New DVDs By Michael Snyder
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 Does anyone need any additional evidence that our political system is completely broken? The bipartisan congressional supercommittee that was given two months to come up with at least $1.2 trillion in deficit cuts over the next decade has failed to reach an agreement. It is an epic failure and a national embarrassment. The truth is that they never even came close to an agreement. In fact, as you will read below, the two sides on the panel have been barely even talking to each other. In the end, the supercommittee was a super joke. Meanwhile, the U.S. national debt has passed the 15 trillion dollar mark and we are facing trillion dollar deficits as far as the eye can see. We are heading directly for a national financial disaster, and our “leaders” seem powerless to do anything about it.
According to the supercommittee’s rules, any plan would have had to have been submitted to the Congressional Budget Office by Monday in order to give the CBO 48 hours to analyze how much the plan would reduce budget deficits over the coming decade.
When the supercommittee was announced, it made headlines all over the world, but now it is ending with a whimper.
The supercommittee was never a good idea in the first place, but you would have thought that they could have come up with something over the course of two months.
But instead all they are giving us are a whole bunch of excuses and a whole lot of hot air.
What a joke.
Is it really that difficult to come up with $1.2 trillion in cuts over a decade?
It isn’t as if they would even be cutting very deeply. $1.2 trillion in cuts would not even cut the budget by $150 billion a year. We would still be talking about trillion dollar deficits way into the future.
But instead of agreeing to some token cuts, they have chosen to do nothing and to blame each other.
So now $1.2 trillion in “automatic budget cuts” will go into effect starting in 2013. But even that $1.2 trillion figure contains a lot of “fuzzy math”. For example, it includes $169 billion in “projected savings” from “reduced interest costs” on the national debt.
I would love to see how they came up with that figure.
In any event, the truth is that none of these numbers really matter at all.
Why?
None of the budget cuts go into effect until after the 2012 election. That means that this Congress can vote to repeal the automatic cuts well before then.
Some in Congress are already pushing for this. For example, U.S. Senator John McCain said the following recently….
“It’s something we passed. We can reverse it.”
Or, even more likely, once the new president and the new Congress are elected in 2012 they will almost certainly choose to abandon this agreement.
When it comes to politics, the only thing that matters is what happens before the next election.
All of this talk of future cuts is just an illusion. When the next president and the next Congress come to power, they will want to do their own thing.
So after all of the huffing and puffing over the last couple of years, what has actually been accomplished as far as reducing our horrific budget deficits?
Not much at all.
We racked up a $1.3 trillion budget deficit during the fiscal year that just ended, and this fiscal year we will be somewhere in the same neighborhood.
We have been living in the greatest debt bubble in the history of the world, and at some point all of this is going to end very, very badly.
The total amount of debt in this country (government, business and consumer) has been rising much, much faster than our national income has. If you don’t believe this, just check out this chart.
In particular, government debt is totally out of control. When Barack Obama first took office, the national debt was 10.6 trillion dollars.
It is now over 15 trillion dollars.
We are in debt up to our eyeballs and we desperately need our leaders to do something about it.
But according to a recent Politico article, the members of the supercommittee haven’t even been talking to each other….
The supercommittee last met Nov. 1 – three weeks ago! It was a public hearing featuring a history lesson, “Overview of Previous Debt Proposals,” with Alan Simpson, Erskine Bowles, Pete Domenici and Alice Rivlin. The last PRIVATE meeting was Oct. 26. You might as well stop reading right there: The 12 members (6 House, 6 Senate; 6 R, 6 D) were never going to strike a bargain, grand or otherwise, if they weren’t talking to each other. Yes, we get that real deal-making occurs in small groups. But there never WAS a functioning supercommittee: There was Republican posturing and Democratic posturing, with some side conversations across the aisle.
Can you believe that?
Could it really be true that they have not met since November 1st?
Is Congress really that much of a joke?
According to Real Clear Politics, the approval rating for Congress is sitting at about 12 percent right now.
After this, it may get even lower.
Instead of working on a solution to our problems, the members of the supercommittee have been busy going on television and telling us who to blame.
The following is a short exceprt from a recent article in the Washington Post….
Republicans on the supercommittee held a conference call Saturday morning, and aides said members from both parties continued to talk by phone. But neither side was predicting a last-minute breakthrough. Instead, seven panel members booked appearances on the Sunday talk shows, as both sides readied their best arguments for why the other is at fault.
Our politicians are obsessed with finding someone else to blame and with getting ready for the next election.
Meanwhile, the ship is going down and people are starting to panic.
And this is not going to look good to the rest of the world at all. There is a very real risk that one of the other major credit rating agencies will decide to downgrade U.S. debt.
The second downgrade of debt is often more important than the first. When the first downgrade happened, U.S. debt still had a AAA rating from the other two major credit rating agencies.
But after another downgrade, the average credit rating of U.S. debt will be less than AAA. That will mean that U.S. debt will no longer be a cash proxy. A lot of transactions that take place right now in the financial world would not be able to happen if that takes place.
So what do our leaders need to do?
Well, the truth is that we should recognize that they are in a really, really tough position. Decades of nightmarish decisions have left us out of good options under our current financial system.
The reality is that members of Congress are damned if they do and they are damned if they don’t.
This is what I mean – if we don’t deal with our national debt now, everyone agrees that a massive day of reckoning is coming down the road. Greece is an example of what happens when debt catches up with a nation.
However, if we did cut the federal budget very deeply right now, it would almost certainly bring on a huge economic contraction.
Right now, insane federal spending is one of the only things keeping this economy afloat. If you were to suddenly pull half a trillion dollars (or more) of federal spending out of the economy, it would have a devastating impact.
A lot of people out there correctly argue for a huge reduction in federal spending, but they greatly underestimate the amount of pain that it would cause.
Let there be no doubt, all of this federal debt has enabled us to enjoy a “false prosperity” for several decades, and when we dramatically cut back on spending a lot of that “false prosperity” is going to disappear.
Our “real economy” is rapidly being gutted and America is becoming poorer as a nation every single day. One way that we have been making up the difference is by going into almost unbelievable amounts of government debt. When the government debt bubble pops, the pain is going to be enormous.
If you do not believe this right now, you will believe it soon enough.
Not that we should keep going into huge amounts of debt.
Every dollar that we “borrow” is actually being stolen from our children and our grandchildren.
In fact, that is what Thomas Jefferson believed. According to Jefferson, when the federal government borrows money in one generation which must be paid back by future generations it is equivalent to stealing….
And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.
We have got to stop stealing from future generations. If they get the chance, they will curse us for what we have done to them.
Anyone out there that supports our current system of running endless budget deficits is supporting a horrific crime against our children and our grandchildren.
But once again, we all need to clearly understand that when the borrowed money stops flowing out of Washington D.C., our economy is going to get much worse.
Are you prepared for the unemployment rate to double?
Are you prepared for foreclosures to soar to unprecedented heights?
Are you prepared for economic pain unlike anything you have ever seen before?
According to the New York Times, there are 100 million Americans that are either living in poverty or that are considered to be among the “near poor” right now.
So how bad will things get if we plunge into a depression?
Anyone that believes that we can drastically cut the federal budget and improve the economy at the same time under our current system is not being rational.
Just look at what is happening to Greece. They implemented substantial budget cuts (although not nearly big enough to bring them to a balanced budget) and they have plunged into a nightmarish economic depression.
Right now, we are in a position where we are going to experience a horrific amount of pain whatever we do. If we keep piling up debt at this rate we will experience a nightmare, but if we pop the debt bubble and try to live within our means we will also experience a nightmare.
There is a way out of this, but our politicians are not talking about it. As I have written about previously, if the federal government abolishes the Federal Reserve and starts issuing debt-free money, we could eliminate our federal budget deficits, cut taxes and improve the economy all at the same time.
But nobody is even talking about debt-free money.
Instead, all of our politicians are talking about “fixing” the current system.
Well, let me tell you, it is impossible to solve our problems under the current system. If we insist on maintaining our current debt-based financial system, it will only end in a massive amount of pain.
The American people need to get educated about our financial system. They need to learn that the Federal Reserve and the debt-based currency that they issue are at the very heart of our economic problems.
Back in 1913, prior to the passage of the Federal Reserve Act, the national debt was only about $2.9 billion.
Today, our national debt is over 5000 times larger.
Debt-based central banking is a perpetual debt machine. It is at the heart of our financial problems and it is also at the heart of the financial problems that Europe is experiencing.
Unfortunately, the American people don’t understand this, and there are virtually no politicians out there that are even talking about this.
Very dark days are ahead for America.
You had better get prepared.
