U.S. funding for future promises lags by trillions

The numbers are even worse than this already bad number.  Over the counter derivatives, if marked to market, would increase the nation's liability by trillions, due to a depression in real estate prices.  But hey, who's counting?  Thanks to Kitty for finding this article.

http://www.usatoday.com/news/washington/2011-06-06-us-owes-62-trillion-in-debt_n.htm?loc=interstitialskip

The federal government's financial condition deteriorated rapidly last year, far beyond the $1.5 trillion in new debt taken on to finance the budget deficit, a USA TODAY analysis shows.

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.

"Gang of Six" budget talks founder in Senate

http://www.reuters.com/article/2011/05/18/us-usa-debt-idUSTRE74E1HD20110518?type=smallBusinessNews

Republican Tom Coburn, one of the Senate's leading fiscal conservatives, told reporters he was dropping out of the bipartisan "Gang of Six" after months of meetings.

"We can't bridge the gap between what actually needs to happen and what people will allow to happen," Coburn said.

A source familiar with the talks said Coburn had pushed for deep and immediate cuts to Medicare, the healthcare program for the elderly, which were rejected by other members of the group. Coburn's proposal was described as more dramatic than a plan that passed the Republican-controlled House of Representatives last month.

Volcker warns of danger from U.S. deficits

http://www.reuters.com/article/2011/05/07/us-volcker-deficit-idUSTRE74604W20110507

$38 Billion In Cuts? Make That $353 Million

http://www.zerohedge.com/article/38-billion-cuts-make-353-million

To give it scale, let's use numbers the average Joe can relate to.  Say my total household debt is $75,000, but since I'm the government, I won't include long-term debt (Social Security, Medicare, Medicaid, Fannie Mae, Freddie), and will only count my immediate obligations and declare my official debt is only $14,400.  My income this fiscal year is $2,160, while I am spending $3,760, which equates to an annual deficit of $1,600.

So I finally convince my wife that we need to tighten our belts, as well as somehow increase our income in order to reduce/zero out that $1,600 deficit--because every annual deficit adds to our total debt level.  After many rounds of theatrics and arguments so loud our neighbors can hear us, we finally congratulate ourselves by declaring to the world that we have managed to trim $38 from our annual budget.  I repeat:  $38.

It gets worse.  Upon further inspection, our CPA, who is allegedly independent--despite having a track record of being easily influenced by our exhortations to doctor our books, declares the actual savings will only amount to $ 0.35.

That's it:  despite a $75,000 household debt, and spending $1,600 above my income (highly optimistic since the deficit calculation doesn't take into account total debt servicing expenses), I'm celebrating because I have managed to save 35 cents.

That's the true scale of the charade Congress and the Obama Administration have been partaking in "solving" our debt problem.  The only difference in my example is I've lopped off a bunch of zero's (i.e., I moved the decimal point 9 places to the left).

NOW do you understand why I've kept banging the drums that whatever action our government takes going forward:  cutting taxes, increasing taxes, increasing spending to stimulate the economy, and/or reducing spending in an attempt to get our fiscal house in order, it is too little too late.  No matter what stimulative or austere measures our politicians and monetary authorities take, it is GAME OVER.  The interest expense to service our humongous debt will overwhelm whatever tax revenues our government takes in.

Why is this important?  Pretty soon, our government's interest expense will outpace funding for our national defense.  Even if everything remained static and debt levels don't climb from here, every 1% rise in interest rates, increases our interest expense $144 billion (and interest rates WILL rise, since they're zero right now).  And pretty soon after that, that same debt-servicing expense will completely overwhelm every other vital government service.  The government will be paying off that debt before allocating funding to protect us, educate our children, feed the hungry, the retired, the disabled, and our veterans.  There will be no government services left = bankruptcy.  The difference being the government won't be around to bail out a bankrupt entity like GM or the banks like they did in 2008.  Because this time around, it will be the government itself that is bankrupt.

