Why, If You Think About It, We’re All Screwed

http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2013/3/2_Why%2C_If_You_Think_About%2C_Were_All_Screwed.html

Does Government Have a Revenue or Spending Problem?

http://youtu.be/pES9C7fX_Co

Portugal raids pension funds to meet deficit targets

Don't think this is unprecedented--and don't think it can't happen again.  It will--here and in every bankrupt nation. 

http://www.telegraph.co.uk/finance/financialcrisis/8932687/Portugal-raids-pension-funds-to-meet-deficit-targets.html

Europe's Response To Geithner's Advice: "I'd Like To Hear How The United States Will Reduce Its Deficits ... And Its Debts"

http://www.zerohedge.com/news/europes-response-geithners-advice-id-hear-how-united-states-will-reduce-its-deficits-and-its-de

Two years after being laughed out by a bunch of Chinese students, Tim Geithner realized that his hypocrisy may pass muster in the Beltway, but the crowd is tougher across the Atlantic. As Reuters reports, the much anticipated meeting between Geithner and the euro FinMins in Wroclaw, Poland, lasted all of thirty minutes and if nothing else managed to unite the Europeans... in their ridicule and derision of the man that has become a global muppet caricature. The litany of quotes needs no explanation: "I found it peculiar that even though the Americans have significantly worse fundamental data than the euro zone that they tell us what we should do and when we make a suggestion ... that they say no straight away," Maria Fekter, [Austria's Finance Minister] told reporters afterwards, recalling a difference of opinion between Geithner and German Finance Minister Wolfgang Schaeuble on how to reinvigorate the euro zone and tax financial deals." And the kicker came from Belgian Finance Minister Didier Reynders, who responded 'tartly' that "We can always discuss with our American colleagues. I'd like to hear how the United States will reduce its deficits ... and its debts." Alas, as Tim has found the hard way, being one of the biggest offendors when it comes to collapsed economies does take away from his credibility. So if we may suggest, Timmy should i) focus on fixing the US economy, and since he has repeatedly failed at that ii) to immediately resign.

Government deficits are the next black swan

http://www.businessweek.com/investor/content/jul2010/pi2010078_530571.htm

As an analogy: You often have planes landing two hours late. In some cases, when you have volcanos, you can land two or three weeks late. How often have you landed two hours early? Never. It's the same with deficits. The errors tend to go one way rather than the other. When I wrote The Black Swan, I realized there was a huge bias in the way people estimate deficits and make forecasts. Typically things costs more, which is chronic. Governments that try to shoot for a surplus hardly ever reach it.

The problem is getting runaway. It's becoming a pure Ponzi scheme. It's very nonlinear: You need more and more debt just to stay where you are. And what broke [convicted financier Bernard] Madoff is going to break governments. They need to find new suckers all the time. And unfortunately the world has run out of suckers.

California and other states on verge of failure

http://www.theglobeandmail.com/report-on-business/economy/california-on-verge-of-system-failure/article1609891/

Dr. Doom Nouriel Roubini

Nouriel Roubini, a money manager and professor at Yale, was nicknamed Dr. Doom for his apocalyptic economic forecasts. I agreed with most of his reasons: high debt levels and unsustainable deficits. But I am calling him out on his forecasts for gold. Here is a partial excerpt from his website (it is partial because I am not a client of his):

http://www.roubini.com/analysis/91695.php

In a Bloomberg interview in November 2009, Roubini said gold was a bubble that was about to burst. Gold was priced at $1100/oz at the time. When billionaire hedge fund manager Jim Rogers declared gold would double to $2000, Roubini dismissed it as "utter nonsense."

He was wrong then and I'm going on record that he will be wrong going forward. When gold does reach $2000, will Roubini apologize to Rogers and admit he was wrong? I doubt it. If gold plummets to $500, I promise I will admit I was wrong.

See disclaimer on side bar.

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

State deficits

To my friends who insist we are in an economic recovery, I submit this piece:

http://www.wnyc.org/news/articles/154198

Especially poignant, and illustrative of the madness of fractional reserve financial systems:

"States can’t go into bankruptcy. They are not included in the bankruptcy code," he says.