 How does a country end up 15 trillion dollars in debt? 30 years ago, we were just a little over a trillion dollars in debt. How in the world do supposedly rational people living in “the greatest nation on earth” allow themselves to commit national financial suicide by allowing government debt to explode like that? It almost seems like there should be some sort of official ceremony in Washington D.C. to commemorate this achievement. It really takes something special to be able to roll up 15 trillion dollars of debt. To get to this level, we really had to indulge in some wild spending. For example, did you know that the U.S. national debt grows by more than 2 million dollars every single minute? All of this debt has fueled an unprecedented boom of prosperity for the last 30 years, but now that prosperity is drying up. Today, there are over 45 million Americans that are on food stamps. America is being deindustrialized at a blinding pace and there are not nearly enough jobs for everyone. Poverty is exploding all over the nation, and millions of families have lost their homes to foreclosure. Unfortunately, there are zero solutions on the horizon. The leaders of both major political parties seem even more clueless right now than in past years. We really could use some hope, but hope is in very short supply.
When evaluating the health of America’s economy, it is important not to look at the short-term numbers. Rather, the key is to look at the long-term trends and the balance sheet numbers.
For example, if a mother and a father gave their teenage kids a bunch of credit cards and told them to go out and buy whatever they wanted, that would create a lot of “economic activity”, but it would also send that family to the poorhouse really quickly.
Well, we have basically done the same thing as a nation. We are drowning in debt, and all of this debt is going to destroy us financially.
Unfortunately, the federal government continues to spend money as if there was no tomorrow. Right now, spending by the federal government accounts for about 24 percent of GDP. Back in 2001, it accounted for just 18 percent.
When you are running up a credit card, it can be a lot of fun and it can seem like there aren’t any consequences.
But when it comes to debt, there are always consequences. The following is what former Republican Senator Alan Simpson (of the Simpson-Bowles Commission) recently had to say about the horrific debt crisis we are currently facing….
“It’s very simple. If you spend more than you earn, you lose your butt”
In the United States, we love to have the government spend money on all sorts of things, but we never want to pay for it.
So the debt just keeps piling up higher and higher.
A lot of Republicans say that spending on social programs has gotten out of control. A lot of Democrats say that spending on the military has gotten out of control.
They are both right. As I have written about previously, the U.S. military accounts for close to half of all the military spending in the world. In fact, U.S. military spending is greater than the military spending of the next 15 countries combined.
Yes, we will always need a very powerful military, but we can have one without going broke in the process.
But an even larger problem is our rampant spending on social programs.
The following comes from a recent article by Janet Tavakoli….
In 1950 spending for social programs was only one percent of the total Federal Budget. As the economy grew, social programs expanded to include Social Security, Medicare, Medicaid, Food Stamps, Unemployment Compensation, Supplemental Security for the Disabled, and educational programs. In 1983 as the United States pulled out of an ugly recession and brought inflation under control, social programs consumed 26% of the budget. In fiscal year 2012, they’ll eat up an estimated 57% of the budget.
Tens of millions of Americans have become absolutely addicted to government money. Nobody ever wants “their government benefits” to be cut, but nobody ever seems to want to have their taxes raised to pay for them.
To get a really good idea of how government transfer payments have absolutely skyrocketed over the years, just check out this chart.
Obviously, the course that we are on is not anywhere close to sustainable.
To say that the “war on poverty” was a failure would be a huge understatement.
The more money we seem to spend on social programs, the more that poverty seems to grow.
Right now, there are over 45 million Americans on food stamps. The economy is supposed to be “recovering”, but the number of Americans on food stamps has grown by over 8 percent in just the past year.
Food stamps are the modern equivalent of the old-fashioned bread lines. The federal government is now feeding an almost unbelievable number of Americans.
According to the Wall Street Journal, nearly 15 percent of all Americans are now on food stamps. That means that approximately one out of every seven Americans is dependent on the federal government for food.
That is not just a crisis – that is a total nightmare.
So what can be done?
Well, we certainly shouldn’t let our people starve in the streets.
But handouts should only be a temporary solution.
What these people really need are good jobs. Unfortunately, our “leaders” have created a business environment in this country that is incredibly toxic, and they have stood by as millions upon millions of good jobs have been shipped out of the country. That is one of the reasons why I write about the insane trade policies of the globalists over and over and over. The American people need to understand that globalization is going to mean a continuing loss of jobs for this country and it is going to result in the destruction of the middle class.
If we are not going to provide good jobs for American workers, then we are going to have to pay higher taxes in order to feed them and take care of them.
But what happens when the “safety net” breaks?
Even now, a lot of state and local governments all over the country are flat broke and they are cutting back on assistance for the poor.
The following is a brief excerpt from a recent article about this issue that was posted on the Fiscal Times….
For years, hundreds of thousands of people in dire straits – mentally or physically disabled, homeless and unemployed, ineligible for federal welfare, disability, or food subsidies – could generally count on state or local government largesse for modest handouts of cash to help scrape by. Under the rubric of “General Assistance,” these down-and-out Americans received modest payments – often no more than a few hundred dollars a month – to help defray the cost of necessities including rent, food, clothing, toilet paper, aspirin, phone cards, and bus tickets.
But in the midst of the worst recession of modern times and changing attitudes about the poor, many states have been gradually chipping away at general assistance programs or eliminating them altogether. Only 30 of 50 states currently offer any form of general assistance – down from 38 in 1989. And just this week, Washington State formally ended its “Disability Lifeline” program for an estimated 18,000 to 22,000 economically desperate residents.
Sadly, even more of us may be joining the ranks of the poor soon. The layoffs just keep on coming.
Normally, most major store closings do not happen until after the holiday season. You see, the reality is that most troubled retailers tend to want to bring in one more year of holiday sales before they finally shut the doors. If you announce store closings before the holidays, that is going to make holiday shoppers less likely to shop at those stores.
So that is why some of the recent store closing announcements have been so troubling.
For example, it just came out that all 46 Syms and Filene’s Basement stores are closing.
Also, Gap recently announced plans to close 189 stores in the United States.
So if this is what we are already seeing now, what is going to happen after the holidays?
That is a very good question.
So many jobs are being lost all around the nation. These days, there is massive competition for just about any job that is available.
People are getting desperate. They just want to be able to pay the bills and take care of their families.
The other day, thousands upon thousands of people lined up to apply for casino jobs in south Florida. Scenes like this are going to become even more frequent in the years ahead.
So do our politicians have any solutions?
Of course not.
The worst of the Republican candidates are actually at the top of the polls. The cold, hard truth is that Romney, Cain and Perry are all clueless when it comes to the economy.
Of course you might as well call Barack Obama “Captain Clueless” when it comes to the economy. Obama keeps giving great speeches about jobs while at the same time signing more “free trade” agreements that will send thousands more businesses and millions more jobs out of the country. Even the CEOs on Obama’s jobs creation panel are shipping huge numbers of jobs out of the United States.
Obama gave a speech in Washington D.C. today that exemplified his clueless approach to the economy. During the speech, Obama made the following statement….
“If Congress tells you they don’t have time, they got time to do it. We’ve been in the House of Representatives, what have you guys been debating? John, you’ve been debating a commemorative coin for baseball? You have legislation reaffirming that In God We Trust is our motto. That’s not putting people back to work. I trust in God, but God wants to see us help ourselves by putting people back to work”
First of all, Obama is not putting people back to work. He has been helping big corporations ship jobs out of the country at a record pace.
Secondly, how does he know what God wants?
A lot of people actually think that the phrase “God helps those who help themselves” is in the Bible.
But it isn’t.
A while after the Obama speech, White House Press Secretary Jay Carney made matters worse when he told reporters the following….
“I believe the phrase from the Bible is ‘The Lord helps those who help themselves”
But once again, there is no such verse in the Bible.
Okay, so quoting a “mystery verse” from the Bible is not that big of a thing at the end of the day, but this is yet another example of how the Obama administration just can’t seem to get anything right.
Look, everyone makes mistakes once in a while. I know that I certainly do.
But when you are wrong about almost everything almost all of the time, that is a major problem.
Especially when you are the president of the United States.
But both political parties are to blame for the mess that we are in. Budget deficits exploded during Republican administrations just like they have under the Democrats.
Both political parties are responsible for us being 15 trillion dollars in debt.
Both political parties are responsible for 45 million Americans being on food stamps.
Both political parties are responsible for the fact that there are not nearly enough good jobs.
If Barack Obama, Mitt Romney or Rick Perry is elected in 2012, we are just going to have more of the same.
America is running out of time. If we are going to change course, we need to do it immediately.
The borrower is the servant of the lender. We are enslaving ourselves and we are enslaving future American generations by going into so much debt.
