Richard Nixon took us off the gold standard.

#51 The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.

#52 The U.S. national debt jumped more on the very first day of fiscal year 2013 than it did from 1776 to 1941 combined.

#53 Historically, the interest rate on 10 year U.S. Treasuries has averaged 6.68 percent.  If the average interest rate on U.S. government debt rose to that level today, the U.S. government would find itself spending more than a trillion dollars per year just on interest on the national debt.

#54 A recently revised IMF policy paper entitled “An Analysis of U.S. Fiscal and Generational Imbalances: Who Will Pay and How?” projects that U.S. government debt will rise to about 400 percent of GDP by the year 2050.

#55 Boston University economist Laurence Kotlikoff is warning that the U.S. government is facing a gigantic tsunami of unfunded liabilities in the coming years that we are counting on our children and our grandchildren to pay.  Kotlikoff speaks of a “fiscal gap” which he defines as “the present value difference between projected future spending and revenue”.  His calculations have led him to the conclusion that the federal government is facing a fiscal gap of 222 trillion dollars in the years ahead.

Please share this article with as many people as you can.  We are in the process of committing national financial suicide and time is rapidly running out to do anything about it.

Just like Detroit, a day is rapidly approaching when America will not be able to kick the can down the road anymore.

Sadly, our politicians don’t seem inclined to do anything about it and most of the population seems to think that our exploding national debt is not a significant problem.

By the time it becomes clear how wrong they were, it will be far too late to do anything about it.

Farewell Bernanke – Thanks For Inflating The Biggest Bond Bubble The World Has Ever Seen

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via the economic collapse blog Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

Barack Obama And Ben BernankeFederal Reserve Chairman Ben Bernanke is on the way out the door, but the consequences of the bond bubble that he has helped to create will stay with us for a very, very long time.  During Bernanke’s tenure, interest rates on U.S. Treasuries have fallen to record lows.  This has enabled the U.S. government to pile up an extraordinary amount of debt.  During his tenure we have also seen mortgage rates fall to record lows.  All of this has helped to spur economic activity in the short-term, but what happens when interest rates start going back to normal?  If the average rate of interest on U.S. government debt rises to just 6 percent, the U.S. government will suddenly be paying out a trillion dollars a year just in interest on the national debt.  And remember, there have been times in the past when the average rate of interest on U.S. government debt has been much higher than that.  In addition, when the U.S. government starts having to pay more to borrow money so will everyone else.  What will that do to home sales and car sales?  And of course we all remember what happened to adjustable rate mortgages when interest rates started to rise just prior to the last recession.  We have gotten ourselves into a position where the U.S. economy simply cannot afford for interest rates to go up.  We have become addicted to the cheap money made available by a grossly distorted financial system, and we have Ben Bernanke to thank for that.  The Federal Reserve is at the very heart of the economic problems that we are facing in America, and this time is certainly no exception.

This week Barack Obama publicly praised Ben Bernanke and stated that Bernanke has “already stayed a lot longer than he wanted” as Chairman of the Federal Reserve.  Bernanke’s term ends on January 31st, but many observers believe that he could leave even sooner than that.  Bernanke appears to be tired of the job and eager to move on.

So who would replace him?  Well, the mainstream media is making it sound like the appointment of Janet Yellen is already a forgone conclusion.  She would be the first woman ever to chair the Federal Reserve, and her philosophy is that a little bit of inflation is good for an economy.  It seems likely that she would continue to take us down the path that Bernanke has taken us.

But is it a fundamentally sound path?  Keeping interest rates pressed to the floor and wildly printing money may be producing some positive results in the short-term, but the crazy bubble that this is creating will burst at some point.  In fact, the director of financial stability for the Bank of England, Andy Haldane, recently admitted that the central bankers have “intentionally blown the biggest government bond bubble in history” and he warned about what might happen once it ends…

“If I were to single out what for me would be biggest risk to global financial stability right now it would be a disorderly reversion in the yields of government bonds globally.” he said. There had been “shades of that” in recent weeks as government bond yields have edged higher amid talk that central banks, particularly the US Federal Reserve, will start to reduce its stimulus.

“Let’s be clear. We’ve intentionally blown the biggest government bond bubble in history,” Haldane said. “We need to be vigilant to the consequences of that bubble deflating more quickly than [we] might otherwise have wanted.”

Posted below is a chart that demonstrates how interest rates on 10-year U.S. Treasury bonds have fallen over the last several decades.  This has helped to fuel the false prosperity that we have been enjoying, but there is no way that the U.S. government should have been able to borrow money so cheaply.  This bubble that we are living in now is setting the stage for a very, very painful adjustment…

Interest Rate On 10 Year U.S. Treasuries

So what will that “adjustment” look like?