Today’s outlook is different from the city's fiscal crisis of the 1970s when the state couldn't find any lenders. Instead, he says, bankers are circling Albany with tempting offers.

"The financial community is ready to lend the state all kinds of money. They have 20-odd schemes they are suggesting about how the state can borrow money," Ravitch says.

But New York has to be careful; borrowing would dig the state even deeper into fiscal trouble. Ravitch says New York is not alone: all 50 states are facing a total of $350 billion in deficits and more than $2 trillion in unfunded pension liabilities.

So Lt. Governor Richard Ravitch believes banks offering "20-odd schemes" of lending the state more money is beneficial? Could these "schemes" include derivatives and interest rate swaps, which have managed to destroy cities, states, and whole sovereign countries (see Greece)? I also like the following editorial comment,

But New York has to be careful; borrowing would dig the state even deeper into fiscal trouble.

Really? That's brilliant insight right there. Welcome to the world of comedic tragedy.

Look, no one says the nation's GDP isn't recovering--it is. But we are bouncing off the bottom. And due to systemic rot in a financial system full of off-balance, unaccounted-for toxic assets, no amount of window dressing of economic data or financial "reform" will result in sustainable economic recovery.

Bernanke and Greenspan finally speak the truth

Two years late and several trillion dollars short, but the former and current Fed Chairmen are finally telling it like it is: our huge budget deficits are a threat to the financial health of this country--not just in Greece. They're even urging Congress to reign in spending and to raise taxes. Good luck with that.

http://www.washingtontimes.com/news/2010/feb/25/bernanke-delivers-warning-on-us-debt/

Perhaps Bernanke is tired of hearing complaints from the blogosphere about him being asleep at the wheel.

This time it's different...

http://usawatchdog.com/this-time-is-different-it%E2%80%99s-global/

Economists Kenneth Rogoff and Carmen Reinhart do a great job of researching various financial meltdowns in places like South America, Asia, Europe and the U.S. In every crisis, no matter where it took place in the last 8 centuries, people thought a big debt buildup could not end badly. The authors say “arrogance and ignorance” always pave the way to financial hell, no matter what country or what century.

The news gets worse because just about every other industrialized country in the world is facing record deficits and liabilities. Those countries will also print money to pay off debt.

Sovereign debt is being called into question with talk of national defaults on a scale unheard of before. Just this week, economist Dr. Mark Faber said, “…I am not interested in government or sovereign debt because all governments will eventually default, including the U.S.” Faber thinks governments will default, in part, by printing money to pay for their liabilities and debt. That prediction spells I-N-F-L-A-T-I-O-N on a global level. It is no surprise that Dr. Faber thinks gold will continue to outperform stocks.

So, the things that got us in this financial crisis are no different than the things that caused other financial meltdowns throughout history. I think what is different this time is the size of the debt buildup. It is on a scale never before seen in human history. Debt is overwhelming individuals, corporations and countries. This global debt will likely produce the biggest financial meltdown in history, deserving of the Volker expression “mother of all financial crises.”

GE and the US government are broke

General Electric and the US government are bankrupt, according to Porter Stansberry.

We've been telling our friends for months that sooner or later the U.S. Treasury secretary would come out and publicly say something ridiculous in defense of the U.S. dollar – much like a banana republic's finance minister on the eve of devaluation. Today, we got our first actual taste... On Sunday, Geithner said the U.S. "will never" lose its triple-A credit rating. Never is a very long time. And if you believe the representative of a bankrupt government, there's a bridge in Brooklyn you should look into buying...

Watching Geithner lie through his teeth reminded us of July 2008, when Fed Chairman Ben Bernanke assured us Fannie Mae and Freddie Mac were "adequately capitalized" and "in no danger of failing." One month earlier, I'd written an issue of my newsletter (Porter Stansberry's Investment Advisory) titled "Freddie Mac and Fannie Mae Are Going to Zero." I was watching Bernanke's testimony on TV in a hotel room on the 30th floor of the Four Seasons Hotel in Las Vegas. I could literally see more than $100 million worth of bankrupt real estate from my window – more than enough to bankrupt both Fannie and Freddie. As an investor, I had a simple choice to make: I could believe a government bureaucrat, who is in charge of running a paper money system backed by nothing by confidence... or I could believe audited financial statements and my own two eyes. I chose the latter.