So how will the government feign solvency and creditworthiness?  They will keep printing increasingly worthless dollars, giving it fancy names and acronyms in order to hide the true nature of their counterfeiting schemes.  Meanwhile, savers, investors, Treasury bond owners, and anybody holding cash will all be wiped out.

Van Jones: Stop worrying about the deficit

This line of thinking is exactly what's wrong with our country. Thanks to Kitty for this one.

http://dailycaller.com/2010/07/24/van-jones-stop-worrying-about-the-deficit-the-government-can-just-take-more-money-from-rich-companies/

While the federal government sinks deeper into debt than any time since World War II, former White House “green jobs” adviser Anthony Van Jones said it was time to stop worrying about budget deficits and pressure Washington to take more money from American businesses to fund larger social and infrastructure projects.

“This is a rich country. We have plenty of money, and if you don’t believe me, ask Haliburton,” Jones told a group of progressive bloggers and activists at the Netroots Nation convention Friday. “There’s plenty of money out there; don’t fall into the trap of this whole deficit argument.”

“The only question is how to spend it,” he added.

Greenspan warns of US budget deficit

This is another example of a former government official speaking out now that he is no longer bound by political restraint.

http://www.dailyfinance.com/story/greenspan-warns-us-budget-deficit-greece/19521722/

Bernanke: "Things will come apart..."

Wow, Ben Bernanke speaks the truth (finally):

http://www.cnsnews.com/news/article/67461

Federal Reserve Chairman Ben Bernanke delivered a frank assessment to Congress on the fate of the economy if entitlement programs are not restructured. On Wednesday, Bernanke warned that “things will come apart” if Congress allows the federal entitlement programs and the deficit spending they cause to continue on their unsustainable path.

Speaking at a hearing of the House Budget Committee, Bernanke offered his dire prediction after being asked what would happen if Congress did not take action to head off the impending crisis brought on by unsustainable entitlement spending, led primarily by Medicare.

“The entitlement programs are not self-funded,” Bernanke said, “they are unfunded liabilities. They are the single biggest component of spending going forward.”

“There are various ways you could address this – you can restructure entitlement programs [or] you can cut other things – but at some point you need to address the overall budgetary situation. If you don’t, you’ll get a picture like this one [pointing to a graph showing a steep rise in interest rates and debt] where interest rates are rising and debt outstanding is growing exponentially.

“At that point, things will come apart,” he said. “This [rise in debt] will stop, but it might stop in a very unpleasant way in terms of sharp cuts, a financial crisis, high interest rates that stop growth, [or] continued borrowing from abroad.”

Lunacy

Even gold bugs don't fully understand gold's store of value. Breaking news: gold's performance during deflationary times actually outperform periods of inflation. Not necessarily in nominal terms (since prices of everything generally increase nominally during inflation), but in real terms, gold actually does better in a deflationary environment. In other words, while gold is a great hedge against inflation (i.e., it maintains its purchasing power even as paper currencies are debased), it is an even better hedge during financial crisis and deflation (e.g., the Great Depression).

Second point: since official cpi numbers are understated, the inflation-adjusted price of gold should be $6300/oz., not $2400/oz., like you read in many gold-related trades. One can also arrive at the same outcomes by dividing the money supply by the amount of gold above ground, depending on which Mx metric you use for money supply. But it doesn't take a rocket scientist to track the Fed's exploding monetary base since 2008, money supply debates notwithstanding.

And if you believe the nation's unemployment rate is 9.9%, instead of the actual 22%, I've got some US Treasury bonds I'd like to sell you (or Greek bonds, for that matter).

3rd point: the bullion banks, with implicit authorization from central banks, allegedly are suppressing the prices of precious metals in London and at the COMEX. This was considered a lunatic fringe conspiracy theory, but is now being investigated by the US Department of Justice--and the normally shiftless CFTC, according to an article in the New York Post. JPMorgan was specifically named in the article. In other words, a phenomenon a few observers who cared to examine for years, is about to be blown wide open, much like the Goldman Sachs subprime mortgage derivative fraud case brought on by the other previously shiftless and incompetent enforcement agency, the SEC. Only in this case, JPMorgan and a host of other bullion banks are naked shorting silver and gold futures contracts with huge, concentrated positions.