The following analysis is from a recent article by Wolf Richter

Ten-year Treasury notes have been kicked down from their historic pedestal last July when some poor souls, blinded by the Fed’s halo of omnipotence and benevolence, bought them at a minuscule yield of 1.3%. For them, it’s been an ice-cold shower ever since. As Treasuries dropped, yields meandered upward in fits and starts. After a five-week jump from 1.88% in early May, they hit 2.29% on Tuesday last week – they’ve retreated to 2.19% since then. Now investors are wondering out loud what would happen if ten-year Treasury yields were to return to more normal levels of 4% or even 5%, dragging other long-term interest rates with them. They know what would happen: carnage!

And according to Richter, there are already signs that the bond bubble is beginning to burst…

Wholesale dumping of Treasuries by exasperated foreigners has already commenced. Private foreigners dumped $30.8 billion in Treasuries in April, an all-time record. Official holders got rid of $23.7 billion in long-term Treasury debt, the highest since November 2008, and $30.1 billion in short-term debt. Sell, sell, sell!

Bond fund redemptions spoke of fear and loathing: in the week ended June 12, investors yanked $14.5 billion out of Treasury bond funds, the second highest ever, beating the prior second-highest-ever outflow of $12.5 billion of the week before. They were inferior only to the October 2008 massacre as chaos descended upon financial markets. $27 billion in two weeks!

In lockstep, average 30-year fixed-rate mortgage rates jumped from 3.59% in early May to 4.15% last week. The mortgage refinancing bubble, by which banks have creamed off billions in fees, is imploding – the index has plunged 36% since early May.

If interest rates start to climb significantly, that will have a dramatic affect on economic activity in the United States.

And we have seen this pattern before.

As Robert Wenzel noted in a recent article on the Economic Policy Journal, we saw interest rates rise suddenly just prior to the October 1987 stock market crash, and we also saw them rise substantially prior to the financial crisis of 2008…

As Federal Reserve chairman Paul Volcker left the Fed chairmanship in August 1987, the interest rate on the 10 year note climbed from 8.2% to 9.2% between June 1987 and September 1987. This was followed, of course by the October 1987 stock market crash.

As Federal Reserve chairman Alan Greenspan left the Fed chairmanship at the end of January 2006, the interest rate on the 10 year note climbed from 4.35% to 4.65%. It then climbed above 5%.

So keep a close eye on interest rates in the months ahead.  If they start to rise significantly, that will be a red flag.

And it makes perfect sense why Bernanke is looking to hand over the reins of the Fed at this point.  He can probably sense the carnage that is coming and he wants to get out of Dodge while he still can.

The Waste List: 66 Crazy Ways That The U.S. Government Is Wasting Your Hard-Earned Money

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via the economic collapse blog Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

The U.S. CapitolWhy did the U.S. government spend 2.6 million dollars to train Chinese prostitutes to drink responsibly?  Why did the U.S. government spend $175,587 “to determine if cocaine makes Japanese quail engage in sexually risky behavior”?  Why did the U.S. government spend nearly a million dollars on a new soccer field for detainees being held at Guantanamo Bay?  This week when I saw that the IRS was about to pay out 70 million dollars in bonuses to their employees and that the U.S. government was going to be leaving 7 billion dollars worth of military equipment behind in Afghanistan, it caused me to reflect on all of the other crazy ways that the government has been wasting our money in recent years.  So I decided to go back through my previous articles and put together a list.  I call it “The Waste List”.  Even though our politicians insist that there is very little that can still be cut out of the budget, the truth is that the federal budget is absolutely drowning in pork.  The following are 66 crazy ways that the U.S. government is wasting your hard-earned money…

#1 The IRS is about to pay out 70 million dollars in bonuses to employees even though discretionary bonuses are supposed to be cancelled due to the sequester.

#2 According to the Washington Post, the U.S. government is going to leave 7 billion dollars worth of military equipment behind in Afghanistan.

#3 It is being projected that the trip that the Obamas will be making to Africa will cost U.S. taxpayers $100,000,000.

#4 The NIH plans to spend $509,840 on a study that “will send text messages in ‘gay lingo’ to methamphetamine addicts to try to persuade them to use fewer drugs and more condoms.”

#5 The National Science Foundation has given $384,949 to Yale University to do a study on “Sexual Conflict, Social Behavior and the Evolution of Waterfowl Genitalia”.  Try not to laugh, but much of this research involves examining and measuring the reproductive organs of male ducks.

#6 The IRS spent $60,000 on a film parody of “Star Trek” and a film parody of “Gilligan’s Island”.  Internal Revenue Service employees were the actors in the two parodies, so as you can imagine the acting was really bad.