More recently, I've been warning investors both our government and our biggest conglomerate (GE) are broke. On Friday, Moody's seemed to agree with me, warning the current deficits are unsustainable. Geithner and Bernanke will undoubtedly beg to differ. However, anyone who has ever paid interest on any debt before is welcome to simply look at the numbers and ask themselves a few basic questions... How can so few taxpayers be expected to repay more than $20 trillion worth of debt? How can a democracy where most people don't actually pay taxes ever be expected to run a balanced budget? Why would anyone expect America to repay its debts when millions of our consumers and a large number of our biggest companies are going bankrupt?

Big problems like these are easy for investors to ignore. And many investors will ignore these problems – for a long, long time. I can't tell you when, exactly, the scary numbers behind GE and our federal government will cause investors to take action. But I can tell you when that time comes you won't want to be holding dollars or GE bonds. And I can tell you with 100% certainty both GE and the federal government are going bankrupt within the next five years.

John Embry of Sprott Asset Management, January 2010

http://www.sprott.com/Docs/InvestorsDigest/2010/01_29_2010%20Expect%20gold%20to%20gain%20more%20than%2030%20this%20year.pdf

Lies and omissions

http://usawatchdog.com/real-deficit-numbers-and-real-consequences/

The reason why I ask is the government uses accounting gimmicks to make just about every number it puts out look better than what it really is. For example, the most recent Consumer Price Index for inflation was officially 2.7%; but if you compute inflation the way Bureau of Labor Statistics did it in 1980, the inflation rate would be 9.7%. The same goes for unemployment. Officially, it stands at 10%; but if computed the way BLS did it prior to 1994, it would come out to 21.9%. (source: shadowstats.com)

I asked economist John Williams of shadowstats.com to weigh in on last year’s record $1.4 trillion of red ink for the “real” deficit number. Williams told me, “It was closer to $2 trillion because they knocked off $500 billion with accounting gimmicks.”

In its latest budget, the White House is projecting $1.56 trillion in red ink, and that is another new record! What will the “real” deficit be when the year is over? Williams says, “With a weaker than expected economy, the 2010 deficit likely will top $2 trillion…”

No matter how the government does its accounting, the actual deficit will have to be financed. America will have 3 choices: (1) raise taxes to the moon in a very bad economy, (2) get foreigners to buy more debt, and (3) monetize the debt. (print money to pay the bills) Williams chooses what’s behind door #3. In his latest report he says, “…worse-than-projected borrowing needs for the U.S. Treasury likely will trigger increasing flight from the U.S. dollar. At such time as that moves to a panicked level, and U.S. Treasuries increasingly are dumped or otherwise shunned, the Fed will have little choice but to monetize the Treasury debt, becoming the buyer of last resort for Treasuries. Those circumstances should lead to mounting inflation woes and flight-to-safety outside the U.S. dollar, particularly to hard assets such as gold and silver…”

There is another possible consequence to record deficits–higher interest rates! Countries around the globe with high deficits are starting to see interest rates rise. For example, Greece is facing a huge debt load and interest rates there are skyrocketing. In a recent article from “Money and Markets,” analyst Mike Larson put it this way, “Imagine what would happen if Uncle Sam’s borrowing costs shot up like they have in Greece — by 60 percent! Imagine what that would mean for the cost of car loans, mortgages, and other products whose rates track Treasury yields! And imagine the impact on an economy still struggling to recover from the Great Recession! This is the next big story that few people are talking about.”

The founder of “Money and Markets,” Dr. Martin D. Weiss, went on to say, “…unless the Obama administration and Congress can somehow ax the budget or find a new gusher of revenues — both extremely unlikely anytime soon — collapsing U.S. bond prices and sharply higher long-term interest rates are unavoidable.”

The most recent record breaking budget does not take into account what we will spend in the continued bailout of failed mortgage giants Fannie and Freddie. The two were nationalized last year and, on Christmas Eve, the Treasury decided to give them both unlimited bailout funds for the next three years! There is a total of $8 trillion in liability.

So, it looks like higher inflation or higher interest rates or both are coming.