Shame on the politicians that have rolled up so much debt in our name and shame on us for continuing to send those same politicians back to Washington D.C. time after time after time.
It is so sad to watch what is happening to America.
 Do you hear that sound? It is the sound of Europe being hit with a cold dose of financial reality. The air has been let out of the balloon, and investors all over the world are realizing that absolutely nothing has been solved in Europe. The solutions being proposed by the politicians in Europe are just going to make things worse. You don’t solve a sovereign debt crisis by shredding confidence in sovereign debt. But that is exactly what the “voluntary 50% haircut” has done. You don’t solve a sovereign debt crisis by pumping up your “bailout fund” with borrowed money from China, Russia and Brazil. More debt is just going to make things even worse down the road. You don’t solve a sovereign debt crisis by causing a massive credit crunch. By giving European banks only until June 2012 to dramatically improve their credit ratios, it is going to force many of them to seriously cut back on lending. A massive credit crunch would significantly slow down economic activity in Europe and that is about the last thing that the Europeans need right now. If the deal that was reached last week was the “best shot” that Europe has got, then we are all in for a world of hurt.
On Monday, investors all over the globe began to understand the situation that we are now facing. The Dow was down 276 points, and the euphoria of late last week had almost entirely dissipated.
But much more important is what is happening to European bonds.
Investors are reacting very negatively to the European debt deal by demanding higher returns on bonds.
Perhaps the most important financial number in the world right now is the yield on 10 year Italian bonds.
The yield on 10 year Italian bonds is up over 6 percent, and the 6 percent mark is a key psychological barrier. If it stays above this mark or goes even higher, that is going to mean big trouble for Italy.
The Italian government just can’t afford for debt to be this expensive. The higher the yield on 10 year bonds goes, the worse things are going to be for Italy financially.
Of course it was completely and totally predictable that this would happen as a result of the “voluntary 50% haircut” that is being forced on private Greek bondholders, but the politicians over in Europe decided to go this route anyway.
Major Italian banks also got hammered on Monday. The following is how a CNN article described the carnage….
Shares of UniCredit, the largest bank in Italy, sunk more than 4% on Friday in Milan and were down nearly another 6% Monday. Intesa, the second-largest Italian bank, slipped 7% Monday, while Mediobanca, Italy’s third-largest financial institution, fell about 4%.
The financial world can handle a financial collapse in Greece. But a financial collapse in Italy would essentially be the equivalent of financial armageddon for Europe.
That is why Italy is so vitally important.
Another EU nation to watch closely is Portugal.
The yield on 2 year Portuguese bonds is now over 18 percent. A year ago, the yield on those bonds was about 4 percent.
In many ways, Portugal is in even worse shape than Greece.
A recent article by Ambrose Evans-Pritchard discussed the debt problems that Portugal is faced with. The following statistic was quite eye-opening for me….
Portugal’s public and private debt will reach 360pc of GDP by next year, far higher than in Greece.
Like Greece, Portugal is essentially insolvent at this point. Their current financial situation is unsustainable and politicians in Portugal are already suggesting that they should be able to get a “sweet deal” similar to what Greece just got.
You see, the truth is that what this Greek debt deal has done is that it has opened up Pandora’s Box. Most of the financially troubled nations in Europe are eventually going to want a “deal”, and this uncertainty is going to drive investors crazy.
There is very little positive that can be said about this debt deal. It has bought Europe a few months perhaps, but that is about it.
As the new week dawned, financial professionals all over the globe were harshly criticizing this deal….
*The CEO of TrimTabs Investment Research, Charles Biderman, says that the big problem with this deal is that the fundamental issues have not been addressed….
“The euphoria about the latest euro zone bailout will fade quickly, as investors realize that the underlying solvency issues have not been addressed”
*Bob Janjuah of Nomura Securities International in London was even harsher….
“This latest round of euro zone shock and awe is, in my view, nothing more than a confidence trick and has possibly even set up an even worse financial outcome.”
In fact, Janjuah says that the debt deal is essentially a “Ponzi scheme”….
This latest bailout relies on the market not calling what I see is a huge “bluff”, because if the market does call it, the bailout simply won’t be credible or even deliverable. It is instead akin to a self-referencing ponzi scheme, and I can’t believe eurozone policymakers have even considered going down this route. After all, we all have recent experience of how such ponzi schemes end, and we all remember how eurozone officials often belittled and berated US policymakers for their role in the US housing/CDO/SIV financial bubble.
*The chief economist at High Frequency Economics, Carl Weinberg, is calling the European debt deal a scheme “of Madoffian proportions“….
“Now they (EU Leaders) are keen to tap into resources that are not their own to fund this crazy scheme of guarantees, leveraged off guarantees to sell bonds and bank shares that no one may want to buy, (in order) to restore value in the banking system destroyed by other bonds that no one wants to own right now. This is a construct of Madoffian proportions”
Even George Soros is criticizing the deal. George Soros is saying that this European debt deal will help stabilize things for a maximum of three months.
Of course with Soros there is always an agenda and you never know what his motives are. Perhaps he is honestly concerned about the financial health of Europe, or perhaps he is trying to feed the panic to get Europe to crash even faster. With Soros you never really know what he is up to.
In any event, the crisis in Europe is already claiming financial casualties in the United States.
MF Global, a securities firm headed up by former New Jersey governor Jon Corzine, has filed for bankruptcy protection.
As a recent CNBC article noted, the firm failed because of bad debts on European sovereign debt….
The bankruptcy protection filing from MF Global — a mid-sized trading firm run by former New Jersey Gov. and Goldman Sachs CEO Jon Corzine — only helped amplify the realization that more difficulties remain. MF Global got into trouble mainly because Corzine made tragically wrong bets on European sovereigns that unraveled when it became clear that bondholders of Greek debt will not be made whole as the nation tries to make its way out of its fiscal morass.
As time goes on, there will be more financial casualties. The truth is that someone is going to pay the price for the financial foolishness of these countries in Europe.
Politicians in Europe did not want to increase the “bailout fund” with any of their own money, so they are going to go crawling to China, Russia and Brazil and beg those countries to lend them huge amounts of money.
This is incredibly foolish, and it is already fairly clear that China is going to play hardball with Europe. China has Europe exactly where China wants them, and China will likely demand all sorts of crazy things before they will lend Europe any cash for this bailout fund.
As a recent CNN article noted, Europe is going to be in a lot of trouble if they can’t get money out of China, Russia and Brazil….
The hope is that China and other sovereign wealth fund will invest in new special vehicles that will allow the EFSF to add leverage to increase the amount of funding available.
Without the help of China, Brazil, Russia and others, Europe is back where it started. And it still seems clear that the stronger northern European nations aren’t keen on the idea of a full bailout of their southern siblings.
What a mess.
It is a comedy of errors for the politicians over in Europe. They can’t seem to get anything right. In fact, everything that they do seems to make a financial collapse in Europe even more likely.
Keep a close eye on the bond yields over in Europe. Especially keep a close eye on the yield on 10 year Italian bonds.
A massive financial storm is coming to Europe.
It is going to rock the entire globe.
Now is the time to make certain that your financial house is not built on a foundation of sand. Get your assets into safe places and keep them safe because the road ahead is going to be quite rocky.
 Over a trillion U.S. taxpayer dollars have been spent on wars in Afghanistan, Iraq and Libya. Whether you are for the wars or against the wars, it is important for all of us to step back and evaluate what we have really gotten for all of that money. In Libya, we have actually helped al-Qaeda forces that were shooting at U.S. soldiers in Iraq and Afghanistan take over the country. Now they have announced that they will be imposing strict Sharia law on all of Libya. After 10 years of having our boys shot up in Afghanistan, the Afghan government is so “grateful” that they are publicly saying that they will side with Pakistan in any future war against the United States. In Iraq, Islamic radicals are beheading and murdering dozens and dozens of Christians and the new Iraqi government seemingly can’t wait to push the remaining U.S. soldiers out of the country. We ran up well over a trillion dollars of new debt to “liberate” these countries, but are they really in better shape than they were before these wars? Are we really in better shape than we were before these wars?
Today, the United States military has at least one base in more than half of all the nations on the planet.
The U.S. spends more than 7 times as much on the military as any other country on earth does.
Without a doubt, the United States will always need a strong military. But with the national debt soaring to unprecedented heights, is it really wise for us to try to be the police of the entire globe?
We have poured well over a trillion dollars into Afghanistan, Iraq and Libya and we have very little to show for it.
Are Afghanistan, Iraq and Libya safer places than before we went to war with them?
No.
Are Afghanistan, Iraq and Libya producing fewer “terrorists” than before we went to war with them?