#7 The NIH has given $1.5 million to Brigham and Women’s Hospital in Boston, Massachusetts to study why “three-quarters” of lesbians in the United States are overweight and why most gay males are not.

#8 The NIH has also spent $2.7 million to study why lesbians have more “vulnerability to hazardous drinking”.

#9 The U.S. government is giving sixteen F-16s and 200 Abrams tanks to the Muslim Brotherhood in Egypt even though the new president of Egypt, Mohammed Morsi (a member of the Muslim Brotherhood), constantly makes statements such as the following

“Dear brothers, we must not forget to nurse our children and grandchildren on hatred towards those Zionists and Jews, and all those who support them”

#10 During 2012, the salaries of Barack Obama’s three climate change advisers combined came to a grand total of more than $370,000.

#11 Overall, 139 different White House staffers were making at least $100,000 during 2012, and there were 20 staffers that made the maximum of $172,200.

#12 Amazingly, U.S. taxpayers spend more than 1.4 billion dollars a year on the Obamas.  Meanwhile, British taxpayers only spend about 58 million dollars on the entire royal family.

#13 During 2012, $25,000 of federal money was spent on a promotional tour for the Alabama Watermelon Queen.

#14 The U.S. government spent $505,000 “to promote specialty hair and beauty products for cats and dogs” in 2012.

#15 NASA spends close to a million dollars a year developing a menu of food for a manned mission to Mars even though it is being projected that a manned mission to Mars is still decades away.

#16 During 2012, the federal government spent 15 million dollars to help the Russians recruit nuclear scientists.

#17 Over the past 15 years, a total of approximately $5.25 million has been spent on hair care services for the U.S. Senate.

#18 The U.S. government spent 27 million dollars to teach Moroccans how to design and make pottery in 2012.

#19 At a time when we have an epidemic of unemployment in the United States, the U.S. Department of Education is spending $1.3 million to “reduce linguistic, academic, and employment barriers for skilled and low-skilled immigrants and refugees, and to integrate them into the U.S. workforce and professions.”

#20 The federal government still sends about 20 million dollars a year to the surviving family members of veterans of World War I, even though World War I ended 94 years ago.

#21 The U.S. government is spending approximately 3.6 million dollars a year to support the lavish lifestyles of former presidents such as George W. Bush and Bill Clinton.

#22 During fiscal 2012, the National Science Foundation gave researchers at Purdue University $350,000.  They used part of that money to help fund a study that discovered that if golfers imagine that a hole is bigger it will help them with their putting.

#23 The U.S. government is giving hundreds of millions of dollars to the Palestinian Authority every single year.

#24 Federal agencies have purchased a total of approximately 2 billion rounds of ammunition over the past couple of years.  It is claimed that all of this ammunition is needed for “training purposes”.

#25 During 2012, the National Science Foundation spent $516,000 on the creation of a video game called “Prom Week” which apparently simulates “all the social interactions of the event.

#26 If you can believe it, $10,000 of U.S. taxpayer money was actually used to purchase talking urinal cakes up in Michigan.

#27 When Joe Biden and his staff took a trip to London, the hotel bill cost U.S. taxpayers $459,388.65.

#28 Joe Biden and his staff also stopped in Paris for one night.  The hotel bill for that one night came to $585,000.50.

#29 If you can believe it, close to 15,000 retired federal employees are currently collecting federal pensions for life worth at least $100,000 annually.  That list includes such names as Newt Gingrich, Bob Dole, Trent Lott, Dick Gephardt and Dick Cheney.

#30 The U.S. Department of Agriculture has spent $300,000 to encourage Americans to eat caviar.

#31 The National Institutes of Health recently gave $666,905 to a group of researchers that is conducting a study on the benefits of watching reruns on television.

#32 The National Science Foundation has given 1.2 million dollars to a team of “scientists” that is spending part of that money on a study that is seeking to determine whether elderly Americans would benefit from playing World of Warcraft or not.

#33 The National Institutes of Health recently gave $548,731 to a team of researchers that concluded that those that drink heavily in their thirties also tend to feel more immature.

#34 The National Science Foundation recently spent $30,000 on a study to determine if “gaydar” actually exists.  This is the conclusion that the researchers reached at the end of the study….

“Gaydar is indeed real and… its accuracy is driven by sensitivity to individual facial features”

#35 In 2011, the National Institutes of Health spent $592,527 on a study that sought to figure out once and for all why chimpanzees throw poop.

#36 The National Institutes of Health has spent more than 5 million dollars on a website called Sexpulse that is targeted at “men who use the Internet to seek sex with men”.  According to Fox News, the website “includes pornographic images of homosexual sex as well as naked and scantily clad men” and features “a Space Invaders-style interactive game that uses a penis-shaped blaster to shoot down gay epithets.”