4th point: in a related matter, the Federal Reserve Bank (Fed) has been complicit in surreptitious price suppression schemes with gold swaps, sales and leases to other central and bullion banks, with no independent auditing, and according to Ron Paul, with no authority. That's why he wants to audit the Fed, as the vaults at Ft. Knox and in New York have not been independently audited since 1953. If the gold is there, why has the Fed refused an audit for over 50 years? And if bullion banks are naked shorting precious metals, what happens to the price of a commodity if there are shortages and there is a run on inventory?

5th point: how did gold end up in Ft. Knox in the first place? Due to Executive Order 6102, FDR confiscated all private citizen's gold in 1933. Can our government do that again? Probably not, but if they did, the black market would thrive, as gold ownership is now a worldwide phenomena--among individuals, financial institutions, and sovereign central banks. Hedge fund managers, Swiss bankers, latin American overlords, oil sheiks, and 3 billion peasants in Asia are waking up to the reality of the paper currency Ponzi scheme.

6th point: the shortage in silver is even more pronounced, as it is an industrial metal, and since it is cheaper, the silver market is easier to manipulate. When the shortage hits, and "failure to deliver's" pile up, industrial silver buyers will pay any price to keep their production lines humming. We all want our iPad's yesterday, right? Industrial uses include solar panels, electronics, disinfectants, antibiotics, biotech, batteries--any green technology you can think of. Good luck on finding it when there's a run on silver.

And lastly, those on the sidelines have missed out on a decade-long bull market in precious metals. Sure, gold was the worst investment between 1980 and 2001, when the spot price declined from $850 to $250. That's because between 1983 - 2000, financial assets like equities had a historic run of about 12% return annually. But between 1971 and 1980, gold increased 24-fold. That's when the US was fighting a war it couldn't afford, the government was running a deficit, energy prices were going through the roof, and economic growth was stagnant (stagflation = stagnation + inflation). Sound familiar? Only this time, due to compounding interest on the liability side of the Federal government's ledger, our fiscal problems are much larger. If the government were to stop cooking its books and include unfunded liabilities like social security, medicare, medicaid, Fannie Mae, Freddie Mac, etc., our sovereign debt grows from $13 trillion to $60 trillion (or $100 trillion, depending on who you ask). No wonder the Fed and US Treasury are turning on the printing press.

So people have to ask themselves: are the US government budget deficit and debt problems getting better or worse? And if so, will the Fed bail out bankrupt states and municipalities also--or will they just step aside and let them undergo "austerity" measures like the Greeks have had to endure?

One guess is that they will continue to print currency, tanking the dollar further. The USDollar is only looking stronger because the euro is sinking faster. You can be the tallest midget in the room, but you're still a midget. The scary part is gold is appreciating in tandem with the USDollar, and has decoupled from its normally inverse relationship. What the markets are saying is that gold is the ultimate currency, the last man standing in a race to the bottom among paper currencies. After all, the logic goes, a weakened currency stimulates exports and employment, right?

This is not to say any asset values go straight up or straight down--there will continue to be violent gyrations from central bank intervention, and manipulation by financial institutions. But due to profligate printing and spending (and hence, the necessary obfuscation of said reckless policies), the trend of debased currencies and soaring sovereign debt will continue. Solving debt problems with more debt is lunacy, but the path our governments have chosen. It's either die now quickly, or inflate and die later. Owning precious metals is the only defense an individual has in this mad world of fiat paper currency.

See disclaimer on side bar.

Disclosure: long precious metals, long gold and silver mining shares.

Bernanke warns of budget deficits

Ben Bernanke is finally talking some sense. Too bad it's too little, too late.

http://www.bloomberg.com/apps/news?pid=20601103&sid=aKjGr3eur2sI

Federal Reserve Chairman Ben S. Bernanke said a failure to reduce the federal budget deficit may push up interest rates over time and impair economic growth, putting the recovery at risk.