No.
Are we safer than before we started all these wars?
No.
Our government has spent well over a trillion dollars and the blood of thousands upon thousands of U.S. soldiers has been spilled and in the final analysis very little has actually been accomplished.
Let’s take a closer look at these conflicts and see exactly what we have gotten for all of the money that we have spent….
Libya
In Libya, we have actually helped al-Qaeda take power.
In Afghanistan and Iraq we were supposedly fighting to do just the opposite.
So just what in the world is going on here?
The price tag for the first week of airstrikes on Libya alone was 600 million dollars.
Yes, Gaddafi was a tyrant, but have we invested a lot of time and effort only to watch as an even worse government takes power?
According to The Telegraph, the leader of the Libyan rebels was openly admitting that his “troops” included jihadists that were firing bullets at U.S. forces in Iraq….
Abdel-Hakim al-Hasidi, the Libyan rebel leader, has said jihadists who fought against allied troops in Iraq are on the front lines of the battle against Muammar Gaddafi’s regime.
A recent article by Kurt Nimmo for Infowars.com discussed some of the other ways that al-Qaeda has been active in Libya during the fight against Gaddafi….
Despite Aujali’s assurance, Abdel Hakim Belhadj, the former head of LIFG, was appointed to run a military council in September. He fought with al-Qaeda and the Taliban in Afghanistan.
In February, it was reported that al-Qaeda had set-up an Islamic emirate in Derna, in eastern Libya, headed by a former prisoner at Guantanamo Bay, Abdelkarim al-Hasadi.
Now that they have won, the “rebels” have announced that they will be imposing strict Sharia law all over Libya.
According to a new article posted on The Telegraph, Mustafa Abdul-Jalil, the chairman of NATO’s National Transitional Council, has even announced plans to repeal polygamy laws because they are not compliant with Sharia law….
Mr Abdul-Jalil went further, specifically lifting immediately, by decree, one law from Col. Gaddafi’s era that he said was in conflict with Sharia – that banning polygamy.
Should we be cheering this?
Why would the U.S. government want to spend a single penny helping al-Qaeda take over Libya and set up Sharia law there?
There should not be a single American (conservative or liberal) that supports what has gone down in Libya.
Afghanistan
The U.S. military has now been in Afghanistan for 10 years. World War II lasted less than 6 years. The U.S. government has spent over 467 billion dollars on the war in Afghanistan, and thousands upon thousands of our troops have been killed or wounded there.
Even after all this time, a single day of the war in Afghanistan costs more money than it took to build the entire Pentagon.
So are the Afghans grateful that we have sacrificed so much to bring “democracy” to that nation?
Of course not.
Just check out what Afghan President Hamid Karzai said during one recent interview….
“God forbid, If ever there is a war between Pakistan and America, Afghanistan will side with Pakistan”
Did you catch that?
Karzai says that in a future war between Pakistan and the United States, Afghanistan is going to be fighting against us.
But didn’t we bring them freedom?
No, we did not.
Instead, one radical Islamic government replaced another.
Today, there are officially zero Christian churches left in Afghanistan.
The new constitution of Afghanistan says that that Islam is the “religion of the state“.
The new constitution of Afghanistan also states that “no law can be contrary to the beliefs and provisions of the sacred religion of Islam”.
Earlier this year, I wrote about one Afghan man that was actually sentenced to death for converting to Christianity….
In Afghanistan right now, a one-legged Afghan Red Cross worker named Said Musa is sitting in a prison cell awaiting his execution. Musa, a father of six children, was arrested by the Afghan government as he attempted to seek asylum at the German embassy last year. He was sentenced to death by an Afghan court that was established by the new Afghan government that the United States worked so hard to set up. He has been tortured and sexually abused for months. An Afghan judge has told him that he will be hung within a matter of days. So what was his crime? He was a Muslim that has become a Christian. Under Sharia law, that is punishable by death. Is this is the “freedom” that we have sacrificed so many American lives to bring to Afghanistan?
Thankfully he was later released from prison and was able to get out of the country.
However, this just shows that the people of Afghanistan are currently experiencing a level of freedom that is quite comparable to what they experienced under the Taliban.
After all that the United States has done over there, very little positive change has taken place.
Iraq
Up to now, it is estimated that the U.S. government has spent over 800 billion dollars on the war in Iraq.
Thousands upon thousands of U.S. soldiers lost arms and legs in Iraq.
Thousands of U.S. soldiers will never be coming home at all.
But after all of our efforts, Iraq is still a far less safe place than it was before we invaded.
Christians and other religious minorities once were able to worship in peace, but now they are racing to get out of Iraq as fast as they can.
Why?
Well, because Christians and other religious minorities are being brutally targeted by Islamic radicals.
For example, about a year ago more than 80 Iraqi Christians were beheaded on a single day. All that the Christians were trying to do was attend a church service. One four-month-old baby was actually beheaded right in front of her parents. You can see pictures of the shocking violence from that day right here.
Iraq is a complete and total disaster zone at this point.
The Iraqi government says that it is willing for U.S. military trainers to stay in the country, but they also say that there will be no more immunity for U.S. soldiers.
We have left the country in far worse shape than we found it, and Iraq is now a bigger breeding ground for terrorists than it ever was before.
You see, the truth is that the populations of these countries will continue to hold a grudge once we leave. They are simply not going to forgive and forget. There are millions of Islamic radicals in these countries that will never, ever, ever forgive the United States. The hatred that they feel for us could be passed down for generations.
We have not brought freedom to the people of Afghanistan, Iraq and Libya. Instead, we have just replaced the tyranny that they were suffering under with new forms of tyranny.
Meanwhile, we continue to spend ourselves into oblivion.
Yes, the U.S. will always need a strong military.
Yes, there are areas where we actually need to spend more on the military. For example, now that Barack Obama has completely gutted our strategic nuclear arsenal, that is one area that we desperately need to attend to.
However, we simply cannot continue to recklessly spend money like we are today. We are in debt up to our eyeballs, and trying to be “the police of the world” is very expensive….
*Before the start of the “War on Terror”, the U.S. national debt was under 6 trillion dollars. Today, it is getting very close to 15 trillion dollars.
*Right now, the U.S. military is in nearly 130 different nations and it has a total of approximately 700 military bases around the world. It takes about 100 billion dollars a year to maintain these bases.
*U.S. military spending is greater than the military spending of China, Russia, Japan, India, and the rest of NATO combined.
*The United States accounts for 46.5% of all military spending on the planet. China is in second place with only 6.6%.
Meanwhile, our national security just continues to deteriorate. Millions of people have illegally poured across our border with Mexico and the federal government is actually suing border states such as Arizona to keep them from trying to stop this.
Our national security priorities are way, way out of whack. We continue to waste money in some of the most bizarre ways imaginable and yet we continue to become less secure with each passing year.
Yes, the United States needs a very, very strong military.
Yes, national security needs to be a very, very high priority.
But what we have been doing over the past decade has not worked. In fact, the Bush/Obama foreign policy has been an abject failure. We have poured hundreds of billions of dollars down the drain and we are less secure today than at any point since World War II.
It is time to admit that Barack Obama and George W. Bush have been fundamentally wrong about these wars. Because of their foolishness, we are less safe today and our allies are less safe today.
Afghanistan is not our friend now. Neither is Iraq. Libya looks like it is going to become an al-Qaeda paradise thanks to us.
There is very little “freedom” in those 3 nations today. Instead, “Islamic law” is being shoved down the throats of the people living in those countries.
So, in the final analysis, what have we really accomplished?
 The entire financial system of the western world is designed to be a debt spiral. The total amount of money and and the total amount of debt are supposed to continually expand. Today, we are in debt up to our eyeballs and it seems like nearly everyone is talking about “deleveraging” and reducing government debt. But in a world where the entire financial system is based on debt, is there any way for massive deleveraging to take place without plunging us all into a horrific worldwide depression? The governments of the western world have had a lot of fun spending money as if there was no tomorrow, but now tomorrow has arrived and all of that debt is rapidly catching up with us. Politicians in Europe and in the United States are running around trying to come up with a “plan”, but there is no “plan” that is going to fix the current debt-based system. Over the next few years we are going to reap what we have sown.
For fiscal year 2011, the U.S. federal government had a budget deficit of nearly 1.3 trillion dollars. That was the third year in a row that our budget deficit has topped a trillion dollars.
Sadly, most Americans simply have no idea how much money a trillion dollars is.
Perhaps an illustration or two would help.
If on the day when Jesus was born you began spending one million dollars every single day, you still would not have spent one trillion dollars by now.
That is how large a trillion dollars is.