#37 The General Services Administration spent $822,751 on a “training conference” for 300 west coast employees at the M Resort and Casino in Las Vegas.  The following is how the Washington Post described some of the wasteful expenses that happened during this “conference”…

Among the “excessive, wasteful and in some cases impermissable” spending the inspector general documented: $5,600 for three semi-private catered in-room parties and $44 per person daily breakfasts; $75,000 for a “team-building” exercise — the goal was to build a bicycle; $146,000 on catered food and drinks; and $6,325 on commemorative coins in velvet boxes to reward all participants for their work on stimulus projects. The $31,208 “networking” reception featured a $19-per-person artisanal cheese display and $7,000 of sushi. At the conference’s closing-night dinner, employees received “yearbooks” with their pictures, at a cost of $8,130.

You can see some stunning pictures of GSA employees living the high life in Las Vegas right here.

#38 Do you remember when credit rating agency Egan Jones downgraded U.S. government debt from AA+ to AA?  Well, someone in the federal government apparently did not like that at all.  According to Zero Hedge, the SEC planned to file charges against Egan Jones for “misstatements” on a regulatory application with the SEC.

Normally, the SEC does not go after anyone.  After all, when is the last time a major banker went to prison?

No, the truth is that the SEC is usually just a huge waste of taxpayer money.  According to ABC News, one investigation found that 17 senior SEC officials had been regularly viewing pornography while at work.  While the American people were paying their salaries, this is what senior SEC officials were busy doing…

One senior attorney at SEC headquarters in Washington spent up to eight hours a day accessing Internet porn, according to the report, which has yet to be released. When he filled all the space on his government computer with pornographic images, he downloaded more to CDs and DVDs that accumulated in boxes in his offices.

An SEC accountant attempted to access porn websites 1,800 times in a two-week period and had 600 pornographic images on her computer hard drive.

Another SEC accountant used his SEC-issued computer to upload his own sexually explicit videos onto porn websites he joined.

And another SEC accountant attempted to access porn sites 16,000 times in a single month.

#39 According to InformationWeek, the federal government is spending “millions of dollars” to train Asian call center workers.

#40 If you can believe it, the federal government has actually spent $750,000 on a new soccer field for detainees held at Guantanamo Bay.

#41 The U.S. Agency for International Development spent 10 million dollars to create a version of “Sesame Street” for Pakistani television.

#42 The Obama administration has plans to spend between 16 and 20 million dollars to help students from Indonesia get master’s degrees.

#43 The National Science Foundation spent $198,000 on a University of California-Riverside study that explored “motivations, expectations and goal pursuit in social media.” One of the questions the study sought an answer to was the following: “Do unhappy people spend more time on Twitter or Facebook?”

#44 In 2011, $147,138 was given to the American Museum of Magic in Marshall, Michigan.  Their best magic trick is making U.S. taxpayer dollars disappear.

#45 The federal government recently spent $74,000 to help Michigan “increase awareness about the role Michigan plays in the production of trees and poinsettias.”

#46 In 2011, the federal government gave $550,000 toward the making of a documentary about how rock and roll contributed to the fall of the Soviet Union.

#47 The National Institutes of Health has contributed $55,382 toward a study of “hookah smoking habits” in the country of Jordan.

#48 The federal government gave $606,000 to researchers at Columbia University to study how heterosexuals use the Internet to find love.

#49 A total of $133,277 was recently given to the International Center for the History of Electronic Games for video game preservation.  The International Center for the History of Electronic Games says that it “collects, studies, and interprets video games, other electronic games, and related materials and the ways in which electronic games are changing how people play, learn, and connect with each other, including across boundaries of culture and geography.”

#50 The federal government has given approximately $3 million to researchers at the University of California at Irvine to fund their “research” into video games such as World of Warcraft.

#51 In 2011, the National Science Foundation gave one team of researchers $149,990 to create a video game called “RapidGuppy” for cell phones and other mobile devices.

#52 In 2011, $936,818 was spent developing an online soap opera entitled “Diary of a Single Mom”.  The show “chronicles the lives and challenges of three single mothers and their families trying to get ahead despite obstacles that all single mothers face, such as childcare, healthcare, education, and finances.”

#53 Last year, the federal government spent $96,000 to buy iPads for kindergarten students in Maine.

#54 The U.S. Postal Service once spent $13,500 for a single dinner at Ruth’s Chris Steakhouse.

