Report: US ETFs Signal Renewed Bitcoin Interest; BTC’s Limited 'Hot Supply' Eyes Bull Market

https://news.bitcoin.com/report-us-etfs-signal-renewed-bitcoin-interest-btcs-limited-hot-supply-eyes-bull-market/

Why The Status-Quo Is Unsustainable: Interest and Debt (What Yellen Won't Tell You)

http://www.zerohedge.com/news/2014-07-15/why-status-quo-unsustainable-interest-and-debt-what-yellen-wont-tell-you

Guess What They Are Not Cutting In The Fiscal Cliff...

http://www.zerohedge.com/news/2012-11-15/guess-what-they-are-not-cutting-fiscal-cliff

As we've discussed before, US government spending falls into three categories.

1. Discretionary spending is what we normally think of as 'government.' It funds everything from the military to Homeland Security to the national parks.
2. Mandatory spending covers all the major entitlement programs like Social Security and Medicare.
3. Then there's interest on the debt, which is so large they had to make it a special category.

The latter two categories are spent automatically, just like your mortgage payment that gets sucked out of the bank account before you have a chance to spend it. The only thing Congress has a say over is Discretionary Spending. Hence the name.

But here's the problem-- the US fiscal situation is so untenable that the government fails to collect enough tax revenue to cover mandatory spending and debt interest. In Fiscal Year 2011, for example, the US government spent $176 billion MORE on debt interest and mandatory spending than they generated in tax revenue. 

In Fiscal Year 2012, which just ended 6 weeks ago, that shortfall increased to $251 billion. This means that they could cut the ENTIRE discretionary budget and still be in the hole by $251 billion. 

This is why the Fiscal Cliff is irrelevant. The automatic cuts that are going to take place don't even begin to address the actual problem; they're cutting $110 billion from the discretionary budget... yet only $16.9 billion from the mandatory budget. 

Given that the entire problem is with mandatory spending, slashing the discretionary budget is pointless. It's as if the US economy is a speeding train heading towards a ravine at 200 mph, and the conductors are arguing about whether they should slow down to 150 or 175.

Oh, and there's just one more problem.

The government thinks that they will collect a few hundred billion dollars more in tax revenue when all of these new taxes kick in. Again, wishful thinking.

In the six+ decades since the end of World War II, tax rates in the US have been all over the board. Yet during this time, the US government has only managed to collect roughly 17.7% of GDP in tax revenue.

Conclusion? Increasing taxes won't increase their total tax revenue. Politicians have tried this for decades. It doesn't work. The only way to increase tax revenue is for the economy to grow... and higher tax rates do not pave this path to prosperity. 

Ron Paul was spot on. Economic ignorance abounds. And all the Talking Heads in the mainstream media blathering away about the Fiscal Cliff are only reinforcing his premise. 

Bottom line-- the Fiscal Cliff doesn't matter. The US passed the point of no return a long time ago.

Servicing debt payments

According to Darryl Robert Schoon:

In the early stages of capitalist systems, interest and principal can be serviced out of the debtor’s cash flow. In the final stage of “mature capitalist systems”, they cannot.

Capitalism’s final stage is what Minsky calls “ponzi-financing”, when debt payments can only be made by additional borrowing. This is what the US, the UK and Japan are doing today, having to borrow against tomorrow in order to pay yesterday’s bills.

The hazards of our huge national debt

Persistent deficits and huge debts eventually make it tough to even pay the interest on that debt. So the government must continue to print more currency.

http://money.cnn.com/2009/11/19/news/economy/debt_interest/index.htm

Peter Schiff's take on the economy

Peter Schiff is one of my favorite financial minds--only because he is prescient and has called this financial crisis when it was unpopular to do so. He went against the grain against conventional "expert" wisdom, and called our economy for what it is--an over-leveraged, over-consuming, and ultimately phony "wealth effect". He absolutely was correct in his assessment. And more importantly, he laid out a plausible plan to preserve wealth and enhance returns.

Here is his latest take on the Fed bailouts and the resulting outcomes:

January 9, 2009

The Fed’s Bubble Trouble


A few weeks ago when the Fed announced a strategy designed to bring down long-term interest and home mortgage rates through unlimited Treasury bond purchases, government debt staged a spectacular rally. To the unschooled market observer, the spike may be difficult to understand. After all, why would the value of Treasury bonds rise while their underlying credit quality is deteriorating faster than Bernie Madoff’s social schedule? The move is actually a perfect illustration of the tried and true Wall Street strategy of “buy the rumor and sell the fact”.

If it is well known that Fed will be a big purchaser of Treasuries, those buying now will be positioned to unload their holdings when the buying spree begins. If the Fed pays higher prices in the future, traders can earn riskless speculative profits. If the traders lever up their positions, as many are likely doing, even small profits can turn unto huge windfalls.

The downside of course, is that all of the demand for Treasuries is artificial. Treasuries are now in the hands of speculators looking to sell, not investors looking to hold. These players are analogous to the mid-decade condo-flippers who flocked to new developments for quick profits. They did not intend to occupy their properties, but rather flip them to future buyers. Once these properties came back on the market, condo prices collapsed, as developers were forced to compete for new sales with their former customers.

This is precisely what will happen with Treasuries. Just as the U.S. government issues mountains of new debt to finance the multi-trillion annual deficits planned by the Obama Administration, speculative holders of existing debt will be offering their bonds for sale as well. In order to prevent a complete collapse in the bond prices the Fed will be forced to significantly increase its buying.

However, since the only way the Fed can buy bonds is by printing money, the more bonds they buy the more inflation they will create. As inflation diminishes the investment value of low-yielding Treasuries, such a scenario will kick off a downward spiral. But the more active the Fed becomes in their quest to prop up bond prices, the bigger the incentive to hit the Fed’s bid. The result will be that all Treasuries sold will be purchased by the Fed. But with the resulting frenzy in the Treasury market, and with inflation kicking into high gear, we can expect that demand for other debt classes that the Fed is not backstopping, such as corporate, municipal and agency debt, to fall through the floor, pushing up interest rates across the board.

In order to “save” the economy from these high rates the Fed will then have to expand its purchases to include all forms of debt. If that happens, run-away inflation will quickly turn into hyper-inflation, and our currency will be worthless and our economy left in ruins.

To avoid this nightmare scenario, the Fed should pull out of the bond market before it’s too late and let prices fall to where real buyers, those willing to hold to maturity, re-enter the market. Given how high inflation will likely be by the time this happens, my guess is that long-term Treasury yields will have to rise well into the double digits to clear the market.

But we should know that the bursting of the bond market bubble will have even more dire consequences than the bursting of prior bubbles in stocks and real estate. Significantly higher interest rates and inflation that will result will severely compound the current problems. Imagine how much worse our economy would be if we faced double digit interest rates? In addition, not only will homeowners be confronted with record high mortgage rates, but the Government will be staring at trillion dollar annual interest payments on the national debt, making interest by far the single largest line item in the Federal budget. Just like homeowners who relied on teaser rates, the Government will face a similar problem when all its low-yielding short-term debt matures.

The grim reality of course is that when the real estate bubble burst the Government was able to “bail-out” private parties. However, when the bond market bubble bursts, it will be the U.S. Government itself that will be in need of the mother of all bailouts. If U.S. taxpayers or foreign creditors are unwilling or unable to pony up, and if the nightmare hyper-inflation scenario is to be avoided, default will be the only option. If misery really does love company, Bernie Madoff’s clients might finally find some comfort.

Mr. Schiff is president of Euro Pacific Capital and author of "The Little Book of Bull Moves in Bear Markets"