If you went out today and started spending one dollar every single second, it would take you over 31,000 years to spend one trillion dollars.
Some people have suggested that we could solve our problems by taxing the rich.
Well, if Bill Gates gave every single penny of his fortune to the U.S. government, it would only cover the U.S. budget deficit for about 15 days.
No, the truth is that what we have is a spending problem.
The U.S. federal government is spending way, way too much money. Total U.S. government debt will soon cross the 15 trillion dollar mark.
Should we do something to celebrate such a monumental national achievement?
It really takes a special effort to borrow 15 trillion dollars.
We have accumulated the largest mountain of debt in the history of the world, and yet our government continues to add to our debt at a blistering pace.
If the federal government began right at this moment to repay the U.S. national debt at a rate of one dollar per second, it would take over 440,000 years to pay off the national debt.
Unfortunately, we are not paying it off right now. Instead, we are adding even more to it.
Back in the early 1980s, Ronald Reagan declared the national debt to be a national crisis.
Well, today our national debt is more than 14 times larger than it was when Reagan took office.
Something has gone horribly, horribly wrong.
Right now, spending by the federal government accounts for about 24 percent of GDP. Back in 2001, it accounted for just 18 percent.
Spending is going in the wrong direction.
And most government spending goes into the pockets of individual Americans.
59 percent of all Americans now receive money from the federal government in one form or another.
We have got tens of millions of Americans that are completely and totally addicted to getting money from the federal government.
But wasn’t the Tea Party supposed to do something about all of this crazy government spending?
Unfortunately, the Tea Party has failed in this area. In the mainstream media there is talk of “austerity” by the federal government, but the truth is that spending by the federal government has increased by about 5 percent so far this year.
We are hurtling toward a “debt wall” and the brakes don’t seem to work.
Europe is in a massive amount of debt trouble as well. In fact, a financial meltdown is probably going to happen in Europe before it happens in the United States.
Greece, Portugal, Ireland and Italy all have debt to GDP ratios that are well above 100%. Spain is in a massive amount of trouble as well.
Right now, Greece, Portugal, Ireland, Italy and Spain owe the rest of the world about 3 trillion euros combined.
Greece is on the verge of a default of one form or another, and Italy and Portugal look like they will not be far behind.
As the financial world braces for a Greek default, the yields on Greek bonds are going absolutely crazy. The yield on 2 year Greek bonds is now over 70 percent. The yield on 1 year Greek bonds is now over 170 percent.
Sadly, it looks like Portuguese bonds are starting to go down the same path. The yield on 2 year Portuguese bonds is now over 17 percent. A year ago the yield on those bonds was about 4 percent.
European banks are also drowning in an ocean of debt.
According to renowned financial journalist Ambrose Evans-Pritchard, banks in Europe need to reduce the amount of lending on their books by about 7 trillion dollars in order to get down to safe levels….
Europe’s banks face a $7 trillion lending contraction to bring their balance sheets in line with the US and Japan, threatening to trap the region in a credit crunch and chronic depression for a decade.
But can that be done safely?
Can that be done without plunging Europe into a financial nightmare?
Ambrose Evans-Pritchard is skeptical….
The risk is “Japanisation” without the benefits of Japan: without a single government, or a trade super-surplus, or 1pc debt costs, or unique social cohesion.
Already the financial crisis in Europe has pushed unemployment to frightening levels. So what will happen if you add massive deleveraging to the equation? Ambrose Evans-Pritchard is very concerned about what might happen in some of the most troubled nations….
Even today, the jobless rate for youth is near 10pc in Japan. It is already 46pc in Spain, 43pc in Greece, 32pc in Ireland, and 27pc in Italy. We will discover over time what yet more debt deleveraging will do to these societies.
Major European banks not only have too many loans on their books – they have also borrowed way, way too much money themselves.
The truth is that most major European banks are leveraged to the hilt and are massively exposed to sovereign debt. Before it fell in 2008, Lehman Brothers was leveraged 31 to 1. Today, major German banks are leveraged 32 to 1, and those banks are currently holding a massive amount of European sovereign debt.
What all of this means is that we are on the verge of some really bad stuff.
The governments of the world are up to their eyeballs in debt. According to the Economist, the governments of the world combined are more than 40 trillion dollars in debt. But that total only counts government debt held by the public and it does not include any future obligations (such as Social Security, etc.) owed by national governments.
It would be hard to overstate how much of a crisis this is.
But just like with the subprime mortgage meltdown of a few years ago, a number of very savvy investors and economists can see what is coming.
For example, Texas investor Kyle Bass made millions and millions of dollars betting against subprime mortgages, and now he is warning that we are facing a crisis much greater than that.
Bass believes that the European debt crisis is soon going to explode. In particular, he has been putting his money into investments that will pay off big if Greek debt collapses.
But that is not all Bass has been up to. He has been stockpiling gold, guns and nickels (20 million nickels to be exact).
Bass appears to be well prepared for the coming economic collapse. The following is how one writer described his visit to the 40,000 square foot “fort” owned by Bass….
“We hopped into his Hummer, decorated with bumper stickers (God Bless Our Troops, Especially Our Snipers) and customized to maximize the amount of fun its owner could have in it: for instance, he could press a button and, James Bond–like, coat the road behind him in giant tacks. We roared out into the Texas hill country, where, with the fortune he’d made off the subprime crisis, Kyle Bass had purchased what amounted to a fort: a forty-thousand-square-foot ranch house on thousands of acres in the middle of nowhere, with its own water supply, and an arsenal of automatic weapons and sniper rifles and small explosives to equip a battalion.”
If only the rest of us were so well prepared, eh?
So if this is the kind of thing that the “financial experts” are doing, then what is the message for us?
A great storm is coming, and most Americans are going to be totally unprepared for it.
Not that things are not really, really bad already.
According to Shadow Government Statistics, the “real” rate of unemployment in the United States is creeping up toward 25 percent.
So what is going to happen if a worldwide depression hits?
Things could get very, very interesting over the next few years.
A significant percentage of Americans have already lost faith in the system. According to a new Gallup poll, 44 percent of all Americans say that our economic system is “unfair” to them on a personal level.
But sadly, most Americans don’t really understand the mechanics of our financial system.
They don’t understand what actually makes it unfair.
That is why we need to work so hard to educate the American people about the Federal Reserve. The Federal Reserve system is at the very heart of our financial system, and it was designed to get the U.S. government perpetually enslaved to debt.
At this point, the U.S. national debt is 4700 times larger than it was when the Federal Reserve was created back in 1913.
It looks like the creators of the Federal Reserve achieved their goal.
Posted below is a cartoon that was published one year before the creation of the Federal Reserve. The intent of this cartoon was to criticize the “Aldrich plan” which was a precursor to the plan to create the Federal Reserve.
As you can see below, the creator of this cartoon had a good idea of what would happen if the plan put forward by Rhode Island Senator Nelson Aldrich was adopted.
Today, the Federal Reserve totally dominates our financial system just like this cartoon once warned would happen if we allowed a central bank to control our money….
 We are steamrolling toward a massive global debt meltdown, and at this point world leaders seem to be all out of solutions. Over the last 30 years or so, the greatest debt bubble in the history of the planet has produced unprecedented prosperity in the western world. But now that debt bubble is starting to burst and the bills are coming due. Many believe that “ground zero” for the coming global debt meltdown will be in Europe. Unlike the U.S. and Japan, the nations of the EU can’t just print more money to cover their debts. Nations such as Greece, Portugal and Italy must repay their debts in euros, and those nations are rapidly getting to the point where their debts are going to overwhelm them. Unfortunately, major banks all over Europe are very highly leveraged and are also very heavily invested in the sovereign debt of nations such as Greece, Portugal and Italy. If even one EU nation defaults it will start tipping over financial dominoes. If more than one EU nation defaults it could cause a cataclysmic wave of bank failures all over Europe.
But Germany and the other more financially stable countries of the EU cannot bail out nations like Greece, Portugal and Italy indefinitely. Pouring money into Greece is like pouring money into a black hole. When you take money from financially stable countries and pour it into hopeless messes, you may stabilize things for a little while, but you also cause the financial condition of the financially stable nations to start deteriorating.
Right now, the yield on 2 year Greek bonds is up to 44%. Basically, the market is screaming that these are horrible investments and that they will almost certainly default.
Greece cannot fire up the printing presses and print more money, so they are now totally dependent on others to bail them out.
Just how desperate have things become in Greece? Just consider the following excerpt from a recent article by Puru Saxena….