#55 In 2011, the Air Force Academy completed work on an outdoor worship area for pagans and Wiccans.  The worship area consists of “a small Stonehenge-like circle of boulders with [a] propane fire pit” and it cost $51,474 to build.  The worship area is “for the handful of current or future cadets whose religions fall under the broad category of ‘Earth-based’, which includes Wiccans, druids and pagans.”  At this point, that only includes 3 current students at the Air Force Academy.

#56 The National Institutes of Health once gave researchers $400,000 to study why gay men in Argentina engage in risky sexual behavior when they are drunk.

#57 The National Institutes of Health once gave researchers $442,340 to study the behavior of male prostitutes in Vietnam.

#58 The National Institutes of Health once spent $800,000 in “stimulus funds” to study the impact of a “genital-washing program” on men in South Africa.

#59 The National Science Foundation recently spent $200,000 on a study that examined how voters react when politicians change their stances on climate change.

#60 The federal government recently spent $484,000 to help build a Mellow Mushroom pizzeria in Arlington, Texas.

#61 At this point, China is holding over a trillion dollars of U.S. government debt.  But that didn’t stop the United States from sending 17.8 million dollars in foreign aid to China in 2011.

#62 The U.S. Department of Agriculture gave the largest snack food maker in the world (PepsiCo Inc.) a total of 1.3 million dollars in corporate welfare that was used to help build “a Greek yogurt factory in New York.

#63 The National Science Foundation recently gave a whopping $697,177 to a New York City-based theater company to produce a musical about climate change.

#64 The federal government once shelled out $2.6 million to train Chinese prostitutes to drink responsibly.

#65 The U.S. Department of Agriculture once handed researchers at the University of New Hampshire $700,000 to study methane gas emissions from dairy cows.

#66 The federal government has spent $175,587 “to determine if cocaine makes Japanese quail engage in sexually risky behavior”.


The Biggest Ponzi Scheme In The History Of The World

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via the economic collapse blog Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

America Is BrokeDid you know that you are involved in the most massive Ponzi scheme that has ever existed?  To illustrate my point, allow me to tell you a little story.  Once upon a time, there was a man named Sam.  When he was younger, he had been a very principled young man that had worked incredibly hard and that had built a large number of tremendously successful businesses.  He became fabulously wealthy and he accumulated far more gold than anyone else on the planet.  But when he started to get a little older he forgot the values of his youth.  He started making really bad decisions and some of his relatives started to take advantage of him.  One particularly devious relative was a nephew named Fred.  One day Fred approached his uncle Sam with a scheme that his friends the bankers had come up with.  What happened next would change the course of Sam’s life forever.

Even though Sam was the wealthiest man in the world by far, Fred convinced Sam that he could have an even higher standard of living by going into a little bit of debt.  In exchange for IOUs issued by his uncle Sam, Fred would give him paper notes that he printed off on his printing press.  Since the paper notes would be backed by the gold that Sam was holding, everyone would consider them to be valuable.  Sam could take those paper notes and spend them on whatever his heart desired.  Uncle Sam started to do this, and he started to become addicted to all of the nice things that those paper notes would buy him.

Fred took the IOUs that he received from his uncle and he auctioned them off to the bankers.  But there was a problem.  The IOUs issued by Uncle Sam had to be paid back with interest.  When the time came to pay back the IOUs, Uncle Sam could not afford to pay back the debts, pay the interest on those debts, and buy all of the nice things that he wanted.  So Uncle Sam issued even more IOUs than before so that he could get enough notes to pay off his debts.  As time rolled on, this pattern just kept on repeating.  Uncle Sam repeatedly paid off his old debts by taking out even larger new debts.

Meanwhile, since the notes that Uncle Sam was using were backed by gold, everyone else in the world decided to start using them to trade with one another.  This was greatly beneficial to Uncle Sam, because the rest of the world was glad to send him oil, home electronics, plastic trinkets and anything else that Uncle Sam wanted in exchange for his gold-backed notes.

Eventually, however, the rest of the world started to suspect that the number of gold-backed notes that Uncle Sam was issuing far exceeded the amount of gold that Uncle Sam actually had.  So the rest of the world started to trade in their notes for gold.

And by that time Uncle Sam definitely did not have enough gold to back up his notes.  Realizing that the scheme was starting to collapse, one day Uncle Sam announced that his notes would no longer be backed by gold.  But he insisted that the rest of the world should continue using his notes because he was the wealthiest man on the planet and everyone should just trust him.

And the rest of the world did continue to trust him, although it wasn’t the same as before.

As Uncle Sam got greedier and greedier, he started to issue IOUs and spend notes at a rate that nobody ever dreamed possible.  The great businesses that Uncle Sam had built when he was younger were starting to decline, and Uncle Sam started buying far more stuff from the rest of the world than they bought from him.  The rest of the world was still glad to take Uncle Sam’s notes because they used them to trade with one another, but they started accumulating far more notes than they actually needed.