“Achieving long-term fiscal sustainability will be difficult, but the costs of failing to do so could be very high,” Bernanke said in a speech today to a White House commission on the budget deficit. “Increasing levels of government debt relative to the size of the economy can lead to higher interest rates, which inhibit capital formation and productivity growth — and might even put the current economic recovery at risk.”

Budget deficits may eventually erode the confidence of bond investors in the management of U.S. fiscal policy, driving yields higher on Treasury borrowing, raising the cost of lending in the economy and slowing economic growth, Bernanke said.

He must be reading the blogosphere.

Record US debt

The message is by now not astonishing, but the source is a bit surprising. Robert Altman, a former deputy US Treasury secretary under President Clinton--which makes him a Democrat, comments on the disastrous US deficits and debt levels.

http://newsmax.com/Newsfront/debt-20-trillion-obama/2010/04/21/id/356486

Putin: US is just as bad as Greece

The next cold war won't be one with missiles and nuclear weapons. It will be an economic war--one of attrition. And one the Russians and Chinese are more than happen to wait out, as the US economy tumbles due to gargantuan debts and deficits.

http://www.theglobeandmail.com/report-on-business/putin-calms-greece-says-us-debt-big-too/article1469868/

Russian Prime Minister Vladimir Putin played down Greece's economic woes on Tuesday, telling his visiting Greek counterpart that the United States were no better than Greece in handling its debt and fiscal deficit.

“As we all know, the global economic crisis started neither in Greece, nor in Russia, nor in Europe,” Mr. Putin told a news conference after talks with George Papandreou. “It came to us from across the ocean,” he said in a clear reference to the United States.

“There (in the U.S.) we can see similar problems - massive external debt, budget deficit,” Mr. Putin added, suggesting Russia and Greece should concentrate on the “real economy” to weather the economic crisis.

Deficit to GDP

Risk of sovereign debt default is permeating throughout nervous bond markets for Greece, Spain, and Portugal--among other countries, as credit spreads widen.

The US fiscal picture isn't much better. Yet, investors still view the USDollar as a safe haven. Time will tell whether US Treasury bond investors will be trapped in another bubble.

Deficit picture

A chart is worth a thousand words, so thanks to my friend Craig Bardo for finding this article.

http://blog.heritage.org/2009/03/24/bush-deficit-vs-obama-deficit-in-pictures/

Debt panel

In the "speaking out of both sides of the mouth" category, Obama raised the national debt limit to $14.3 trillion, simultaneously proclaiming the creation of a debt panel to reduce budget deficits and debt levels.

http://www.reuters.com/article/idUSN0510452820100205

Geithner says US will never lose AAA credit rating

US Treasury Secretary Tim Geithner says the US could never lose its AAA crediting rating. Seeing how the track records for the Fed and US Treasury are spotty regarding economic forecasts, I'll beg to disagree with Geithner.

http://www.bloomberg.com/apps/news?pid=20601087&sid=ahGwg7V3u3Gs&pos=3

The major credit ratings agencies missed the subprime and financial crises, failing to downgrade insolvent banks and toxic mortgage-backed securities, so for them to call into question the sovereign credit risks of Dubai, Greece, Spain, Portugal, Ireland, the UK, Japan, and now the US, should cause one to sit up and take notice.

Moody’s Investors Service Inc. last week said the U.S. government’s bond rating will come under pressure in the future unless additional measures are taken to reduce budget deficits projected for the next decade.

Yep, QE to infinity is coming.

Despite declarations of quantitative easing ending, and "exit strategies" for pulling back "stimulus" spending, the title of this Bloomberg article says all you need to know ("G-7 Vows to Keep Economic Stimulus Even as Budget Deficits Grow"): central banks worldwide will predictably continue to print money in an attempt to stave off The Greater Depression. Congress and the Obama administration will continue to kick the can down the road--at least until the mid-term elections are over. Meanwhile, the budget deficit and national debt will continue to grow by monstrous proportions.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aHNY95xmqjwM&pos=1

And Tim Geithner, US Treasury Secretary once again endorses a "strong dollar policy." Yeah, right...we've all heard that one before.