In Greece, government debt now represents almost 160% of GDP and the average yield on Greek debt is around 15%. Thus, if Greece’s debt is rolled over without restructuring, its interest costs alone will amount to approximately 24% of GDP. In other words, if debt pardoning does not occur, nearly a quarter of Greece’s economic output will be gobbled up by interest repayments!
Can you imagine?
No nation on earth can afford to pay out nearly a quarter of GDP just on interest on government debt.
So just how did Greece get into this position? Well, it turns out that big U.S. banks such as Goldman Sachs and JPMorgan Chase played a big role. The following is an excerpt from a recent article by Andrew Gavin Marshall….
In the same way that homeowners take out a second mortgage to pay off their credit card debt, Goldman Sachs and JP Morgan Chase and other U.S. banks helped push government debt far into the future through the derivatives market. This was done in Greece, Italy, and likely several other euro-zone countries as well. In several dozen deals in Europe, “banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books.” Because the deals are not listed as loans, they are not listed as debt (liabilities), and so the true debt of Greece and other euro-zone countries was and likely to a large degree remains hidden. Greece effectively mortgaged its airports and highways to the major banks in order to get cash up-front and keep the loans off the books, classifying them as transactions.
All over the world, politicians love to “kick the can down the road”, and big Wall Street banks love to find creative ways to help them do that.
But now Greece is about to collapse, and the people that helped them get into this mess will probably never be held accountable.
If Greece does default, it is going to have dramatic consequences all over Europe. For a chilling look at what could potentially happen when Greece defaults, just check out this article by John Mauldin.
Sadly, Greece is far from the only problem in Europe. Portugal, Ireland and Italy also have debt to GDP ratios that are above 100%.
The biggest potential problem, at least in the near-term, is Italy.
Italy is the fourth largest economy in the EU, and lately the financial problems of the Italian government and Italian banks have been making headlines all over the globe.
Italy is a far, far larger potential problem than Greece is.
The EU can handle bailing out Greece, at least for now.
If Italy gets to the point where it needs large bailouts, that is going to bring down the whole system. The EU simply does not have enough money to perform an extensive financial rescue of Italy.
As you can see from this chart, the exposure that European banks have to Italian debt is absolutely massive. If Italian debt goes bad, it is going to take down a whole bunch of banks.
Not only that, but many believe that the European Central Bank itself is now in some very dangerous territory.
It is estimated that the European Central Bank is now holding somewhere in the neighborhood of 444 billion euros worth of debt from the governments of Greece, Italy, Portugal, Ireland and Spain.
The financial consequences of a default by one or more of those nations could potentially be catastrophic.
According to London-based think tank Open Europe, the European Central Bank is massively overleveraged….
“Should the ECB see its assets fall by just 4.23pc in value . . . its entire capital base would be wiped out.”
That doesn’t sound good.
Surely the European Central Bank would be recapitalized somehow, but this is just another example that shows just how dangerous huge amounts of leverage can be.
As I wrote about in a recent article about the sovereign debt crisis, if the dominoes begin to tumble in Europe it is going to take everybody down.
The big banks in Europe are leveraged to the hilt, and they are massively exposed to government debt.
If you don’t think that this is a problem, just remember what happened back in 2008.
Back then, Lehman Brothers was leveraged 31 to 1. When things turned bad, Lehman was wiped out very rapidly.
Today, major German banks are leveraged 32 to 1, and those banks are currently holding a massive amount of European sovereign debt.
Yes, things could become really nightmarish if the dominoes start to fall.
Already we are seeing huge signs of trouble at major banks all over Europe.
Major European banks UBS, Barclays, Credit Suisse, RBS, and HSBC have all announced layoffs recently. In fact, when you add them all up, the total number of layoffs announced by these banks just this month is over 40,000. Overall, the grand total of layoffs by European banks so far this year is now up to 67,000.
The mood in the financial sector over in Europe is very dark right now. Just consider the following excerpt from a recent Bloomberg article….
“It’s a bloodbath, and I expect things to get worse before they get better,” said Jonathan Evans, chairman of executive- search firm Sammons Associates in London. “I cannot see a lot of those who have lost their jobs getting re-employed. Regardless of how good someone is, no one wants to talk about hiring. Life will be very difficult for two or three years.”
Just like back in 2008 with U.S. banks, we are seeing European banks getting absolutely pummeled right now. A recent article in The Sydney Morning Herald documented some of the carnage….
The 46-member Bloomberg Europe Banks and Financial Services Index has fallen 31 per cent this year. RBS tumbled 49 per cent, Barclays 44 per cent and France’s Societe Generale 48 per cent.
Credit Suisse and UBS both reported a 71 per cent drop in investment-banking earnings in the second quarter. Revenue at Edinburgh-based RBS’s securities unit dropped 35 per cent in the period, while London-based Barclays Capital posted a 27 per cent decline in pretax profit.
Things in Europe continue to get worse and worse and worse.
Do not take your eyes off of Europe. This crisis is just getting started.
Not that there aren’t huge debt problems around the rest of the globe as well.
Japan has a national debt that is now over 200 percent of GDP, and they are really struggling to recover from the recent disasters that devastated that nation.
Moody’s has just downgraded Japanese government debt one notch to Aa3, and more downgrades could be coming. For now Japan is still able to borrow huge piles of money very, very cheaply but if that changes Japan could be wiped out very quickly.
Of course the nation with the biggest debt of all is the United States.
At the moment, the U.S. national debt is sitting at a grand total of $14,649,289,670,347.85.
Fortunately, the U.S. is also able to borrow massive amounts of money very, very cheaply right now. But when that changes it is going to be absolutely cataclysmic for our economy.
Sadly, our politicians continue to act as if this debt binge can go on forever.
According to the Congressional Budget Office, the budget deficit for the federal government will be about 1.28 trillion dollars this year. This will be the third year in a row that we have had a budget deficit of over a trillion dollars.
To put that in perspective, from George Washington to Ronald Reagan the U.S. government racked up a grand total of about one trillion dollars of debt. But this year alone we will go 1.28 trillion dollars more into debt.
At the moment, the U.S. national debt is expanding by about 2 and a half million dollars every single minute. It is hard to put into words how absolutely foolish that is.
As I wrote about yesterday, someone needs to wake up America. Our debt is exploding and our economy is dying.
We haven’t even solved the problems caused by the last financial crisis. The real estate market is still a gigantic mess. Purchases of both new and previously existing homes in the United States continue to fall.
But there will never be a housing recovery until there is a jobs recovery, and our politicians continue to stand by and watch as millions of our jobs are shipped overseas.
Unemployment is rampant, and even many of those that do have jobs are barely able to survive.
Back in 1980, less than 30% of all jobs in the United States were low income jobs. Today, more than 40% of all jobs in the United States are low income jobs.
That is not a good trend.
Sadly, it looks like things are not going to get much better any time soon.
Right now, the Congressional Budget Office is projecting that unemployment in the U.S. will remain above 8% until 2014.
That should really scare you, because government numbers are almost always way too optimistic. The folks in the federal government hardly ever project that unemployment will actually go up.
So if they are saying that unemployment will remain above 8 percent until 2014, the truth is that things will probably be worse than that.
We have entered very frightening times. We are on the verge of a massive global debt meltdown, and nobody is sure what is going to happen next.
Let us hope for the best, but let us also prepare for the worst.
 Are you ready for part two of the global financial collapse? Many now fear that we may be on the verge of a repeat of 2008 after the events of the last several days. On Friday, Standard & Poor’s stripped the U.S. government of its AAA credit rating for the first time in history. World financial markets had been anticipating a potential downgrade, but that still didn’t stop panic from ensuing as this week began. On Monday, the Dow Jones Industrial Average dropped 634.76 points, which represented a 5.5 percent plunge. It was the largest one day point decline and the largest one day percentage decline since December 1, 2008. Overall, stocks have fallen by about 15 percent over the past two weeks. When Standard & Poor’s downgraded long-term U.S. government debt from AAA to AA+, it was just one more indication that faith in the U.S. financial system is faltering. Previously, U.S. government debt had a AAA rating from S&P continuously since 1941, but now that streak is over. Nobody is quite sure what comes next. We truly are in unprecedented territory. But one thing is for sure – there is a lot of fear in the air right now.
So exactly what caused S&P to downgrade U.S. government debt?
Well, it was the debt ceiling deal that broke the camel’s back.
According to S&P, the debt ceiling deal “falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”
As I have written about previously, the debt ceiling deal was a complete and total joke, and S&P realized this.
Forget all of the huge figures that the mainstream media has been throwing at you concerning this debt ceiling deal. The only numbers that matter are for what happens before the next election.
The only way that the current debt ceiling deal will last beyond the 2012 election is if Obama is still president, the Democrats still control the Senate and the Republicans still control the House. If any of those things change, this deal ceiling deal is dead as soon as the election is over.