Not sure exactly what to do with mountains of these notes, the rest of the world started to loan them back to Uncle Sam.  It eventually got to the point where Uncle Sam owed the rest of the world trillions of these notes.  Even though the notes were losing value at a rate of close to 10 percent a year, Uncle Sam somehow convinced the rest of the world to loan him notes at an average rate of interest of less than 3 percent a year.

One day Uncle Sam woke up and realized that the amount of debt that he owed was now more than 5000 times larger than it was when Fred had first approached him with this ill-fated scheme.  Uncle Sam now owed more than 16 trillion notes to his creditors, and Uncle Sam had already made future financial commitments of 202 trillion notes that he would never be able to pay.  Meanwhile, the notes that Fred had been printing up for Uncle Sam were now worth less than 5 percent of their original value.  Uncle Sam was becoming concerned because some of his other relatives were warning that this whole scheme was about to collapse.

Sadly, Uncle Sam did not listen to them.  Uncle Sam knew that if he admitted how fraudulent the financial scheme was, the rest of the world would quit sending him all of the things that he needed in exchange for his notes and they would quit lending his notes back to him at super low interest rates.

And if the rest of the world lost confidence in his notes and quit using them, Uncle Sam knew that his standard of living would go way, way down.  That was something that Uncle Sam could not bear to have happen.

When a financial crisis almost caused the scheme to crash in 2008, a desperate Uncle Sam went to Fred and asked for help.  In response, Fred started printing up far more notes than ever before and started directly buying up large amounts of IOUs from Uncle Sam with the notes that he was creating out of thin air.  Fred hoped that the rest of the world would not notice what he was doing.

It seemed to work for a little while, but then an even worse financial crisis came along.  Once again, Uncle Sam started issuing massive amounts of new IOUs and Fred started printing up giant mountains of new notes to try to fix things, but their desperate attempts to keep the system going were to no avail.  The rest of the world started to realize that they had been sucked into a massive Ponzi scheme, and they lost confidence in the notes that Uncle Sam was using.  Suddenly nobody wanted to lend notes to Uncle Sam at super low interest rates anymore, and people started asking for far more notes in exchange for the things that Uncle Sam wanted.

Uncle Sam’s standard of living dropped dramatically.  Since he could no longer flood the world with his notes, Uncle Sam could not continue to consume far, far more wealth than he produced.  Uncle Sam sunk into a deep depression as he watched the scheme fall apart all around him.

Uncle Sam had once been the wealthiest man on the entire planet, but now he was a broke, tired old man that was absolutely drowning in debt.  Unfortunately, once he was down on his luck the rest of the world did not have any compassion for him.  In fact, much of the rest of the world celebrated the downfall of Uncle Sam.

All of this could have been avoided if Uncle Sam had never agreed to Fred’s crazy scheme.  And once Uncle Sam made the decision to stop backing his notes with gold, it was only a matter of time before the scheme was going to collapse.

Does this little story sound crazy to you?  It shouldn’t.  The truth is that you are involved in such a scheme right now.  In case you haven’t figured it out, “Uncle Sam” is the United States, the “notes” are U.S. dollars, and “Fred” is the Federal Reserve.

Please share this story with as many people as you can.  Our country is headed for complete and total financial disaster, and we need to get people educated about this while there is still time.

Confession Time: Money Printing Enthusiasts Should Admit The Obvious

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Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

zerohedge.com / By F.F.Wiley / June 26, 2013, 17:20 -0400

Submitted by F.F.Wiley via Cyniconomics blog,

Imagine a football coach who hasn’t caught onto the game’s complexities and continues to run the same play – call it a fullback dive – over and over. When I read calls for more monetary stimulus, I feel as though I’m listening to that coach’s brethren in the economist community.

These economists argue that the Fed should simply ramp the money supply higher and higher for as long as some economic statistic – GDP is a popular one – remains below a targeted outcome. Dive, dive, dive, punt and repeat.

There’s an important difference between football and economics, though.

One-dimensional approaches are quickly exposed in football, whereas economies don’t yield clear and timely verdicts on whether policies are effective. There are far too many moving parts to prove cause and effect in a way that everyone can understand and agree. Therefore, bad economic policies persist for a long time before they’re finally found out, and this may be the best way to describe the last 100 years or so of America’s economic history.