Even if all of those things remain the same, there is still a very good chance that we would see dramatic changes to the deal after the next election.
So in evaluating this “deal”, the important thing is to look at what is going to happen prior to the 2012 election.
When we examine this “deal” that way, what does it look like?
Well, Barack Obama and the Democrats get the debt ceiling raised by over 2 trillion dollars and will not have to worry about it again until after the 2012 election.
The Republicans get 25 billion dollars in “savings” from spending increases that will be cancelled.
The “Super Congress” that is supposed to be coming up with the second phase of the plan may propose some additional “spending cuts” that would go into effect before the 2012 election, but that seems unlikely.
So in the final analysis, the Democrats won the debt ceiling battle by a landslide.
25 billion dollars is not even 1 percent of the federal budget. The U.S. national debt continues to spiral wildly out of control, and our politicians could not even cut the budget by one percent.
Somehow our politicians believed that the rest of the world would be convinced that they were serious about cutting the budget, but it turns out that global financial markets are tired of getting fooled.
It has gotten to the point where now even the big credit rating agencies are being forced to do something. Not that they really have much credibility left. Everyone still remembers all of those AAA-rated mortgage-backed securities that imploded during the last financial crisis. The reality is that the big credit rating agencies are a bad joke at this point.
Several smaller credit rating agencies have already significantly slashed the credit rating of the U.S. government. But a lot of pressure had been put on the “big three” to keep them in line.
But now things have gotten so ridiculous that S&P felt forced to make a move.
Sadly, our politicians are still trying to maintain the charade that everything is okay. Barack Obama says that financial markets “still believe our credit is AAA and the world’s investors agree”.
Once again, Barack Obama is dead wrong.
The truth is that the credit rating for the U.S. government should have been slashed significantly a long time ago. This move by S&P was way, way overdue.
Moody’s might be the next one to issue a downgrade. At the moment, Moody’s says that it will not be downgrading U.S. debt for now, but Moody’s also says that it has serious doubts about the enforceability of the “budget cuts” in the debt ceiling deal.
This crisis is just beginning. It is going to play out over time, and it is going to be very messy.
The following are 8 more reasons why you should be deeply concerned that the U.S. government has lost its AAA credit rating….
#1 The U.S. dollar and U.S. government debt are at the very heart of the global financial system. This credit rating downgrade just doesn’t affect the United States – it literally shakes the financial foundations of the entire world.
#2 As the stock market crashes, investors are flocking to U.S. Treasuries right now. However, once the current panic is over the U.S. could be faced with increased borrowing costs. The credit rating downgrade is a signal to investors that they should be receiving a higher rate of return for investing in U.S. government debt. If interest rates on U.S. government debt do end up going up, that is going to make it more expensive for the U.S. government to borrow money. The higher interest on the national debt goes, the more difficult it is going to become to balance the budget.
#3 We could literally see hundreds of other credit rating downgrades now that long-term U.S. government debt has been downgraded. For example, S&P has already slashed the credit ratings of Fannie Mae and Freddie Mac from AAA to AA+. S&P has also already begun to downgrade the credit ratings of states and municipalities. Nobody is quite sure when we are going to see the dominoes stop falling, and this is not going to be a good thing for the U.S. economy.
#4 10-year U.S. Treasuries are the basis for a whole lot of other interest rates throughout our economy. If we see the rate for 10-year U.S. Treasuries go up significantly, it will suddenly become a lot more expensive to get a car loan or a home loan.
#5 The current financial panic caused by this downgrade is hitting financial stocks really hard. The big banks led the decline back in 2008, and it looks like it might be happening again. Just check out what CNN says happened to financial stocks on Monday….
Financial stocks were among the hardest hit, with Bank of America (BAC, Fortune 500) plunging 20%, and Citigroup (C, Fortune 500) and Morgan Stanley (MS, Fortune 500) dropped roughly 15%.
#6 China is freaking out. China’s official news agency says that China “has every right now to demand the United States to address its structural debt problems and ensure the safety of China’s dollar assets”. If China starts dumping U.S. government debt that would make things a lot worse.
#7 There are already calls for the Federal Reserve to step in and do something. If the U.S. economy drops into another recession, will we see more quantitative easing? It seems like we have reached a point where the Fed is constantly in “emergency mode”.
#8 The U.S. national debt continues to get worse by the day. Just check out what economics professor Laurence J. Kotlikoff recently told NPR….
“If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That’s the fiscal gap”
Dick Cheney once said that “deficits don’t matter”, but the truth is that all of the debt we have been piling up for decades is now catching up with us.
The United States is in such a huge amount of financial trouble that it is hard to put into words. The days of easy borrowing for the U.S government are starting to come to an end. We have been living in the greatest debt bubble in the history of the world, and it has fueled a tremendous amount of “prosperity”, but now the party is ending.
A whole lot of financial pain is on the horizon. Please prepare for the hard times that are coming.
 Is the debt ceiling deal supposed to be some sort of a cruel joke? Is this what the American people have been waiting months and months for? The “debt ceiling deal from hell” is a complete and total fraud. Barack Obama will not need to worry about the debt ceiling again until after the 2012 election, and no “real” spending cuts will happen until after the 2012 election. The way the political game in Washington D.C. is played today, if you don’t get something right now, you probably will never end up getting it. The Republicans have traded a massive debt ceiling increase right now for the possibility of very skimpy budget cuts in the future. Meanwhile, this deal establishes a new “Super Congress” that threatens to fundamentally alter our political system (and not in a good way). The funny thing is that everyone is running around proclaiming that the Tea Party won this battle. That is a complete and total lie.
So what about the $917 billion in “immediate” spending cuts that the Republicans are getting as part of this deal?
Well, they aren’t really spending cuts at all. Rather, they are spending caps. Basically what is happening is that future spending increases are being cancelled and our politicians are selling that to us as “spending cuts”.
What is even sadder is that the $917 billion is spread over ten years and the vast majority of the “cuts” are in the latter years.
For example, even if you consider these to be “spending cuts” (which they are not), the deal calls for only about $25 billion in “cuts” in 2012 and only about $47 billion in “cuts” in 2013.
25 billion dollars is far less than one percent of the federal budget, so needless to say these “cuts” are not very impressive at all.
Okay, so how about the second stage of the deal which will produce “spending cuts” of between 1.2 and 1.5 trillion dollars?
Well, yes, these would actually be spending cuts and they would be spread over 10 years.
Near the end of the year, the new “Super Congress” (more on that in a minute) will submit a proposal to Congress which could cut spending over the next 10 years by a total of up to 1.5 trillion dollars.
If the recommendations of the “Super Congress” are not implemented, then “automatic” spending cuts of $1.2 trillion will go into effect over the next 10 years.
However, there are some very important things to remember about these “spending cuts”.
First of all, none of these “automatic” spending cuts would even go into effect until 2013. The face of American politics will be dramatically different by then, and there is absolutely nothing that makes these cuts binding on Congress.
As Gregg Easterbrook recently noted, Congress can cancel spending cuts at any time and for any reason….
By projecting the only tangible savings — which aren’t even specified, but are merely caps — into the future, the plan allows Congress to cancel them. In 2012 or any future year, Congress will say, “We can’t have caps this year because of the [INSERT ANY WORD CHOSEN AT RANDOM] crisis. We are postponing action till next year.” Rinse and repeat.
As I have written about so many times before, the U.S. national debt is completely and totally out of control. This was supposed to be the moment when at least some members of Congress were finally going to get serious about our exploding debt. Unfortunately, our politicians have sold us down the river once again.
Even if the best case scenario happens (which it never does) and Congress sticks to this deal for the full ten years (which is about as likely as hell freezing over), the “savings” that this deal would produce are quite pathetic as Peter Schiff recently explained….
The Congressional Budget Office currently projects that $9.5 trillion in new debt will have to be issued over the next 10 years. Even if all of the reductions proposed in the deal were to come to pass, which is highly unlikely, that would still leave $7.1 trillion in new debt accumulation by 2021. Our problems have not been solved by a long shot.
Keep in mind that Congress can change this deal whenever it wants.
So nobody should get excited about these “spending cuts”. After all, when was the last time that “future spending cuts” actually materialized in Washington?
The reality is that neither political party seems to want to do much to cut government spending.
So the band will play on and the can will get kicked even farther down the road.
When Obama was inaugurated, the U.S. national debt was $10,626,877,048,913.08.
Today, it is $14,342,358,440,969.10.
But what this “debt ceiling deal” will do is it will give the congressional leadership of both parties much more power.
The new “Super Congress” that this deal establishes will be granted “extraordinary new powers” that regular members of Congress do not possess.
For example, The Huffington Post says that any new legislation produced by the “Super Congress” will not be able to be filibustered or amended….
Under the reported framework, legislation the new congressional committee writes would be fast-tracked through Congress and could not be filibustered or amended.
So who will be a part of the “Super Congress”?
The members will be chosen by the leadership of both parties.
So anyone that is not part of the “establishment” is not likely to be included.
The following is what U.S. Representative Ron Paul had to say about this new “Super Congress”….
“Nothing more than a way to disenfranchise the majority of Congress by denying them the chance for meaningful participation in the crucial areas of entitlement and tax reform. It cedes power to draft legislation to a special commission, hand-picked by the House and Senate leadership.”
It is this new “Super Congress” that will decide what will be in the package of “spending cuts” that will be voted on by the end of the year.
Regular members of Congress will be frozen out of the process.
On December 23rd, Congress will be required to vote up or down on the spending cuts proposed by the “Super Congress”. Regular members of Congress will not be allowed to amend the legislation in any way, and no filibusters will be permitted.
Does that sound very “American” to you?
The more that one examines this “debt ceiling deal”, the worse it looks.
Meanwhile, many Democrats are running around and acting as if their lunch money was just stolen.
For example, the following is what Politico is reporting that U.S. Representative Mike Doyle said about this deal….
“We have negotiated with terrorists,” an angry Doyle said, according to sources in the room. “This small group of terrorists have made it impossible to spend any money.”
Democratic congressman Emanuel Cleaver was even more dramatic when he proclaimed that this deal “looks like a Satan sandwich“.
Well, this deal is a total nightmare, but not for the reasons that Cleaver is suggesting.
This deal opens the door for more rampant deficit spending, and nearly all of the “spending cuts” are put off until after the 2012 election.
Basically, the Republicans got taken out behind the woodshed and beaten to a pulp on this one. Any Republican that is trying to proclaim that the debt ceiling deal is a “great victory” is a complete moron.
But in the end, it really does not matter which political party gets a “victory” out of all this. What matters is that our federal government is still steamrolling toward a date with financial oblivion.
If this is the best that our politicians can come up with, we are absolutely doomed.
 For decades, the U.S. government has had a AAA rating. On the scales used by the big three credit rating agencies, that is the highest credit rating that a government can get. Moody’s scale actually uses lettering that is a little different from the other two big agencies (“Aaa” instead of “AAA”), but you get the point. Right now, the U.S. government is closer than ever to losing its AAA rating. The threat of a rating downgrade is going to continue to grow regardless of how the political theater that we are watching unfold in Washington D.C. plays out. The truth is that the federal government has accumulated a debt that is so vast that it will never be paid back. In fact, we are rapidly approaching the point when this debt will no longer be serviceable. If the credit rating of the U.S. government is not slashed right now, it will be soon enough. In fact, the truth is that the U.S. government is such a financial mess that it should have been done long ago. But whenever the United States does lose its AAA rating, we could potentially see financial hell unleashed because it will also mean that there will almost certainly be a wave of credit rating downgrades from coast to coast.
As I have written about previously, government debt becomes more painful the higher that interest rates go. When the big credit agencies downgrade the credit rating of a government, that is a signal to investors that they should ask for higher interest rates on debt issued by that government.
This does not always play out in practice (just look at Japan), but nations such as Greece, Portugal and Ireland sure are going through financial hell right now as they deal with reduced credit ratings and soaring interest rates.
Right now, the U.S. government is able to borrow gigantic quantities of money at ridiculously low interest rates. This is the primary reason why the debt disaster predicted by so many in the past has not arrived yet.
If the credit rating of the U.S. government is downgraded, it could finally get investors all over the world to realize that the game is over and that they should be demanding much higher returns on debt issued by the U.S. government. The truth, as U.S. Representative Ron Paul put it recently, is that the U.S. government is already “insolvent” and at some point we are all going to have to face reality….
“Ultimately, the fundamentals show this country is bankrupt.”
So whether or not it happens right now, the truth is that at some point the credit rating of the U.S. government is going to go down and interest rates are going to go up.
Unfortunately, it appears that this might happen sooner rather than later.
Earlier this week, Moody’s Investors Service publicly announced that it would be reviewing our Aaa bond rating for a possible downgrade.
On Thursday, S&P actually went so far as to announce that there is a “50 percent chance” that it will downgrade the credit rating of the U.S. government within the next three months.
S&P has been warning of trouble for some time now. Back on April 18th, Standard & Poor’s altered its outlook on U.S. government debt from “stable” to “negative” and warned that a downgrade was likely at some point soon if nothing changed.
If the credit rating of the U.S. government gets slashed and if that results in higher interest costs on the national debt, that is going to make it much harder to balance the budget.
The U.S. government will take in somewhere around 2.2 or 2.3 trillion dollars this year. It will spend somewhere in the neighborhood of 3.5 or 3.6 trillion dollars this year.
Included in that spending is about 400 billion dollars that goes for interest on the national debt.
As I explained in a previous article, if our interest costs double or triple it is going to make it basically impossible to balance the budget under our current system.
If interest rates on U.S. government debt were to rise to moderate levels, we could soon be easily paying a trillion dollars a year just in interest on the national debt.
If interest rates on U.S. government debt were to rise to the levels that Greece, Portugal and Ireland are now facing, it would be beyond catastrophic.
But a reduced credit rating and higher interest rates would not just hurt the finances of the U.S. government.
Any financial institution that is linked to the U.S. government in any way would also probably be downgraded.
This fact was noted in the announcement put out by Moody’s this week….
In conjunction with this action, Moody’s has placed on review for possible downgrade the Aaa ratings of financial institutions directly linked to the government: Fannie Mae, Freddie Mac, the Federal Home Loan Banks, and the Federal Farm Credit Banks.
We have also placed on review for possible downgrade securities either guaranteed by, backed by collateral securities issued by, or otherwise directly linked to the government or the affected financial institutions.
Just think of the financial carnage that would cause.
Also, check out what one Bloomberg article had to say about the potential cascading effects of a credit rating downgrade for the U.S. government….
At least 7,000 top-rated municipal credits would have their ratings cut if the U.S. government loses its Aaa grade, Moody’s Investors Service said.
An “automatic” downgrade affecting $130 billion in municipal debt directly linked to the U.S. would occur if the federal level is reduced, Moody’s said yesterday in a report. Additionally, top-rated securities with no direct links to the national government will be reviewed for similar action.
But the nightmare would not end there. The truth is that the credit ratings of large numbers of state and local governments from coast to coast would likely be reviewed and downgraded as well. Right now, many state and local governments are scratching and clawing in a desperate attempt to survive financially, and a significant rise in interest costs would be enough to wipe many of them out.
The ripple effects of a U.S. government credit downgrade would be endless.
A lot of people argue that if the federal government ran a balanced budget from now on none of this would matter.
Unfortunately, that is not true.
At this point, a very high percentage of U.S. government debt is short-term debt. That means that gigantic amounts of debt must be “rolled over” each year in addition to any new debt that we take on. So even if interest rates rise significantly on just the existing debt that we have it is going to be a total nightmare.
And make no mistake, whether it happens now or later a collapse of U.S. government finances is coming.
David Murrin, the chief investment officer at Emergent Asset Management, recently told CNBC the following….
“It’s inevitable that the U.S. will default—it’s essentially an empire which is overextended and in decline—and that its financial system will go with it”
Right now it is being projected that the U.S. national debt will hit 344% of GDP by the year 2050 if we continue on our current course. We are on a runaway train that is heading straight for a brick wall.
Europe is also a complete financial wreck. The sovereign debt crisis over in the EU continues to grow worse by the day and there is no end in sight.
If the U.S. collapses, Europe is not strong enough to save it. If Europe collapses, the U.S. is not strong enough to save it.
We really are entering an unprecedented time in world history. We are on the verge of the first truly global financial disaster.
It is going to be interesting to see which major currency crashes and burns first. Some think that it will be the euro. Others think that it will be the dollar.
In any event, the reality is that the current global financial system is not sustainable. The folks that are in charge can try to keep things together for as long as possible, but at some point the dominoes are going to start to fall and the house of cards is going to crash.
We have entered a time when there is going to be financial crisis after financial crisis. Even if the EU and the U.S. government can somehow fix things for the moment, more problems are going to be just around the corner.
The world has become incredibly unstable and the entire globe is going to be shaken. Most people cannot even conceive of the kind of financial hell that is coming our way as a nation.
Yes, it can be a bit sad to think about what is happening, but it is much better to be armed with the truth than to be totally clueless and totally unprepared.
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