With regard to today’s passion for extreme monetary stimulus, once again there’s no scoreboard to tell us whether the Fed is leading us to victory or defeat. Money printing cheerleaders can deny unintended consequences of the Fed’s actions, for two reasons:

  1. Some of these effects aren’t directly observed. For example, we know that misallocation of capital occurs when free market price signals are suppressed, but the misallocation is impossible to measure. Also, the public doesn’t actually see the Fed’s odious wealth transfers to banks even as these transfers put smiles on traders’ faces on POMO days.
  2. Other effects won’t materialize for some time. For instance, zero interest rate policy (ZIRP) and quantitative easing (QE) make it easy for politicians to delay action on long-term fiscal challenges, but government debt can grind higher for years and years before the repercussions become clear to all.

READ MORE

Thanks to BrotherJohnF

Chart of the Week – GLD Metal Holdings

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Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

gotgoldreport.com / By Gene Arensberg / Thursday, June 27, 2013, 01:10:34 PM

Reported metal holdings at SPDR Gold Trust (NYSE: GLD), the largest gold exchange traded fund, reflect significant negative money flow since December, 2012.  So-called hot money, investors, portfolio managers and hedge funds have apparently bought in, hook, line and sinker, to the notion that the world’s largest central banks printing oceans of new fiat currency units has “saved the global economy,” lessening the apparent need to hold gold as portfolio insurance.

If only that were true – that increasing debt in huge amounts by printing money solves a problem of too much government debt in the global economic engine.  We could just print up millions for everyone and people would die of happiness.  (Sarcasm.)

Specifically, from December 10, 2012 to June 26, 2013, GLD metal holdings declined 383.85 metric tonnes (about 28%) from a record high 1,353.35 tonnes to 969.50 tonnes.  (Down 12.3 million ounces troy, from 43.5 million oz. to 31.2 million oz.)  For the same period gold fell $476 or 28% from $1,712 to $1,236 basis the London PM fix.  - See more at: http://www.gotgoldreport.com/2013/06/chart-of-the-week-gld-metal-holdings.html#sthash.UUPak22E.dpuf

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Thanks to BrotherJohnF

A MAJOR BANK MAKES A FREUDIAN SLIP ABOUT THE DOLLAR

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Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

dollarvigilante.com / By Jeff Berwick / July 10, 2013

The cognitive dissonance about the dollar never fails to amaze me. People know in their bones that their dollars will be worth a lot less in the future…yet they continue to trust and cling to the dollar as a store of value.  They invest in things denominated in dollars that pay interest well below the rate of inflation.  Or they go for all out gambling in the stock market to have a hope of outpacing inflation enough to build a tiny bit of wealth to leave to their grandkids.

Commodities like copper with an industrial demand may fall in price — even drastically — in the midst of a global depression. But the 30% or so drop in the price of something like copper will be running hard against the US government’s need to inflate away the value of the US dollar by having the Fed create new money to buy up more and more government debt. Inflation tends to outpace falling prices due to falling demand.  The folks at Wells Fargo understand this and seem to be trying to help clear up some of the public confusion.

The funniest part of this advertisement is that the essential truth it spoke was unintentional.  The unwitting ad copywriter from Wells Fargo likely meant to tell you that if you invest in “other things”, your money will be worth more tomorrow.  But what actually ended up happening is that he spoke the truth about the dollar… and the entire fiat currency system.

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Thanks to BrotherJohnF

The U.S. Government Will Borrow Close To 4 Trillion Dollars This Year

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via the economic collapse blog Be prepared for the next great transfer of wealth. Buy physical silver and storable food.

DebtWhen you add maturing debt to the new debt that the federal government is accumulating, the total is quite eye catching.  You see, the truth is that the U.S. government must not only borrow enough money to fund government spending for this year, it must also “roll over” existing debt that has reached maturity.  Of course the government never actually pays any of that debt off.  Instead, it essentially takes out new debts to cover the old ones.  So the U.S. government is actually borrowing far more money each year than most Americans realize.  For fiscal year 2013, the U.S. budget deficit will be about $845 billion, but on top of that the government will also have to borrow about 3 trillion dollars to pay off old debt that is maturing.  Overall, the U.S. government will borrow close to 4 trillion dollars this year, and that number will likely be even higher next year.  That is not going to cause a crisis as long as interest rates stay super low, but if interest rates begin to rise substantially, the game will change dramatically.

When the government borrows money, it has to pay it back someday.  Back in the old days, the federal government used to issue lots of debt that would not mature for a very long time.  But in recent years things have been very different

In order to fund the government, the Treasury Department periodically auctions Treasury securities with various maturities ranging from 30-day Treasury bills to 30-year Treasury bonds, with 2-3-5-7-year and 10-year Treasury notes in between. It used to be that the bulk of Treasury borrowing was done in the longer-term instruments with maturities of at least 10 years.

In more recent years, however, this trend has shifted more toward shorter-term Treasury securities. There are pros and cons to both strategies. Generally speaking, the shorter maturities are considered more risky since short-term interest rates can vary frequently. Shorter-term maturities obviously have to be rolled over much more often. That raises the risk that there might not be enough buyers when the government needs them.

At this point, the average maturity of outstanding government debt is only 65 months, and only about 10 percent of all Treasury debt matures outside of a decade.

So what does that mean?

It means that the federal government must constantly roll over massive amounts of debt.  Once again, this is not too much of a problem as long as interest rates stay super low, but as John Cochrane pointed out, if rates start rising back to “normal” levels things could get quite hairy very quickly…

Here’s the nightmare scenario: Suppose that four years from now, interest rates rise 5 percent, i.e. back to normal, and the US has $20 trillion outstanding. Interest costs alone will rise $1 trillion (5% of $20 trillion) – doubling already unsustainable deficits! This is what happened to Italy, Spain, and Portugal. Don’t think it can’t happen to us. It’s even more likely, because fear of inflation – which did not hit them, since they are on the Euro – can hit us.

Sadly, those running things appears to be quite clueless.  For example, retiring U.S. Representative Michele Bachmann recently asked Federal Reserve Chairman Ben Bernanke why the national debt has remained frozen in place for 56 straight days even though we have been borrowing lots of money.  Bernanke seemed to have no idea how to answer that question

As Federal Reserve Chairman Ben Bernanke testified before the House Financial Services Committee Wednesday, Bachmann asked how there could be no increase reported in the total debt when the government is racking up about $4 billion a day in new debt.

“After nearly 10 years as the head of the Federal Reserve, Chairman Bernanke could not answer my question today in Financial Services Committee,” Bachmann told WND.

She wondered if there’s a political motive.

“I asked whether the Treasury Department was cooking the federal government’s books as it was reported that the Feds debt balance sheet remained at $16,699,396,000,000 for 56 days straight, presumably so the Treasury Department wouldn’t officially register that once again the Congress had exceeded its legal borrowing limits.”

For the moment, the federal government is able to recklessly borrow and spend money and investors are rewarding this behavior with super low interest rates.

Unfortunately, this state of affairs is completely and totally unsustainable.  At some point global financial markets will begin to behave rationally, and when that happens it is going to mean a tremendous amount of pain for the United States.

Over the past decade, the U.S. government has added more than 11 trillion dollars to the national debt at a time when the U.S. economy has been steadily declining.  Anyone that thinks that we can continue to pile up more debt like this indefinitely does not know what they are talking about.

The following are some more statistics about the U.S. national debt for you to consider…

-Back in 1980, the U.S. national debt was less than one trillion dollars.  Today, it is rapidly approaching 17 trillion dollars.

-During Obama’s first term, the federal government accumulated more debt than it did under the first 42 U.S presidents combined.

-The U.S. national debt is now more than 23 times larger than it was when Jimmy Carter became president.

-If you started paying off just the new debt that the U.S. has accumulated during the Obama administration at the rate of one dollar per second, it would take more than 184,000 years to pay it off.

-If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

-If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

-Some suggest that “taxing the rich” is the answer.  Well, if Bill Gates gave every single penny of his entire fortune to the U.S. government, it would only cover the U.S. budget deficit for 15 days.

-If the federal government used GAAP accounting standards like publicly traded corporations do, the real federal budget deficit for 2011 would have been 5 trillion dollars instead of 1.3 trillion dollars.

-The United States already has more government debt per capita than Greece, Portugal, Italy, Ireland or Spain does.

-At this point, the United States government is responsible for more than a third of all the government debt in the entire world.

-The amount of U.S. government debt held by foreigners is about 5 times larger than it was just a decade ago.

-The U.S. national debt is now more than 37 times larger than it was when Richard Nixon took us off the gold standard.

-The U.S. national debt is now more than 5000 times larger than it was when the Federal Reserve was first created.

-Boston University economist Laurence Kotlikoff is warning that the U.S. government is facing a gigantic tsunami of unfunded liabilities in the coming years that we are counting on our children and our grandchildren to pay.  Kotlikoff speaks of a “fiscal gap” which he defines as “the present value difference between projected future spending and revenue”.  His calculations have led him to the conclusion that the federal government is facing a fiscal gap of 222 trillion dollars in the years ahead.

For the moment everything is fine because interest rates are incredibly low and the mockers in the “deficits don’t matter” fan club are having a field day.

But what is going to happen when interest rates return to rational levels?

How will the U.S. government be able to borrow the trillions of dollars that it needs to borrow every single year?

That is why it is so important to watch interest rates.  When they start skyrocketing, big trouble is ahead.

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